METHVEN LIMITED - 2017 ANNUAL SHAREHOLDERS MEETING

Wednesday 1 November 2017

Opening Speech – David Banfield

SLIDE 14 - Introduction

Good afternoon ladies and gentlemen, fellow shareholders and members of the

Methven team.

I am delighted to be here with you again this year and in particular, here at ‘The

Source’ in our Methven Experience Centre.

After the presentations and formalities today, you will be able to take a tour of

our home here in Avondale and be able to see first-hand some of the state-of-

the-art manufacturing equipment on site, including our investment in new digital

machining equipment (CNC). This is designed to enhance our long-term

competitiveness and manufacturing flexibility.

You will be able to meet some of our Legends of Methven (team members who

have been with us for at least 25 years) and as importantly, our apprentices –

being trained to ensure we have skills in Methven to ensure our long term ability

to manufacture in New Zealand. Finally, I hope that you gain a sense of the

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benefits we get from having everything from ideation to engineering, tool-making

to manufacturing, and assembly to despatch, all under one roof.

SLIDE 15 - FY17 performance

We were hugely disappointed by last year’s results, especially off the back of a

good FY16 performance. Despite there being a number of one-off impacts in

the year, we recognise that tapware performance across Australia and New

Zealand was poor, and that our focus on showering has left room for private

label and smaller brands to win some share from us in the tapware market. We

know that many competitors source standard products from low cost country

suppliers and as such, it highlights that in the absence of exacting market

standards in New Zealand, we have to raise our game further in order to

maintain our market leadership. This market share loss, along with the fact that

we manufacture our own tapware, meant factory margins were further impacted.

Finally, investment in fixed cost in the New Zealand market that was designed

to drive top line revenue failed to deliver the expected growth. Instead, we

experienced a double whammy of lower sales and increased cost. These

investments have already been unwound in FY17 as part of our simplification.

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Ultimately, we failed to deliver the results we expected, and are very clear on

actions that will deliver a sustainable platform for long term profitable growth.

I now move on to the results

Today, for the purpose of comparability, I will mainly focus on the constant

currency results that take local results and translate them at a consistent rate

across both years. This removes distortions caused, for example, by the

weakening of GBP post Brexit.

Sales for the year ending 30 June 2017 finished at $100 million dollars - flat on

the previous year, while EBIT (Earnings before Interest and tax) finished down by

7.8% in constant currency, and NPAT (Net profit after tax) down 15.1% or $1

million dollars in constant currency. Net Debt increased by $5 million dollars,

primarily as a result of increased inventory for sales that did not materialise in

the period. Capital expenditure was $2.627 million dollars, down 50% on the

previous year.

Our final dividend was 3 cents per share, bringing the total to 7 cents for the

whole year. The dividend was partially imputed as a result of lower tax being

paid in New Zealand.

SLIDE 16 - Business Review

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We endeavour to give you transparency about our goals and also performance

against those goals using a simple slider mechanism colour coded green, amber,

red. As you can see from the chart on the screen, we achieved three of our goals,

partially achieved one, and failed to achieve three - which is not good enough,

and not in line with our capability or expectation.

We targeted sales growth in New Zealand, but ultimately saw our revenue

decline by 2.5% year-on-year. The decline was all due to our second half

performance, with South Island demand returning to pre-quake levels and

general tapware sales the other cause of the decline. Better second half gross

margins offset increases in fixed costs that were put in place (but ultimately

failed) to deliver growth.

In Australia, we targeted both sales and profit growth. Despite margins being up

by 25% in the second half, we were unable to recover the impact of the first

quarter one-offs, where the closure of Masters affected rest of market demand

and AU/US$ depreciation caused margin weakness. On a product basis, our

underperformance was again due to tapware - this will be addressed in 2018.

The UK was our major success for FY17, with sales growth of 8.8% achieved over

the year and profit growth of 32%. New distribution started with Bunnings, giving

us a national distribution footprint, and we also agreed a second new national

distribution contract that will commence in February 2018. The primary driver

of the growth was our shower technology.

Our Satinjet and Aurajet technology remains a significant differentiator to our

global competitors, and helped us to be recognised as UK Best Shower Brand of

the Year, with UK Aurajet sales up by 123%.

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The decline in tapware sales in Australia and New Zealand also affected factory

performance and along with the supply chain disruption in Q1, ultimately meant

that we were unable to improve our profit.

SLIDE 17 - Impacts in FY17

As previously highlighted, a number of one-off impacts in FY17 ultimately meant

that we did not achieve our goals for the year. The slide shows that all of these

have now been fixed or will have no further impact, except the

underperformance of tapware in Australia and New Zealand which I will now

focus on.

Over the last three years, considerable effort has been placed on innovation in

showering, including the Aio hand shower, the Aio shower system, the Rua hand

shower that is about to launch in all markets, and a new shower technology that

we intend to launch in the second half of FY18. We strategically focused on

showerware, as we felt (and still feel) that this truly differentiates us verses our

global competition. However in order to maintain our market leadership in the

NZ market and also grow market share in Australia, it is vitally important that we

expand our tapware offering, bring new business models, adding technology that

improves performance, and ultimately gives our key customers (plumbers and

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consumers) more reasons to buy Methven. With the absence of tough market

regulatory standards in New Zealand, competitors or traders can source lower

quality products that on the surface look the same, but in reality, are very

different. As market leader, it’s incumbent on us that we set new standards in

terms of product design, business model and total long term peace of mind for

end users – something we believe people only get from Methven. We have been

testing activity in the first months of the new financial year, with some

encouraging results so far and will roll this out in the second half. In addition,

we will be launching a matching tapware range with our new shower technology

in Q4 FY18, and also be preparing for a significant relaunch of our trade tapware

range through Q4 FY18 and Q1 FY19.

SLIDE 18 – 2017 Successes

During 2017, we had a number of successes, some of which I would like to share

with you now.

In Product and Technology innovation, we launched our Safeflow shower

technology, a single lever thermostatic shower mixer designed to ensure a

perfect temperature and therefore perfect experience with every shower, even

when there is a change in water pressure, for instance when someone flushes

the toilet.

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We also launched Black Aio and Waipori shower collections, which you can see

in our Experience Rooms here at The Source, with very positive consumer

feedback. Please have a look while you’re here – we’d love to know what you

think.

In Digital innovation, we launched our Plumber App, our online $1 handset trial,

and developed our Specification Portal, all designed to make it easier and more

convenient for our customers to experience Methven.

SLIDE 19 – 2017 Successes

We added New distribution in the UK, with both Bunnings and City Plumbing

Supplies, which will increase our national distribution by over 600 distribution

points. We have also announced new international distribution that I will come

back to later on.

In the UK, we were recognised as a Cool Brand and also Best Shower Brand,

beating many of our major international competitors. And finally, we were

awarded Best of the Best at the world-famous Red Dot Awards in Germany, one

of the most prestigious global awards in our category.

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SLIDE 20 - Long term stable but positive trend in sales and earnings

While FY17 was hugely disappointing, it is important to keep the performance in

context over a longer period.

The chart shows sales and earnings from FY13 to FY17 in constant currency and

as can be seen, the long term trend is stable. We have achieved a compound

annual Revenue growth rate of 2.8% and a Compound Annual earnings Growth

Rate (CAGR) growth of 5.9%. We know we can, and should be, achieving better

than this, but felt it important to put our disappointing year in context.

SLIDE 21 – FY17 impacts highlighted need for increased agility

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The unforeseen events of FY17 highlighted the lack of flexibility in our existing

business model. We have therefore launched our business transformation plan

Fit 4 the Future, to transform our business and put us in a position to weather

unexpected events. This plan is designed to simplify, better integrate teams,

automate key processes around the business, and create a strong core platform

for future growth.

SLIDE 22 - Fit 4 The Future

The goals of the Fit 4 the Future transformation plan are to achieve a 300 basis

point (3% percentage points) improvement in gross margin, a 10% reduction in

fixed cost for reinvestment in our brand, and decrease the sales required to

break-even each month by $1 million dollars.

A major programme of work has been identified, ranked, and validated, and is

currently underway.

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SLIDE 23 and 24 - Fit for the future program progress

The Fit 4 the Future plan is due to last for a period of two years. At the end of

the first quarter of Year 1, with 13% time gone, 33% of efficiency projects and

46% of our profitability projects are in execution stage, and as you can see

from the slider at the bottom of the page, we are confident that we can achieve

the stated goals.

One example of simplification that is underway is our SKU reduction

programme. A SKU is a stock unit. We have a goal to reduce the total product

count by 33-50% in this financial year without impacting long term sales, profit

or customer satisfaction. I am delighted to tell you that at the end of Q1, we

have achieved 31% of our full year target. This means less products to hold in

stock, less working capital, less data to maintain, and a simpler proposition for

our customers.

SLIDE 25 - Strategy on a page

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The Fit 4 the Future programme (FFF) has now been added to our M130

strategy, and therefore extended our strategic plan to June 2020, with the

strategic focus remaining on strengthening core markets, delivering

international growth with our proprietary technology, and having a future-proof

and ethical business model.

I now take each of these in turn.

SLIDE 26 - Immediate priority is delivering Core market growth

Consumer led innovation in showers, taps and valves is critical for us to deliver

growth from our core markets who generate the majority of our earnings. We

are focused on not just delivering innovation, but also on being able to quickly

and cost effectively proliferate SKUs in order to maximise results and better

leverage our existing distribution and manufacturing facilities.

Improving digital capability and customer interaction through digital channels

is both cost effective and scalable. We have now launched our $1 handset

trial online in NZ and UK (Australia to follow shortly). The platform has been

created so that it’s easy to add additional products and services in the future

and to make digital interaction with Methven seamless. Should you want to

sign up, please see Johnny today, who will set you up for the trial.

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In addition, we aim to launch new business models that shorten the long

purchase cycle in our industry, giving consumers the opportunity to upgrade

their experience easily, recycle end-of-life product, and choose different

payment solutions.

SLIDE 27 – Aurajet – one of the most awarded shower technologies in the world

Aurajet is one of the most awarded shower technologies in the world, with

recognition in the US, Europe, Asia, Australia and New Zealand. It is crucial that

we now deliver increased international sales from this world-leading technology.

SLIDE 28 – International markets and digital sales model key to future revenue

aspiration

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We have two distinct models to deliver international growth - a more traditional

business model via retailers and established distributors in new markets, and a

digital and disruptive model that we are testing in North America. Let me give

you examples of both models in action.

SLIDE 29 – Growing our commercial footprint to leverage IP

In South East Asia, we worked very closely with NZTE looking at potential

partners and were delighted to sign a contract with a new distribution partner

Ipmuda in Malaysia in July. Ipmuda have set their annual sales target at $1.25

million. I am also really pleased to confirm that I will be signing a new contract

in Singapore this week. We are also looking to add other markets in the future

as a part of the same process with NZTE.

SLIDE 30 – Growing our commercial footprint to leverage IP

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In the USA, we have taken a different approach and are very excited about the

opportunity that this presents. We have decided to test a digital direct-to-

consumer model in the first stage. We launched via Kickstarter with our new

shower Rua, that utilises Aurajet technology to deliver a great shower

experience but only uses 6.8 litres of water per minute (in line with soon-to-be

introduced new Californian standards). In the first 10 days, we have over 200

backers and have generated sales of over USD$70 thousand dollars, and have

generated much discussion about Methven. In addition, we have launched

online with Home Depot and Amazon and Walmart, and expect 5 additional

online retailers to follow in the next few weeks. This is a data driven and

interactive environment that lets us test, learn and interact with new

consumers with little cost, risk or complexity as product is directly supplied to

our new partners in California direct from Auckland.

SLIDE 31 – Strong purpose and talent base from which to grow

We have a clear and aligned cause at the heart of the business, and are

delighted to have retained existing talent and attracted new talent that is

determined to make a difference at Methven and in doing so, also make a

difference to our planet and our communities. We partner with over 75 local

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businesses supporting the local community, and also support the restoration of

the Whau River (the river around Avondale) by planting, clearing and mulching

the local waterways.

SLIDE 32 – Market and product mix to drive margin expansion

By 2020, we aim to generate over 70% of our sales outside New Zealand and

almost 60% of our sales from showering. This, along with Fit 4 the Future, will

deliver margin expansion and give us a broad foundation for longer term

growth.

SLIDE 33 – FY18 Guidance and Trading Update Q1

Profit for the quarter ending 30th September finished up by 32% ($300k) in

constant currency, however tapware in New Zealand has continued to

underperform over the quarter and is forecast to continue at current levels

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until the new activity rolls out in Q3 FY18 and new products in Q4 FY18/Q1

FY19.

We expect half year profits to be up by 10 % before one off Fit 4 the Future FFF

investments which will mean our reported figures will be flat or slightly down on

a constant currency basis.

Our guidance for this year is to increase our Net profit in constant currency by

at least 10% and this guidance is maintained.

SLIDE 34 – Fix, transform and grow

So in summary:

The issues that impacted the business in FY17 are FIXED or are in the process

of being fixed.

Our Fit 4 the Future programme will help us transform the business and make

our results more predictable.

New international markets and strong core markets will be the catalyst for our

long term profitable growth.

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We are proud to be a New Zealand manufacturer creating the best showers in

the world from New Zealand.

I finish with a video of our story…..

SLIDE 35 – Video

I will now hand back to Alison, but would like to thank her and the Board for their

support for the significant changes we are making to the business, in order to

make us Fit 4 the Future.