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21 February 2022
RWC RESULTS FOR SIX MONTHS ENDED 31 DECEMBER 2021:
REPORTED NET PROFIT AFTER TAX US$63.7 MILLION, SALES 12% HIGHER1
Net sales of US$521.8 million, up 12% on the prior corresponding period ("pcp") Net sales excluding EZ-FLO (acquired 17 November) up 8% on pcp
Reported net profit after tax of US$63.7 million, down 3% on pcp
Adjusted net profit after tax2 of US$75.4 million, up 5% on pcp
Adjusted EBITDA of US$125.5 million, up 5% on pcp
Cash flow from operating activities of US$60.0 million down 47% on pcp mainly due to planned increase in inventory levels
LCL and EZ-FLO businesses acquired during the period
Net debt increased by US$371.1 million over pcp following EZ-FLO and LCL acquisitions Americas recorded 15% sales growth on pcp, 7% excluding EZ-FLO
Asia Pacific sales up 11% on pcp
EMEA sales up 6% on pcp
Interim dividend of US4.5 cents per share
Reliance Worldwide Corporation Limited (ASX: RWC) ("RWC" or "the Company") has today announced its consolidated results for the six months ended 31 December 2021.
KEY ITEMS
REVENUE
Net sales were $521.8 million, up 12% on the prior corresponding period ("pcp"). Sales include a partial contribution from EZ-FLO following completion of the acquisition in mid-November. Excluding EZ-FLO, sales growth for the period was 8% on pcp.
Sales growth in all regions was driven partly by price increases introduced to offset rising input and other cost increases. Underlying demand remained strong in most markets due to continued high levels of home remodelling and buoyant residential construction markets. However, direct and indirect supply chain constraints restricted volume growth during the period.
- All figures are in US$ unless otherwise indicated
- EBITDA, Adjusted EBITDA, EBIT, Adjusted EBIT, Adjusted NPAT and Adjusted EPS are non-IFRS measures used by RWC to assess operating performance. These measures have not been subject to audit or audit review.
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- Net sales growth in the Americas was 15% on pcp, including EZ-FLO, and 7% excluding EZ-FLO.
- Asia Pacific sales were up 11% on pcp (up 10% on a constant currency basis), with external sales up 17% and inter-company sales up 4%.
- EMEA sales were up 6% on pcp (up 1% on a constant currency basis), with UK sales down 8% and Continental Europe sales up 23% in constant currency. UK plumbing and heating sales in HY22 were up 8% on a 2-year basis compared with the same period in HY20.
EARNINGS
- Reported net profit after tax ("NPAT") of $63.7 million, down 3% on pcp.
- Adjusted NPAT of $75.4 million, up 5% on pcp. Adjusted net profit after tax reflects:
- Net expense of $5.9 million reflecting one-off costs relating to the acquisition of LCL and EZ- FLO, unwinding an inventory fair value step up associated with those acquisitions, a one-off gain on the sale of StreamLabs, and expensing of certain costs associated with RWC's previous debt facilities.
- $5.7 million of adjustments made in respect of the amortisation of certain intangibles for taxation purposes under longstanding US tax rules that are not amortised for accounting purposes under accounting standards.
- Reported earnings per share of 8.1 cents, down 3% on pcp.
- Adjusted earnings per share of 9.6 cents, up 5% on pcp.
- Reported EBITDA3 of $119.6 million, in line with pcp.
- Adjusted EBITDA of $125.5 million, up 5% on pcp.
- Reported EBIT4 of $97.9 million, down 1% on pcp.
- Adjusted EBIT of $103.9 million, up 5% on pcp.
OTHER FEATURES
- Customer service and delivery expectations were met despite increased COVID incidence and supply chain challenges.
- Planned investment in inventories to maintain service levels resulted in net cash flow from operations of $60.0 million, 47% lower than pcp, and operating cash flow conversion of 50% versus 94% pcp.
- Net debt of $545.3 million at 31 December 2021, an increase of $371.1 million since 31 December 2020 following completion of the LCL and EZ-FLO acquisitions in the period.
- Increase in net leverage, with Net Debt to EBITDA ratio up from 0.88 times at 31 December 2020 to 1.97 times.5
- Debt refinancing completed with new committed borrowing facilities totalling US$800 million established to replace A$750 million syndicated facility and provide additional capacity.
- Interim dividend of US$35.6 million declared, being US4.5 cents per share.
- EBITDA means Earnings before interest, tax, depreciation and amortisation
- EBIT means Earnings before interest and tax
- Net debt excludes lease liabilities
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OPERATING AND FINANCIAL REVIEW6
An overview of RWC's business activities is provided in Appendix 1.
Review of results for the financial period
Six months ended: | 31 December | 31 December7 | |
2021 | 2020 | Variance | |
US$ million | |||
Net sales | 521.8 | 464.2 | 12% |
Reported EBITDA | 119.6 | 120.0 | - |
Adjusted for one-time items: | |||
- Net EZ-FLO and LCL acquisition costs, gain on | 5.9 | - | n/m |
sale of StreamLabs, debt financing costs | |||
expensed8 | |||
Adjusted EBITDA | 125.5 | 120.0 | 5% |
Reported net profit before tax | 92.0 | 94.8 | (3%) |
Tax Expense | (28.3) | (28.9) | -2% |
Reported net profit after tax | 63.7 | 65.9 | (3%) |
Adjusted for: | |||
- Cash tax benefit of goodwill amortisation for tax | 5.7 | 5.7 | - |
purposes9 | |||
- Net EZ-FLO and LCL acquisition costs, gain on | 5.9 | - | n/m |
sale of StreamLabs, debt financing costs | |||
expensed10 | |||
Adjusted net profit after tax | 75.4 | 71.6 | 5% |
Basic earnings per share | 8.1 cents | 8.4 cents | (3%) |
Adjusted earnings per share | 9.6 cents | 9.1 cents | 5% |
Dividend per share | 4.5 cents | ||
n/m = not meaningful
- The Operating and Financial Review forms part of and should be read in conjunction with the statutory Directors' Report for the six months ended 31 December 2021.
- US$ figures represent RWC management's translation from Australian $ of historical earnings and non-IFRS measures have not been subject to audit or audit review.
- Adjustments comprise: (i) Acquisition costs relating to LCL and EZ-FLO ($7.0 million); (ii) Inventory step up unwind ($1.3 million); (iii) Gain on sale of StreamLabs $2.5 million; (iv) Expensing of costs relating to previous debt facility ($0.1 million).
- RWC is entitled to claim amortisation of certain intangibles for taxation purposes under longstanding tax concessions available in the USA. Goodwill is not amortised for accounting purposes under accounting standards.
- Adjustments comprise: (i) Acquisition costs relating to LCL and EZ-FLO ($5.7 million); (ii) Inventory step up unwind ($1.3 million); (iii) Gain on sale of StreamLabs $1.9 million; (iv) Expensing of costs relating to previous debt facility ($0.1 million); (v) Non-cashwrite-off of capitalised debt cost ($0.7 million).
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Net sales for the six months ended 31 December 2021 of $521.8 million were 12% higher than pcp. Excluding the increase in sales arising from the EZ-FLO acquisition, net sales were up 8%. RWC sales performance in the period successfully consolidated and built on the strong uplift in sales achieved in FY21.
The Americas segment recorded growth of 15% including EZ-FLO, and 7% growth in sales for the legacy RWC business excluding EZ-FLO. Adjusting for the one-off distribution logistics change by a key US channel partner, Lowe's, revenue growth excluding EZ-FLO was 12%. Reported sales growth in Asia Pacific was 11% and 10% in constant currency, and 6% and 1% in EMEA in reported and constant currency respectively. Significant supply chain disruptions hampered satisfaction of underlying demand during the period although these impacts varied by region. Commentary on the performance of each region is provided in the segment reviews below.
Reported EBITDA for the period was $119.6 million, a slight reduction of 0.4% on pcp. Adjusted EBITDA of $125.5 million was 5% higher than pcp. Adjustments, as referenced earlier, include the one-off costs associated with the LCL and EZ-FLO acquisitions, unwinding of a step up in value of inventory acquired, expensing of costs relating to RWC's previous debt facilities which were refinanced during the period, and the gain on sale of RWC's StreamLabs business. Results included an initial EBITDA contribution of $2.3 million from EZ-FLO.
The first half was characterised by continued strength in underlying demand for RWC products driven by buoyant repair and remodel activity and increased levels of new residential construction. Rising costs associated with higher commodity prices for key materials including copper, resins, and steel, were experienced during the period together with higher costs for freight, packaging and other cost inflation.
Price rises implemented in all key markets during the period substantially offset these higher costs. RWC achieved average price increases across the group of approximately 7.4% during the period. Higher prices achieved in the period boosted revenue growth but were dilutive to operating margins. Excluding EZ-FLO, Adjusted EBITDA margin declined by 120 basis points from 25.9% to 24.7%. The timing lag between higher input costs being incurred and offsetting price increases was a factor in lower second quarter margins. The benefit of further price increases agreed with channel partners will accrue from the third quarter onwards. RWC expects these increases will offset cost inflation on a run rate basis by the end of FY22, with a fourth quarter Adjusted EBITDA margin excluding EZ-FLO comparable to that for FY21.
Margins were also impacted by the inclusion of trading results from EZ-FLO, with this acquisition completed on 17 November 2021. EZ-FLO has typically generated lower margins than RWC.
Cost reduction initiatives delivered a further $3.1 million in the first half with most of the savings generated by carry-over projects from the prior year. Further cost reduction measures being pursued in the second half are expected to deliver additional savings of $5 million, and a full year exit run rate of $10 million. Measures to lower costs in the first half included changes in manufacturing operations to drive efficiencies, procurement gains, and a reduction in the use of temporary labour.
Tight cost control kept core SG&A growth (excluding EZ-FLO and one-off costs) to 2% for the period.
Reported NPAT of $63.7 million was 3% lower than pcp. Adjusting for the $5.7 million tax item and other one-off costs referenced earlier, NPAT was $75.4 million, 5% higher than pcp.
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SEGMENT REVIEW
AMERICAS
Six months ended: | 31 December | 31 December | 1 Year Variance | 2 Year | 2 Year CAGR |
2021 | 2020 | HY22 vs HY21 | Variance | HY22 vs | |
(US$ million) | HY22 vs HY20 | HY20 | |||
Net sales11 | 333.6 | 289.6 | 15% | 41% | 19% |
RWC | 311.0 | - | 7% | 31% | 19% |
EZ-FLO | 22.5 | - | - | - | - |
Adjusted EBITDA | 56.9 | 54.8 | 4% | 55% | 25% |
RWC | 54.6 | 54.8 | 0% | 49% | 22% |
EZ-FLO | 2.3 | - | - | - | - |
Adjusted EBITDA Margin | 17.1% | 18.9% | (180bps) | +160bps | - |
Adjusted EBITDA Margin | 17.5% | 18.9% | (140bps) | +200bps | - |
excl. EZ-FLO | |||||
Adjusted EBIT | 47.5 | 46.5 | 2% | 69% | 30% |
Adjusted EBIT Margin | 14.2% | 16.0% | (180bps) | +240bps | - |
Adjusted EBIT Margin excl. | 14.6% | 16.0% | (140bps) | +280bps | - |
EZ-FLO |
Americas segment sales were up 15% for the period. Excluding the sales contribution from EZ-FLO for part of the period, legacy RWC sales growth for the period was 7%.
Sales growth was driven primarily by price increases and new product revenues. Product volumes were adversely impacted due to changes implemented by a retail channel partner, Lowe's, to their distribution processes. These changes enabled inventory to be cross-dockedsame-day through Lowe's regional distribution centre network rather than being warehoused pending final delivery to stores. As a result, Lowe's was able to reduce inventory levels in its distribution centres without adversely impacting stock availability in store. Adjusting for this one-off impact, and excluding EZ-FLO's sales, America's like-for-like sales growth would have been approximately 12% for the period.
RWC's strong relationship with our customers was recognised by two channel partners during the period. In October, RWC was named Lowe's Vendor of the Year in the Rough Plumbing Category, the third occasion in four years that RWC has been awarded this accolade. In September, RWC was named Plumbing Vendor of the Year, for the second time in five years by Do It Best, the second-largest U.S. member-owned hardware, lumber, and building material cooperative.
EZ-FLO recorded sales of $22.5 million in the period from 17 November to 31 December and contributed EBITDA of $2.3 million.
11 Prior to elimination of inter-segment sales
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Reliance Worldwide Corporation Ltd. published this content on 20 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 February 2022 21:10:08 UTC.