Plumbing supplies group Reliance Worldwide says it will cut jobs to get an annual cost reduction of $US15 million after a 10% drop in interim earnings to $US67.5 million for the six months to December.
The company reported a 15% rise in group sales to $US601.3 million for the half year and saw adjusted EBITDA edge up 2% to just over $128 million for the half.
But the company, a major supplier of plumbing products here and in the US, saw the sales gain eaten by rising costs as it warned in October.
Interim dividend was unchanged at 4.5 US cents per share.
The 15% sales growth for the half reflected a full six-month contribution from EZ-Flo which was acquired in November 2021 but the size of the rise was the only impressive part of the story – without that contribution it was a lacklustre result.
“Reported sales were adversely impacted by the strength of the US dollar against the Australian dollar and British pound, and constant currency sales were up 20% on the pcp. Sales growth in all regions was driven partly by price increases introduced to offset rising input and other cost increases, with average price increases of 8.5% achieved compared with the pcp. Volumes were 11% higher overall, chiefly due to the EZ- Flo acquisition. Excluding EZ-Flo, volumes were down 2% overall,” RWC said.
As well, operating margins “were impacted by lower volumes and higher costs. Higher input costs impacted margins due to the timing lag between materials purchase and consumption and the sale of finished goods.”
“Other cost increases including energy and wages also adversely impacted margins. The easing of some input costs since their peak in mid-2022 is expected to help improve operating margins in the second half of FY23.”
“Higher levels of inventory were maintained to mitigate shipping and logistical delays. Production of new product inventory ahead of commercial launch later in FY23 also impacted inventory levels. With supply chain and logistics pressures having eased, RWC is seeking to reduce inventory levels in the second half of FY23.”
CEO Heath Sharp said in Monday’s release, “This was a period when margins were significantly impacted by the sell-through of products manufactured when commodity costs were at their peak. Despite this, second quarter operating margins improved on the first quarter. We expect further improvement in the second half of FY23 as the lower input prices of the past six months flow through to product sales.
“We have also undertaken a thorough review of our cost base which has identified approximately $15 million in annualised cost savings. We expect to see the full benefit of these in FY24. This is in addition to the $8 million in cost reduction initiatives we are on track to deliver this year, along with further EZ-Flo cost synergies.”
Despite that mixed experience, RWC shares ended Monday up 2.4% to $3.565.
