Good day, and welcome to the Reece Limited full year 2024 four results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero, and finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Peter Wilson, CEO, to begin the conference. Peter, over to you.
Good morning, and thank you for joining us for our full year 2024 results call. Today, I'll cover an overview of our results, strategy, and operational highlights, and will then pass to Andy Young, our CFO, who will take us through the results for the year in more detail. I'll finish with a summary before opening to Q&A. Before we begin, please note that all results are in Australian dollars unless otherwise stated. Turning now to an overview of FY 2024. Our results for the year reflects disciplined execution as we continue to navigate challenging markets. Group sales were up 3% to AUD 9.1 billion. ANZ sales were flat at AUD 3.8 billion, with housing markets softening further as we indicated at the half.
U.S. sales were up 3% in U.S. dollars to $3.5 billion, with mixed demand across end markets during the year. The U.S. saw a softer first half, having entered the cycle around six to 12 months earlier than ANZ. ANZ saw a slower second half, as we flagged in February. Across the group, we remain disciplined on operating costs while continuing to invest to build a better business for the long term. We delivered adjusted EBIT of $681 million, up 2%, and adjusted NPAT of $416 million, which is up 3% on the prior year. The board has declared a final dividend of $0.1775 per share, bringing the total dividend for the full year to $0.2575 . Now, turning to recap on our strategy.
Our Blueprint guides everything we do. We are a purpose and values-led organization, which we call the Reece Way. Our 2030 vision is to be our trade's most valuable partner. We're bringing this to life through our three strategic priorities. The first, operational excellence, focuses on the fundamentals of trade distribution, and we cannot achieve our vision unless we are the best at the basics. The second is staying ahead of our customers' needs through innovation, and finally, investing for profitable growth so we can build a stronger business for the long term. These three strategic priorities come together to help us deliver on our customer promise. As I've just outlined, the Reece Way is a foundation of our success. It guides everything we do and is so important to our culture at all levels of the business.
We've adapted The Reece Way over recent decades, and we've just completed our latest refresh to coincide with the Reece brand rollout in the U.S., Our new purpose is building a better world for our customers by being the best. Another important change was to bring back the value of entrepreneurial spirit. This was a value that contributed to our success in the past and is important to retain as we grow in complexity. Now turning to our operational review. Looking at the three pillars of our strategy, we've made good progress in FY 2024. As we faced into a softer trading environment, we intentionally set out to refocus on operational excellence. We also kept investing in our team and strengthening our culture, helping us to deliver on our service standards.
In the innovation space, we continue to execute on an insight-led approach that will allow us to stay one step ahead of our customers and help make their lives easier, and finally, we continue to expand and enhance our network to ensure we are where our customers need us. Turning now to look at our activity this year, starting with ANZ. Our network density in ANZ enables our market-leading position and helps us deliver our customer promise. We've continued to enhance and optimize the network during the year with 15 refurbishments, 10 relocations, and six new stores. In April this year, we also opened a new distribution center in New Zealand, which enhances our capacity and provides us with further flexibility to scale. It has enabled us to streamline our supply chain to ensure the leanest path to market for our key customers.
Turning to innovation, we continue to focus on staying ahead of future trends. An in-person relationship is still very important to our customers, and they are also very interested in digital tools that make their lives easier. Post year-end, we invested in a small acquisition, Shadowboxer, an Australian digital startup focusing on building and growing disruptive technology. Shadowboxer will enhance Reece's digital and innovation capabilities and will bring some great talent in-house. Turning now to the U.S. region. We continue to make strong progress in the expansion and upgrade of our U.S. network, with 15 new branches and four refurbishments this year. The team has put a huge amount of work into the rebrand project, with around 80% of targeted branches now trading as Reece across the U.S. This is a symbolic milestone for the team and is having a great impact on culture.
The project is likely to be wrapped up by the end of this calendar year, with the exception of Fortiline, which retains brand value in market. Looking ahead, we continue to see a sustainable rate of organic new store openings in the 10 - 15 a year range.... Staying on the U.S. network, we also opened a new distribution center in Texas, our first in the U.S. The DC will support our growing network of branches to meet our service promise to customers. Supporting the growth of our U.S. network, we continue to focus on investing in our people during the year. Embedding our culture and developing the team is critical to our success. Examples this year include the launch of our new leadership program for branch managers, and the development of career roadmap plans for critical roles across the organization.
Our existing programs, which have now been up and running for some time, are delivering great results. I'll now hand over to Andy to run through the financial review.
Thank you, Peter, and good morning, everyone. Overall, the group has delivered a solid result in a challenging trading environment in both regions. As Peter mentioned, sales revenue for the group was up 3% to AUD 9.1 billion, partly supported by favorable foreign exchange movements. On a constant currency basis, sales were up 3%, 2%. Adjusted EBITDA was up 5% for the year to AUD 1 billion, with growth across both regions. Adjusted EBIT increased by 2% to AUD 681 million, and within this result, group costs, excluding depreciation and amortization, grew at 2.5%, principally driven by year-on-year labor cost increases.
Including depreciation and amortization, overall group costs increased by 4.1% for the year, reflecting ongoing investment in our network and core capabilities, capital spend associated with our U.S. rebranding activities, and amortization of intangibles associated with recent bolt-on acquisitions. Adjusted net profit after tax was up 3% to AUD 416 million, with consistent growth in adjusted earnings per share, which was AUD 0.64, FY 2024 period. Moving to the next slide. Over the past five years, the group has delivered significant growth in sales, earnings, and return on capital. FY 2024 has seen our growth rates moderate as housing end markets have softened. Despite the slowdown, we have continued to focus on our long-term investment strategy and disciplined approach to capital management.
Continuing to invest through the cycle will ensure we are well-placed to support customers as the market recovers and deliver long-term growth for our shareholders. Now on to the ANZ region. The ANZ business has navigated a challenging trading environment in FY 2024, as the housing market continued to soften. Annual sales revenue was flat at AUD 3.9 billion, with inflation-driven first half sales growth offset by more challenging demand settings in half two. As foreshadowed at the half year, we have seen further softening in the housing market over the past six months. Backlog activity has largely been worked through, and product inflation had a broadly neutral impact on performance in the second half.
Adjusted EBITDA was up 1% to AUD 560 million, and our adjusted EBITDA margin increased by 10 basis points, driven by focused execution on the fundamentals of our business, coupled with a disciplined approach to cost to offset ongoing inflationary pressure. Adjusted EBIT was down 3% to AUD 410 million, reflecting the impact of softening sales, cost inflation, and increased depreciation and amortization from ongoing investment in our network and core capabilities. And finally, I wanted to touch briefly on the delta between adjusted EBIT and statutory EBIT. This is primarily due to the goodwill impairment of AUD 29 million relating to our Metalflex business, which we recognized in the first half of last year. There are no differences between statutory and adjusted earnings for the current year. Now on to the U.S. region.
Our U.S. business performed well in FY 2024. However, demand settings within end markets remain mixed. On a U.S. dollar basis, sales were up 3% to $3.5 billion, driven by an uplift in volumes in the second half. Deflation in select categories continues to be reflected in headline sales. However, the impact has moderated across the year. Adjusted EBITDA was up 9% to $293 million, with a 44 basis points increase in our adjusted EBITDA margin. This result reflects strong cost management and a disciplined approach to embedding the fundamentals of the Reece model across our U.S. business. Adjusted EBIT increased 7% to $178 million, once again, reflecting some elevated depreciation costs associated with network expansion and rebranding activities.
The group's sales and EBIT results have benefited from a favorable foreign exchange movement on translation of our U.S. earnings, with sales in AUD up 5% and adjusted EBIT up 10% for the year to 17%. Turning now to the group's cash flow position. The group generated strong operating cash inflows of AUD 751 million for FY 2024. Capital expenditure was up by AUD 81 million, driven by network expansion, branch refurbishment costs, and the Reece rebrand in the U.S. CapEx to sales increased to 2.8%, up from 2% in FY 2023. Net borrowings, inclusive of leases, reduced by AUD 378 million during the year, in line with our capital management priorities, which I will touch on shortly. Net finance costs were slightly up year-on-year.
The impact of increased interest rates on our variable drawn balance, largely offset by savings from debt paydown. Gross interest expense for the year was AUD 69 million, and based on current drawn debt, we anticipate gross interest in the range of AUD 53-63 million for FY 2025. The group's overall effective tax rate was 28.9% for FY 2024, inclusive of a AUD 3 million benefit from annual LIFO adjustments for U.S. tax expense. Excluding this, the effective tax rate for FY 2024 for the group was 29.4%. Now looking at the next slide. The group closed the year with a very strong balance sheet, which supports our long-term growth approach and continues to provide flexibility as we trade through the cycle. Our net working capital to sales ratio reduced to 18%, driven by disciplined management of inventory in a subdued volume environment.
Net debt reduced to AUD 518 million, with the group's net leverage ratio sitting at 0.6 times. As noted in our half-year results, we completed a $300 million unsecured notes issuance in the U.S. private placement market during the year. The notes have enabled us to diversify our funding sources, reduce our variable interest rate exposure, and increase the group's overall debt maturity profile. Before I close, I wanted to take a moment to revisit our approach to capital management. As previously communicated at the halves, the group has a defined framework which guides the allocation and deployment of group capital to ensure we achieve our primary goal of enabling the sustainable long-term growth of the business. Our first priority is to invest in organic growth and strategic bolt-on M&A to support the ongoing expansion of the group.
Second, to maintain a strong balance sheet by paying down debt and maintaining flexibility for growth, and thirdly, to provide returns to shareholders through the payment of ordinary dividends, and where surplus free cash flow exists, special dividends or share buybacks. I'll now hand back to Peter to discuss the year.
Thanks, Andy. And starting with the lead indicators in ANZ, housing commencements and approvals are still well down from the COVID peak, and a significant backlog of activity has now largely been worked through. Housing completions that have been consistently resilient are now trending downwards. Alterations and additions are also softening. Overall, we are anticipating the near term to remain challenging, with a period of softer activity to play out. Turning to the U.S., we expect the near term to remain challenging, but note that the U.S. is at a different point in the cycle. While there've been green shoots in some lead indicators, we are cautious about how this trend develops as end markets remain mixed. The economic and political picture in the U.S. is complex, with interest rates and affordability continuing to provide headwinds in our sector. I've just returned from a trip to the U.S.
Consumers on the ground are telling us that macro uncertainty is driving some softness, and they're seeing end consumers holding off on projects. It takes time for improvements in lead indicators to drive higher activity levels for our business. In summary, despite short-term challenges, our long-term approach remains unchanged. We are focusing on the fundamentals of trade distribution and delivering our customer proposition. We are a diversified business by customer and end market, and we are well placed to face into a softer trading environment. The medium to long-term fundamentals in our sector remain positive, particularly the housing underbuild, population growth, and the ongoing need for infrastructure in both regions. Thank you, and I now open the line for questions.
Thank you, Peter, and the floor is now open to questions. A reminder to everyone on the call, in order to ask a question, please press star and then the number one on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your questions, please remember to unmute your device, and in the interest of time, we ask to please limit questions today to one question and one follow-up. Again, that is star one to ask a question. And your first question comes from the line of Peter Steyn from Macquarie. Please go ahead.
Hi, Peter and Andy. Thank you very much for your time. Appreciate it. Peter, may I ask, could you give us a bit of a delineation of how you're seeing new construction activity versus the alterations and additions segment in ANZ? You spoke about them both being weaker, but is there a sense that alts and adds could be meaningfully more resilient and help you through this patch?
Hi, Peter. Look, traditionally, that has been the case, obviously, through different cycles. The alteration and additions are normally resilient, and that's why we built the business in Australia around that part. So, that's what has traditionally happened. In terms of where we're seeing it now, there's definitely softness in you know, in new housing, and we are also seeing softness in the renovation space as well. So I think it's all just with where interest rates are, the affordability part. So there's definitely some cautiousness that we haven't seen for a few years. So, we're very cautious on the housing and somewhat cautious on the R&R.
Gotcha. Thanks, Peter. And if I, It's a, it's a bit of a bow, but as a follow-up to Andy: from a working capital point of view, as the market softens, do you think that your working capital investment, or at least the ratios, could continue to fall from here?
Yeah, good question. Look, I think we're pretty comfortable with where we sit. We've said in the presentation that we've managed it really, really well in a benign volume environment, which has certainly been the case. But, you know, it is something we can manage pretty tightly when inventory is sort of sitting at the level it is today. So I think it's probably as low as we see it going, and we'll just manage it, manage that cautiously as those lead demand indicators change, start to improve.
And so, and Peter, just to build on that, look, it's this obviously the this next cycle, you know, there's a lot of new people on the call, so they haven't been following us for a while. So part of our model is to be consistent, is to continue to invest, and a big part of our service proposition is working capital. So in past downturns, you know, we've really invested through this, and it always pays off dividends. So we're gonna continue to do the same approach.
Gotcha. Thanks, Peter and Andy. Appreciate it.
Thanks, Peter.
Your next question is from Andrew Scott, Morgan Stanley. Please go ahead.
Good morning. Thanks, Peter, Andy. Can we just start with a discussion around the audit? See the accounts are currently unaudited. Anything you can add some color there?
Yeah, Andrew, I'll pick that up. We'll release the audited financials later in the week. The reason for that was simply that we're just out a little bit earlier this year than we have been. So, just a cautious note, just to make sure everyone's aware that they aren't accompanied by audited financials at this point, but they will be. That'll be out later in the week.
Okay, thank you. And then, obviously, you will have seen the announcement re a change of ownership at Tradelink. Interested in any expectations about a change there, but perhaps, more so, I mean, this brings a combo of a company that will have plumbing and electrical distribution. Is there any sort of view that that could be an attractive avenue for you in the future to add that sort of second trade-focused exposure here in Australia?
Andrew, it's Peter. Look, with the change of ownership, definitely, I know personally the new owners very well, over a period of about 25 years. So, look, if you look at how we're seeing it, definitely our sector has always... Well, we've always thought it's been competitive. So we started as a small guy, and obviously through our strategy and being focused on that is we've got to our position. So we will continue to do the same thing, just focusing on our own sort of game plan. It's actually hard enough to control your own game plan without getting obsessed with competition. So that definitely will change things, you know, into the future.
I mean, we know their model really well, so we do know what we're up against. In terms of the electrical part, look, we, from an M&A perspective, are always looking at new segments, new market segments, different verticals. The electrical part is pretty concentrated. I mean, they are number one in the electrical, and then you've got some big French conglomerates that are two and three, and a couple of family businesses. So it's pretty tied up, so you never say never. It definitely is a logical next vertical, but I think it's unlikely at this point, given the discussions that we've had over the past decade or so. Hopefully, that helps.
Appreciate the color. Thank you.
Thanks, Andrew.
Your next question is from Harry Saunders of E&P. Please go ahead.
Good morning. Thanks for taking my questions. Firstly, just wondering how you're thinking about ANZ margins in FY 2025, given, you know, you're carrying that investment you made more recently, you know, and a softening demand environment potentially, and so how much of that margin hit in the second half was from that investment versus macro? And I mean, perhaps just, you know, what is the peak-to-trough margin in that ANZ business now, in your view? Thanks.
Yes, it's Peter again. Look, as I mean, I know we've got a lot of new analysts covering us, but we certainly aren't gonna give guidance on a whole lot of fronts, on a whole lot of areas. Definitely, this is one, so it's definitely. It's fair to say, and Andy will probably build on this, in Australia, the second half, as it got softer, has got more challenging. Some of that contraction is to do with the investment, so we will manage that closely, so in terms of in the past, peak to trough, it's really hard to predict. It just depends how soft it really gets.
Normally, in a definitely softer environment, the marketplace does get more challenging, more competitive, more contested, so you have to navigate all that. But you know, we have had good experience. Our model is set up to be able to flex. From a cost perspective, again, to protect the service proposition, if the downturn becomes bigger than we're anticipating, then we have the ability to flex with our staff turnover, natural attrition. That's normally how we approach it, to preserve our model and our strategy. I don't know, Andy, if you've got anything to-
No, very little to build on that, Peter. I think the only thing I'd probably add, Harry, just a bit of a reminder, if you're looking at the margin across the halves, is obviously the second half has the full impact of the annual selling wage increase rolled through it. So that'd be just something to keep in mind as well.
Great. Thank you. And just, in terms of a follow-up, what's the contribution from that ReFire acquisition you made recently in July? And, you know, what is the size of the opportunity in that fire market more broadly? Thanks.
Harry, the ReFire acquisition actually isn't effective from in FY 2024, so there's really nothing reflected in the results for that for the moment. Look, it's a very small component of the business. We don't break them out for that reason, because they are tiny bolt-ons. And I think, as we said in the announcement, when we actually acquired ReFire, we're at about 12 branches across fire. So it's a pretty small component of the overall ANZ business, but something that we continue to see some opportunity in.
Yeah. So it's just small, and we're just experimenting, so we can't—it's not—it's just this is what we've done historically with how we've segmented the business over the years. So, excuse me. I managed to catch COVID on the way back from the U.S., so just fortunately tested negative today for the first time. So, just to add a bit more color to the challenges of all this travel. Okay, thanks, Harry. Hopefully, that helps.
Thanks, get well soon.
Your next question is from the line of Keith Chau from MST Marquee. Your line is open.
Good morning, Peter and Andy. So first question, Peter. I know maybe this is a bit nuanced, but the expectations in Aussie, obviously, fairly cautious, but do you think conditions are worsening, or are we just tracking along the bottom now and waiting for a bit of an uptick?
Good day, Keith. No, I actually think it is continuing to soften, so we, with, you know, as the financial year progressed, it was getting softer, you know, marginally. And, you know, obviously, we'll wait for the AGM period, but all of the lead indicators are definitely showing further signs of softening. And in some of our business segments which are the lead ones, there's definitely softer signs coming. So we, you know, we're always... Everyone knows we're cautious and we're conservative, and so on. But we are definitely preparing for the, you know, at least the next 12 months to be, you know, in a softer period, could even be a bit longer.
Really, it really just depends, I guess, what happens. I mean, there's a lot of events to happen, but really, it will, when interest rates do change, that will signal a point where things might, the psychology might start to change, and obviously, that probably is gonna happen in the U.S. before Australia.
I appreciate that. Thanks for the answer, Peter. And then just to follow on in the U.S., you know, I'm certainly one of those analysts that haven't been covering Reece for a long time, but, you know, as it looks, at least to us, the sales of the store, sales velocity seems to be doing pretty good, at the moment. Just wondering if you can give us a sense of, you know, what your thoughts are on the progression of the strategy in the U.S., Peter, and also whether that distribution center in Dallas has made a difference to your service proposition, or were you seeing benefits from that, today? Thank you.
Yeah, the... If I start with the distribution center first, look, it's really, it's early days. It's just opened, and I had a look at it. It's there as a service proposition to support our branch network, so it's not a private label play, so that's a big difference. Just wanted to make sure everyone's clear on that. In terms of progress, you know, it is about this time, six years ago. So yeah, overall, I'm definitely. I mean, I've just come back, and I've seen a lot of the stores. Yeah, and I'm really pleased with the progress of the standards of what we've done, the reinvestment into the stores. We have put a lot of effort into the whole foundations, the culture piece.
There's a lot of training, and it is unrecognizable since, you know, when we bought it. So it's funny, one of the first stores I went to in Texas. Mystery shopped before we did the deal, and then we've just revisited it now, and the transformation, you know, is really impressive. So it's a big store, it's not. It's in the commercial space, but I was really impressed. So that, overall, yes, I am pleased with the progress, but I've still got to point out, because I keep saying this to everybody, Sash and the team, you know, we're only five years in, and we have to build capabilities to allow us to have a winning proposition. And at the moment, we're just building those.
So you've got, you've still got all these big competitors that we call gorillas, that have really dominant positions. And we're just working our way through it, and we think we've got a clear proposition, but it's still really early days. But yes, I know it's a long-winded answer, but I'm definitely happy with how we're progressing in the U.S.
That's great. Thanks, Peter.
Thanks, Keith.
Your next question is from the line of Sam Seow from Citi. Please go ahead.
Morning, guys. Thanks for taking my question. Look, the last couple of years, you've provided volume and price splits. Apologies if I missed it in the result, but any chance you can talk to those splits by segments or directionally high level, what they were?
Hi, Sam, thanks for the question. Look, a couple of things. We mentioned at the half actually, that we'd stopped breaking it out, and the reason for that really is it doesn't have a material impact, inflation anyway, on the overall performance any longer. But in terms of a bit of color, very similar to what we said at the half, we had a little bit of inflation in the ANZ portfolio, and that moderated through the year. So it would drove the sales result in the first half. It's been pretty much neutral in the second. And in the U.S., for the first half, we said we had a little bit of moderate deflation. We've seen that again in the second half, but once again, that's moderated as well. So overall, not a material impact of inflation, deflation for the year.
... Yeah, Sam, I reckon you could say now, like, I do feel, I know this is a statement, but really, the whole, you know, the inflation story is really in the rear view mirror now. I reckon it's, you know, there's not inflation in our, in our, not in our business and not in our sector. So it's definitely, Australia is a bit slower, so it's probably following where we are with the economy as well. So it's definitely, it's not a, it's definitely not an issue, in the U.S., There's some categories that have some deflation in them. So, yeah, so that's the main reason why there's no point to share it, because it's not really relevant now.
Thanks. That's helpful. And, just maybe looking at the second half in the U.S., you know, you've got some pretty good growth there in your results, and your peers are probably pointing to a pretty positive last quarter. Just noting your comments on a more challenging conditions and, yeah, I guess wondering with your comments, which seems a bit more conservative given your exit rate, if you could extrapolate on that further. And then maybe even, too, like within your business in the U.S., if you could kind of talk to your small project exposure versus, I guess, your larger type stuff. Thanks.
Well, if you look at the U.S., it's like the. I think everybody's looking at it. It's pretty. I mean, it is mixed. It's, you know, we've got the world, it's a bit noisy. There's good and bad things happening. So, how we sort of look at it, I mean, the economy in the U.S. is still pretty resilient. It's still got small growth. The labor market is cooling, but it's not contracting. So you say it's resilient, but in terms of our sector, you know, the word we're using, it's stuck. We're sort of all waiting for that interest rate cut, because really, the 30-year mortgage rates are, you know, really high, and so until.
I was watching a program on the weekend where they're saying they really are gonna need to get a five, a five in it, and before actually people start moving. So that has a big impact on new housing and renovations. Certainly in the U.S., single family, there's green shoots there. The multifamily part is gonna really come off. So you know, we're relatively new. I mean, we haven't done this cycle where it's all learning for us in the U.S., but it does feel like we're waiting for you know, for whenever that interest rate cuts happen, and then that will probably change the psychology of it. And then I mean, there'll be delay after that. So that's sort of how we see the U.S., Sam.
Thanks. That's helpful.
The next question is from the line of Brooke Campbell-Crawford from Barrenjoey. Please go ahead.
Good morning. Thanks for taking my question. I'd like just to ask one on the U.S. business, the numbers provided in the materials imply about three net new store adds in the second half. Do you mind just commenting on sort of the growth store adds and maybe there's some closures in there, which brings the net down to three? And then, I guess, as you look forward, it's an uncertain environment. You're talking about it being noisy. So does that influence your plans over the next 12 months in terms of the number of stores you'd like to roll out? Do you think it'll be sort of, you know, in line with that 10-15? Is it gonna be lower? Is it gonna be higher? So I guess those two questions would be great. Thanks.
Hi, Brooke. I'll do one of the question. We definitely are setting up to, you know, roll out 10-15 a year, so that, you know, that's part of the sustainable rate that we think we can go out with, you know, finding the right sites and then obviously developing the people for them. So yeah, that's, you know, we did open 15 sites for the year, and I think, you know, sometimes it can move from one period to the next, depending on getting the permit to actually open the store. So there's a whole lot of factors that play into it. And Andy, anything to add?
Yeah, no, I think that's right. For the number that you've got there, Brooke, 15 is the new stores. There was a couple of closures, the net is 12. So that's the number.
Great. That's, that's clear. Just to follow up on the ANZ business, I know you've got a few segments there. Do you mind providing some commentary about how sales trends compared across plumbing and showrooms versus pools, for example? Great, just to get any color there on how sales trends-
To be honest, the strategy is both, so I'm comfort-
Okay. Thank you.
Thanks, James.
You may now disconnect.