Good morning and thank you all for joining us for our 2025 full year results call. With me on the call today is Sasha Nikolic, our Group President and Managing Director, and Andy Young, our Group CFO. Welcome, you two. Today, we're going to start with an overview of the group's FY25 performance, followed by our operational updates for the year. Andy will then run through the financial results in more detail. We will finish with the outlook before opening to Q and A. Please note that all results in this presentation are in Australian dollars unless otherwise stated. Turning now to the FY25 overview. FY25 has been a turbulent year for Reece , one of the most challenging in our history. The group has delivered a disappointing result with group sales down 1% to $9 billion and full year earnings impacted by soft end markets across both regions.
EBITDA declined 11% to $901 million with group costs excluding depreciation and amortization up 3% for the year. EBIT declined 20% to $548 million, reflecting a challenging market and increased competitive pressure. Softer earnings and ongoing investment impacted the group's return on capital ratio, which is down 365 basis points to 11.8%. The board declared a final dividend for the year of $11.86, taking the total dividend for FY25 to $18.36 per share. Turning now to recap on our strategy. Everything we do is guided by a blueprint from purpose to promise. Our purpose, building a better world for our customers by being the best, inspires us and together with our values is how we live the Reece Way.
We embrace our 2030 vision to be our trade's most valuable partner through delivering on three strategic priorities: operational excellence, which is focused on the fundamentals of trade distribution; accelerating innovation aimed at enhancing our customer experience; and investing for profitable growth to build a stronger business for the long term. Together these help us deliver on our customer promise. We'll now look at the progress we've made during the year. We've continued to make solid progress against our three strategic priorities in FY25. The team has shown resilience through a challenging period and remain focused on what we do best: delivering customized service. We've invested in our people through training and development programs designed to build expertise and core capabilities, and in the innovation space, we remain committed to enhancing our services and digitizing the customer experience.
We continue to invest for growth, expanding our networks to better serve our customers. Turning now to take a look at our activity in ANZ during the year, we continue to expand our network, delivering 15 new branches through organic growth and bolt-on M&A. The density of our network remains a competitive advantage, playing an important role in delivering our customer promise. Reece's success is grounded in our deep relationships with our customers. We provide expertise in brands and innovative products to make customers' lives easier. This year we launched our first WiFi compatible heat pump by Therman, providing homeowners with control over their hot water usage and running costs. The acquisition of Shadowboxer has enhanced our digital capabilities, and we've continued to invest in our people to strengthen leadership capability. Moving now to the U.S. In the U.S., we continue to build out our network.
We increased our footprint by 24 branches this year, supported by organic growth and M&A. This brings the total U.S. network to 267 branches. During the year, we completed our rebrand, with Plumbing, HVAC, and Bath & Kitchen branches all trading as Reece. The Fortiline brand has been retained as our U.S. Waterworks business. Developing our team is critical to our long-term success in the U.S., and during the year we launched a new development program for senior leaders. This was successfully rolled out across the U.S. and also in Australia and New Zealand, and is a good example of collaboration across our regions. We also expanded our digital offering with the relaunch of the max app, making it easier for our customers to trade with us. Turning now to the next slide.
Despite a turbulent FY25, we have continued to deliver for our customers while investing to strengthen the business. In the second half, we have executed some changes within our support centers to streamline our business and improve efficiency for the network, and as always, we will balance operational efficiencies against protecting a customer offer. I'll now hand over to Andy who will go through the financial performance in more detail.
Thank you, Peter, and good morning everyone. The soft volume setting in ANZ has continued through the second half. Sales revenue for the year was up 1% at $3.9 billion, supported by MA activity. Underlying volumes were flat with pricing broadly neutral. Second half sales were down on the first half, driven by 6 less trading days in the period. EBITDA declined by 12% to $495 million, and our EBITDA margin contracted by 181 basis points. Costs were elevated in the ANZ region, primarily due to incremental investment in the business and moderating cost inflation. EBIT was down 17% to $339 million, with our annual EBIT margin at 8.7%, down 193 basis points year on year. Turning now to the U.S. region.
US s ales were down 5% to $3.3 billion driven by lower year on year volumes and low single digit deflation in select commodity related categories. Our U.S. business operates in a highly competitive market, and the slowdown in residential new construction has increased competitive pressure. Housing units under construction remain down year on year, particularly in the Sun Belt region. EBITDA was down 10% with our EBITDA margin contracting by 52 basis points. EBIT declined by 23% to $136 million, and our EBIT margin was down 102 basis points for the year. The greater contraction in EBIT margin reflects the earnings drag from increased DNA as we continue to expand our U.S. network. Turning now to the Group's cash flow p osition.
The group generated net operating cash inflows of $600 million for the FY2025 financial year. Our Capex to sales ratio was 2.9%, supporting network expansion, investment in technology, and b ranch refurbishments.
During the year, t he group also deployed capital to support M&A activities across the business. Gross interest expense for the year was $60 million, and based on current drawn debt we anticipate gross interest expense in the range of $50 to $60 million for full year FY2026. Moving to the balance sheet.
Our group n et working capital to sales ratio was 19%, an increase of 1% for the year. The uplift in net working capital was driven by investment in inventory to support network expansion and availability, including some pre tariff purchasing i n the US.
Our net debt position i ncreased to $590 million, driven by lower operating net cash inflow and increased capital investment. The Group's balance sheet remains strong, providing flexibility for growth and sufficient capacity to support the business as we navigate the cycle. Moving to the next slide, the business experienced a period of sustained growth in sales, earnings, return on capital after the MORSCO acquisition. As housing markets have softened, we have seen our performance moderate across both regions. Despite the slowdown, we have continued to focus on our long term investment strategy and disciplined approach to capital deployment. Continuing to invest will ensure we are well placed to support customers as the market recovers. I'll now hand back to Peter to recap our capital management priority.
Thank you Andy. The allocation and deployment of group capital is guided by our well-defined capital management framework. Our first priority is to invest in the growth of the business, both organic investments and strategic M&A. Our second priority is to maintain a strong balance sheet, retaining flexibility for the future, and the third priority is to provide returns to our shareholders via ordinary dividends. When we have surplus capital or excess balance sheet capacity, we will consider returning capital via a share buyback or special dividends. Turning now to the outlook. Starting with the ANZ, the outlook remains uncertain. We expect soft volumes to continue, particularly in Victoria and New South Wales where the housing market slowdown has been more impactful. We have a greater branch density in these states. Movements in interest rates will be positive for the sector and key to improving medium to long-term sentiment.
Remembering that these take time to work through, we anticipate a slow recovery with a period of soft activity still to play out. Turning now to the U.S. In the U.S., the housing market is still frozen and we expect it to be constrained for at least the next 12 to 18 months. Affordability continues to weigh on housing activity and the average 30-year fixed mortgage rates remain elevated. Lending rate reductions and improvements in affordability will be critical for increased demand. Our customers are telling us on the ground that things are tough and we expect market headwinds to continue. Although we've delivered a very disappointing set of results, we do remain confident in our long-term approach. We are well capitalized and we will continue to look beyond the cycle to protect and grow the business. Reece does operate in large markets with attractive long-term fundamentals.
Housing underbuilt and population growth will drive an ongoing need for investment in both regions. That's it for the update. Thank you. I'll now open the line for questions.
As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from Peter Stein with Macquarie. Your line is open.
Hi Peter, Andy and Sasha. Thanks very much for your time. I was curious if you could give us a bit of a sense. Your GP and SG&A are trending in probably slightly divergent directions at this point in time with continued investment in the business for the longer term. Could you just shine a light on the regional differentiation between what you're doing? Just give us a bit of a sense of what your intentions and focus areas are in ANZ versus US in relation to GP outcomes and SG&A.
Peter, i t's Peter here. Look, as we've described many times, both regions are very different. ANZ is a mature business with lots of capabilities, and so it plays a different role. It's a different outlook, first for Australia, New Zealand. In the U.S. we're really still at the early days, and we don't have the capabilities, so it's funny. Probably everyone's interested in this, but for those who were with us when we did the acquisition, I always said it was going to be a multi-decade story and not to invest unless you took a really, really long-term perspective. I think it's clear with what we're showing and what we're feeling, it's going to take longer and be more challenging than perhaps even I envisaged. Perhaps the COVID stimulus gave us a false sense of progress.
I was always a realist. There are a lot of other optimists out there that were getting ahead of ourselves. The Morse code business that we've bought was a business that really did compete by being the lowest price. We are attempting to try to build capabilities to allow us to differentiate and, you know, we're seven years in. We've definitely hit a big speed hump and we've got, you know, both in the plumbing and Waterworks business in the U.S. we probably would be losing share based on what we're saying. That's a competitive, there's a lot of competitive stuff going on in the U.S., so it's a tale of two regions and both regions have got, both got the challenges.
Thanks, Peter. Could you give us a bit of a sense of how you're travailing through the tariff complexities? You're generally going to be relying on your suppliers to do the job. What are you experiencing from your perspective?
I might hand across to Sasha because Sasha will give a bit of an update. Sasha.
Thanks, Peter and t hank you Peter for the question. For the most part, when we had Liberation Day, we had some vendors push it through. We are expecting that we will be in sync with what the market does around tariffs. There will be pressures, there's affordability p ressures that come through, there's no d oubt that those movements we will be a ble to work through as we have in the past.
Yeah, perfect. Thanks.
We're navigating okay now, it'll just be where what happened. I mean, some of it, there's another wave probably. It's all a play out still, I think.
Yeah, absolutely. Thanks Peter. I'll leave it there. Appreciate it.
Thanks Peter.
Thank you. Our next question comes from James Casey with Ord Minnett. Your line is open.
Good morning gentlemen.
Peter, on the last call, you mentioned some impacts to your Waterworks business with the loss of staff. Could you just provide an update as to how that business is performing and whether or not that's stabilized now?
Thanks, James. It's definitely ongoing. I mean, in some ways, it's stabilized somewhat. Although last week we got another uplift out, which I don't think is going away. We've definitely still got our challenges. What I think is happening is you've got the original team with the original founder teamed up and they're creating another competitor. It's a force that's not going to go away. I'm not going to share on this call, but we lost our Waterworks leader only about a month ago. We don't have a Waterworks leader right now. We're feeling pain, James, but it has stabilized somewhat, though I don't think it's going away.
Okay, just on your statement about the streamlining of the business and the benefits to be realized in FY26, can you just provide a bit more c olor on what you're doing there? I don't know if you're going to quantify it or not, but if you could just.
No, we're not going to quantify. It's really just managing, you know, staff attrition, staff turnover, and just becoming more efficient to allow. I mean, we have been trying to solve for the future with the capability build for both regions, but, you know, for digital, AI, and so on, and, you know, that takes investing. It takes people. They're fairly minor, so the benefits are just allowing us to keep going after that, particularly in this region. Yeah, there's nothing. It's not material, James.
Okay. All right, I'll leave it there.
Thank you.
Thank you.
Thank you. Our next question comes from Harry Saunders with E&P. Your line is open.
Good morning. Thanks for taking my questions. Firstly, just wondering, can you talk through exactly what happened to the ANZ margin in the second half, given, you know, this is well below where margins for this business have been historically and perhaps, you know, d o you expect this to g et back to the more normal levels relative to history in FY2026, please?
No, Harry. The world's definitely changed. There are structural changes going on everywhere. I've been trying to tell the market that you can't expect, in my view, you're not going to expect those EBIT margins going forward. There are definitely cost pressures, the minimum wage. You've got issues, like we do, we're based in Victoria in terms of trying to get our people to come to work, to actually do, to innovate, to get productivity. I think also you've got new dynamics happening. Technology's allowing more transparency and you've got a new owner of Tradelink that we respect deeply. There's a new owner of JB Hi-Fi, have moved into the bathroom part. Everywhere I look, it's just getting more, it's getting more competitive. We have to say, we have to get better and we're attempting to do it.
I don't think you can expect us to get back to where we were in Australia.
Just to be clear there, you did 7.7% EBIT margin in the second half from 9.7% first half. It's been double digits as far as I can remember in that business. I just want to be clear,you know, how should we.
Harry, it's not always been double digit. If you go back to the time when we had the Victorian recession, we had about four or five years. It just depends on the cycle. We definitely are in a soft, you know, a soft market. Generally, when it's softer, it gets more competitive, there's more capacity. It just gets more contested. That's the nature of these trading businesses. Our goal is to optimize, you know, the goal will be to get back to the double digit in Australia. There's a lot has to go right to get there. It's not always been double digit if you go back through the history.
Got it. We basically need a market pickup to sort of get back t o that double digit, effectively, it sounds like.
You need a market pickup, and we need to unpack productivity here and that's easier said than done, which is what everyone, we're all grappling with that challenge.
Thank you. Just wondering as well, could you run through that $19 million increase in allowance for slow moving inventory in the second half? I mean, maybe which region does that translate more to? Did that have a part to play in the weak New Zealand margin, please?
I'll hand it to Andy. A little bit to do with the tariff preparation, but Andy, over to you.
Thanks Harry. Harry, a couple of things are driving that number. We've obviously got a fairly sizable increase in the network. As we've brought through that inventory impact of investing and growing 39 net new branches, that has a provisioning impact associated with it. Above that, we have invested in some parts of the business around availability, and as Peter said, there's also been some pre-tariff purchasing in the U.S. as well. Those three things together are driving an uplift in inventory, and then if you look at provision, it's the network expansion, and we need to adjust our sell through, our provisioning, based on sell through rates. As they come off a little bit through the year, we've needed to reflect that from a provisioning. We haven't changed our methodology, but obviously it has an uplift when you start to see the market flow.
Got it, thank you.
Just. Sorry, final question if I may. Just on the Waterworks business, you gave some helpful color there. I'm just wondering if we s tep through the impact you saw across 2026. I mean, how much more impact are you sort of expecting, maybe to quantify in 2026, please?
Harry, it's like predicting the future. I can't. We thought we might have bottomed, but nothing keeps. We keep getting surprises. I'm not going to share the reasons why the President of Waterworks left us on the call, but I mean that hasn't helped. There was another uplift last week. They're going to continue to open stores, and they are the low cost operator in America. It's a situation that is creating a lot of pressure and anxiety for us. I can't, I actually don't know. I know that's not going to help, Harry, but that's what it is.
Thank you. Our next question comes from Brooke Campbell Crawford with Barrenj oey, your line is open.
Thanks g ood morning. Appreciate you taking the time and I hope you're going well. Just first one on Australia, you did note there's a period of soft activity to play out and I just wanted to sort of reference consensus, which has 32% increase in EBIT for the ANZ division the first half 2026 relative to the second half 2025 you just reported. I just want to check and see if there's anything, I guess, in that division that could help support that level of growth that the market has or any other color we should think about. Thanks.
We're not expecting any different. The next six months are going to be like the last six. The reality is July has started the same as June finished off. July has continued like that. We don't like to give guidance, but it's continued on and it's still at the EBIT level. It's still going backwards in July.
Yeah, no, fair enough. Appreciate the challenges out there, and I just wanted to check on, I guess, the multi-year outlook. It looks like the LTI sort of EPS growth has been lowered a little bit. I appreciate things are a bit soft, but I guess at this point in the cycle, I would have thought perhaps there could be kind of an increase in EPS growth on a multi-year period, but the sort of stretch EPS targets being lowered to, I think, it's greater than 5.5%, so I guess maybe just some comments on how we should think about.
I'll keep coming back. The end markets are soft and there are structural changes happening. The heartland is Victoria, and Victoria is the toughest place in this country. That's where we try to get our innovation in place, and then we've got like-for-like sales that are down in both plumbing and Waterworks in America. We've definitely got a big speed hump right now in the Waterworks part, but the plumbing part is also like-for-like down because we're so exposed to the residential new construction. If you're actually on the ground, it is stuck. People are waiting to do, in America it's driven off the long-term interest rates. They haven't moved yet, and maybe they won't move as much as everyone expects. It's a, we're in, It's a, f rom a REIT perspective, we're definitely in a, yeah, we're in a perfect storm. That's just what it is. It's obviously testing us, and we will see how we respond. You really find out a lot about yourself in these times and your teams and all of the alignment through all the different stakeholders. I don't know whether that answers the question, Brooke, but that's where it is.
No, that's helpful. Appreciate it and I'll hand it on. Best of luck in the year ahead. Thanks.
Thanks, Brooke.
Thank you. Our next question comes from Sam Seow with Citi, y our line is open.
Morning guys, and thanks for taking the question. Look, I just want to ask.
You've had a good year on store rollout, so just wanted to maybe unpack what the difference in your like for like growth versus your reported sales growth is, and just kind of understand what that underlying like for like is in both regions. Thanks.
Sam, w e haven't shared it. We've got like, everyone's listening to us. I'm sharing a lot here. I'm being pretty honest here. I'm not going to share that on the call.
Okay. Okay.
There may be just on store rollout then as we think about FY2026. You've obviously had a strong year. Are we thinking about winding that down to manage the cost base a little, or investing through the cycle? Anything we can think about above and beyond your historical norm.
Thanks.
No, it's a good question that we obviously, that is all not, not at this point, but if it keeps going like that then that could be on the table. If we then, you know, if we then were to dramatically wind that back by our capex, it would be really signaling that we may be losing faith in the long term plan. It's definitely getting our hearing with management. Like what happened at the end of the GFC when we had a six year period of no growth. It's just that we weren't covered by everybody, so it was much easier to actually navigate that cycle. This one's harder than that for us. Yes, definitely part of that, that is part of our differentiation in the U.S. but it's going to take multi decades before that becomes meaningful. You're all outdoors, you're winning customers one customer at a time.
We got some coverage through Covid because we got the COVID stimulus that benefited plumbing, obviously Waterworks. We've got the competitive threat of Waterworks now and everything's reverted back to the main in plumbing and exposed where the business was back when we bought it, which needed a lot of work. I used to say we bought the worst house on the best street. I used the analogies of like, you know, it's like buying a 100-year-old house and doing a big refurb whilst living in it, so it's all that still at play and, t hat's just been giving you the narrative at all. The positive of all that is you're having more honest conversations. Not that that's not the way my style is anyway, but we're having much more honest conversations everywhere. That could be positive out of that, as long as you don't then lose the belief with the team because confidence and belief can get shaky when things like this happen.
Thanks guys. Appreciate the color.
Thank you.
Thanks.
Thank you. Our next question comes from Keith Chau with MST Marquee. Your line is open.
Good morning Peter. Thank you for taking my questions. The first one, and certainly appreciate your candor on these topics. I think you mentioned earlier some market share loss in both Waterworks and I think you did say plumbing as well, the plumbing business. I'm just wondering if you can elaborate on the plumbing side of it.
We've talked about, you know, ad infinitum.
Can you give us a sense on whether there are some competitive issues in that plumbing business, and whether you think part of that is the change in distribution structure in the U.S. as well, please?
Thank you.
It's a good question. I've got to be careful here because a lot of our competitors are listening as well. We're being honest with everything. A lot of it is the s oftness i n both residential new construction and multifamily, which means that if there's less activity, there's more trading happening at a local level, there's more competition. When you've been a business that sells on price, that's the level you pull. We've been trying to create a point of difference and through the last four or five years add some capabilities and some abilities to try and lift the margin. Ultimately, what happens under pressure, when you see the market fall like that, a lot of what you do goes out the window. It's like a football analogy. You can have great skills on the training track, and then when you're on the football field and you have to kick the goal to win the match, the pressure comes up and often you miss the goal. That's the analogy there.
A lot of it's to do with the market softness and maybe, you know, I've always said this, we have got really big competitors in the U.S. Ultimately, in these times, the big competitors that have the capabilities, that have got really sophisticated supply chain, bigger scale, a stronger, more wider leadership, they're the ones that do better in these times. That probably is a way of answering it. We're feeling pain in both Waterworks and plumbing.
Appreciate that, Peter. I guess maybe there's a bit of consolation in terms of the earnings performance here. Quite clearly you've got to fight back in a lot of ways to keep your position in the market for that longer term story. Can you give us a sense of how much, I mean, I'm not sure how to ask this question, but how much additional cost of business is, you know, adding at this point in time to try and keep that position? You've had to rebuild the forward line team quite clearly. Maybe you've had to defend a bit in the plumbing business as well. Is there, are there additional costs that have been put into the business to help you defend your position in the US at this point?
Yes, definitely. That is definitely the case. You are, because you, I mean, it is, it's definitely. That's inflationary because it's both at the trading sense and then obviously you're competing for the people part and trying to retain. That definitely is playing out. Sasha, do you want to. Sasha's got something.
No, that's fine. Thank you.
Sorry, Sasha.
We're all good.
Thank you. Our next question comes from Nathan Riley with UBS. Your line is open.
Yeah, thanks guys.
It's just actually an extension to that question. Obviously, you know, picking up everything you're talking about here in terms of the challenging macro, but you've obviously identified and highlighted you committed to the strategy. Plus you've got the strength of the balance sheet behind you, but i n terms of how you're t hinking about investing in the business over the next year to defend and grow your position, can you give us some insight into whether you're leaning more on cost at this point? operating efficiency, service offering, price, and to some extent even capital to try to get a sense of maybe the cash c ost that you're sort of thinking about t o support the business over the next 12 months?
I think what we've been really, we've got a very clear sort of strategy and a clear blueprint and our priorities that we're going after. If anything, it's about trying to get bang for the buck when we've been investing. It's an execution piece as well, which starts having people and getting high performance teams and then actually getting outcomes. It's staying true to the framework and the strategy. The part where it's harder this time, I mean, if you look at Australia, we've got a great business and great capabilities. We're an essential service. Lots of the innovation comes from the center, which is here at Cremona. We've got an innovation center as well. It's those areas, and we're based in Victoria where through a huge period of lockdown, we have really struggled to uncouple innovation and productivity. We have struggled to get people to come into the office.
If you don't do that with that part, you aren't going to unleash the innovation part of our strategy. If we, in the next period can't actually come to grips with that, then we will be pivoting and then everything will be on the table, including what we do, including innovation, the innovation investment, and maybe pulling Capex. Nothing is off the table yet, but we're holding our nerve just right now.
Okay.
In terms of how you might be thinking about cash conversion over the next 12 months.
I think you can. The next financial year is not going to be any better than this. We've got a challenging financial year. Another challenging year coming. It'll be, you know, that you just got. That's the, I mean, we don't. I'm already giving a lot more color. It's much easier when you're performing more. You don't have to explain as much, but I'm trying to give color without giving every single thing away for us to be. Then continue to be attacked because this is really competitive and we've got competitors that listen to this and it's a new ball game. It's like this was how it was 20 or 30 years ago. It got more orderly for about 10 or 15 years. It's definitely not orderly now.
Thanks for the color, m uch appreciated. Thank you.
Thank you.
Thank you. This concludes the question and answer session.
I would now like to turn it.
Back to Peter Wilson for closing remarks.
Thank you, everybody, for attending our full year webcast today. I do want to just close by thanking the Reece team, our shareholders, and all the stakeholders for the ongoing support. It's definitely been a challenging period. Thank you, and we'll see you on the next call. Bye.
This concludes today's conference call. Thank you for participating, y ou may now disconnect.