Hello everybody, welcome to our 2020 Investor Day. We had hoped to host you all here in Atlanta this year, not to be. We will do our very best to make this an informative and useful session for you today. Before we get into it, a couple of words on logistics before we start. We'll be splitting this session this morning into two halves, with a Q&A at the end of each half. If you wish to ask a question, click on the blue Q&A button underneath the presentation and type in your question. Phil King will be aggregating the questions and moderating both of the Q&A sessions. We will do our best to keep the session as tight as possible today. We certainly appreciate this is a tough forum, tough format. You're on the other side of the screen.
A couple of hours in, it's going to start to feel like a long time. We'll keep it as tight and as punchy as we can. We will break halfway through, so you can rest your eyes and ears, and more importantly, get a fresh cup of coffee. We will be done by 11:30 A.M. Australian Eastern Standard Time. We are recording this session, and a copy of that will be available on the RWC website fairly soon after we're finished. You may have seen that we released a trading update to the ASX this morning. That update, along with this deck, the presentation material from today, will be available on the ASX. All of our presenters will be live today, except for Edwin de Wolf in the Netherlands.
Given the time zone challenge, and more importantly, to make sure we had a clear audio and video connection, Edwin's session has been pre-recorded, but he is live for the Q&A session at the end. That's the start. We move on. This page here is really a cross-reference for you. These are our presenters today. You can check back and look at this page as you need. We will be introducing each presenter as we go. This is what we'll be covering today. First of all, we'll start with a brief trading update. Andrew will be talking to the announcement that we just released to the ASX. We'll then be following up with an operations update, specifically touching on COVID and how that's impacting us in the factories and the distribution centers.
We'll move on to strategy overview and how we create value in the business, and then to what makes up growth in the North American market. That will make up the first half of the session this morning. In the second half, the regions will provide an update on their businesses and their strategic objectives. As a final comment, we will not be covering today ESG, diversity and inclusion, employee engagement, or talent development. These are all very important areas for us, and we do have significant projects underway, but given the format, we want to keep it tight today. We will cover those issues in subsequent sessions. With that, I'm going to pass over to Andrew to go through the trading update for today.
Thanks, Heath. Now for a brief trading update. If you will, turn with me to page seven. Overall, first quarter sales performance in each of the three regions has continued to track in line with what we reported at year end. Americas strong sales growth continues into September with improved wholesale and as Canada continues to recover. Overall, retail and hardware point of sales has remained relatively consistent over the last three months, with fluctuations in our sales to the retailer driven by either supply chain timing or the number of shipping days in the respective month. APAC external sales in September are holding up well, up slightly over the prior comparative period.
Internal sales of SharkBite to the Americas are also higher. In EMEA, we continue to see volumes recover in the U.K. and Europe as those markets continue to open. Note, we do believe the improved sales activity in September is partly driven by pent-up demand and from channel partners rebuilding inventory. In all of our regions, we are pleased with how sales have developed. However, we remain cautious on the outlook. As we outlined in the trading update, repair and remodel activity in the U.S. will likely slow without further government stimulus measures.
We also expect APAC sales to soften with lower building activity in the coming months. In the U.K., we are uncertain where demand will settle after satisfying the pent-up demand for our plumbing parts. In all regions, we are watching the COVID-19 numbers very closely and are cautious on the ongoing impact, not only to our business, but to the businesses of our customers. Based on these uncertainties, we remain cautious that first quarter sales may not be indicative of our full year sales performance. With that, I'll turn it over to Tracy.
Thanks, Andrew. Hello, everyone. I'm Tracy Scott, Group SVP of Operations. For our Operations update today, I'd like to discuss first safety, as Heath said, with an emphasis on our actions that we've been taking during COVID-19, but also share progress on our Operations Excellence initiative since we last talked at Investor Day last year. Let's start with safety. Before I get into COVID, I would like to provide a quick summary of our safety performance, which is summarized in a few slides in the appendix. Over the last two years, our injury rate has been reduced by 46%. Last year, the injury rate was up slightly, which we believe is attributed to our emphasis on leading indicator reporting, which is part of our overall safety strategy.
Importantly, also, the severity of our injuries is improving as the lost time injury rate has declined 68% since fiscal year 2018. Again, you can see more details of the safety performance in the appendix. Now I'd like to discuss how we've been managing to protect the health and safety of our employees during COVID-19. First, regarding our people, those who could work from home have been doing so with only limited people at the office to manage the essential business, along with our operations employees who continue to work at our facilities. For those who worked from one of our facilities, we implemented temperature checking and deployed PPE to minimize the risk of COVID impacting the people in our operations. We also implemented new procedures in our facilities, including social distancing, frequent cleaning, and managing return-to-work protocol for anyone affected by COVID.
We also had to adjust our supply chain actions to both protect our employees and fulfill the strong customer demand. An example of this is the picture on the right. You can see a manual assembly area, which previously had employees working very closely together. We've now modified the workstations to incorporate the required social distancing as one example of the changes we've made as we had to adjust to COVID-19. We have a global supply chain that was largely impacted by COVID-19, but our procurement and supply chain teams have and continue to closely manage constraints to avoid major disruption. I'd like to update you on the status of our Operations Excellence initiative. We made good progress on our strategy that we discussed last year.
Our focus remains on, first and foremost, driving world-class safety performance, cost savings, and efficiency improvements in both our operations and supply chain, procurement efficiency and strategies to address risks, and finally, our manufacturing footprint and capacity strategies. Let's take a closer look into each of these focus areas, starting with continuous improvement. We made great progress driving cost savings through lean management, through procurement efficiency, and rigorous management of cost savings projects across the globe. With this effort, we more than achieved our goal of offsetting non-commodity inflation. In procurement, we've developed and executed strategies for each of our spend categories, and we're now developing strategies and implementing strategies to mitigate risk across our supply chain, many of which were more than highlighted during the COVID-19 situation.
We've also applied a similar continuous approach to optimize our supply chain. We implemented a Sales and Operations Planning process in the U.S., as we discussed last year, and this is driving improved efficiency in our plants, helping us optimize our inventory, and improving service to our customers. We've also better aligned supply chain management between the regions, and plan to begin implementing S&OP in both APAC and EMEA in fiscal year 2021, which will link the supply chain management across the entire group.
This will allow us to continue growing and scaling more efficient processes. Lastly, we've executed parts of our strategy to optimize our operational footprint. We consolidated our HoldRite facility in Tennessee into our Cullman, Alabama facility this year. We also outsourced our brass operation in the U.K., and in the coming year, we will be expanding our distribution center footprint in Cullman. The footprint strategy is an ongoing assessment, which includes evaluating new technologies and our operations footprint that is needed to enable efficient growth in the future. Thank you, and I'll turn it back to Heath.
Okay. Thank you, Tracy. Thank you, Andrew. Andrew, I suspect you'll be back later. There'll be some questions on that trading update, no doubt. Now I'm on page 17 of the presentation, and I'm in control of the clicker, so I will do that. Look, the key points of those two updates there, firstly, on the trading update, it has been, or it's looking certainly like we'll finish this quarter quite solidly, and that's great. Certainly, though, clearly there's a lot of uncertainty ahead. We are cautious as we look forward. From an operations point of view, we've got a lot of work underway. Tracy and his team continuing to improve and gain efficiencies even as, and this is critical, even as we make sure we keep our people safe.
Now we'll make a quick or a slight change in direction for the presentation. We're going to head to strategy and key market data. Christopher Sandman will revisit our strategy and the key elements, the three key elements that drive our growth. Kal Nanji will then step through the breakdown of our sales and provide more details on the nature of our key repair and maintenance market in the U.S. With that, Christopher, I think it's over to you.
Thanks, Heath. All right. Hi, my name is Christopher Sandman. I am part of the strategy team here at RWC. I'm going to share with you how we think about value creation, and more specifically, how we remain focused on the core building blocks that make us competitive in the market. In spite of the challenging year COVID has given us, we have proven how RWC is a resilient business. The demand for our products is strong. The diversification we have across geographies and channels gives us balance, and the strength of our organization, specifically our operations and supply chain teams, has enabled us to navigate the storm. COVID isn't over yet. As such, we will continue to concentrate significant attention in the coming quarters on execution, making sure to mitigate challenges as they arise and be ready to take advantage of opportunities as they come.
Over the next 10 minutes or so, my goal is to highlight how, in addition to being resilient, this business has tremendous potential in front of it. We have a focused plan for how we are going to get after that potential. To preview, we're going to break down our strategy presentation in two elements, as Heath just mentioned. First, I'm going to talk about the core capabilities we invest in to create and sustain our advantage. I'll hand it over to Kal, who will share perspectives on our markets that we participate in. How do we think about creating value? To provide some structure, here's a simple framework we use to organize and communicate our value creation strategy. Before I walk you through it, let's start with the end in mind.
Our objective is to continue to increase the value of this company through a balance of above-market growth and strong margins. This page provides the framework for how we make it happen. Down the middle of the page are the three distinctive capabilities that are core to our strategy. These capabilities are product leadership, strong distribution partnerships, and operational excellence. I will be talking more about these capabilities and why we believe they are the right focus areas for our business. Before that, I want to speak briefly to the concepts we have represented on the outside of this page. We think of these two things as cornerstones of our strategy. These cornerstones provide the foundation for our performance. On the left is our focus on the needs of our customers.
Listening intently to the needs of our customers allows us to generate sustainable demand for the products we make. On the right side of the page is our focus on our people. Attracting and retaining the best people in our industry enables us to outperform the competition and sustain our success over the long term. Ultimately, this is all about focus. We believe that by concentrating our energy and resources, we improve our ability to do what matters at a world-class level. In the next pages, I will use a few examples to bring this strategy to life. Once we get to Q&A, I'll be happy to answer any questions you might have. Here's our first cornerstone. Through our relentless focus on the needs of our customers, we are able to generate sustainable demand for our products. Why are we so focused on our customers?
Well, by staying focused on the needs of our customers, we are able to better serve them, both today and in the future. By providing great customer service and consistently delivering reliable products, we win the loyalty of our customer base. This pays dividends both in the short and long term. As we think about the future, knowing our customers allows us to adapt our service, improve our products, and identify new areas that we can expand into. I will return to this topic in a little bit to give examples of how this focus makes an impact across multiple facets of our business. Here's our second cornerstone. We believe that in order to have an organization that can continue to deliver on our long-term goals, we must make RWC a great place for talented people to work and thrive.
Before highlighting a couple of the specific initiatives and programs we are working on, let me hit on why we think our focus on people is important for us. First, as a company that strives to outgrow the market, we must remain nimble and hungry. By having a team that is motivated top to bottom, we have the ability to identify opportunities faster and then execute on them efficiently. Second, as a global business with a distributed organization, we need to promote and support autonomy while at the same time keeping everyone marching in the same direction. With a common set of values and clear vision for where we are headed, we have created an environment that balances between these two guardrails. Quickly, before I move on, let me highlight just a couple examples we are excited about. The first is an effort to promote diversity and inclusion at RWC.
Our team is committed to making a long-term positive impact through this effort, and we know from early feedback and engagement that there's broad support and enthusiasm across our organization for this topic. The second is an effort to promote and strengthen our core values across the organization. A strong set of values helps us maintain consistency in how our regional teams allocate time and resources while giving them the flexibility to make decisions optimized for each local market. Now that we've talked through the two cornerstones, let me shift gears and talk about what makes us a strong long-term competitor in this industry. As previously mentioned, we believe there are three capabilities that determine our ability to win. The first is product leadership. We bring products to the market that save time, are easier to use, and have exceptional quality.
We are creating value for the person doing the job. We also have strong brands that matter to the end user and help us create separation from our competitors. By delivering better products under strong brand names, we are creating demand that is strong enough to pull our portfolio through our channels. The second strength is our distribution partnerships. We proactively work with our distribution partners to identify ways to put more value on the shelf. By consistently delivering value for our partners, we are able to protect the business we have while creating access to future opportunities. The third is our commitment to operational excellence. While we believe strongly in our ability to drive revenue as a product leader, we can't make it happen without a significant focus on operations. Simply put, we must deliver reliable products at the right time and place with a competitive cost structure.
Our emphasis on topics such as lean manufacturing, sales and operations planning, and on-time delivery performance are all vital examples of the work our teams put in to maintain and improve our operational strength. Since Tracy has just provided an overview of operations, I will now provide more context for how we think about our other two core capabilities of product leadership and distribution partnerships. How will we continue to be a product leader? At the highest level, we are a product leader because we are committed to the process of innovation. We believe the first step in a successful new product development starts with knowing the customer. At the risk of oversimplifying, let me share three basic questions I use to think about a new product idea. First, do we have a problem to solve that the customer really cares about?
Can we engineer a solution that solves that problem and that is significantly better than the status quo? Third, is the proposed solution financially viable? Specifically, are there potential margins that will work both for us and our partners? Starting with the first question, how do we know when we have found a problem worth solving? We answer this question by staying relentlessly focused on the needs, challenges, and pain points of our customers. It is also worth calling out the impact that deep customer insights have on M&A. Just as these insights feed our product development teams, they also play a role in how we think about and prioritize M&A efforts. For a specific example, this page shows the innovation life cycle for our firestop sleeves. The inspiration for this product started on the job site, observing a process that was messy, time-consuming, and inconsistent.
This insight served as the spark for new product development and is a great example of how we keep our customers front and center in our new product development system. Let's talk about what comes next and why RWC is built to turn problem statements like this into exciting new products. Obviously, finding problems worth solving isn't the end of product development. We still have important work to do. We need to engineer a solution that significantly improves the experience for our intended user, and we need a business case that makes financial sense. This is where our R&D capability comes in. You all know this well, but worth mentioning that product innovation in our market comes with its own set of challenges. First of all, a new product for the plumbing market needs to be bulletproof. The quality and reliability standards are extremely high.
When we bring a new product to the market, it must work. Secondly, codes and standards are essential and vary by end market. Specific market expertise matters. Finally, new product adoption takes time. The plumbing market is filled with late adopters, and rationally so. With deep R&D expertise across our global footprint, we are able to overcome these challenges by tapping into expertise and problem-solving skills from each of our regions, as well as our centralized group function. The differences across our end markets becomes an asset for new product development as the differences give our collective team exposure to what has worked in other markets, giving us a more diverse set of insights and perspectives to accelerate the ideation process.
As the last of our examples, I'd like to talk about the importance of our distributor partnerships and why this is a key part of our strategy. Our ability to serve our partners at the highest level really rests on many of the things we have already discussed, including getting the highest quality products where they need to be, when they need to be there through our operational excellence, and creating demand by developing market-leading products and wrapping them in brands that communicate our commitment to value and reliability. Our success also comes from how we partner with our distributors. We are proactive in our approach and actively seek to bring new ways to create value for them.
The strength of our approach to partnership pays off in a number of ways. It gives us more opportunities to test new things with our partners, which helps us maintain our product leadership position. It also helps bring opportunities our way, as distributors often look to us when they want to improve the performance on their shelf. Before I hand it over to Kal to talk about our end markets, I want to quickly pause on this page and highlight our long-term vision. Our aspiration is to be the premier plumbing products company worldwide, recognized for customer-focused innovation, value-generating brands, unmatched service, and a dynamic team culture. That's it for me. Thanks for your time, and now I'll hand it over to Kal.
Thanks, Christopher. Good morning. I'm Kal Nanji. I lead strategic marketing for Reliance. Going to talk a little bit today about our markets and potential growth opportunities going forward. As you can see, there's much more to Reliance than SharkBite. In fact, the visual that you see right now represents the value of each one of our categories to our business. Our goal with product leadership is to maximize the value of all these products as components within a basket of solutions. For the end user and distributor, it creates tremendous value because all of these products work together as a total solution and available from one source, more importantly, also one technical support number and one customer service number. Currently, the other categories that we're diversifying in, pipe, valves, FluidTech, and integrated installation solutions, form about half of our business.
While brass PTC, plastic PTC, and non-PTC fittings combined represent a little bit over half as well. Let's talk a little bit more about fittings. Making up about 45% of our business, the Push-to-Connect products provide a really strong foundation. SharkBite is available across all of our regions with number one positions in the Americas and Australia and growing positions in EMEA. We are the global leader in plastic PTC, with number one positions in our key plumbing and heating markets. Finally, the non-PTC fittings that we are focused on, essentially crimp and expansion fittings, are products that complete a basket of solutions for our end users. This drives sales across categories and leverages our distribution network. We are growing the diversity of our product portfolio. These categories are largely aligned with a SharkBite value proposition.
Whether it's efficiency, labor savings, or availability, they all help our end user be more productive. With pipe as one of the essential components, we have become a leading producer across all of our regions. At about 11% of our business, our valves category is as diverse in product as it is in application. With availability across all of our markets, we have become a top player. Innovative installation solutions are an innovative set of products that support the installation of pipe and fittings, along with water heater installation and fire stopping protection. The beauty of this category is that our competition is not necessarily other products. Rather, we're converting people from makeshift field device methods and creating efficiency and reliability in the process.
Finally, with John Guest, we acquired a vast new category of FluidTech solutions, which include a range of end-use applications from beer and drink dispensing to telecom fittings with our blown fiber range. In fact, we have top positions in drinks and dispense in the U.K. and in water treatment fittings in the U.S. Now, let's take a look at how these categories offer relevance to our core end-use markets. As you can see, we have broad relevance across both RMI and new build segments that represent our core globally. Additionally, as we expand into the emerging commercial segments, these same categories, you see similar strong relevance. Finally, we're able to leverage our expertise in Push-to-Connect technology in the FluidTech segment across multiple applications. Now we started looking at our end-use markets in that previous slide.
Let's take a closer look at what our end-use split is by region. As you can see here, clearly RMI is significant share across the board. While new build represents a larger share in Australia and FluidTech with a good size share of EMEA, the Americas RMI market, though, is the largest end-use market in our business. Going forward, let's review a little bit what makes that market tick. As this segment is a critical element of our business, we've taken a closer look at some key indicators that will assist us in determining long-term growth. We've categorized them into three main buckets with about two indicators in each. First off, we looked at increasing home values and existing home sales as key leading indicators for RMI activity. We took an extra view of this historically to further validate that correlation.
Additionally, we wanted to look specifically at category metrics from a historical view and see how those correlated to existing home sales and home values. We looked at some key driving fundamentals, which include the median age of housing stock in the U.S. and household formations. Let's move through that data. As is widely acknowledged, total home improvement expenditure and home values are highly correlated. This further view offers that historical confirmation and further validity on the importance of home improvement expenditure to home values. With existing home sales, another key RMI indicator, you can also see strong historical correlation between RMI activity and existing home sales. That's whether buyers are moving into new homes and updating, or sellers who are updating in preparation to sell their home. Let's take a little bit of a look at product categories that are relevant to us.
Now, this is historical in terms of non-discretionary spend. You see homeowner replacement of internal pipes, and subsequently fittings, has grown at about a 3% CAGR from 1995 to 2017. Plumbing fixtures like toilets, lav faucets, bath faucets, and related fixtures, which also use our product solutions and installation, have been replaced at a higher clip, with growth at about 7% CAGR from 1995 to 2017. Another metric we looked at where rough plumbing solutions are used is both kitchen and bathroom remodels , and these are discretionary expenditures. They have grown at a 4% CAGR over the last 25 years or so. Both of these discretionary improvements have a high correlation to both increasing existing home sales and, as we've seen in previous charts, home values as well.
Let's take a look at some key fundamentals, starting with age of housing stock, which really supports the increased repair work done in homes. Aside from the outlier of spending activity between 2003 and 2007, that's really associated with the housing bubble, there's a high correlation between the growth in average age of housing and RMI activity. Another fundamental that we looked at is household formation. Household formation has typically been associated as a supporting metric for new single-family and multifamily construction, where it does demonstrate the need for new housing units to keep up with underlying demand. The data presented here can support using this metric as an indicator for RMI activity also. As you can see, the rising RMI expenditure after the larger spikes in household formation indicated by the light blue bars.
In summary, we've seen strong historical correlation of increasing home values and existing home sales through about 25 years of market cycles, and it's driven an RMI market with about a 2.5% CAGR over the last 25 years. In our categories, we've seen internal water pipes and fittings replaced or repaired at a rate of about 3%, and plumbing fixtures at a rate of about 7%. Kitchen bathroom remodels , where our solutions are also used, are highly correlated to existing home sales and grew at about 4% CAGR from 1995 to 2019. The median age of housing stock has grown at a 2% CAGR, and total housing stock has grown at about 1% CAGR.
The data shows RMI activity follows household formation spikes with about a 1% CAGR from 1995 to 2019, and also strong future household formation with about 12 million new households estimated, which equates to about 1% CAGR. With all this data that we just reviewed, and acknowledging the fact that there will be variance on a year-over-year basis, we believe a long-term market growth of 2%-3% annually is a reasonable target. Given the previous review, we've put together a view on what a growth estimate can look like for the U.S. As you can see here, we can target a 3%-5% annual growth rate based on a 2%-3% market growth, and our ability to convert users and take share with above-market growth of about 1%-2%.
On top of that, on the right side, you can see we have some variable upside in any given period based on specific customer and product initiatives that we target regularly but are not always guaranteed in every period. We'll approach the U.K. growth estimate in a similar way. We currently have estimated about a 1%-2% market growth in volume and about a 1%-4% above market growth, which also includes price. These estimates are still being validated. It does provide some insight into what a long-term view could look like. Again, as you see on the right, we have variable upside based specifically on future strategy execution in the U.K. around customer and product initiatives that are targeted again regularly but not always achieved in every period. That's the end of this section. We can move on to our first Q&A session. Thank you.
You forgot to change to the new guide slide. Christopher.
I believe, Phil, you've got the questions there and are going to throw them out.
Yes, I do.
Throw them to us.
I'll lob them to you in the first instance, Brad.
Is that us in the middle?
Sorry. Is that us? The first one is regarding actually the growth in the two markets, the Americas and the EMEA, referencing the slides that Kal just talked about. Noting our expectations for growth above market is greater in the EMEA than for the Americas, why have we taken this view, particularly given PTC and plastic plumbing is further penetrated in the U.K. than in the U.S.?
Yeah, sure. Look, the main point there, Kal just did mention it as he hit that slide, is we've included price, which is quite a broad range, but we've included price in that above-market growth rate. There's an argument to say that's actually part of the market growth. That's where we've represented, that makes up a chunk of that number. That's the reason there. Look, the other thing I'd say is we're certainly more advanced in analyzing and assessing that U.S. growth than we are in the U.K. That's one to look out for going forward as we refine that.
Brisbane, you're making a lot of noise. Could you please be quiet? The next one, I think we'll leave for the regional discussion next. Here's one from Heath. Heading into the end of the year, retailers typically stock up ahead of the potential winter freeze to a greater or lesser extent, depending on seasonal conditions in the prior winter. This year, the ramp-up at the end of the year will take place during a strong period of underlying demand. Will there be any significant changes to manufacturing configuration this year to manage the volumes required until winter freeze?
Look, I'll touch on that briefly now. Sean may be going to get into that a little bit later on. The short answer is yes, we are trying to put a little bit of inventory on the shelf as we head into winter. Factories are quite busy right now. A lot of product going out the door. That is a little challenging, but that is certainly still the goal, to be prepared for winter. Look, my view is that as the business grows, that impact of a freeze is proportionally shrinking as a percentage of our overall business. It's more related to how many houses or how many pipes freeze as opposed to a percentage of our business.
We don't ever expect a freeze to have the same percentage impact on our business that it did back in 2014, for example. Nonetheless, we're following our normal cycle, building inventory towards the end of the half to be prepared for it, and then the second half, we'll deal with it one way or the other. We'll ship a whole lot of extra product, or we'll then have to pull back manufacturing to wind inventory down. Following the same process at this point.
Thank you. Another question, this relates to the trading update this morning. Can we provide an estimate of the EMEA channel restocking benefit in September, which we’ve referenced, and the U.S. if relevant, and whether this channel restocking has been completed?
Look, it's pretty tough, Andrew. I don't think we can really put our finger on exactly what that proportion is in the U.K. Look, my gut feeling says at some point, the wholesalers get all the inventory they need on the shelf. The harder one to read, I think, is probably the pent-up demand in the U.K., is exactly where that's at. We've got two or three or four months worth of pent-up demand to meet as well as what the run rate is. I think that's the biggest one. The bigger factor right now, a little bit hard to tell and unknown. It's a bit hard or it's impossible, in fact, for us to put a more accurate number on that. The second part of that, Phil, was with regard I didn't quite catch it. With regard to U.S. demand?
Yeah. Whether there's any impact in the growth we're seeing from distributors restocking in the U.S.
I think a little bit, not too much. Maybe on the wholesale side of it. Wholesale sort of recovered. After a couple of slow months, it's recovered back to about normal. There was probably a little bit of inventory movement there. Nothing material certainly. The retailers and the hardwares, they feel about right for inventory right now. I don't think there's too much to read into that.
Thank you. The next one, a question from Peter Steyn is, could we outline how our product development process has changed in recent years, especially in relation to ongoing monitoring and reviews to ensure we stay on track? The product development process.
Yeah, certainly. This is a subject that could take up the rest of the session if we allowed it, but we won't. Our process has become more structured and more robust. I'd like to think that we're a dynamic learning organization, and certainly we put more effort up front. Christopher Sandman touched on this when he spoke about how we assess opportunities in the marketplace. We spend more time and put more effort into that front end to determine what the real opportunity is, the scale, what sort of solution will make a difference, and what that financial modeling looks like.
We certainly have a more structured, more robust, if you like, stage gates along the way to determine how that project is tracking, and before we at each stage determining whether those assumptions that we made in the first place are still valid or not. No major deviation directionally, but certainly more structured and more robust than what it has been in the past.
Thank you. Next question. To be the premier plumbing products company worldwide, do you believe you need to broaden your product set much beyond the current mix?
For sure. Look, that's a big part of the second half of the presentation, and most notably, I'd say in the U.S. Offering a broader array, a bigger basket of products for our end users is really a key part of that and, as Christopher said, providing product leadership there. Absolutely, that impacts our view on research and development and also acquisitions. Yeah, that part of it, and there's a lot of opportunity there without question.
Thank you. One from Lee Power. Good morning. The variable wording on growth estimates implies growth above the base business rate may not be achieved on a recurring basis. Why would new product development not lead to recurring growth beyond the base business?
That was a little bit hard to hear. The gist of the question, Phil, is why or how does product development impact growth beyond the market growth?
Why is it lumpy, I think. Why is it not recurring? Put it this way, why is growth above?
The product or customer initiatives?
Many factors, some within our control, many that aren't within our control, where our distributor's at in terms of space on the shelf or their implementation teams to roll a new range of products into the store. The product development life cycle is not perfectly linear. Not everything takes exactly three months or six months or nine months to develop. That varies depending on product. There's a number of factors there. We will try and get one of those initiatives in the U.S. every period.
I think it's worth saying we don't expect to achieve that this financial year, simply because all of our distribution partners are quite busy in the U.S. in filling the demand, and we're obviously quite busy as well meeting that demand. Our expectation is we won't be able to get one of those this year. Look, if we do, then that's a bonus, but the expectation is we won't. A lot of factors at play there.
As a follow-up, is growth above the base business more likely to come from internal new product development or M&A?
A combination. Definitely a combination, which has always been the case and will continue to be the case. Look, the goal with an acquisition is to get a hold of some clever product and be able to amplify that through our distribution. Both of those elements, internal development and acquisition, will be contributed to our growth going forward for sure.
A question back on R&D. What expertise sits in R&D? How many professionals, how many engineers, how many graphic designers, et cetera? someone wanting a bit more detail on our R&D capability across the company.
Okay. Look, globally, we've got in excess of 100 engineers working in our business, split across the Brisbane facility here in the U.S. There's engineers obviously in Melbourne as well, and a good number of really capable engineers in the U.K. as well. We split the development in different parts of the world. Brisbane's the valve center of excellence and Christopher presented some information on that in relation to a valve that the Brisbane team developed specifically for the U.S. market. Although it's a team that sits in Brisbane, it definitely provides development expertise and products for the whole world. If you jump to the U.K., that's clearly heavily a pipe and fitting development team. And again, there's work that they do in the U.K. on pipes and fittings that we are looking to use in other parts of the world, as we go forward.
Another question on R&D. It's a big part of the growth opportunities for the business. Can you give us some insight on how we prioritize the allocation of R&D spend?
Look, simply it's what product's gonna move the needle the most? What's gonna generate the greatest income? Look, it's not that simple. We'll make strategic moves along the way. Sometimes you might have a product range that's 100 items. You have to fill those last 20 items as well. You can't just have the core, the 80 that you want to sell that do the volume. You need to have that whole range. Other than that, it's developing one of those products that'll have the biggest impact in the key markets around the world.
Thank you. Changing gears slightly, this is talking more to Tracy's piece. Can we confirm that we are targeting margin growth, given that Tracy stated that the goal of operational excellence is only to offset non-commodity inflation and given that we're not currently getting much price?
Definitely. I'll answer this for Tracy. We strive for more than that. I think Tracy said at least or minimum offsetting inflation. I know this is an issue that gets Andrew pretty wound up, and rightly so. He seems to go red in the face whenever we talk about only offsetting inflation, and I think he's probably right there. No. These activities on efficiencies, cost savings, procurement savings are all aimed at expanding the margin.
It is asked in the context of EMEA. I guess it could apply in any market. Do we think we can do better on price in EMEA, firstly, and other markets more generally?
It's a tough area right now. The U.K.'s quite focused on are the wholesalers open? Can you actually ship the product and get it delivered to the distributor? It's a pretty basic, fundamental focus right now for our business and our distributors' business. That will remain the case for some months out. Nonetheless, particularly the U.K., really good discipline of pushing our prices through to the market. We expect that will continue going forward. The amount of that varies, and I think that came through in Kal's chart. Is that a one, is it a two, is it a three, is it a 4% price increase? That varies year by year for sure. I'd like to think we can keep that discipline going.
Thank you. Excluding logistics time and the additional trading day, this is back to the trading update. Excluding logistics timing and the additional trading day, what do you think USA growth was versus PCP? Has September included any promotional activity?
There's no specific promotional activity, Sean, in any of the first three months of the year. I think the variation July, August, September is really logistics timing variation. I think if you average across those three months, that'd look pretty close to what we're seeing from a point of sales point of view with our customers.
Thank you. The next question: how would you suggest that we as an analyst anticipate the upside years? For example, what is the gestation period for new initiatives and products?
Can you go again, please, Phil? I missed that one.
Yeah. How would you suggest that an analyst anticipates the upside years? For instance, what is the gestation period for new initiatives?
Look, it's difficult. It's difficult for us in the business to know exactly what's going to hit when. The gestation period for a product, look, it depends. Some of the service valves we rolled out, they're measured in months. If you look at something like an EvoPEX fitting, that's measured in years, many years. It's difficult to put a single figure on it. That's really why we tried to, per Kal's chart, to break it down to show that core market and above market growth rate as being the more solid, repeatable part of our business, and we'll strive to put more on top of that in any given period. That might be an extra half a percent.
We've had periods where it's been double-digit increase just for the initiative. I think there's some big movements we've had over previous years that we won't see again. We've had periods where it was more than 20%. That's going to be very unlikely going forward. I think if you look at the last half of FY 2020, where we moved by about three points, if we could land one of those every period or so, that'd be a good outcome. Certainly not guaranteed. Again, I think this year will be devoid of that opportunity. Not for want of trying on our part, just factors outside our control.
Thank you. Question from Andrew Scott now. You spoke of the broad product range, but you're still selling individual products rather than complete systems. How do you try to ensure that a customer for one product buys the broader RWC range of products? Is a systems approach achievable as an end goal?
For sure. Absolutely. In all of our markets around the world. The pipe and the fittings in the U.K., the SharkBite system in Australia is a pipe and fitting system. SharkBite EvoPEX here in the U.S. is the same. I think the slides that Christopher showed where he talked about the distribution partnerships, looking closely at those slides, it shows how we present the product on the shelf. It's a complete, coherent branding and presentation of product on the shelf with the explicit goal of showing that those products can work together. I think that's a really important part of what we do, is if you walk down the aisle in a retailer or you're in a wholesaler at their counter, you want to see that all these products are part of the same brand with the same colors and packaging and so on.
That gives you the reassurance that they work together. I think that's a really important part of our product offering. It's back to this question of what's the opportunity going forward is there's more product can go into that basket or for the end user or onto that shelf for our distributor, and we will leverage our brands and the colors and the packaging and the clever point of sales material to show that these products work together. That's a key element of our approach. Absolutely.
Moving to the U.S. Can we talk about the retail versus wholesale channel competition for the Pro and how that is progressing in the U.S. and how we balance those two relationships?
Yeah, look, I think.
There's a follow on.
Get to touch on that in his session. We'll leave it for then. I think if there's additional questions, we can catch it at the second half.
Okay. Very good. Next question. Can we talk to how we monitor competitive product developments in core and adjacent markets, and whether we see any emerging or growing competitive threats and our response generally to competition?
That's a broad old question right there. This is going to sound silly. I mean, we live and breathe it. Our people in the field, watching the trade magazines, keeping your ear on the grapevine as to what's happening, all of that contributes to seeing what's going on out there. Our distribution partners are important here. They give us a heads up on what's happening in the marketplace for sure and certain. I think the key aspect is, again, let's go back to what Christopher presented in relation to knowing the customer.
That's the end-use customer. That's the contractor he's talking about there. Spending time in the field on the ground is probably the most important place for us to learn. If we're going to see some tested product from a competitor or a new idea, that's probably where we'll see it. A contractor we've got a good relationship with that we go along to service as part of our routine, if he's come across something new or something special, he'll tell us. I think that's a valuable part of our relationship with our customers. From all sorts of directions, but I'd say in the field, a lot of answers come from the field without question in relation to many aspects of our business.
Thank you. The next question from Peter Wilson. Restocking and destocking has been a large source of period-to-period volatility. Do we have initiatives planned to smooth this out, for example, through more integrated replenishment planning?
Not particularly. We stay close to our distributors. We are a little beholden to them. I think we mentioned at the year-end, we had a period of some days where one of our major retailers didn't pick up for just based on transport availability. That happened to move volume from one month to the next. Fundamentally, it's not a difference in the demand in the marketplace. It can move our number around month by month.
As I've said a few times, our order book is a couple of days long. That's the visibility that we get. I think we're as close to our customers to our distribution partners as it's possible to be. Sometimes we've got to move quickly to fill an order. Sometimes we end up with something sitting on the dock for a couple of days for other reasons. There's no major initiatives there that I think can change that circumstance.
Okay. The next question, slightly more broader one. Will we become a more diversified plumbing product company over time, or will Push-to-Connect always be around 50%?
No, I think we'll become more diversified.
Yeah.
Sorry, Phil, I know you're pushing me for crisp answers forever. That's as crisp as I can get.
That's very crisp. I'm impressed. A question from Roger Ahmed on the trading update. What are our customers collectively saying about forward demand potential going into Christmas? Is it consistent with our observation or expectation of softening growth at some point?
Can we leave that one maybe to the second half as well? We will touch on that in each of the regions a little bit.
A question from Simon Thackray. This is about the restocking. He understands and acknowledge the restocking that is occurring across regions. What sort of visibility can we have to the end of this phase, if any, to gauge what we think underlying demand is? First part.
It varies a little bit by region. In the U.S., for example, we get good point of sales data from a handful of major customers. That's really the more important data for us than the shipping data. Our shipping data, quite frankly. The U.K., on the other hand, that information is not quite as available, and right now it's really not available. That's the challenge for us is the U.K. market right now in terms of getting that visibility. Frankly, we deal with it day by day, week by week, month by month at this point in time.
How does the customer feedback loop work for us?
That is quite a broad question. Again, it varies. Dealing with the hardware stores and the retailers here in the U.S., we deal in data. It's like we pull down data on a regular basis and assess what's happening there. Once you get to the wholesalers, it's more based on conversations and not so much anecdotal, just conversations and staying close to your wholesale partners and hearing what's going on and understanding what their plans are and what they're seeing in the market. There's no magic bullet there. It's just staying connected, feet on the ground, a little bit similar to where we come up with our ideas for new products and how competitive it's doing. It's just being out in the market and engaged.
Okay, a question on the brand refresh that we did last year. What impact has this had with our customers and distributors? Has it enabled a greater share of shelf space in the channel? Has sales per dollar of marketing spend risen?
It's been an assistance, without question. The hard work is in the basics of the business, coming up with the product, the operational excellence, the execution capabilities with the customer. That all is really important. Back to the question of how we display the product on the shelf and how does the user know that this is a system and all the products will go together. That branding is a key part of that. We started with, take the U.S. Before we did the brand refresh, we had dark blue for SharkBite, we had purple for HoldRite, and we had orange for Cash Acme. That's quite a clash of colors, and there's nothing about those colors nor the branding that indicated those products work together.
If you now walk through a store and look at the HoldRite product and the Cash Acme product and the SharkBite product, it is all of the same font, same colors, and style. It is clearly part of the same family, the inference is that those products work together. Look, it is not the driving force, but it is part of that overall packaging solution that we bring to the market. It is that execution with the customer in the store that I think is a real advantage for us in the marketplace, and that branding is part of it.
Thank you. Can we talk about our ability to manage the cost base through the cycle? Should we expect steady margin through the cycle?
I'm out because you've heard enough from me. I'm going to step aside slowly, and I'm going to let Andrew come in, and he can answer that question because I'm sure you're sick of hearing from me. I'll be back.
Phil, if you could you repeat that question, please?
Can you, Andrew, talk about our ability to manage the cost base through the cycle? Should we expect steady margin through the cycle?
Well, there's always some things that are going to push margin around a bit. We've talked about exchange rates, and we've talked about currency fluctuations in commodities. Outside of those two big things, we would expect to see margin improve progressively.
Thank you, Andy. Stay there, because I've got another question on this. In relation to the strong sales that we've updated the market with in the U.K. and the U.S., can we comment on manufactured costs? Has a strong sales growth rate translated to margin expansion in the first half?
Well, as you would expect, with improved volume, you're going to see improved margins. I think it's fair to say that with the margins that we've seen in EMEA and the Americas, it certainly benefited from the high volumes.
Thank you. At this point, I've reached the end of the questions submitted for this part of the presentation. We might go to our first break now. Heath, why don't you wrap up firstly?
Phil, we're going to take 10 minutes now. Is that right?
Yes.
Okay. 10 minutes. We'll see you back here then. Thank you.
Thank you.
Okay, welcome back, everybody. I hope you've all got a fresh cup of coffee. We'll now jump to Edwin for the EMEA update, roll on to Asia Pacific, and then come back here to Atlanta for the Americas update. I think with that, we'll jump to the EMEA presentation.
Welcome to you all. I'm Edwin de Wolf. It's my pleasure to give you an update on the EMEA region. I would like to start with giving you a snapshot of our current EMEA business. After that, I will share with you an update on our market as we're obviously in turbulent times. We'll move into the strategy for our region, which you will see has a very different approach in the U.K. versus Continental Europe. We'll round it off with highlighting the key investments being made to further enhance our business. I'd like to begin by commenting on the efforts of the entire team throughout the COVID period. The work ethic and dedication throughout the organization was incredible. The factory distribution staff deserves special recognition in their efforts to manufacture and deliver to our key customers throughout this period.
Looking at the current business, you saw in our annual results, the EMEA region generated GBP 173 million of revenues in fiscal year 2020. I think it's fair to say this year was one with significant up and downs. We had a relative slow start with acceleration after the clear election victory of Boris Johnson, and with that belief that the Brexit approach was decided on and just needed executing. The latest, however, is that negotiations are not progressing well, and the reality of a hard Brexit is a real possibility. At the end of March, we saw a significant drop-off in orders driven by the COVID lockdown measures. U.K. plumbing and heating got hit the hardest, but also the Continental Europe drop was substantial.
Today, we do see a recovery in order rate, although there is some underlying noise like restocking by our customers, which makes it difficult to judge the true demand. Just to highlight a couple of other points. We're fortunate to have a very strong brand in Speedfit for U.K. plumbing and heating, and John Guest for FluidTech in Europe and globally. Of our employees, about 85% is based in the U.K., and the remaining 15% is spread over Continental Europe. Our business is split between plumbing and heating, accounting for 65% of the total, and 35% is FluidTech. Geographically, we do most of our revenues in the U.K. At the bottom of the page, you see our footprint. In Continental Europe, we have distribution capabilities in major countries, as well as pipe production in our facility in Granada, Spain.
On the next page, I will give you some more detail about our U.K. footprint. In U.K., we have various manufacturing sites, with West Drayton being our major site. As some of you have already seen during your visit to that facility, we produce the Speedfit plumbing and heating range there. From molding all parts to assembling everything on our in-house designed and produced automation equipment. We also produce the high-tech volume FluidTech fittings in that facility. Next to that being the main manufacturing site, West Drayton serves also as the competence center for engineering, covering product, tooling, as well as automation equipment. In Launceston, we also produce fittings, focusing on specific ranges such as telecom fittings, as well as handling the smaller series products. All of our pipe is produced centrally in our Maidenhead facility.
Vale Park and Hayes serve our OEM and underfloor heating customers as we do small assemblies for them, which we supply on a just-in-time concept. Finally, our central distribution is in Bracknell, from where we supply most of our customers. On the right-hand side, you can see some more details, but what always jumps out at me is the vast amount of components we make every single year. Health and safety is always our key priority, but in the COVID era, even more so. As you can see with the images at the bottom of the page, we have had to adopt our ways of working, and this has had an impact on efficiencies throughout our facilities. However, these changes ensure we protect the safety of our employees and their families.
I wanted to also provide you with an update on the organizational structure. As we've pointed out before, we strive to have a good mix of John Guest and RWC legacy influences, combined with external knowledge and expertise. The two major changes we've made since we showed this page last year are hiring a new CFO who brings a wealth of experience in manufacturing-type environments. We also brought in a director of business transformation who helps us with streamlining the continuous improvement projects we have going on across our business. We continue to look at ways to enhance our organizational structure every single day. I would also like to recognize the efforts of the leadership team over the last several months. It continues to be a really testing time, and I'm proud of the way the team came together to address these challenges.
To round off the business snapshot, let's provide you with some more detail about our customers and distributors. Plumbing and heating is the largest part of the U.K. business, which consists of Speedfit, Pushfit fittings, pipes, under-floor heating, alongside the Reliance Valves product ranges. The plumbing and heating revenues are generated through a diverse set of channel partners, both in wholesale as well as retail. We're the market leader with an innovative, high-quality product available in virtually all plumbing and heating outlets. We're proud to have longstanding relationships built up with our channel partners over several decades, and this has been crucial in developing a successful brand. Continental Europe is the inverse, with FluidTech making up the majority of the sales. We service a very diverse set of end markets where the John Guest brand is well-established.
We serve primarily OEMs and specialist wholesalers in applications as diverse as beverage, automotive, water treatment, and telecommunications. Similar to the U.K. plumbing and heating business, we're seen as a market leader. Let's move into the market update. As just mentioned, our plumbing and heating stronghold is in RMI, and the fundamentals remain strong, with existing houses in the U.K. being one of the oldest in Europe, which increasingly need to be either repaired or maintained. The value of houses are still increasing, which makes it worth spending money on doing home improvements. Also the rate of new build is failing to keep up with demand. As you can see from the slide, both RMI as well as new build has been hit by the measurements taken around COVID-19. What we're seeing a bounce back from the April and May lows.
Drivers for that are the reopening of the economy, restocking by our customers, and pent-up demand driven by projects that were put on hold, with plumbers now able to work again in the homes of their customers. Despite the recent challenges associated with COVID-19, the earlier mentioned long-term fundamentals remain strong. Short-term uncertainty absolutely remains, and we're making sure we're as flexible as possible to ramp up or down with the market demand. On the FluidTech side, with OEMs being our customers, a clear dip in production output was seen as a result of COVID-19, be it to a lesser degree than the dip in U.K. plumbing and heating segment. We're seeing positive signs of bounce back in these various markets as well. We're now moving into the strategy part of the presentation.
We've highlighted throughout this presentation the difference between U.K. and continental Europe, and therefore, we also have a different strategy for them. This page is in line with what we showed you last year, as our strategy has not fundamentally changed. We've refined parts from a tactical point of view, which help align the organization to the strategy. Although we have been executing on our strategy, we've had to be extremely focused on daily operations to provide our customers what was required at the right time, especially as COVID restrictions added complexity to the overall supply chain. Starting with the U.K., we clearly have an established platform in the plumbing and heating segment from which we can grow, and for that, we're adopting parts of the U.S. playbook.
Building on our end-user relationships to create pool for new products and solutions, which we in turn supply through our loyal channel partners. These new products and solutions can either be developed through our own R&D as well as with targeted M&A activities. Various evaluations are underway at different stages, and we're making progress, particularly with the U.K. plumbing and heating opportunities. We will set out more detail in future presentations and be able to speak about customer and product initiatives as a way of expanding our growth following a similar profile to the U.S. In Europe, we need a platform for the plumbing and heating business. We're evaluating which platform could make sense and when, so we're prepared should an opportunity present itself.
Simultaneously, we keep developing the FluidTech market by driving existing products into new segments, as well as developing new products for both existing as well as targeted markets. Our strategy is constant despite the COVID-19 impact, we're redefining it where needed. To round off the EMEA overview, I'd like to share some initiatives we have taken to further strengthen the business. I spoke before about the vast amount of parts we make, therefore, we need to continue to invest in new equipment to support the growth. Automation obviously drives efficiencies, in this COVID area, it also helps with our health and safety focus as we need to make sure we distance people sufficiently.
We continue to upgrade our IT systems, we have just completed the transfer of the whole U.K. business onto one ERP system, replacing over 15 legacy systems. This is not only helpful with being aligned with the other RWC divisions, but also eliminated the risk of being dependent on in-house developed software, of which the support was becoming increasingly difficult. We're implementing a restructuring to align the business with the current realities. The gains we get from improved IT systems as well as the change skill set. This will be finalized by the end of October. With that, I've come to the end of the EMEA overview, and I'll be handing it over to Brad, who will give you an overview of the APAC region.
Good morning. Thanks, Edwin. Thank you for the handover. My name is Brad Reid. I am CEO of APAC, and it's my pleasure to give you a little bit of insight into the APAC region. Firstly, we'll start off with a business snapshot, go over the market dynamics in play, our strategy and growth initiatives in general, our talent in the organization, and finally, the operations footprint. First slide. This slide gives you a pretty good summary of the business. Starting on the left-hand side, we've got the turnover, approximately AUD 245 million, an EBIT of AUD 44 million, about 400 employees at the moment, and 1,500 locations across APAC. Not quite the scale of the U.K., but very much Australian-focused in that footprint. Talking about the brands, we certainly utilize the key international brands we have, including SharkBite and John Guest.
We also have a very strong offering of Australian brands such as Auspex, RMC Valves, TubeFit Industrial Fittings. We have quite a broad range of both international and domestic brands, and we also have quite a number of domestic private labels that we make for our customers. In terms of the end user segments, we are very much focused on residential or domestic dwellings. That is, in the form of a house or in multi-units these days. In both those applications, we've got pipe sizes from 15, 16 millimeter up to 25 millimeter, and that's our strong point, and our products are behind the wall. The second area of focus for us in the APAC region is OEMs.
In OEMs, we've had a long history with the heating industry in Australia, and certainly a broader interest these days with the John Guest product in water appliances such as water filters or water dispensers in refrigerators. Moving to the top right-hand side there, shows you a little bit of difference between the Australia-New Zealand segment of APAC and the Asia, the greater Asia area. Certainly, our history is much longer and much more diverse in the Australian-New Zealand markets, and that's shown by the quite diverse range of products. We have a strong offering of valves, pipes, fittings of all types, and other products, complementary products such as water meters and backflow.
You move to the Asia side of the APAC story, quite different, where we are very much focused on the OEM products, and they tend to be FluidTech products, which are a more international product, and they go into manufacturing in Asia, which is then the final finished product is exported back to Western markets, particularly the U.S.A. Some come back to Australia and some go to the Europeans. The bottom right-hand side part of that slide shows you the footprint we have. Once again, heavily based in Australia, manufacturing in Australia and New Zealand. Good distribution right across Australia and New Zealand. On top of that, we have a sales office and warehouse in two other external locations, one in South Korea and one in China. Next slide, please. Moving on to products and customers.
Much the same as what Edwin said, we have quite a different structure of products depending on the region. Coming to Australia and New Zealand, the top section of these diagrams shows that our focus there in terms of the customers is very much wholesalers. In Australia, most of you would recognize that our products are licensed products to be installed by licensed tradesmen. They're not so much a DIY product, they're very much for the plumbing trade. We support that through our wholesale customers, and you can see there, our large dependence on them, and that's the likes of Reece, Tradelink, Plumbing Plus, and all major plumbing distributors. With our subset of products in industrial, we move into distributors such as Pirtek and other industrial suppliers. That's our primary wholesale customers.
You'll also see in that Australia-New Zealand graph there's a good share in the OEM market, and that's made up of historically hot water valves for the storage hot water manufacturers. In particular, we are still the exclusive supplier to people like Rheem and Dux. We move into other applications of slightly commercial, but a lot of hot water management with Enware, and then other OEM customers such as Honeywell and ASSA ABLOY. In general, our OEM customers consume more valve water control-type products from us or sub-components that go into their products. The bottom section shows Asia. Asia is, once again, different customer, predominantly OEM, predominantly John Guest FluidTech fittings. You can see some of the big names that we supply there all tend to be quite large international companies, and our components, once again, are embedded deep within their appliances.
Could be inside the refrigerator or a water filtration unit, for example. Once again, predominantly based around FluidTech products from John Guest. Next slide, please. Once again, just to reinforce where do our products end up? It's fair to say that we generally categorize ourselves as a behind the wall product manufacturer. That is, you often don't see our products in the finished product of a house or a caravan or whatever, filtration system, for example. Just some examples of where we do end up and where our products do the hard work behind the scenes. A good example always is something like Q1 on the Gold Coast.
Getting a few years of life in it now, but that building, as an example, one of the tallest residential buildings in Australia, the backbone of that system of supplying water to the residents in that building, it's all SharkBite. In addition to that, it also utilizes our pressure control devices and also our temperature control or thermostatic devices to regulate the temperature of water to each unit or apartment. The second section there is something that we're really proud of as we've been moving forward in the last decade, particularly. Over half of the high-rise buildings you see on the skyline in Melbourne, and they're starting to dwindle a little bit these days, but historically, over half of those buildings are all being plumbed with SharkBite. Why? Because of the efficiency we give those contractors in high-rise construction.
That's a really important part of the solution we offer the customer, is that we give them a solution which helps them do their job better. That's been something that we've been gradually increasing our penetration into Tier 1 corporate plumbers in Melbourne, Sydney, and Brisbane, for that matter, all because of the efficiency of our products. The third section there is an interesting one. That's come along since John Guest has joined our group of products, and that's caravans and RVs. We now have a very strong position, a majority position in terms of the plumbing systems within mobile vehicles, and the John Guest product is perfect for that. Being all plastic, both the connection and the pipe, makes it a very light fitting or a light system and very flexible for the application of caravans.
We have a strong presence there and we work closely with those people to keep innovating products. Lastly, our mainstay in Australia, and that is domestic plumbing. Just about every home in Australia will have RMC products in them or RWC products in them, guaranteed, whether it be the plastic piping system and fittings, whether it be the valves around the hot water service, or whether it be the temperature control devices for the kitchens and bathrooms to avoid scalding. That's where we came from in the beginning, and we still hold a market-leading position in that segment. Next slide, Phil. A little bit on the market.
Hard to avoid the topic of COVID-19, but as a summary statement, what I would say is that while we've had some uncertainty this year, the Australian business particularly, and to a greater extent, the APAC business, has seen the storm pretty well. Our interruptions to business has been quite limited, and we've kept operating and our customers have kept operating pretty well through this period. In the short term, a little bit messy and a little bit uncertain, but certainly the fundamentals of why we exist as a business and the products we provide to the market is absolutely strong, and I expect a strong bounce back once the uncertainty clears with regard to the current pandemic. In the short term, yes, we've seen some fluctuating business. To be honest, not as much as I would have expected at this stage. Business is still strong.
Market forecasts for the future, though, vary widely depending on who you speak with. In essence, approvals are down, and that's a criteria that everyone can follow. With approvals down quite significantly at the moment, ultimately, you need an approval to get to a commencement of a building. Without that approval, you don't get the commencement. The one thing we're watching closely is government initiatives in this department, trying to prop up and re-energize those approvals. If that's successful, the dip should be gentle. I suspect that by the end of this calendar year and early next calendar year, there will be a dip in construction, which has flowed on from the lack of approvals in the last three to six months. Once again, switching to the longer term, the outlook is really great for us.
Our market peaked particularly around FY 2018, FY 2019, and since then we've been in a declining market. All of the predictions from the analysts was that FY 2020 particularly was going to be a turnaround year and we would start to ramp back up. COVID-19 has probably pushed that back at least a year, but I don't think much more. Our expectation is that FY 2021, we should see some good strengthening in our market. At the end of the day, our core products go into the core infrastructure, that is domestic housing. That is rock solid and will come back strong, I believe, from FY 2021 on. The other big advantage we have with our products, as noted in the high-rise construction in Melbourne, is that our products allow our customers to do their job quicker, more efficiently with a high-quality product.
That has been very important in high-rise situations where the work and the cost of those projects is very competitive. Any AUD that can be saved needs to be saved for our customer. I think it's going to become really important in basic domestic construction going forward. Everyone agrees that there's a shortage of skilled labor. Once again, we're a licensed market. You need licensed people to install our products. As that market tightens with available people to do the work, I think the efficiency of our products will help us continue to grow market share. Next slide, Phil. Strategies and priorities. This one is very broad and very much dependent on which market we're in. Once again, in Australia and New Zealand, that's our oldest market. RWC began here.
We've been a strong player and a leading player in that market for over 30 years now. Our number one criteria is making sure that we stay as the leader in the market, and we are doing that quite comfortably. Taking that leadership position is really important then to continue to bring new products in that we developed or we acquire through acquisitions, but also to find new customers and to keep spreading the current package of products we have. Both of those things add to the value as we move forward and are both absolutely in our plans on a daily and a monthly and a weekly basis. That certainly applies to the Australian, New Zealand markets, where we have a great heritage, a great brand name and a great following.
When we move to Asia, we're very selective in the areas of those markets that we play in. Those markets need to require high-quality products built to high standards. Generally, that only applies to products which are then going to be exported from Asian manufacturers back to Western markets which require those technical standards. That's where we've been quite successful with the John Guest product, and all of the John Guest product that goes into Asia at this point in time goes into building products which are essentially exported to Western markets. Asia is a big place. Lots of places we haven't explored yet. We continue to find new manufacturers, and new manufacturers are trying to break into our Western markets every day.
That's the objective there and the challenge there is to find those innovative and new manufacturers and get our products embedded inside their products. That will continue. That really gives us an expanding opportunity and access to different markets. We also have to be mindful of the standards of the base market within the Asian countries requires quite different standards to our standards which are applied in the Americas and Australia particularly. A lot of our basic products, take, for example, a hot water control valve is really not applicable to an Asian market. Their standards are quite different. Next slide, please, Kal. Just zeroing in a little bit on Australia. Australia represents 80% of the APAC turnover, so it's quite an important part of our puzzle down here. I think it's worth just talking about it in particular.
Once again, the left-hand side, the end user channels are shown. Wholesaler is certainly clearly number one. I put that together with hardware because of a similarity in product offering, not because of size. If we combine wholesale and hardware together, that's our primary market in Australia and New Zealand, and our secondary market is OEMs. Going across the page, when we combine wholesale and hardware, now what do we deliver? Well, we essentially deliver everything behind the wall. From the water connection, the water meter out at the front of the property or the apartment, from that point, we can provide everything through to the tap, the shower head or the bath or the toilet. Once again, all of the products that you don't see when the job's done, everything behind the wall, and that's why the quality and security of our products is so important.
Once they're installed, you want them to last, and they do. We provide value to that wholesale chain through a number of mechanisms. Firstly is our product range. We have the biggest and best product range in the Australian, New Zealand markets by far. We have everything that the customer or end user needs. Secondly, we have by far the best customer care service of any of our competitors. That gives the plumber, in some cases, that extra security in terms of how to use the product and how best to use the product. Certainly, the customer, the end user knows that there's a great Australian company behind the products they're using or are being put into their premises. Lastly is our distribution. Once again, we lead against in comparison with all of our competitors by far.
We have our products in every outlet all over Australia and New Zealand. You can walk into any plumbing wholesaler and you'll find our products there ready for your consumption. Moving down to OEMs, very different mindset and strategy behind supporting an OEM. An OEM, a classic one for us is someone like Rheem. They've been our partner for 30, 40 years now. We exclusively provide all of their control valves that go around their storage hot water systems, and the same applies to people like Dux. Why that's an incredibly important thing for our business is that those type of customers give us a base volume in manufacturing terms to keep our efficiencies very high.
We provide those guys exclusively, but the two things that really ensure we maintain a strong business connection with the OEM customer is our engineering support and our ability to produce in volume. The OEMs we work with are not the smaller OEMs. They are the large market-leading OEMs. Once you engineer a product with them, the second thing is you have to be able to supply it. We have a strong manufacturing base in Australia, and we can therefore adequately not only work with them in an engineering sense, but we can then back it up with supply through our own production. Generally, that production goes straight to their production lines. That interface of supply chain is incredibly important for them and for us looking after that customer. Okay, Phil, next, please. Organization. This makes me smile.
I can absolutely say we have the best team in our market in Australia and New Zealand by far. That is a basing point. Having the best people in the business really makes the rest of the job easy. We have the best manufacturing team. We have the best financial control of that manufacturing team. It's a well-honed machine. Beyond that, we have a great product management team and a great sales team. That all puts together an amazing outfit with an amazing skill set. All of the people leading those individual departments have been with the business for a considerable period of time. They're all well experienced in their individual fields. Not only that, we have a lot of cross-pollination between divisions or departments within the business.
That gives us a great backup in case of an extra workload in operations at a point in time or product management or wherever it may be, we can all chip in and help. When we move to the rest of Asia, we actually have a small office in India as well. In India, China, and Korea, we have a good lead there with small teams under them that allow us to quite effectively and efficiently address the needs of those markets. At the end of the day, once again, can't be prouder of the team that we have. The amazing ability that they have to manage the customer's expectations and deliver on what the customer wants next is incredible. Also, there's a strong belief in the next generations in the business. That's something that we work on daily.
Bringing in new people, new young people into the business and mentoring them so that one day in the not too distant future, they can take over some of these senior roles. Next slide, please, Phil. The last slide here is the operations snapshot. This is going to sound a bit like an Australian story, we are APAC. When it comes to manufacturing, certainly, there's three primary locations for our manufacturing. Brisbane, the historic base of RWC, is still a strong manufacturing plant. That plant is based on valve assembly and manufacturing. In Melbourne, we now have six plants. They are based around fittings manufacture, pipe extrusion, and plastic component production. Then thirdly, we have a small operation in Auckland, which is a brass machining plant.
It's fair to say that still the Australian operations are very heavily brass and plastic-based in terms of their production capabilities. In all cases, we're working with basic raw materials, whether it be brass bar or steel or aluminum and plastic raw materials, and taking it from those raw material states right through to a finished, tested product. In terms of just to give you a little bit of a feel for what the operations produced in the last financial year. We produced over 200 million components for valves, fittings, and other things.
That went into about 30 million finished fitting products during the year. We produced about 12 million meters of pipe just for the Australian market, and we produced over 1 million safety and thermostatic valves. All pretty amazing figures for an Australian business managing to compete with the world in terms of manufacturing efforts. That's about it from me. I hope that's given you a little bit of an insight into what's happening in Australia and love the opportunity to show people around the plant at any time. For now, it's time to hand over to Sean. Thank you.
Thank you, Brad. Good morning, everybody. I'm Sean McClenaghan, CEO of the Americas. Like Brad and Edwin, this morning I'll provide an overview of the Americas business, provide a brief update on our market as well as our growth strategy, and we'll conclude with an operational update. At $496 million in revenue, the Americas region is the group's largest. About 50% or half of our revenue is currently based in SharkBite Push-to-Connect fittings and SharkBite Push-to-Connect accessories. The balance of our revenue is split between our other pipe, valve, fitting, and integrated solution product lines. With product available at more than 23,000 locations, we are primarily focused on servicing the residential, commercial, and OEM rough plumbing markets and are focused on both repair, improvement, and new construction applications.
I will point out that compared to our businesses in the U.K. as well as in APAC, we are disproportionately focused on repair and improvement activities here in the U.S. If you look at our footprint, our two largest locations are our manufacturing and distribution complex. It's located in northern Alabama, and our headquarters here in Atlanta. We are also supported by distribution centers in New Jersey, metropolitan Toronto, Las Vegas, and have a regional engineering office in Southern California. Key to our strategy has been a multi-channel go-to-market approach that has been supporting the needs and preferences of both the RMI and new construction sector. For us, home improvement is our largest path to market, representing half of our revenue, and wholesale distribution is our second largest channel, approaching 25% of sales.
This is followed by sales through our hardware and OEM channels. Collectively, e-commerce, while an important and growing segment, still remains small and today represents about 2% to 3% of our revenue. Many market factors support the long-term growth opportunity for RWC here in the Americas, including the size of the attainable market and the fragmented playing field of our competitive base. Three specific long-term demand drivers exist, and you heard Kal speak to some of these. These are the ones that we consider especially important as we formulate our growth strategies and select where to invest over the next five to 10 years. These specific factors are highlighted in bold on this page. They are the shortage of trade labor in plumbing, the age of both the U.S. and Canadian housing stock, and the fundamental supply-demand imbalance that exists in single-family and multifamily housing.
While many other factors also contribute and impact our business, we consider these three to be particularly important as we choose where to invest over the next decade. Looking and thinking more immediately, the impact of a global pandemic and the particular response to that pandemic that's been taken in the Americas has brought clear disruption to our market. These disruptions have driven several sector changes, which has increased demand for our product and have overlaid well with our growth strategy. We don't cover all of these on this particular slide. There's a few that I want to talk to. First, there's been a clear societal change with regards to the amount of time individuals and families are spending in their homes. Not only do we live in our home today, but we work in our home, we educate in our home, we're vacationing in our home.
All this increased activity within the home has driven a huge increase and surge in home improvement projects. In addition to that, this additional time in the home has really increased wear and tear on many of the infrastructure systems, including the potable water system. This has all been fueled by a large increase in disposable income for many American families. Some of this has been supplemented by federal stimulus programs, but much of it is just fundamentally a shift in where American families are choosing to spend their disposable income. Instead of spending it on vacation or on dining out or on entertainment or on clothing, much of it is being spent on improving their homes. The second interesting disruptive factor is that across all of our channels, wholesale has been slow to respond to these changing dynamics.
This has been the case in many wholesale markets, but particularly true in plumbing. Over the course of the months of April and May, many wholesalers shut down entirely or completely limited the amount of traffic that went through their branches. In addition, many wholesalers weren't set up well to handle curbside business, and a lot of smaller wholesalers have no e-commerce alternative. Even 24 weeks into COVID-19 in the market response here in the U.S., many wholesalers are still struggling to adapt and change. Because of the fundamental increase in demand, these pros are looking for alternative locations to buy, and much of this demand has shifted to the retail formatted channels. Home improvement, hardware, and e-commerce have all been the clear beneficiary of this channel's slow response to the pandemic.
Lastly, the third factor or disruptive force I want to talk about is what's occurred on new construction job sites in the U.S. and Canada. Early in the months of April and May, several regions of our country and provinces in Canada had job sites shut down. Even once these all reopened, beginning in the month of June, across both the U.S. and Canada, there have been fundamental changes to how trades have to operate on these job sites. There are new work rules impacting the amount of time they can spend, the work rules impacting the amount of building tradesmen they can have on the site. All this has played well, really, to our core value proposition, which is driving more efficiency within the trade.
If you step back and look at these disruptive factors and think about RWC's strengths, think about our broad product availability across multiple channels. If you look at our in-stock position and you couple that with our trusted brands and the core of our value proposition, which is about optimizing labor time, this has resonated very well in today's COVID-19 market. While mostly favorable, however, not all the sectors that we support here in the Americas have experienced a favorable change in demand. If you dig deep into the repair and maintenance sector, particularly our MRO and FluidTech product lines, factors such as lower occupancy in commercial office space, lower occupancy in restaurants and retail, have really driven a reduction in maintenance activity and repair activity in these sectors. In addition, we've seen lower turnover in rented homes and apartments, which have been a negative impact as well.
More importantly, as we look forward into calendar year 2021, you can clearly see some potential headwinds that we'll have to face. At some point in time the impact of higher unemployment in the U.S. and Canada will impact discretionary spending that can be spent on home improvement projects. In addition, there will be a likely decrease in federal stimulus programs as we move into next calendar year. If you look at several indexes, including an architectural index, you can clearly see there's a potential slowdown in commercial new construction activity that will likely impact our business next calendar year. Finally, when you consider the fact that the economy will eventually reopen, there'll be a shift in discretionary spending from home improvement activities to more traditional activities like vacation, dining, and entertainment. Clearly, we've seen some very positive impacts of COVID-19.
As we look into calendar year 2021, there are some clear headwinds that we'll face. If I move from the market update to our ongoing growth of our business, our plans are to continue execution of our previously communicated growth strategy. We will continue to utilize the strength of the RWC brands, the breadth of our product offering, select innovation, and our broad distribution network to drive growth and expand share. Our goals remain the same. We want to increase share of wallet with the repair and maintenance plumber. We want to increase share of wallet with the plumbing mechanical contractor in new commercial construction. Fundamentally, we want to own more of the project. We want to continue to ensure that product is available where the pro desires to purchase the product, and we will continue to increase access to our product.
If you look at the pros' buying patterns and behavior, it has been changing over the last decade and will continue to change over the next five to 10 years. We will have our product located where they choose to buy. Several others have mentioned this morning, the fact that we're going to continue to listen to our customers and end users. We will understand their needs, and we'll continue to innovate extension improvements to our current product offering. Lastly, we'll expand our product offering within the strategy of servicing the needs of mechanical, electrical, and plumbing professionals through targeted M&A to help increase that share of wallet that I mentioned earlier. Underpinning our strategy and growth over the past decade has been our investment in the business. I believe Heath has mentioned this. Often, it is ahead of demand.
This has been critical to our growth, and we plan to continue our execution of the strategy. These investments have been across multiple sales channels and products, and have enabled RWC to benefit from the changing market dynamics and requirements. This has been especially true today. It's easy for us to think about the investments we make in our supply chain, in our factories, and in our distribution centers. The investments we make in our business are much broader than that. We continue to invest in our product, both organically and inorganically, to again, own a larger share of the project. We invest in merchandising to improve the shopping experience in the retail and wholesale format. Over the last decade, we've invested a lot in expanding the footprint, gaining those 23 outlets that I mentioned earlier.
We will continue to look for new avenues and opportunities when they exist to increase both the outlets that we're selling in today, as well as the shelf space we have in our existing outlets to meet the pros' changing path to market. We've talked about this before as well. We are focused on diversifying into commercial construction. This is an attractive market providing needed diversification for our business and one we continue to invest in going forward. Lastly, both globally and regionally, we will invest in our supply chain and manufacturing capacity to meet the needs of our end users. This is both in term of capacity and inventory required to serve a seasonal business requiring 98%-99% on time and full supply chain performance. Next, I will provide an example of two key growth areas. The first is in our retail channels.
We will continue to drive above-market growth in the home improvement and hardware channels by leveraging our strengths, which again, include our brands and our ability to execute and service the retail customer base. This slide highlights some of the methods that we use to drive this growth, but it includes driving core product growth through value-added merchandising and product sequencing, as well as pure assortment optimization. It includes growing our brand presence in the rough plumbing department by expanding into 8 adjacent categories. Historically, this has included PEX and crimp. More recently, it's included pipe support and stop valves. Then again, we'll continue to secure additional shelf space when available, as real estate is vital to success in the retail channel. Thanks to travel restrictions, we understand that it's impossible for many of you to visit job sites or our stores this year.
For this reason, we have created a few brief videos. The first will be a visual update of the retail shopping environment and tie specifically to the growth initiative that I just covered. The intent of this particular video is to highlight four things: how we're driving growth through innovative merchandising, how we're simplifying the shopping experience to increase sales, how we're utilizing product line expansions to capitalize on new growth opportunities, and finally, as you watch the video, you'll see how we continue to maintain high service levels with inventory availability. With that, we'll play a short one-minute video. Second growth area I will highlight this morning is in the area of commercial new construction. This is an attractive market that aligns well with the core value proposition of our product offering.
While a cyclical market, it provides key diversification for our business here in the Americas. Despite pandemic-related job site shutdowns in the months of April and May, we did see 9% year-over-year growth in this segment during fiscal year 2020. Since these job sites have reopened, we've seen double-digit growth beginning in the month of June through the balance of this first quarter of fiscal year 2021. For this market, HoldRite and its product portfolio are critically important to us, as are certain legacy RWC pipe, valve, and fitting offerings. We continue to invest and scale our commercial sales and support team that's required to support this channel, and are adding new products to the range. As we discussed previously, and as others have mentioned this morning, to gain additional scale in this sector, we'll need to invest both organically and inorganically.
We'll look for specific acquisitions that have a focus in this area to help us fill both capability and product line gaps to help continue the scaling and growth of this product line. This brings us to our second video, which highlights the selling process into commercial construction. In commercial construction, our goal is to provide a broad suite of solutions during every phase of construction. What we do is allow contractors to work more efficiently and keep projects on schedule, which while always important, is even more important during COVID-19. In this video, you'll see our products used during four phases of construction. During stage 1, or when concrete is being poured, you'll see the use of HydroFlame Pro and our fire stopping solutions. During the drain waste vent installation, you'll see use of our TestRite products, as well as HoldRite pipe restraints for the drainage systems.
During a stage three, where the plumbing is being roughed in, you'll see the use of PEX pipe, EvoPEX fittings, and HoldRite pipe supports. Lastly, in this particular video, as the fixtures are being put in, you'll see the use of Cash Acme thermostatic [inaudible] valves. Let's play the second video, please. Like our other regions, the Americas has a strong and scalable leadership team. Most importantly, this team is supported by over 600 associates in an organization that has depth in the areas that are critically important to our growth. This includes depth in retail and commercial sales, operations, supply chain, and S&OP planning, product management, engineering, and marketing. It is this team that's continued to drive our success and will do so into the future.
I'm going to conclude our overview of the Americas business with a brief synopsis of our manufacturing and distribution facilities that are located in Cullman, Alabama. As Tracy has mentioned, earlier this year, we completed the consolidation of our La Vergne, Tennessee facility, which was acquired as part of the HoldRite acquisition, into Cullman. Today in Cullman, we manufacture a broad range of products. In addition to Cash Acme control valves, we manufacture PEX pipe, SharkBite and EvoPEX push-to-connect fittings, and the entire HoldRite product suite, including water heater accessories, pipe support systems, and HydroFlame Pro. Thank you.
We also have extensive packaging and distribution operations in our Alabama facilities, and all of this is supplemented by distribution locations in Nevada, northern New Jersey, and metropolitan Toronto. As we continue to grow, we'll continue to invest in our manufacturing distribution capabilities, and we'll do so further in fiscal year 2021 and 2022. Now, I know many of you have visited Cullman in the past. Much has changed. We are going to conclude our section on the Americas with a two-minute video providing a brief facility tour, which will then end our RWC Americas review. Thank you.
Thank you, Edwin, Brad, and Sean. You guys though aren't done yet. I've seen the questions. There's some good ones. We'll throw to that in just a moment. Hopefully, with those sessions, what you've seen is that our strategy is the same across the regions, and it's based on product leadership, strength of distribution networks, and industry-leading execution. Certainly, we're at a different stage of maturity in each of our regions. The Australian region is the most mature. In North America, at the moment, certainly the most opportunity and the most activity right now. In the U.K., we now have the platform. Two years in, we think we've got our arms around the John Guest business. We're now at the point where we can build on that platform, adopting essentially the same methodologies and approaches that we've used here in the U.S.
I would think in the future, you will hear us talking about product and customer initiatives in the U.K. in the same way that we have been talking about them here in the U.S. I hope that came through. Look, I also hope what came through all of the sessions are that we really are focused on execution right now. In our factories, with our customers, and with our distributors. Finally, I'd just like to remind you of our priorities for financial year 2021. We did touch on this at year-end, but I certainly think it's worth hearing again. Number one priority, of course, the safety, health, and wellbeing of our people. That will always be the case. As we move through FY 2021, our focus will remain on execution.
We'll continue to provide industry-leading customer service and support. These things will assist us to achieve ongoing above-market growth rate in all of our regions. We'll also pursue ongoing margin expansion through continuous improvement initiatives, through supply chain improvements, and general cost management. Finally, of course, we'll continue to allocate capital appropriately given the uncertainty, but we'll also closely watch demand and adjust our capacity, increase our capacity as we need. We cannot be in a position where we run out of capacity, clearly. They're our priorities for our financial year 2021. To wrap up, our business is robust. These are trying times for sure. Our teams have performed well and continue to perform well. Our markets are resilient, particularly our core repair and maintenance markets focused on plumbing and heating.
As I've said, our focus has turned to execution. That will remain the case through the remainder of 2021, at least. Certainly, there's significant lack of clarity ahead. The RWC business, however, is well-positioned and appropriately structured to move through the near-term challenges and to accelerate out as visibility improves. I hope what's come through over the last hour or so is that we have a clear plan to grow the business, to increase profitability, and to create value for all stakeholders. That's the wrap-up. I think with that, Phil, I will pass over to you to collate the questions and, Edwin, Brad, and Sean, I'm gonna step out of the road and let you guys take the questions. Phil, over to you.
Thank you, Heath. Everyone, I've switched devices because apparently the sound quality was poor before, so you won't see my face anymore, which is good, I think. Just the RWC logo. A few questions for you, Edwin, for EMEA. Firstly, have you got any specific thoughts that you can share in relation to M&A plans in Europe? Just a question from Pete Stein. What we're intending to do with M&A in Europe, both in terms of geography and product focus.
Yeah, I think what we obviously want to do is stay close to what we would know well. We're obviously a pipe and fitting and valves company predominantly, at least from a European point of view. It'd be logical that you'd be looking in that space, and that would then also be in one of the major European countries, because if you want to build a platform, you want to do something that is substantial. You want to do that to gain capabilities both from a product as well as distribution. Just basically looking for another platform. The platform in the U.K. we have, as Heath mentioned before, and this would be an extension to that in the same product categories.
Thank you. A couple more questions for you, Edwin, both from Peter Wilson. In the U.K., we've indicated we intend to borrow from the U.S. playbook. Compared to the U.S., can you speak to the opportunities to grow shelf or share, grow shelf space or share of shelf space, and the potential to bring on new distribution partners, firstly?
Sorry, the last piece dropped off for me, Phil. Apologize.
Growing shelf space and bringing on new distribution partners.
Yeah. I think if you look at the U.K., we are represented in, I'd say, the vast majority, if not all of the plumbing and heating distribution outlets. It's more of getting more shelf space. Just as an example of that, what we've done in the U.S. is getting more and more product on the space with those customers that we know so well. We're actually, here in Europe, launching today, at least in a couple of hours when the sun comes up here, our first products where we have a combination of the valves that we get from our partners in Australia, and combine those with Speedfit ends. That's just an example of how we're trying to get more shelf space at the customers that already take our product lines.
Another question from Peter Wilson. This was about plumbing and heating on the continent. Do we have an edge which would allow us to compete with entrenched suppliers?
I think this is why we have to look at M&A, because I think if you want to go from a position where you are today, and you would like to fight yourself into indeed a market that has some really good companies in there, that will be difficult. That's why we've said in our strategy that it's more likely for us to get a platform through M&A than to be able to build that up from the bottom.
Thank you. Another question for you, Edwin. Can we do more on price in EMEA?
I think as Heath mentioned before, I think we've got a very diligent market where, through the distribution channel, we've been able to actually do annual price increases. Can you do more than an annual one? Don't think so. Can you hold on to that annual one? I think yes, given the discipline in the distribution channel. I think, current year is obviously difficult with all the fluctuations we've got going on. On the other hand, you could say that's maybe a good reason to bring up a little bit of price. Again, I don't see any reason why we could not stick with what is historically been an annual price increase.
Thank you. A couple more, Edwin, if you will. We furloughed a number of our workers in the U.K. and Europe due to COVID-19. Is the business back to full employment?
Sorry. Again, I can hardly hear you, Phil. I apologize.
Okay. No. Are we back to full employment? Has everyone who was on furlough returned to operations?
Yes. With the exception, obviously, because the first thing that we look at is to make sure that people that have either themselves or family members that have underlying conditions, those people we've allowed to still be on furlough. That is not because of not having the demand, but that's because of taking care of the health and safety of our people. We have brought everybody in stepwise because, bringing people in, you can only do when you make sure that you have the changes in place that fulfill our internal requirements of making sure people are safe, but also obviously the government requirements. In principle, everybody's back. Given the nice surge in orders that we've seen, we've actually got some additional contractors working every single day with us. Yeah, in principle, everybody's back that is, from a health point of view, is possible.
Thank you, Edwin. A couple for you, Brad, if you can hear me.
Yeah.
This is from Peter Steyn. Can you give us a sense of our exposure to multi-family versus detached housing in APAC?
I guess the simple answer to that is that our exposure is greater to detached housing. Certainly, I don't really want to give a scale on that, but yes, it's much more biased towards detached housing. We have, generally speaking, more product in a detached house and in addition to that, a detached house is not a one-on-one comparison with a high-density premise. Generally speaking, there's more materials in a detached house. I'm not saying it's two to one, but it's a substantial ratio. On top of that, we have quite a few more systems options, which are very strong in detached housing. We have our Auspex system, we have our SharkBite system, the EvoPEX system now. We have actually probably more product offerings that are going into that segment at this point in time.
Can you, Brad, give us a feel for the split between wholesale and OEM channels?
Yes. Certainly, as per the presentation, you would have seen quite a substantial difference in magnitude between those two, and that really is quite representative of where we stand. The wholesale segment is substantially more valuable than the OEM segment to us. It's an order of two to three times more valuable.
Yeah, another question to you, Brad. Given the increased efficiency in high-rise installation on the labor front, it would seem that PTC must have already become an established and essential requirement. Is there still a market penetration story for us here?
Great question. I'd love to spend the next hour or so trying to answer that one well. At the end of the day, we have customers, and customers have a desire for options, let's say. Certainly, one thing I still believe is that the Push-to-Connect system appeals to a certain segment of the market for a number of reasons, but it doesn't appeal to all segments of the market. As an example, we do have some Tier 1 plumbing contractors who prefer crimp joints. That's a technical decision on their part. They do the best that they can with those products. While the Push-to-Connect system has given us an incredible launch into the efficiency space associated with high-rise, and we command a much greater share of that market than we do in the general market sense.
I think there are limitations to that because people do prefer to have different technologies and different options. Having said that, certainly the reason we will see continued growth in Push-to-Connect in Australia is in the detached houses is for the same reasons. Those same pressures are slowly coming to bear more on detached housing construction, where people are looking for faster turnaround times and faster installation times. There's still runway for us to take, but I'm also really cautious in our market. We have three really good systems, okay? It's not just our SharkBite Push-to-Connect system. We have other great systems which we need to spend time on, those systems are also growing at a great rate for us through the channels that we operate in.
Great. Thank you. Sean, a couple for you. If there are no dominant players and few barriers to entry in U.S. commercial, why will Reliance be able to get a good outcome from what is obviously a very competitive market?
Yeah. The commercial space is large and fragmented, which is part of the attractive piece of it. There are a number of players that play. There are some large and quite capable players that tend to have focuses on certain niche products or areas within commercial construction. We think there's room for innovation and improvement within that space. If you look at what we've done with HydroFlame Pro, with TestRite, with pipe supports, I think that's all testament to the fact that there's an avenue to help innovate within commercial construction.
What's particularly important, though, with commercial construction, and you think about our value proposition of most of our products, is the plumbing labor rate in commercial construction is by far the highest of any sector here in the U.S. The sensitivity around labor optimization is the highest within that sector. We think our focus on innovation provides an avenue, and the type of products we bring to market provide an avenue for growth within that sector.
Thank you. Sort of a linked question, really, from Peter Steyn. What makes fire stops so revolutionary that you can seemingly build your commercial offering around it?
There's a few things, right? If we look at who we're competing against on plumbing, or excuse me, fire stopping for plumbing penetrations, there's a couple large competitors that are key in that space, but there's also about 30%-35% of existing plumbing penetrations that are fire stopped with what's known as a makeshift or field-devised method. We're taking share from both this makeshift field-devised method, but also from some of the leaders in the space, because the products that we have through HydroFlame Pro offer a lot of innovative features that, again, save time and money for the plumbing mechanical contractor that's on the job site.
What we've done through HoldRite is looked at some of the shortcomings of the alternative product offerings and have designed improvements into the product. To the point now where the leaders in the space are actually looking at our products and thinking about how do they design around some of the innovations and patents that we have in the space. What's important about HydroFlame Pro, and you saw it in the video, is that is the first plumbing product utilized on a job site. When that concrete is poured, we have HydroFlame Pro in there. Our discussions with the general contractor with the plumbing mechanical contractor at times with the engineer or even the developer starts early.
It's those relationships that we can then leverage to sell other products as we go into the later phases of construction. It's an important product line. It's one that we're continuing to grow, and it's one we continue to invest in. I think you saw some of the expansions that we've done to the SKU assortment over the past 18 months. If you look forward in the next 12 months, you'll see some additional SKUs that are going to go into that space that'll be highly differentiated compared to the competitors, let alone the field devised method.
Thank you. Another one for you, Sean, if I can find it. This is from Peter Wilson. How many points has the shift from wholesale to retail added to our sales growth in the Americas in the three months of September? Are we right to assume that Reliance is disproportionately represented in retail?
Yeah. Was that Peter asked that question? Hard to pinpoint, Peter. Here's what's happened over time, and we're not talking about a huge window here. If we go back to March, April, May, June, and then into the three months that we're into in this fiscal year. You saw significant share shift in the latter half of our second fiscal year or in the months of April, May into June because of the dynamic I talked about earlier where wholesalers had restrained operations. We saw a lot of channel shift that took place during that point in time. We believe we also saw share shift because our presence in retail formats such as hardware, home improvement, and e-commerce is significantly higher than our presence in wholesale. As business shifted from wholesale to retail, we saw a share shift as well.
Move forward into the last three months or the first three months of this fiscal year, July, August, and September. The wholesale channel has adapted but are still behind what home improvement and hardware has done. We believe there's still some share shift that's occurring because of that. At the same time, we think fundamental demand is up so high because of this increase in home improvement activity that we're seeing solid performance this quarter, both in wholesale as well as in retail and hardware to the point that they're starting to equalize. In addition, earlier and during COVID-19, and I might have mentioned this during that particular section, but not only did wholesalers stop allowing traffic through their stores, many of them went into cash conservation mode as well and that included a reduction in inventory in the months of April and May going into June.
Most, not all, have corrected that starting in June through August and September of this year. Product is now available again in wholesale. We think we've seen some share shift. If you're asking me to come up with a specific number, it's a challenge for us to do. We think we've seen share shift. We know we've seen channel shift. I think despite the fact that we will face some serious headwinds the next calendar year, and you have heard us speak in the past of the shift that we see because of the freeze event that occurs in our business when more individuals, DIYers, handymen, and pros are introduced both to our product and then particularly and most importantly are made aware of where that product is available. Some of them will continue to use that post the freeze event.
The wild card for us as we look into calendar year 2021 is the fact that we've experienced a national freeze event for 24-25 weeks that will likely continue for another month or two. We anticipate we'll retain some share shift, but at the same time we'll see a slowdown in fundamental demand because spending on home improvement will retract as we go into next calendar year. There's a lot of clouds in the crystal ball there, Peter, but if you look at it, we think they're going to net out to be slightly favorable for us going into the second half of next calendar year.
Thanks, Sean. Edwin, I have one for you from Simon Thackray. He notes it's concerning the reemergence of COVID-19 in the EU. Whilst the restocking event in the first quarter is helpful, how do you think the channels would react to a second COVID-19? Would it be different to what we saw first time around?
I think that's very difficult to judge. Will it be a little bit different? Yes, I think not just us, but also our channel partners, we have now measurements in place that we could move through a second period like that. Obviously, if we go back to what is a complete lockdown and people, for instance, like in the beginning of March, April, they were afraid to have contractors in their house doing work. That will definitely have an impact on the business. That is really difficult to predict and quite frankly, if you talk to our distributors, they also can't judge what that would be. It depends on the severity of the lockdown, I guess.
Thank you. A second one for you, Edwin. Can you just talk through the sort of sales run rates we're seeing in the U.K. versus the E.U. year to date? Are they similar or is one market growing quicker than the other?
Sorry, is the question the run rate difference between the E.U. and the U.K.? Yeah, I think we've seen Europe rebounding a little bit quicker than the U.K. Maybe to the tune of a couple of weeks, not more than that. I think what was more obvious to me is that some countries in Europe, like Germany, didn't have that severe of a dip compared to the U.K., so they also had to come from less of a negative. I'd say across the board, both continental Europe as well as the U.K., things have picked up significantly. In some countries in Europe, and as you saw from the last trading update, across the board, we see some good results over the last month.
Thank you, Edwin. Brad, I have one for you from Abraham Atra. Can you separate the sales trends for Victoria out from the rest of Australia? I guess, in other words, he's asking, what are we seeing in Victoria versus the rest of Australia, and is Victoria a drag?
First point, really difficult to separate the two, because oftentimes our products from our DCs go to a wholesaler DC and the actual final destination of that varies. One thing I would say, though, is some of our core products, we do have a different penetration, if you like, of products, depending on which state or which market you're in. Certainly, the products which are key to the Victorian market are doing well at this point in time. The short answer is incredibly, no.
The severe lockdown in Victoria hasn't actually flowed through to a clear lagging of what's happening in the Victorian market. I would suggest at this point in time, no. Once again, with forward approvals and the previous activity in Victoria, I suspect we will feel it a little bit more in Victoria going forward, though. To this point in time, it's been very strong. Construction, even though it's been under restrictions, has actually kept going pretty well for us in Victoria.
Thank you. Sean, one for you, and it is from Simon Thackray asking about Cullman and what our total labor force is there and whether we have more opportunities for automation at that site.
Yeah. Our workforce there is roughly about 400 employees, and we use a fair amount of automation, but we are absolutely looking at other opportunities to automate, particularly some of the assembly activities you saw in the video on HoldRite. There's clearly an opportunity there with automation. As part of our relocation to Cullman from La Vergne, the first phase was to really replicate and then match efficiencies that we had out of that La Vergne facility. Stage two is to look at ways to increase efficiencies on those same product lines, and automation will be a key part of it.
Another couple for you, Sean, from Chloe Lim. Can we do anything to improve the visibility of our order book from two to three days, or is that unlikely given our exposure to the retail channel?
Ironically, the industry here is taking it into the opposite direction. Now, clearly, we sit down with our major customers and talk about long-term forecasts. Heath and others have mentioned we get point-of-sale data from roughly 7,000 retail outlets across the U.S. and Canada. In addition to the point-of-sale data, we get inventory or in-stock data as well. All that is critical. If you look at how our retailers are running their supply chain, they're taking more inventory out of it. They're providing shorter and shorter notices. From some of our home improvement customers, we get one-day notice on an order and one-day visibility. I think the goal of the entire channel is to drive it in that direction. It enables them to flow inventory quicker.
In addition, if you look at some of the large home improvement retailers, they really don't even stock product in a distribution center. Once they order product from us, it just flows all the way through to a store shelf. They're looking to streamline it more so than to provide additional backlog of information. What's interesting about that, and while it's clearly a challenge operationally, it's one of the key things that distinguishes our value proposition into that channel. It's a combination of product, brand, knowing how the retail customers work themselves, but being able to cope and adapt to these type of very stringent and demanding requirements. Now, unfortunately, as we look at our system, we look to get better to really support shorter lead times with, again, 98%-99% on time and full fill rates.
Thank you. A second question from Chloe. Based on the macro indicators in the slides, would it be fair to say there's a shift towards more cyclical R&R exposure versus prior thinking about repair and maintenance, which is more stable?
Is that for the Americas, Phil?
Yes. Sorry. For you, Sean. Yep.
Roughly 85% of our business here in the Americas today is really what I'd categorize as repair, maintenance, or small project. If you start getting into core construction, new construction, be it multifamily, single family, or commercial, it's a fairly small segment. What we're looking to do is actually continue to drive our growth within RMI because it is less cyclical. It tends to have a lot of attractive pieces to that market, but it's also dominated by one or two channels in a handful of customers. What we're looking to do is really diversify or provide additional product channel and customer diversification for the business into the most attractive sector, that's in addition to repair and maintenance, and we find that to be the commercial new construction space, which again, we lump multifamily into that and really separate out and don't target single family.
If you look at our book of business, in a lot of ways, we're trying to grow a book of business that looks similar to what Brad has in APAC. We want to provide more end market diversification. Now clearly the channels and how the trade works is different in APAC than here. If you look at his fittings diversification, his product line diversification, and his end market diversification, five years, 10 years from now, we want to look more like that than have the concentration that we've had today. Which again, is a pretty significant improvement in the business from where it was even five to seven years ago.
Thank you, Sean. I think it's a linked question. We haven't talked about expanding into new build housing construction in the U.S. Is that no longer a target for us?
Right. We clearly continue to provide product into what I call single family new construction. We'll always have some bleed over revenue and sales in that segment, but it's not a focus area for us. We might have highlighted on this before, but the primary reason for that is the fact that it is the lowest margin segment within the Americas market. Very competitive, very cost focused. I talked about commercial having the highest labor cost for a professional plumber. In single family new construction, not only is it the lowest, in many instances, the individuals actually plumbing the house aren't plumbers themselves.
They're overseen by a plumber that's on the job site. The value proposition and margin expectations and cost pressures in pure single family new construction in the U.S. isn't that attractive to us. We are really focusing on other areas. Again, that does not mean there won't be sales in that segment. It is just not where we are focusing our selling, marketing, and product development activities. Mainly, again, if you think about the importance of labor, it is the least important in that segment versus any of the others in terms of the cost of that labor.
Another one from Peter Wilson for you, Sean. Can you give us an update on plastic PTC water fitting sales in the U.S., and also any lessons from the dual brand strategy in retail, i.e., with the EvoPEX and then the John Guest product?
The question is pertaining, I believe, to EvoPEX. EvoPEX continues to grow. It is actually seeing an uptick and spike at the beginning of this year, really through all of COVID-19 for some of the reasons we mentioned earlier. In addition, we expanded our distribution of that product significantly earlier this year. We're continuing to see growth in it. We think it'll be a consistent performer and grower. It has a specific niche within the market that it's going after, right? It is focused on, it's a PEX-only system, primarily for large remodel or newer construction. It is focused on that one specific area. I think today it's probably, I got to look at the numbers specifically, but it's our second largest PTC system here.
If you look at the number of units we sell with EvoPEX, it actually is larger than number of plastic poly crimp fittings that we sell today. It's growing, it's taking share, but it'll always be a niche product offering for us. Likewise with John Guest from a small diameter fitting perspective, that product continues to grow and do well within its targeted area. It has a stronghold in smaller diameter applications, particularly in areas such as beverage and OEM sales into the filtration market. We too think that's going to continue to grow at a nice rate, but is much smaller end market for us in a more focused set of applications. Again, much different than Edwin in the U.K., where those core John Guest fittings are really going after core plumbing. We're utilizing the John Guest portfolio to attack areas around core plumbing.
Thank you. Edwin, I have a couple for you from Brook Campbell-Crawford. The first one is, in a normal year, the seasonality between the first quarter ending September and the second quarter ending December, is there any great difference between the first and second quarters for you in EMEA normally?
No. I think we normally see actually a little bit more of a difference between the first half and the second half, given our broken book year. In our territory, we actually then have the July, August vacation and December vacation period, both in the first half. We don't see that much seasonality. Actually, not that much between Q1 and Q2. Second half is normally better than first half.
Thank you. Just on the margins you're seeing in the September quarter, EBITDA margins, I guess, between the September quarter this year and last year.
Haven't closed the books for September yet.
True
That's a difficult one, but I think I'll align with Andrew's comment that volume obviously helps.
Yes. Thank you. Thank you, Edwin. Sean, a couple more for you. This is from [inaudible] . Can you talk about differing PTC market shares in the different regions of the U.S.? Is there any great variation in the penetration of PTC in different parts of the U.S.?
Yeah, we definitely see some regional differences in pockets. There's areas where it is particularly strong, if you think of areas like Buffalo, West Philadelphia, that Pennsylvania market, it's an area that is particularly strong. You move out to California or even Florida, it'll be less strong in those areas. We do see regional differences, but it gets back a little bit to some of the preferences and regional preferences that Brad spoke of when it comes to fittings. Plumbers and mechanical contractors like choice. Various pipe systems have various preferences in various parts of the country. For example, in the southeastern U.S., CPVC is heavily used.
You move to other parts of the country, and it's rarely used. In areas where CPVC is heavily used, we'll see fewer PEX systems, and less use of Push-to-Connect in general, because they are particularly price-sensitive markets. They are using CPVC because it is absolutely the lowest cost system they can install. There are tremendous regional differences. How you build, design, and pipe a house in the state of Florida, it looks very different than in the mountains of Colorado or the state of New Hampshire, right? There is significant regional differences that we do see across plumbing and even particularly to PTC.
Thank you, Sean. One last one for you. How do you or we think about operating leverage and margins in the Americas this year and going forward?
Well, a few things. I think Andrew hit on some of the highlights, right? I think we're in a period now of fairly favorable commodity and FX at this moment. As we look forward into the second half, some of that favorability is going to move away from us. Clearly you see what's happening with copper, what's happening with the U.S. dollar to Chinese yuan. Those things will be headwinds for us in the second half of the year, but are positives this year. The second area is the fact that, like most businesses, we'll see reduced SG&A cost during this period. There's limited to no travel. There's no trade shows. A lot of the core selling and marketing activity has had to go virtual and be augmented not only by us, but by the entire competitive base. You saw some of those job sites.
You're allowed fewer visits to job sites. During this period of somewhat isolated behavior here in the Americas, we will see a reduction in SG&A. The second area, I highlighted all those investments that we've made in the business. We're capitalizing on those investments today. As Heath indicated, we always have a pipeline of new program opportunities that we're trying to work with our wholesale and retail customers. The acceptance of those programs depend on a number of factors. This particular year, the likelihood of them getting accepted is lower. With each of those comes an investment that we're likely not to see this year, as we would in normal years. Again, that'll mitigate as we move into the second half of next fiscal year and into the following fiscal year. We'll begin to go back to a more normal operating leverage.
Thanks, Sean. I might get Heath to join you up there. A couple for him.
Go ahead, Phil.
Welcome back, Heath. It's about to what extent would we consider adding products which are slower growing or lower margin because they would be defensive, help us take shelf space, et cetera?
Yeah. Well, look, we'll certainly consider that. There's a limit, of course. I think the stop valves that we rolled into Lowe's is a good example. They are a lower margin item and less differentiated than core SharkBite, for example. It made perfect sense to us to increase the shelf space, offer a better solution, a more coherent solution. Of course, the additional cost that we had to put into the business there wasn't great. The drop through to the bottom line is still a nice number. At some point that stops being the case, but there's a lot of opportunity out there that still falls into that category that's attractive for us for sure.
Beyond our three regions, are there any geographies which are missing from our portfolio?
Not really. In each of our three core geographies, we are working on lower priority projects outside our core key markets. Our real opportunities are the ones we set out tonight, which are focused on our core market where we've got good distribution relationships. That's certainly the focus going forward.
Thank you. This is also from James. "To what extent could COVID-19 have a lasting positive impact on our long-term revenue growth expectations with, i.e., more permanent work from home, less travel, et cetera?
Looking through the uncertainty in the near term to the uncertainty in the long term. Look, I'd say, what Sean touched on I think is quite interesting, is some of that potential channel shift. Some of the pro customers who weren't buying from retail previously are now. Now some of them have gone back to wholesale, but I suspect it's a little bit sticky in some cases. Now, what percentage of that? Is that 2%? Is that 20%? We don't know. That's potentially a benefit to us.
How much of this mindset of invest in your home sticks? There's a little bit of bullishness out there, and I'm personally a little more skeptical. I think, Sean, as you touched on, is once people can go back on vacation, I think people are going to go back on vacation. We'll see how that unfolds. I think we're well-placed to take advantage of the potential opportunities there. It's really unclear as to what they are and how great they are, though. Absolutely.
Thank you. A couple more, Heath, and we'll wrap it up. Could you comment on the efficiencies of each region, perhaps using the U.S. business as a guide, i.e., 600 FTE in the U.S., given their revenues and earnings? How we would sort of evaluate the three regions from that point of view.
Sorry, can you say that again, please?
The relative efficiency of each of our three regions from a margin point of view or operational efficiency point of view, just based on headcount.
Yeah. Where it gets really hard to make that assessment is some of the margin for the sales work that's done here in the U.S. sits in Australia. The manufacturing of SharkBite comes from there and is a little bit the same from the U.K. The FluidTech fittings, which are made in the U.K., are sold in Australia and in the U.S. It gets a little bit hard to break that up. Off the top of my head, not really. It gets a bit complex to try and pull that apart.
Okay. One for you or maybe Andrew, from Keith Chau . We guided CapEx to AUD 35 million to AUD 55 million. Given the recent demand strength, are we going to pull forward some of that CapEx? Any thoughts of adding plant or line extensions, et cetera?
Well, Heath, the 35-55 was always a range that we felt like depending on demand, we would hit the higher end of that range. We would take a wait and see approach. I feel like we're more than likely to see the higher end of that now, given the volumes that's going through the factories. Yeah. That's kind of what we see. What was the last bit of that question? Phil?
Whether we'd be looking to add in more capacity or line extensions.
Okay. Yeah, look, I think line extensions quite possibly in both Americas and EMEA. Pieces will fill in here and there where we've got bottlenecks, but certainly nothing large scale like a new factory, but more just filling in and possibly a new line here or there.
Thank you. Heath, one for you.
I'll mention, we are also adding distribution space in Cullman. That's something that we feel like is necessary in order to support the business. That'll be a lease, of course, not own property.
Thanks, Andrew. Heath, one more for you. If we were still a private business, would we do things differently to change the business from this uncertainty?
Look, inevitably, there'd be some things we'd do differently. I think around the edges, though, by and large, the strategy and the approach that's got us to where we are today is still valid going forward. I think what you were just talking about there with Andrew is a good example is, we've always tried to, and done a pretty good job, frankly, of keeping ahead of demand from a capacity point of view. That means making a decision today that will impact the fill rate for a customer in two and a half years' time. You've got to do it.
The interesting situation we've got right now in the U.S. is this higher demand, which is an abnormal demand in retail. Will that come off at some point? Yeah, probably is my view, but we don't really know. From a capacity planning point of view, we've got to assume that it sticks. That seems to be the analyst view right now. We'll build that inventory, that capacity accordingly, and if we need it, then fantastic, and if we don't, well, we'll need it six months or 12 months later. I think they're decisions that we made and the philosophy we had as a private company remains today.
Thank you. Last question from James Casey. Are we looking to do any more large transformational type acquisitions? What balance sheet capacity do we have for acquisitions?
I'd say our thinking is more along the lines of bolt-ons right now. Quite a few of the sessions today referred to gaps in product offerings, increasing share of wallet or the size of the basket of products offering to the end user or shelf space. All of that points, I believe, to bolt-on acquisitions to augment our product range. Right now, I think we've got the capacity from a balance sheet point of view to support those sorts of things. Not particularly on the lookout for a transformational acquisition at this point in time.
Thank you. Over to you, Heath, to close.
Okay. Well, very good. Thank you, Phil. Thank you very much to the RWC team for putting this together and participating. Edwin, I think it's about, I don't know, 3:00 A.M. something your time, so you need to get some sleep so you can get up early for that product launch tomorrow. Most of all, thank you very much everyone who sat in on the call. Thank you for your interest and your support. I hope it's been informative and interesting, and we look forward to next time. Thank you.