Reliance Worldwide Corporation Limited

Thank you for standing by and welcome to the Reliance Worldwide Corporation half-year earnings call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Heath Sharp, CEO. Please go ahead.

Good morning, everyone. Welcome to RWC's Financial Year 2026 Half Year Earnings Call. This is Heath Sharpe. I'm joined here in Atlanta by Andrew Johnson, our CFO. Today, we'll cover our results for the six months ended 31 December 2025. Then we'll move to Q&A. Before I get into the numbers, I want to recognise the effort behind this half. This has been a demanding period. The results are in line with the tariff impact we forecast, but they're not at the level we aspire to deliver. Notwithstanding, they required tremendous execution to achieve. Our teams have worked incredibly hard. I am very proud of their efforts. They have navigated an ever-changing tariff environment, with discipline and speed and they've continued to progress major strategic initiatives at the same time. That combination matters and it positions us very well as markets recover. With that, let's get started on slide three with some details on the first half. We continued to face headwinds during the period. US tariffs impacted earnings and margins. End markets in the US and UK remain soft. As we previously guided, the FY26 tariff impact on operating earnings is expected to be $25 to $30 million. That impact was weighted to the first half and that is reflected in today's results. Even in this environment, we delivered strong cash generation. Cash flow remained a key strength of the business. I want to recognise our finance teams across all three regions. Their discipline on working capital enabled a further reduction in net debt. Operationally, we made strong progress on major projects and we executed well across multiple product initiatives at the same time. In EMEA, our new Poland assembly plant was commissioned and began production during the half. That was a major achievement delivered at pace. In the UK, customer service performance improved meaningfully. Order lead times reduced and fulfilment rates lifted. In the Americas, we finalised plans to augment US manufacturing with a new facility in Mexico. The team did a comprehensive job in evaluating options and selecting the best path forward. and we are now actioning that plan. In Australia, we launched SharkBite Max across our customer base. It was a substantial rollout, and implementation was excellent. Finally, our tariff mitigation actions remain on track. Diversification of sourcing away from China continues, and pricing actions have now been completed and will flow through the second half. Turning now to slide four and the financial overview for the half. Reported net sales were down 4.6% versus the prior corresponding period. Underlying sales were down 1.9% after adjusting for several items. Those adjustments include demand pull forward in the Americas in the prior first half, the exit of selected product lines in the Canadian market, and the sale of our manufacturing operations in Spain. For the balance of this presentation, we will refer to underlying sales. This is consistent with the guidance we provided in August. Adjusted EBITDA was down 22.5% to $111.4 million. This reflects tariffs and lower volumes. Adjusted NPAT was $52.2 million, Adjusted EPS was $0.067 per share. The distribution declared for the half totals $0.04 per share. That is evenly split between a $0.02 interim dividend and an on-market buyback equivalent to $0.02. I will now hand over to Andrew to take you through the results in more detail.

Thank you Heath and good morning everyone. Moving to slide five, let me start by saying this was a tough half. Although we are not satisfied with the financial results, we did perform in line with our top line guidance. We maintained strong cash discipline and have positioned the business for materially better performance in the second half. Underlying net sales were down 1.9% versus the first half of FY25, which is in line with our guidance in August. Underlying net sales adjust for items we have called out in prior periods. Number one, the demand pull forward in the first half last year in the Americas. Number two, the exit of low-margin product in Canada. And number three, the sale of our manufacturing operations in Spain. The real story of the half is in the margin compression driven by tariffs and weaker end markets. Adjusted EBITDA of 111.4 million was down 22.5% on PCP, with our margin falling from 21.3% in the first half last year to 17.3% this year. The 400 basis point margin hit breaks down into three pieces. First of all, roughly 250 basis points is derived from the tariff impact. About 100 basis points from lower volumes and operational deleverage, and the balance from the EMEA investment and service capabilities and the competitive pressures on the DWV market in Australia. I'll walk you through the regional details in the following slides. Despite the earnings pressure, we delivered $4.4 million in cost savings during the period through procurement, manufacturing efficiencies, and distribution optimization. These actions, combined with our tariff mitigation measures, will deliver improved margins as we move through the second half. On a housekeeping note, we had two non-recurring items during the period. These were a profit on sale of our warehouse in France and final Holman restructuring and integration costs. The net effect of these two at the EBITDA line was 0.3 million. Before I move on to the regions, I just want to reiterate that the first half absorbed the worst of the tariff impact, approximately two-thirds of the FY26 annual impact of 25 to 30 million. Our mitigation actions are working, and we expect improvement in margins across every region in the second half. Turning to slide six and the performance of the Americas segment, America's, as you know, is ground zero for the tariff story. Underlying sales were 3.4% lower than the PCP, but more significantly, EBITDA margins compressed 410 basis points to 16.9%. Adjusted EBITDA was down 25.4% on PCP to 69.1 million. In the U.S., we continue to experience weak markets and are not assuming a significant improvement in FY26. U.S. existing home sales remain near multi-decade lows. While long-term mortgage rates have eased, we believe long-term rates need to decline materially further before we see sustained turnover improvement. However, we remain confident that we are well positioned to benefit when the recovery does come. Also negatively impacting revenues by approximately 7 million was the movement in inventory weeks on hand by some of our major customers versus the PCP. Channel inventory appears broadly normalized now, and we are not expecting further material reduction, but we are also not assuming weeks of stock to increase in half too. On a positive note, on tariff mitigation, We are executing well across a very complex set of initiatives, despite what has been at times a moving goalpost on tariffs. We've made good progress on three critical work streams. First, we've diversified sourcing away from China to lower tariff countries. This is well underway and accelerating. Second, we've implemented pricing adjustments across the entire U.S. customer base. Those are now in place and flowing through. Third, we're executing on cost reduction initiatives that will build momentum in H2. As Heath has referenced, we intend to augment our U.S. manufacturing operations with a new facility in Mexico. This new facility is about manufacturing flexibility, cost optimization, and of course, tariff mitigation. The Mexican operation will be focused on lower volume, manually assembled products that will complement our high-tech, high-volume Coleman facility. We are partnering with a local operator to de-risk execution, keeping capital requirements modest and within our existing guidance. We expect to be operational in 2027. Looking at the results for the Asia-Pacific region on slide seven, APAC delivered 0.6% sales growth in local currency, but margins were under significant pressure. EBITDA margins fell 340 basis points to 8.6%. Two factors drove this. First, competitive intensity in PVC pipes and fittings impacted both volumes and margins. We addressed pricing discipline aggressively during the period, and we're already seeing sequential improvement in PBC margins in Q3. Second, we had lower manufacturing overhead recoveries as we sourced more from third parties, which impacted manufacturing volumes. Also impacting earnings in the half was wetter than usual weather in some of the states in Australia, which meant a delay in the spring selling season for watering products. On the positive side, SharkBite Max launch across the Australian market has performed well. Looking forward, we expect APAC margins in the second half to be higher than both prior year and the first half. So the PBC market has stabilized. We're recapturing overhead efficiencies. Pricing continues to move through, and SharkBite Max momentum continues. Moving on to slide A in EMEA. EMEA showed resilience with underlying sales down just 1.3% in local currency. But we made deliberate investments that compressed margins. In the UK, sales were down 1.6% with plumbing and heating down 1.3% on weak remodeled demand. But our focus for the half was on fixing service levels. We've achieved substantial reductions in order lead times and meaningful improvements in fill rates. These improvements came at a cost. We incurred incremental expenses that we view as short-term investments. As we optimize these processes and commission our new Poland facility, we expect to manage out these excess costs. Continental Europe was the bright spot, with underlying sales up 5.7% after adjusting for the Spain disposal in the previous year. We saw growth in Germany, France, and Italy driven by new product launches with key distributors. These are early-stage wins that should build momentum. UK minimum wage increases also pressured margins. This is exactly why the Poland plant is strategic. It gives us competitive cost structure flexibility as UK labor costs rise. For H2, we expect EMEA margins to be higher than H1 as service delivery costs normalize and Poland ramps up. On slide nine, despite earnings headwinds, we delivered good cash performance. Cash generated from operations was 102.6 million, down 19% on lower earnings, but operating cash flow conversion was 92.1%, beating both PCP and our 90% target. This is a testament to disciplined working capital management. We reduced net debt by 21.2 million and a half and 70.2 million over the past 12 months. Net leverage declined to 1.39 times, maintaining strong covenant headroom and financial flexibility. Turning to slide 10 on working capital, the story is really about inventory. The balance increased $33 million during the half, predominantly from tariff impacts on inventory values, strategic positioning ahead of sourcing transitions, and inventory build to support customer initiatives. Importantly, this was largely offset by working capital management elsewhere. Receivables were down through tighter collections and payables were up through improved supplier terms. Networking capital as a percentage of sales was 29%, up only modestly from 27.4% in the PCP. Capital expenditure continues to trend down, 12.6 million or just 2% of sales. We're maintaining discipline here while funding critical projects like Poland and Mexico within existing guidance. Looking ahead to H2, We expect inventory levels to normalize as tariff transitions complete, and we optimize stocking positions. Cash generation should remain strong. And with that, let me now hand back to Heath.