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.

Thanks, Andrew. Turning to slide 11, this is our tariff update. The key message is clear. We are executing strongly across the full set of mitigation actions. We continue to make robust progress reducing purchases from China, and we are shifting sourcing to lower tariff countries largely in line with plan. Pricing actions have now been completed, and those increases are flowing through the current half. We have delivered this progress despite shifting tariff conditions over the past year. While the goalposts have continued to move, our approach has remained disciplined. For FY26, there is no change to our expected tariff impact. We still anticipate a net EBITDA impact of $25 to $30 million. Looking to FY27, there is a small change. We now expect a residual net EBITDA impact of $5 to $7 million. Our previous target was zero FY27 impact. This reflects changes in country and material tariffs. and points to our decision to invest in manufacturing in Mexico. Importantly, the Mexico facility strengthens the business. It improves manufacturing flexibility and it supports our long-term tariff mitigation strategy. Over time, the Mexico plant and final sourcing changes will deliver a full tariff offset. On slide 12, we set out our assumptions and outlook for the remainder of FY26. As Andrew said, we are not assuming a material improvement in end market demand in the second half. However, we are targeting improved operating margins in each region. In the Americas, we expect second half underlying sales to be up mid to high single digits on the PCP. That is partly driven by pricing flowing through and it also reflects a softer comp due to last year's pull forward. We also expect America's EBITDA margin to improve in the second half versus the first. Margins will still be lower than FY25 due to tariffs, but the trajectory improves as mitigation actions take hold. In Asia-Pac, we expect second-half sales to be broadly flat to up low single digits. We expect operating margins to improve meaningfully. This reflects stabilisation of our PVC fitting segment and it reflects the actions we have already executed. In EMEA, we expect broadly flat underlying sales. We expect EBITDA margin to improve in the second half. We are now betting in the customer service improvements and we expect some of the incremental first half costs to unwind. We will also begin to see benefits from the Poland assembly plant. At a consolidated level, we expect second half external sales to be up mid single digits. And we expect full year FY26 external sales to be broadly flat on the PCP. We expect second half EBITDA margin to improve versus the first half. Full year EBITDA margin will be lower than FY25. This sequential improvement reflects tariff mitigation and operational actions. Slide 13 sets out our priorities for the second half and beyond. A major focus, of course, is copper. Copper volatility is an industry-wide issue and it is one we are tackling directly. In the near term, we will execute the traditional offsets. That includes supply chain optimisation, tight cost and overhead control, and pricing actions into the market. We expect these actions to largely offset the copper impact for FY27. At the same time, we are accelerating longer-term actions. These actions will structurally reshape the cost base. We are progressing material substitution that includes polymers and it includes alternative metals. We are also progressing product and component redesign, and we are assessing alternative manufacturing processes. Internally, we have set a clear goal. By FY29, we aim for copper to no longer be a material part of the RWC P&L. This will influence our manufacturing footprint over time, and it will strengthen our long-term competitiveness. The investments we have already made in automation and assembly create flexibility and it will be augmented by our new plants in Poland and Mexico. On slide 14, let's take a step back for just a moment. As we look beyond this half, it's worth coming back to what RWC is built to do. Our strategy is unchanged. We are executing against a clear vision. to be the complete plumbing global leader across repair and remodel, new construction and commercial plumbing, serving both residential and commercial buildings, distributed through wholesale, retail and OEM channels. Now, I'll wrap up on slide 15 before we open for Q&A. The core message is simple. RWC is well positioned for long-term growth. We have a strong leadership team and we are aligned on global priorities. Across the organisation, execution remains strong and collaboration across regions continues to strengthen. Our differentiated position is a real advantage. We have strong channel partnerships built on value creation. We bring products that earn their place on the shelf. We also have industry-leading brands They are recognised for innovation and service. We have a clear strategy. We will grow through product innovation, we will grow through customer experience and service levels, and we will grow through industry-leading execution. We also remain well positioned from a manufacturing capacity perspective. We have invested significantly since 2021. As volumes recover, we will see meaningful operating leverage. We continue to see strong long-term macro drivers. Aging housing stock supports repair and remodel. Underbuilding supports new construction over time. And labour shortages continue to favour smart product solutions. Finally, RWC has a strong balance sheet that gives us flexibility. It supports organic growth, it supports M&A, and it supports ongoing shareholder returns. With that, I'd like to open up the call to questions. We will take questions first from those on the conference call line, then Phil will read any questions received via the webcast.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. The first question comes from Neeraj Shah with Goldman Sachs. Please go ahead.

Good morning, guys. Just a couple on copper. For me, firstly, can you remind us of what the process is with your customers in terms of taking the price action, how that might vary by channel? And then secondly, where you have copper intensity in the portfolio, like shark bite or valves, can you talk about how this might compare with competitor or alternative products? Just thinking about the risk of substitution as the copper price is reflected in product price.

Sure. So we've talked a little bit over the years of the the mechanism for pushing through pricing. Ultimately, it's just a little bit different by channel, but fundamentally, in the case of copper, where it's a clear index and that information's available to everyone, that's the foundation of the submission and you provide the information in the standard format that that particular customer wants. It's a process we're pretty familiar with. We've gone through it now all too many times, so pretty comfortable that we know what to do there and and can run through that process. The question on alternatives in the marketplace, I think we've got a good idea of what our end users need. I think that's absolutely a differentiator for us. You've been to our training center here in Atlanta and we talk a lot about spending time in the field. So any changes we make to our products will be based on knowledge of the market what our end users value, what's important for them. We're also not going to make any changes without having undertaken the appropriate trials and focus groups and field tests and whatever else. Obviously right now with COPPA, we're in the same position as everyone else. So it's not a commercial disadvantage for us. It's just time and effort to handle that. I actually see the project to move to alternative materials, that's a real opportunity for us. It's the sort of project I think we do very well. It's the sort of project that energises our people and I think it's an opportunity for us to show that innovation and disruption that we're known for and to solidify the strength of our brand. So it's clearly going to be our number one priority for the next few years and I think that's entirely appropriate.

Thank you.

The next question is from Ramon Lazar with Jefferies. Please go ahead. Mr. Lazar. Hey, Ramon, are you there? Gary, I think we lost Ramon.

The next question comes from Lee Power with JP Morgan. Please go ahead.

Morning. Can you maybe talk to the level of pricing that you actually got? So how much does it contribute in that second half? And then I get the kind of the weaker PCP in America and a few other moving parts, but maybe just your view on how the core US market is actually tracking. Are things stable or are we still seeing declines? Thanks.

So I think on the market generally, I think it declined just a little bit further in the last period. It's a little tricky at the moment to look through pricing moves in the market to determine exactly what's happening with volumes. I think pricing is only just starting to move through now. So overall, the market feels like it was off by another few points at least over the last six months. Look, in terms of the pricing action we've taken, I think as we've set out in August and then earlier last year, we've got a very comprehensive model of all our cost imports literally by SKU. We then cross-reference that to the particular channels and the particular markets and we'll take the pricing action that we feel is appropriate. based on the nature of the product, our position in the market and a whole host of other factors. So I don't want to point to any specific numbers on pricing. I don't think we've called that out anywhere and that's quite a sensitive issue. So I think we revert to, you know, again, what we've talked about a few times is all those combined activities with sourcing, cost saving, pricing has... yielded the result in line with what we got it to in August. Okay, thank you.

And then just on the EBI outlook, can you confirm that that's constant currency? Because I guess the currency has moved a lot and it would seem very conservative if it wasn't constant currency.

It is in constant currency.

Okay, thank you. And then just a final one. Your point, Pete, that you were chatting about, you know, material substitution and alternative metals, like SharkBite's obviously very well known as a brass-fitting brand, and there's a lot of other products out there where they're, you know, plastic resins-based. So how do you... Like, how do you think you actually go? Like, how do you manage... what has, you know, been core for SharkBite for a long period of time and then you try and strip out what, you know, customers know the product as if you look to polymers or some other, you know, material?

I think carefully. But I also would point to the tremendous amount of work we did during the SharkBite Max transition. We learned a lot there. And I would say... the heart of that project was to disconnect assembly from the body manufacturing. And that's what allowed us to bring assembly to the US, as you know, Lee. But if you think that through to the next level, disconnecting the body from the assembly process also disconnected the choice of material for the body from that assembly process. So that was... in our mind all along, so has been part of what we've tested. So we've got a range of options there. I think we've got a pretty good handle on the right direction to go. I don't really want to provide any more information on that at this point, but we'll be making those trials and taking the right action, we believe, over the coming months.

Excellent. Appreciate the answers and time today. Thank you. Thanks, Lee.

The next question is from Harry Saunders with E&P. Please go ahead.

Morning, guys. Thanks for taking my questions. Firstly, just wondering, with about two-thirds of the tariff impact have been in the first half or sort of 18 million roughly, therefore sort of implies a 9 to 10 million step up in the second half, all else equal, before other factors. Should we then be factoring in some other positive or negative factors in the second half, such as seasonality and maybe some of those one-off factors you discussed in some of the regions rolling off. I mean, could we maybe just step through a bridge to the second half, given, you know, more complex than most sort of second half movements, please?

Hey, thanks, Harry. This is Andrew. I'm not going to bridge it, but let's just kind of talk through it. You are absolutely right. We will see a reduced impact in the second half in terms of the tariff impact. We're still sticking to the 25 to 30, and so roughly one-third of that would hit in the second half. So that will certainly be an improvement over the first half. Some of the other items that we've called out, APAC PBC margins are already recovering. We expect that to continue. And in EMEA, we're working really hard to optimize those service costs that flow through. And of course, we'll have more of an impact of polling as those volumes ramp up. And I think lastly, we are executing well on cost savings. We've called out 8 to 10 million. So, you know, you could take another round of cost savings in the second half, very similar to what we achieved in the first half. So overall, we think that's going to support the margin improvement in the second half. And, you know, that's a pretty clear line of sight, at least on those four things that I mentioned.

That's helpful. Thank you. Maybe asking another way. I appreciate you may not be able to answer. But, you know, the second half margin, you know, clearly should be up on the first half, but lower than PCP. I mean, is there any indication at all of... which one we're closer to in the second half, you know, just given a lot of movements today.

Yeah, you know, look, I think volume is going to be the wild card.

You know, I think if we can see a good volume uptick, although we're not planning on it, volume is going to move that needle either closer to last year or closer to the first half. So it's really hard to say here.

Thanks. And maybe just that comment on the cost out measures, just to be clear, are you sort of indicating there's some incremental cost out versus the first half run rate in the second half potentially?

No. What I'm saying is that run rate will continue. So we'll see another roughly $4 or $5 million in the second half to get you that $8 to $10 million for the full year.

Got it. Thank you. And just lastly, can you just talk through, I guess, in that America's guidance for sales versus volumes? I know we touched on this, given the tariff pricing impact, or is that something you can't answer?

No, we're not going to talk specifically about the tariff pricing actions and the impact, but that certainly drives a significant part of that guidance we've given in Americas for the top line.

Got it. I'll leave it there. Thank you.

Thanks, Harry. The next question is from Brooke Campbell Crawford with Baron Joey. Please go ahead.

Yeah, good evening. Thanks for taking my question. I just had one on volume in the second half. Andrew, you noted that's the key swing factor in the second half in Americas. I'd love just to hear your thoughts around elasticity relating to all these prices that have gone through for, I presume, tariffs and copper. What's your kind of assumptions there around impacts to demand from prices going up? And how have you kind of thought through that one, providing the second-half guidance? Thanks.

Yeah, it's really hard to say, Brooke.

I think that You know, certainly there is some point where pricing will impact demand. I'm not sure we're seeing it at this point because you have to remember that, you know, the whole industry has had to push price related to either tariffs or copper tariffs. And so we're kind of all in the same boat. I'm not saying it won't impact demand at some point, but it's just not something we're really seeing at this point.

Look, I'd also broke point. point you to the fact that a really good chunk of what we do, particularly here in the US, is absolutely repair and maintenance. So far less discretionary, which helps. I think the bit of the market that's more susceptible, of course, is that remodel, and particularly the larger remodel. The other issue that works in our favour, to a degree, is the fact that our products particularly in that repair and maintenance area, are a pretty small percentage of the overall cost of the project. So I'm not sure where we're at and what our pricing is dramatically moves the needle on demand. That's simple.

Thanks for that. And just one on the Mexico facility. How should we think about the cost reduction from that relative to, I presume, things being done in Colman at the moment that will get shifted across? And then you know, just bigger picture, how do you get comfort that, you know, there won't be sort of further changes in tariffs that would impact Mexico and sort of, I guess, become a complicating factor when planning this new project? Thanks.

Yeah, look, I'm not sure we have any comfort whatsoever with regard to tariffs being stable. It's an ever-moving target. But we took this action with that in mind. We've been considering... in Mexico for a while now, and the opportunity from tariffs was, I guess, the last catalyst to get us over the line to make that move. But our view is solidly that having a flexible, lower labour cost production facility pretty close to our markets is going to be a useful thing for the fullness of time, irrespective of tariffs. So I'm very comfortable with where we're headed. We've also taken, and we talked about this in Sydney at the Investor Day last October, we've taken a no regrets approach, if you like. So low capex, fast and reversible. So, you know, this is not a $100 million project. We're talking about, you know, a project a couple of million dollars, a few million dollars worth of sort of OPEX, CAPEX, that's the order of magnitude, but I think the optionality it gives us is pretty significant. So yes, at the moment, there would also be some additional tariff benefit and that's great, but long-term, we think it's a pretty useful facility to have regardless.

That's great. I'll pass it on. Thank you.

Thanks, Brock. The next question is from Peter Stein with Macquarie. Please go ahead.

Good evening, Heath and Andrew. Thanks for your time. Perhaps just furthering that line of questioning briefly, Heath, the $5 million to $7 million impact that you've called out in 27, you sort of suggested that that's as a consequence of moving goalposts in tariffs more so than, you know, perhaps as a consequence of you not taking price associated potentially with some of the production that you moved to Mexico. Is there an impact like that? So very much like what we've just seen over the last six months?

I think there's a few factors that converge there, Peter. We were looking at the history of tariffs last week as we were getting our head around this call. And even though we lived it, we were surprised when we put it down on a sheet of paper just how much has changed. I think there was, of the top 12 countries we sourced from, it was nine or ten of them, the number had changed from the original number. Perhaps more significantly, some of the materials tariffs have changed, whether that be steel or copper. And then even beyond that, once you get into the detail of what defines locally manufactured, whether it's melt and pour or whether it's processed or subsequently processed, also changed during the period. So you put all that together is there were a handful of items in our original plan where moving them was not going to yield as much of a benefit as we first thought. It was going to take some effort and there's risk in all of that. So we simply decided to look closer to home for a longer term solution as opposed to moving only to have to move again. I think there are some things we've moved that we will subsequently move again and perhaps bring to Mexico. And I think the The final point I'd make there is there's some low volume production we will ultimately take out of Coleman and move to Mexico, but only some. We're definitely eyeing some other things we're now doing in other parts of the world, whether that be Southeast Asia or even the UK and Europe, that we may ultimately bring to Mexico. So there's a lot of factors at play there, and in the end, we thought it was prudent to reduce risk just a little bit and make that sort of not have a secondary move but only have an initial move. And that's really what's led us to that change in the FY27 guide.

Gotcha. Thanks, Heath. That's useful. And then just curious, obviously, around the inflationary pass-on perspective, if you could just give us a sense of how customers are reacting, or maybe channel partners are reacting. You're obviously moving things around a fair amount. How are you managing that process and how are they responding?

Peter, I'd say no one's real happy right now. It's us, our peers, our customers, our vendors, our end users. I mean, everyone along the way is absorbing just a little bit. Everyone's passing on as much as they can. It is having somewhat of an inflationary impact on the very final product. Ultimately, we all do what we have to do. I mean, this has got complete visibility. It's not a thing that's unique to us or unique to our product or our category. So that helps. I think everyone's just frustrated that it's taking a whole lot of time and effort that ultimately we'd all prefer to be putting into something else. So there's nothing specific that I'd call out there in terms of, you know, big over-the-odds wins or big problems. We're just working through it.

Yeah. Very good. Thanks, Yves. Appreciate that color. Thanks, Peter.

The next question is from Daniel Sykes with Jarden. Please go ahead.

Hi, guys. Yeah, thank you for taking my question. I just wanted to touch on APAC and EBITDA margin there. whether you could provide some colour on what drove the decision to source more externally versus manufacture. It seems from the guidance around, you know, look forward EBITDA margin for APAC, it seems transitory, but I'm just wondering if you could help us understand why it was so acute this half.

Look, ultimately, it's a cost-driven decision. You know, volumes in the Aussie market are really quite low relative to the The rest of the world, you'll recall that back when we were doing all of the US manufacturing and assembly in Australia, we were able to do the volume for Australia as well within that context, but now we've taken that assembly volume out of Australia. It makes it very hard to justify that level of cost and overhead to an Australian-only product. and hence we've outsourced it. And it was an approach similar to what I just mentioned for Mexico. So low capital, fast, and ultimately just gave us flexibility, and that's the direction we've gone, and obviously a unit cost advantage as well.

Okay, great. And just in terms of the comments around inventory levels in America is obviously the 7 million hit from customer destocking. Is that something that's finished now, or how does it look forward through to H2? Are you expecting some kind of inventory drop again through H2 in the guidance?

We are not expecting further reduction. And I think I've mentioned that in my prepared comments. But at the same time, we're not expecting those weeks of stop to increase either. From where we sit today, we feel like it's normalized, and we should be fairly stable from here forward. Okay, great.

Thanks.

Thanks, Daniel.

The next question is from Keith Chow with MST Marquis. Please go ahead.

Hi, Heath. Hi, Andrew. First question, Heath, just going back to the point around elasticity, it certainly seems to me that at least part of the answer to demand elasticity due to cost input in POS is answered by the actions taken by Reliance, you know, with substitute materials, alternative manufacturing, change in product design. And I think you made the point in the presentation that the goal is to make copper a non-material part of the P&L by FY29. So these actions actually seem a lot more significant than the changes that have been made to the core product set over the course of history. Is it as extreme as substituting a metallic fitting with a plastic fitting, or is it more about changing the alloys and the production process of sharp wire push-to-connect products?

Look, it's going to vary by product. I mean, in some cases, a polymer solution will be the answer. I think in many cases, we'll probably end up with a stainless steel solution. I think the bigger question is how you actually go about processing that metal and which particular version of stainless you choose. I mean, there's a little bit in it, but I think it's all handleable. That page, I think it was 13, the copper page in the deck, is there's really two parts of that slide. There's the near term on the left-hand side and then the long term. And near term, as we put there, it's the same leave as we had at our disposal previously. I mean, when copper's at where it is today, plus or minus a little bit, I think those mechanisms are fine. We just have the view that... Well, look, it's volatile right now. I'm a little bit tired of dealing with that. That makes it hard. But we also have the view that data centres, electrification of vehicles and whatever else is not going to make it any easier for us to source copper at sensible prices going forward. So we really have put a stake in the ground and then pivoted to the right-hand side of that page is how do we remove the volatility? How do we protect ourselves from that long-term... long-term impact. That's the approach we're taking. To some extent, someone on the Americas team made this comment the other day, is copper is the new China. We took action over the last 12 months or so to sort of decouple ourselves from China. We're taking a similar approach to copper right now. It will take longer. It's a multi-year project. It's got some challenges in it, but I think we can pull those off, and I think it actually helps us in the marketplace. We'll have to do it carefully, at pace, but carefully. And, of course, none of that, though, in the event – heaven forbid, copper precipitously dropped in price. We can always go back to making these products in copper. So it is reversible, although I don't expect that will be an issue for us. I very much don't want to be sitting here in a few years' time and talking about copper at $18,000 or $20,000 or $21,000 because elasticity, all those conversations have gone by that point.

Yes, indeed. And just thinking about this on the longer term, because I guess when you're talking about product substitution or material substitution, there's always a discussion to be raised around the earnings power of the business and what it means if you do move to polymer for some products from metal, because effectively the embedded value of the product, sorry, the embedded cost in a metallic product is higher than a plastic product. But our alliance has always been a business that sells value. And I think in the past, you've talked about putting labor on the shelf. So maybe simplistically, the question is, can you retain the current earnings from the business, all else being equal, if there are changes to the product design and material substitution? Are you confident that you can still generate the same dollar, the same unit dollar of profit per product sold?

Keith, we're acutely aware of that model.

We live it every day and have for years. So we're not about to make decisions that upend that. I would also say, and you've seen this firsthand over many years, this is a super conservative market in the US. People don't like changing full stop and they certainly don't like changing to a material that's perceived as a less robust material. All of those things will factor into our consideration as we make these changes. I'm pretty comfortable that we can make the appropriate moves here.

Your question is absolutely valid and one that we're absolutely all over, I believe.

Thanks, Ethan. And maybe if I can, a couple of quick ones for Andrew, just to cut him off. Andrew, I think it was asked before around, you know, some of the costs that will come out of the P&L for EMEA for those investments to improve service levels and establishment of the Poland facility kind of come to an end. So if we just isolate it to those two factors, is the quantum of cost reversal in the second half or FY20 somewhere, at the range of low single-digit millions and pounds?

We think so. I mean, look, if you look at that 270 basis point drop that we saw in the first half, the majority of that margin drop, you can tie back to those production inefficiencies. I'm not saying we're going to get, we'll be completely clear of those in the second half, but the team's making really good progress to get the overhead recoveries and the labor recoveries back to where they were. So that's going to get most of that back that you just mentioned. Inflation's still an issue in the UK, and it has been for years now, of course, but gosh, when you take a step back and look at it, we've seen significant increases in the national minimum wage and And it has impacted our business. We do push through price. We'll push through price again in this second half, which will certainly help. So we're on our way back to kind of, of course, getting towards 30%. I'm not saying we'll get to 30% in the second half. I think we'll need volume to get all the way there. But at least covering off on those two things that hit us in the first half, you should see a significant improvement in the second half.

Thank you. And then the final couple is one, whether you can update us on the copper sensitivity for the business. And secondly, again, small point, but any freeze benefits factored in for the second half of the FI26 guidance. Thank you.

Yeah. So from a copper standpoint, we're at 900,000 U.S. dollars, and that's the EBITDA impact for every $100 movement in the LME. And that's pretty consistent with where we were last year. I think you also have to factor in that there's a tariff cost, a copper tariff cost that's not in that number, and that's probably another 25% on the number that I just gave you. So That's kind of what we're looking at. Because of the lag, we can tell you what copper will be in the second half. Copper on average will be about $10,600 a ton in the second half. It was about $9,600 last year. So that gives you the relative movement in copper. We'll see $4.5 million in additional copper costs in the second half. And Keith, what was the second part of that question?

Just whether there were any freeze benefits factor that's in the second half of the FY26 guidance.

You know, it did get quite cold. I don't think it was any more significant than some of the colder weather we had last year. We're tracking kind of the impact We always have more clarity the further we get through the second half and kind of look back because obviously customers have inventory levels that have to be drawn down and then you see reorder. So it tends to kind of flow through later than you would think. So sitting here today, I don't have a perfect visibility on what any freeze impact may have been. So, we'll just have to see how the half progresses. Right now, it would be very marginal in terms of the difference this year versus last year.

Okay, that's great. Thanks very much, Heath and Andrew.

Thank you. The next question is from Ramon Lazar with Jefferies. Please go ahead.

Yeah, good day, guys. Just a couple of follow-ons from me. Just on the APAC, maybe Andrew can answer this. I guess just with the changes in the manufacturing and sourcing, where could we expect those margins to get to now that you've made those operational changes, Andrew?

Well, we're working through those. I mean, I think that the team has done a really good job of getting their hands around price. And that's started to flow through on DWV in the first half, and then we've got other pricing initiatives that we'll see come through in the second half. From a volume standpoint, I mean, you've been following our business for a while now, and as you can imagine, intercompany volumes in terms of the product being shipped to the U.S., I don't expect that to increase year over year. And that's always a big variable in that APAC P&L because essentially it's a manufacturing business when it comes to that copper production and the shark bite bodies that are provided to the U.S. Where this goes from here, you know, I think volume, and I always have to go back to that, volume is always a big driver here. Our target for that region, we haven't lost sight of the mid-single-digit EBITDA margin target, but I do think it's going to take us a couple years to get there.

Yeah, okay. That's helpful. And just to follow on from Keith's question just around the U.S., growth in the second half. To get to that high single digit, are you assuming for that to happen you need to see some benefit from the freeze or is that just predicated on potentially a broader volume recovery gets you to that high single digit top line growth number in the Americas?

No, we're not in really banking any big benefit from the freeze in the second half. And as I mentioned earlier, the majority of that's going to come from pricing.

Okay, so no sort of major volume recovery expected in that mid-single to high single-digit top-line growth in the second half for Americas?

Not really. I mean, the team's doing some good things. Nothing I really would call out. There's some business we've... on the OEM side that we've been able to move forward with that's going to help out. And he mentioned the software comp last year, because you recall revenue was pulled ahead to the first half last year. So that's going to create a little favorable comp. And those are the primary things that I would call out in terms of what's going to get us to that top line guidance that we provided.

Okay. Great. Thanks. I'll leave it at that.

Thanks, Ramon. The next question is from Sharia Vissen with Bank of America. Please go ahead.

Thank you for taking my question. Just a quick follow-up on copper for Andrew, perhaps. Andrew, you look very detailed in terms of the steps you have taken to reduce the impact of copper. I was just curious to understand whether Hedging is something you've looked at, and if yes, could you help us with some numbers on, you know, what's hedged and at what price? Thank you.

Yeah, you know, we have looked at hedging, and actually we're going through a very small hedging trial as we speak. It's something we want to have potentially as a tool in the future. but it's not something that we're currently doing. And again, you know, if we do decide to hedge, it's really just not going to be opportunistic. It's really just going to be to take some of the commodity volatility out of the P&L. But we haven't made a decision on how we're going to move forward, but it is something we've considered and actually conducted a small trial and currently doing that as we speak.

Thanks, Andrew. Very helpful.

Thank you. The next question is from Daniel Kang with CLSA Australia. Please go ahead.

Good morning, Heath. Good morning, Andrew. Andrew, just probably just a housekeeping question here. Just wanted to clarify your guidance for America's And Mia, you called out some adjustments to the exit of low-margin products in Canada, and then, I guess, the sale of the manufacturing plants in Spain. Can you just quantify for us these two adjustment factors?

Sure.

I think, so let's walk through those. So we had, last year, we had an S4 HANA implementation As would typically happen, some customers bought inventory ahead of that. And then we had a load-in of some appliance connectors into one of our customers. If you take those two together, it's low double-digit millions. And then if you take the low-margin product that we exited, that's mid-single digits. And hopefully that gives you enough information to – to get you where you need to be. I'm not gonna give you exact numbers, but that'll get you really close.

That's great, Andrew. And just in terms of APAC Holman, can you help us with the level of contribution Holman provided in the period and the level of synergies that you've been able to extract?

Sure.

I'm not going to – look, Holman, we've had the business now, and this is our second financial year. We've done a lot to integrate those two businesses. So pulling out profit and EBITDA margins is pretty difficult. Nicole and her team are managing as one business today, and the accounting obviously follows that. Revenue was down slightly versus the prior year, and as we've mentioned, there was a really slow start in the watering season. It started to pick up late in half, but it still left us with slightly lower volumes than we had in the first half last year. Overall, we're still excited about the business. really driven revenue opportunities and synergies on both sides. So that's not only RWC selling more products into Bunnings, but of course selling some of that Holman product through some traditional RWC customers.

Thanks, Andrew. Last one, if I may. Realize market conditions are obviously fairly tough at the moment. It is for the entire industry. Wondering, Heath, if you can talk about the M&A outlook and are you actually seeing more opportunities come about because of the current conditions?

No, it's the opposite. Everyone over here is positioning, taking the view that it's better to be early than late. So valuations are pretty spicy, unfortunately. Got it. Thank you, guys. Thanks, Tom.

The next question is from Sam Seow with Citi. Please go ahead.

Morning, guys. Thanks for taking the question. Just one on material substitution. I think that's obviously a great initiative, but in terms of the profile, could you perhaps outline the rough shape when you expect that sensitivity to copper to start really dropping away the most? know maybe make reference to that 900 000 you've given us but yeah just any rough approximation on the shape of that sensitivity and when you think it will start to materially drop away so look i i don't so small no small thing where we're jumping into here i would like to think um

Look, I'm not sure we'll catch anything in 26. I certainly will start catching some things in 27. But, Sam, there's a reason we pegged it as a 27, 28, 29 project because there's some work in it. But we think during the course of those three years, it'll sort of incrementally yield benefits.

Got it. So just back in way that 28, 29, you suspect?

I think that's the goal we set for ourselves, yes. Okay, that's helpful.

And then I'm going to try a question then on FY27. I know in a normal year we wouldn't talk about it, but given it's not really a normal year and the copper price we're seeing now is likely to hit your P&L in first half 27, just wondering if there's any reason your bigger customers would reopen contracts out of cycle? Or is the percentage of copper in your fitting is just too low of a percentage? Or just anything to consider for that first half of 2017?

So, look, there's not a whole lot else to – there's no magic answer here. There's no silver bullet here. We're pretty comfortable we can offset the number in the copper impact in 27 based on our estimations for copper for the 27 year. All I can really say, absolutely, it's in focus for us and we believe the whole industry. The good question you asked, the volatility at the moment makes aggressive moves a little bit difficult. But there must be pricing. There's no question there has to be pricing here. And we believe, as in the past, it'll be an industry-wide move and we'll move as part of that. So very attuned to that, spending some good time and effort on it, but at the same time working really hard on the cost-saving part side of things and the supply chain side of things and continuing to pull those levers that are absolutely at our disposal today.

Thanks. That's helpful. And then maybe then on the cost side of things, maybe a more holistic question, but there's plenty of things going on at the moment, the tariff mitigation and et cetera. Is there any kind of cost that might reverse when things settle down or anything you can kind of help us or point to, I mean, there's obviously a lot of non-BAU work happening within your business. Just, you know, if there's anything you can kind of point to or quantify that might kind of reverse as you kind of go through the next couple of years. Thanks.

Look, I mean, it's hard to point out anything specifically. Costs are really only going in one direction these days, at least from what we can see. But I just want to remind you that We've done fairly well over the last few years on cost reduction initiatives, and we've got our $8 million to $10 million pretty much in hand for this year. We're working on more for the following year, and that's outside of Poland and Mexico, and those will certainly bring cost savings for the business. We don't expect it to be easy. In fact, we expect it to be hard, and we're going to have to work on cost every day, and we have, and we'll continue to do that. And I just want to look at, if you look at our SG&A for the first half, which really as the CFO is something it's pleasing to see, and that I think we've kept a really tight grip on our SG&A costs, and they've been flat to down in the regions, even more so than the cost savings that we called out, and that's just indicative of us controlling those discretionary costs and and keeping things really tight, and we'll continue to do that.

Got it. That's helpful. Thanks, guys. Appreciate the call.

Thanks, Sam. The next question is from Nathan Riley with UBS. Please go ahead.

Thanks, Vince. Just zeroing in on your de-copperization project. I'm just trying to get a sense of the scale of the task at Venti. portion of your SKUs might be subject to that redesign and material substitution project. I'm also curious to understand what level of step up in R&D or other costs you might be looking at just to test and implement that project.

Thanks, Nathan. Look, I must admit, as I see here, I haven't got an exact in terms of a number of SKUs or a percentage. I mean, it's a... There's a pretty decent chunk of our business that... ..or a large number of our products that have copper in them, so it's not an insignificant thing. I mean, there's PEX5, a lot of polymer fittings, all the John Guest business is polymer, so there's also, I guess, a chunk that isn't. I mean, it's a US story here by and large, isn't it? So... I think, so not insignificant, it's not the entire business though by any stretch. We will have to invest a little bit but I mean we're talking about low single digit millions of investment we'll have to put in this. This is not a whole new office and a whole new raft of engineers or so on. We're pretty comfortable we can handle it by and large with With the people and the teams we have, it just means that becomes the priority, doesn't it? And honestly, as we sit here, it's difficult to think of something that's potentially more valuable to us, not just from a cost point of view, but from a market leadership and innovation disruption point of view. So we're pretty... We're pretty positive that it's a project that can serve us on multiple fronts, so we'll put the effort in.

And would you anticipate you'd be running kind of parallel SKUs, one sort of normal?

No. Okay. No. Okay. That was it. Thanks for taking my question.

Okay.

Thanks, Nate.

The next question is from James Casey with Ord Minute. Please go ahead.

Hi, gents. It's been a long call, so I'll keep this brief. Just in terms of the CapEx profile, CapEx to sales kind of looks to be a tad over 2% this year, kind of pegged in FY22 at around 5%, I think. Are you under-investing at the kind of low point in the cycle, and would you flex that up as the cycle improves? Am I reading that incorrectly?

Look, I think we invested a significant amount back in 2021 and 22. I think we're very well placed. If we hadn't, then we would need to be, or the question of being concerned would be valid. I think we're in a really comfortable position at the moment, James.

Okay, and then I understand your comments around the second half, 26, looking the same as the first half, 26, just in terms of outlook. Just in trading for the first seven weeks this year, with interest rates heading lower, albeit slowly, have you seen any improvement in the US?

No, not really. Okay. I'll leave it there, thank you. Okay. Thanks, James. There are no further questions at this time.

I'll now hand back to Mr. Sharp for any closing remarks.

PK, do we have any questions online?

They've all been answered, Heath, with the extensive Q&A we've already had.

Okay. Very good. Look, I'd like to thank everyone. It was a long call, as someone mentioned, but I thank you all for your interest this morning. It's certainly been an interesting half for us, but as we sit here, we're actually really quite optimistic and energised as we head into the second half. I think a whole lot of externalities which have impacted us over the last little bit and a whole lot of direct action that we have taken and are taking that's going to set us up really quite well to do better in the second half and beyond. So, With that, we will get back to it. Appreciate everyone's time.

Thank you.