Reece CEO Peter Wilson wary of inflationary effects of booming commodity prices

The plumbing and bathroom renovations giant has reaped the rewards of a population surge in regional areas during the COVID pandemic but is wary of the medium term impact of inflation flowing from booming commodity prices.

Reece CEO Peter Wilson. Picture: David Geraghty

Reece chief executive Peter Wilson says the plumbing and bathroom renovations giant has reaped the rewards of a population surge in regional areas during the COVID-19 pandemic, but is wary of the medium-term impact of inflation flowing from booming commodity prices.

In an interview with The Weekend Australian after Reece posted a 17.3 per cent increase in half year net profit to a record $123m, Mr Wilson also said the company’s US expansion strategy was on track despite the crippling effects of COVID-19 across America.

Reece shares, which were trading at $7.88 at the end of March last year, surged over the $17 mark last month as investors banked on the durability of the business through the pandemic and the growth of the Australasian housing market.

The Wilson family holds a 67 per cent stake in the company.

Mr Wilson said the end of lockdowns across most of the country in the second half of 2020 saw an acceleration of demand for bathroom products.

“Post COVID-19, there is definitely a change happening. The home is now increasingly where the heart is. People are renovating homes because they are going to be spending more time at home now,’’ he said.

“The other big shift you can see is the move of people to regional areas. There is a real momentum to regional lifestyles. We have always had a big regional play — we are in all the regional centres. Those businesses for us will become bigger businesses.”

In early April last year Reece said it was suspending dividends after raising $600m to bolster its balance sheet, as the pandemic took hold.

But a better than expected economic recovery led the company to restart dividends last August. It kept its interim dividend steady in its latest half year results at 6c per share, to be paid on April 15.

It now has a significant cash balance of $953.8m.

The latest result was underpinned by a steady 7 per cent increase in sales from its 640 outlets in Australia and New Zealand to $1.47bn.

Profit margins in the Australasian business increased to 15 per cent from 14.2 per cent a year earlier.

Online sales rose 70 per cent in the half year, which has accelerated the adoption of the company’s digital platform.

Rival plumbing products supplier Reliance reported an 82 per cent surge in interim net profit to $91.4m this week.

“The short-term economic indicators look pretty good. You still have the stimulus, interest rates are pretty much zero, and we have got on top of COVID-19 compared to the rest of the world. There is quite a lot of cash out there that people want to spend on their homes. As the vaccine gets rolled out, consumer confidence will continue to grow,” Mr Wilson said.

But he said Reece was starting to see the impact of booming commodity prices on input costs, which could spawn inflation.

“Medium term however we are still cautious. There are many twists and turns to come. We are also watching raw material and shipping price increases. We are definitely wary of inflationary pressures emerging in the medium term, which could impact on housing affordability,’’ he said.

Reece made a big foray into the United States in 2018 with the $1.9bn acquisition of plumbing products giant MORSCO. 

In the half year its North America sales rose 1 per cent to $1.51bn, despite its stores being impacted by COVID-19 around 250 times.

“I was very pleased with the result in the US because the conditions there are really tough. Over half our staff have been tested, most of the branches have been closed for two days over the past six months,’’ Mr Wilson said.

He said the company’s US integration plan was “definitely on track”, three years in.

“I am really happy with how the US team is going. With all they have navigated. It has been phenomenal. All the Australians that have moved there, they love the American way,’’ Mr Wilson said.

“The big message is we have gone so carefully, we have done it in a way that our American partners continue to want what we have. They are almost demanding we go faster but we want to just take a real considered approach to how we build this out. We did this as a long-term play — this is a 20-year journey for us.”