Reliance Worldwide springs a leak as inflation corrodes profits
Profits at the plumbing materials group have bubbled up only 2 per cent, despite a double-digit lift in sales and price rises.
Reliance Worldwide is enjoying a business boom, with the plumbing materials giant reporting a double-digit expansion in sales, but profits have been consumed by inflation, lifting only 2 per cent to $US161.4m ($234m).
The company, one of Australia’s major producers of plumbing products for the home improvement and new build market, reported a 17 per cent lift in sales to $US1.17bn for the year ended June 30.
Despite pushing through price rises of 9.5 per cent, Reliance has seen profits barely move.
Adjusted earnings ended up 3 per cent to US$268.7m, with cost increases and its Chinese manufacturing site complicating distribution.
Reliance declared a US5c final dividend, taking its full year payout to US9.5c, up from US9.3c last year.
The group said it was forced to wear the cost of price jumps in copper, zinc, resins and steel, all key inputs for its products.
This was coupled with ballooning shipping and freight costs, rising packaging prices and higher energy costs, as well as general inflation.
Reliance chief executive Heath Sharp said it was too soon to draw a line under inflation pressures in the business.
“While some commodity prices have eased in recent months, it is premature to assume that they will return to their pre-Covid levels,” he said.
“More than ever we need to consider outlook on a regional basis.”
Mr Sharp said Reliance faced a challenge in managing inflation and matching its pricing to rising input prices.
“We will be targeting higher operating cash flow conversion this year now the inventory levels have stabilised,” he said.
Shutdowns in China have challenged Reliance, but the company reported its Ningbo factory only closed for two weeks thanks to avoiding the worst of the Covid outbreaks in the country.
The Omicron variant has also caused delays and disruption to the business, with absentee rates lifting.
Reliance said the outlook for its products remained satisfactory, with a backlog of work in core plumbing markets and continued new home construction in Australia to support volumes.
However, disruptions to shipping had exacerbated Reliance’s backlog, with major disruptions in its UK logistics provider impacting dispatches.
Reliance said its exposure to maintenance and repair would protect it in the event of any shock to residential construction
“Given weaker global economic conditions and the risk of recessions in RWC’s key markets, however, the medium-term outlook is less certain,” the company said.
“The company remains vigilant and is working to mitigate risks of rising interest rates, weaker consumer confidence, inflation and supply chain disruption in FY22.”
Shares in Reliance closed down 6.2 per cent at $4.23.
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