Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GWA Group Ltd (ASX:GWA, Financial) reported volume growth with Australian volumes up 3.8% and UK volumes up 4.3%.
- Normalized Group EBIT increased, leading to a higher normalized Group EBIT margin.
- Strong cash generation with a cash conversion ratio of 110% for the year.
- Net debt is at its lowest level in five years, enabling a 14% increase in the final dividend to $0.08 per share.
- Successful launch of new products and improved customer service metrics, such as DIFOT and NPS.
Negative Points
- The New Zealand market remains challenging, with a revenue decline of 16.5% from the prior year.
- Significant items for FY24 amounted to $9.7 million pre-tax, including restructuring costs in New Zealand and ERP implementation costs in the UK.
- Unfavorable product mix driven by customers seeking more affordable products impacted overall profitability.
- The average Australian dollar to US dollar exchange rate decline negatively impacted stock purchases and balance sheet revaluation.
- Softening market conditions in the second half of the year, particularly in the residential detached segment with approvals at a 10-year low.
Q & A Highlights
Q: Morning Urs and Calin. My first question is just on Australia volumes. Great result for the year with volumes up 4%. Just wanted to see how this compares to ANZ market volumes in the period and how much you believe that was a function of share gains?
A: Yeah. Look, we clearly see the second half, the market is slowing a bit. So with our (inaudible) continued to achieve volume growth be related to market share gains across our key categories.
Q: Okay, great. Thank you. So when you look at the biz (inaudible) down 11% last year. Is that where your internal views of where the market declined? And then just wanted to square that up for FY25 as that market being down 2% or the external forecast being down 2%. So how does that compare to your internal expectations for next year?
A: Hey Ben, I think we did mention at the half year when we publish the biz numbers that we always publish them unadjusted. We thought 11% was probably a bit aggressive in terms of the decline. We don't necessarily think we've seen such a strong decline. If I think about '25 and look at the projection of about 2%, that to me feels a bit more realistic than a bit before on the money. So that 11% we mentioned at the half year that we thought it was a bit aggressive.
Q: Okay guys, thank you. And then just on cash conversion, so another really strong result, again above 100%. So if I look at the components of working capital, you've got receivables down and payables up. Just wondering if this is sustainable going forward or should we expect some reversion there.
A: But not necessarily any reversion being -- I think your observation is valid about payables being up, but you'll also notice that stock was up. So there is a correlation there in terms of what we bought, we just haven't paid for the stock coming through. I would expect that cash conversion moving forward to probably be more in line with that target of 90% to 100% against.
Q: Hi, gents. Thanks for taking my question. Just touching on Australia, you noted some mix headwinds there. Could we delve a little bit deeper into that, maybe touch on what end markets you see the most trading down and those end markets, you know, what are you seeing volume growth in those that trading down is happening? Thanks.
A: Yeah, so look, if I go through our (inaudible) of segments, we usually talk about first, our commercial, particular commercial office buildings. We would expect the decline into '25 because there's not a lot of new office is being built. Offsetting that, we see good pickup in regard to office renovations and a strong demand in the health and aged care sector. If you look at residential, clearly, as I mentioned in the presentation, we are at the 10 year low in regard to approvals, so that will have obviously an impact on sales for new buildings. If I look at repair and renovations, we continue to believe that will be subdued. But again, our strategy is clearly focusing on the maintenance plumbers and get a bigger share of the more stable higher market environment.
Q: Thanks, thanks for that Urs. And maybe just touching on your strategy. So you've hit your 25,000 target for plumber sign-ups. Could you maybe step on or step through what you're doing to drive engagements? What are the next steps here? And what is you expect that plumber bundle sales performance to continue outperforming your number for Australia?
A: Yeah. Look, first of all, we're not giving you forecasts in regard to expected outlook for specific product segments. But if I look at the plumbing engagement, there's probably a few things we continue to clearly be we are very much focused on providing training opportunities across all the plumbers, across all our states and our markets. We continue to provide technical interactions with plumbers. And we are also continuing to work with the plumbing industry to develop new solutions that we often said when you look into plumber, their most valuable asset is time. So if you can provide them with products and solutions, there may be save time on the job, it becomes more valuable to them.
Q: Perfect. And just a last quick question on freight. We've seen spot rates increase, had a bit tailwinds in the current year. You noted a $2 million to $4 million headwind to next year. Do you -- what's your level freight -- ocean freight contract coverage, just a very rough estimate there in terms of your requirements.
A: Yeah, so thanks Bruce. So we typically enter into contracts 12 months in advance, and we usually cover around 50% of our forward expectations. This year we noted an increase in volatility in the ocean freight rate direction increase that coverage to around 70% to 80%. And so we're sort of well covered into FY25.
Q: Hey good morning Urs, morning Calin, thanks for taking my question. Just give some quick one on Australia just following on some of the comments you made. The Australia demand has been to be quite soft, right, and you sort of flagged that part in our last couple of halves. I'm just trying to think as you see it as we speak to your customers, do you think that demand is sort of bottomed or you think it will sort of worsen before it gets better. I know it's not easy question to answer. Thank you.
A: Well, look at, you know, it depends what time of the day or week you pick up the newspaper. Sometimes it's just that they hit the bottom, sometimes it suggest (inaudible) What we are really focusing us is kind of back to our strategy. We are very clear where we are focusing on. We identify growth opportunities. And regardless of the market, we will (inaudible) absolutely focus on those areas going forward.
Q: Thanks and just in looking at your slide where you have sort of caught your targets and how you're tracking versus there (inaudible) you've got an (inaudible) start at the EPS CAGR. Just wondering what that mean is like tracking in line or lower or what is mean? Sorry.
A: Make sure Shay, if you look at our FY24 results normalized net profit after tax of 3.4% at target for the LTI, for executives is 5% to 10%. So that are (inaudible) retracting probably just a bit below the 5% to 10% target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
