GWA Group Limited (GWA.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GWA Group Limited FY '25 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Urs Meyerhans, MD and CEO. Please go ahead.

Thank you, Jody. Good morning, everyone. Thank you for joining us on the webcast or conference call for GWA's results for the year ended June 30, 2025. I am Urs Meyerhans, GWA's Managing Director. Joining me for today's presentation are Calin Scott, our Group CFO; and Craig Norwell, our Group Executive, Sales. We appreciate your time and interest, and we look forward to continuing the conversation with of you over the coming days and weeks. If we move to Slide 3. I will begin with an overview of our group results and key themes, including an update on our continued focus on safety. Calin will then take you through the group financial results for the year, including P&L, cash flow and balance sheet. Craig will follow with an overview of our business performance across our end markets, including our major Australian merchant partners. I will conclude today's presentation with an update on our strategic progress and provide a summary and outlook for financial year '26. As always, we are happy to answer your questions at the end of the presentation. Moving to Slide 5. Let me start with an overall summary of the financial year. GWA delivered a solid result in declining markets. Notwithstanding these challenging market conditions, we delivered volume, revenue and earnings growth. That reflects the successful disciplined execution of our Customers First and Profitable Volume Growth strategic priorities. Our focus on Win the Plumber continues to drive results, with over 26,000 technical interactions during the year, and sales of our plumber bundle, up 9% year-on-year. Our Customer First priority is paying off. DIFOT, delivery in full and on time, performance remains consistently above 90%. And customers are noticing, with Net Promoter Scores in the high 50s. We continue to generate strong cash with a cash conversion ratio of 111% for the year. And our balance sheet remains strong with net debt down 12% and now at its lowest level in 7 years. That enables continued growth in dividends with a final dividend of $ 0.08, bringing the full year dividend to $0.155 per share, fully franked, up 3% on the prior year. Separately, the strong capital position results enabled the Board to announce today an on-market share buyback of up to $30 million, which will commence from September 2. In summary, delivering growth in a declining market is a testament to the focused dedication and skills of the entire GWA team, results we can all be proud of. Moving to Slide 6. As always, I want to reaffirm our ongoing commitment to operating a safe business. We are continuing our focus on lead indicators, which we believe are more relevant in preventing longer-term, more serious outcome. This has resulted in an improvement in incident reporting, with key safety lead indicators, work incident frequency rate increasing by 49%. In terms of lag measures, our total injury frequency rate improved significantly and almost half from a disappointing result in the prior year. Additionally, our early intervention approach has helped further lower the injury severity rate and supports our commitment to recovery and well being. I will now hand over to Calin to go through the group financial results.

Moving on to Slide 8. This slide presents the results first on a normalized basis, which excludes significant items, and then on a reported basis, which includes significant items. Significant items for financial year '25 were $3.1 million after tax. These include the cost associated with the implementation of our ERP project in the U.K., which is now successfully completed, and costs relating to the enhancement of our digital platforms. After tax significant items for FY '24 was $7 million. For FY '25, group revenue was up 1% on the prior year. That reflects volume growth in Australia and the U.K., partially offset by the pronounced decline in the challenged New Zealand market. We continue to generate growth in Australia, with sales up 2% and volume growth of 1%. Similarly, we had an increase in the U.K. with revenue up 6% and volume up 2%. New Zealand continued to be a very challenging market, and sales declined by 15%. Craig will detail the key components of revenue in this section. Normalized EBIT was up 3%. As Urs mentioned, this was a solid result on what were declining markets across all our core operations. We continue to be disciplined on costs, and that resulted in a major uplift in the normalized EBIT margin to 18.2%. I will go through the key drivers of normalized EBIT shortly. On a statutory basis, including significant items, EBIT was up 12%. The net profit after tax also up 12%. Turning to Slide 9. This slide shows the financial year '24 -- '25 results from the first to the second half. Revenue was largely flat in the second half compared to the first. We had a slight decline in Australia, which was expected, given the decline in residential completions. This was largely offset by our efforts in Win the Plumber and merchant sales. New Zealand remains soft, although the rate of decline slowed in the second half. We had a modest increase in the U.K., which benefited from new merchant contract wins. Normalized EBIT margin was broadly maintained, reflecting our continued cost discipline, which helped to mitigate the impact of the lower Australian dollar in the second half. Turning to Slide 10. This slide contains a waterfall chart we typically present to set out the key drivers of earnings over the year. As always, this is presented on a normalized basis. Looking at volumes, group volume was in line with the prior year, reflecting growth in Australia and the U.K., largely offset by continued challenged conditions in New Zealand. Looking at price/mix. We achieved a modest gain from the price increase of 4% implemented in Australia and the U.K. in February 2025. This was offset by some expected lower product mix, driven by customers looking for more affordable products and solutions. Looking at exchange rate. The average Australian dollar-U.S. dollar exchange rate for the year was $0.67, and that compared to $0.68 for the prior year. As we have previously called out, lower Australian dollar impacts stock purchases and balance sheet revaluations. Turning to other. This bar reflects our continued cost discipline across the business. That discipline has helped to deliver an increase in normalized EBIT and margin, despite the declining markets. Turning to Slide 11. GWA is a highly cash-generative business. This continues to provide enhanced return to shareholders. Operating cash flow of $101.8 million was consistent with prior year. Cash conversion remains strong, and a cash conversion ratio of 111% for the year, driven by our continued focus on working capital management and our right first time initiative to improve service levels. Capital expenditure for the year was $2.8 million, which was broadly in line with the prior year. Our CapEx program remains focused on growth initiatives to drive revenue growth opportunities and cost efficiencies. Turning to Slide 12. Our continued strong balance sheet cash flow enabled a final dividend of $0.08 per share fully franked, and that brings the full year dividend to $0.155 per share fully franked and up 3% than last year. Final dividend is scheduled to be paid on September 5, 2025. Turning to Slide 13. GWA's financial position continues to strengthen Net debt as of June 30, 2025, was $85.1 million, which was down 12% from June 30, 2024, and at its lowest level in 7 years. Our credit metrics strengthened further and remains towards the lower end of our target ranges, with leverage of 1.1x and a gearing ratio of 18% as at June 30. We have total bank facilities of $220 million, with significant headroom of $135 million. Given the continued robust financial position and continued strong cash flow generation, the Board has decided to implement an on-market share buyback of up to $30 million. These buybacks represents an efficient use of capital and is consistent with our focus on ensuring we have an effective mix of continued invest in our growth strategy while returning excess cash to shareholders. The buyback will be funded from our existing cash and committed debt facilities, and we expect to maintain strong balance sheet following its completion. The buyback will commence on September 2 and will be conducted in the ordinary course of trading over a 12-month period. I refer you to a separate announcement we made in the ASX this morning in relation to the buyback. I want to hand over to Craig to discuss our performance by markets.

Thanks, Calin, and good morning, everyone. In my section today, I'll provide some further context to our revenue by market and for Australia by state and key segments. Turning to Slide 15. This is a typical slide we present to show our revenue from our key end markets. I'll start with Australia, our largest market, which represents 84% of group revenue. As Urs and Calin have already mentioned, we continued to deliver sales and volume growth in Australia in FY '25. We continue to benefit from our localized approach to how we go to market, focused on the key market segments where we see opportunities to execute solutions partnering with our local customer base. These solutions are led by our value proposition for maintenance plumbing businesses, tailored framework to partner with key merchant partners and complete offer to volume homebuilders, including entry-level products and health and aged care providers. As a result, we achieved sales and volume growth in all states, except New South Wales, by leveraging our strong local customer relationships and enhancing our customer experience. In New Zealand, the construction market remains challenging, reflecting the significant decline in local building activity in New Zealand. That has impacted our sales across all segments. We launched Waipori MK2, the next evolution of Methven signature tapware and shower collection, which contributed positively to revenue in the fourth quarter. Sales in the U.K. were up 6%, reflecting strong execution from our local management team, the benefit of 3 customer wins in the second half of FY '24 and growth in social housing contracts. Turning to Slide 16. This slide details Australian sales for the year by state. As I mentioned on the previous slide, sales were up across all states, except in New South Wales. In New South Wales, sales growth in maintenance plumbers and the care segments was offset by weaker residential completions and softening commercial activity. In Victoria, despite the market conditions, our disciplined execution resulted in sales increase of 5% with growth across maintenance plumbers, care and residential segments. Queensland sales were up 4%, driven by strong maintenance plumber and merchant execution, partially offset by ongoing delays, which have caused softness in residential and commercial completions. Over in the West, our sales were up 6%, driven across merchant and commercial segments and residential share gains, which offset softer residential completions. South Australia was once again our highest growth state driven by a strong performance in the residential and merchant segments, with tapware a key growth driver in both. Turning to Slide 17. This side illustrates sales through our main merchant customers in Australia. Overall, we are very pleased at our growth across our entire merchant segment, and we had growth in 3 out of our top 4 merchants. We continue to gain strong traction with our Win the Plumber strategy, including plumber bundle and spare part sales with growth of 9% on the previous year. We are focused on continuous improvement with our in-store execution, including product display, merchandising and stock rate, assisting in a solid improvement in merchant sales for the year. Our Customer First strategy and state-based sales organization continued to identify and convert local sales opportunities with key customers. I'll now hand you back to Urs.

Thanks, Craig. Moving to Slide 19. We continue to build our presence in core segments through the launch of new products across the year, with a number of key introductions occurring in the second half. In summary, this included an expansion of our Liano II range into showers and accessories; enhancing our offering in bathroom solutions; introduction of heated towel rails; establishing a new product category aligned with customer demand; new designs and color additions to our kitchen collection supporting style and functionality; growth of independent living solutions through our ANZ home care collection; reinserting -- reinforcing our commitment to inclusive designs; and customer exclusive range collaboration, strengthening strategic partnerships and market and differentiation. New product development remains a core focus for the group, and we have a strong pipeline of product launches planned for the year ahead. Moving to Slide 20. I will make a few comments about our continued strategic progress. Our strategy continues to evolve, guided by customer needs, market dynamics and our commitment to long-term value creation. Moving to Slide 21. During financial year '25, we continue to make strong progress across core areas of our strategy, which I will summarize on this slide. Win the Plumber, extending our reach and engagement with plumbers remains central to our strategy. We are committed on delivering trusted, high-value services and solutions tailored to the needs of the plumber, and we are seeing results. We continue to make good progress here. As Craig mentioned, our specialized plumber bundle and spare parts offer targeting maintenance plumbers continues to gain traction with sales up 9% on the prior year. Other the key initiatives -- other the key milestones include internal plumbing specialists have now been embedded in all our markets across ANZ. We continue to expand our reach with Australia and New Zealand plumbers with over 28,000 plumbers now engaged. We are assisting plumbers with technical trainings. We completed over 26,000 plumber training and technicians interactions during the half -- during the year full year. Health and aged care remain priority segment for our sales efforts, where we continue to leverage our technical expertise and product quality. In financial year '25, we secured a major contract wins, particularly on the Eastern Seaboard led by Victoria. On residential, we continue to target specific volume homebuilders and have secured some major new customer win, which is helping to offset the decline in detached completions. On the commercial, the commercial newbuild segment remains challenging, and that has impacted performance in financial year '25. And finally, merchants, as Craig outlined, our Customer First strategy continues to drive local sales opportunities. A standout example is our digital trade up, which enables customers to take stock availability and access other critical information at a time convenient to them, gaining solid traction across the network. Let's move to Slide 23. Let me summarize the key points from today's presentation before turning to the outlook for financial year '26. In a declining market, we delivered a solid result, demonstrating our ability to focus on what we can control. We continue to deliver volume growth alongside an increase in normalized EBIT and margin, reflecting disciplined execution. While the New Zealand market remains challenged, we have taken decisive steps to reset and simplify our operations, positioning the business for improved efficiency and resilience. Our team in the U.K. continues to operate a successful business with further growth achieved through the effective implementation of new customer partnerships. Our priority on Customer First and Profitable Volume Growth initiatives has -- have resulted in most deliverable progressing as planned. And finally, our financial position continues to strengthen. That enables a lift in dividend in financial year '25 and has also enabled the commencement of a share buyback from September 2. Moving to Slide 24. Let me conclude with an outlook for financial year '26, beginning with a summary of our key geographic markets. In Australia, we expect a cautious recovery amid structural headwinds. Within this context, we have clearly articulated the strategy and disciplined approach to key strategic opportunities to drive revenue. In New Zealand, we expect the construction sector to lag below -- the slow general economic recovery. In response, we continue to deepen strategic merchant partnerships with new product development in training and expand our engagement with maintenance plumbers. And in the U.K., the market appears to be stabilizing. We are seeing opportunities for rising water bills and demand for smart eco-friendly products. Our continued focus is to capitalize on our customer service excellence by broadening our category offering and investing to expand our geographic reach in affordable housing. Moving to Slide 25. Moving more specifically to Australia, our largest market, accounting for 84% of group revenue. In commercial, we expect the new office build activity to remain flat. In response, we continue to prioritize health care and aged care projects and increase product specification with existing builders and their offers. In residential detached, we expect the decline in completions to slow in the first half, followed by expected modest improvement late in the second half. We continue to target greater market share and tailor products for volume homebuilders. Activity in the multi-residential is expected to increase, driven by an acute housing stock shortage, although the timing of this recovery remains uncertain. We continue to target strategic growth segments with relevant product and solution offerings. And finally, in repair and renovation, we expect the segment to remain subdued, impacted by cost of living pressures. We will continue to focus on increased coverage and share of wallet with maintenance plumbers and strengthening our relationship with merchants who value trusted partnership. That concludes the presentation for today. Calin, Craig and I are happy to take your questions.

[Operator Instructions] Your first question is from Dylan Adrian from JP Morgan.

Just on the cost control piece. You've clearly done well with the cost out. So should we be expecting more there? And can you just give us some detail on what was taken out?

No problem there. There's probably a couple of things in there. So we've had some good traction with product costs. So there's been some challenges in China with some of our manufacturers there. We've been able to take advantage of that to negotiate some lower cost. Moving forward, is that sustainable? We'll continue to monitor that and negotiate additional benefits where we can. The other piece is we had an experience center in Sydney, Caroma on Collins. We closed that in February of '24. So there are some costs that were in the '24 year that didn't repeat in '25.

Your next question is from Keith Chau from MST Marquee.

So first question on the Australian number, so revenue growth for the year was positive. It actually looked okay relative to the end markets. I think previously, you provided a guidance of biz looking at a negative 1%. So with price/mix offsetting price increases, it does actually look like there are some share gains. And I know this is something we've discussed in the past. But are you confident that share gains are happening at the moment? It looks like Win the Plumber, there's some momentum in that program now that's really quite visible. Can you help us understand how you're thinking about share and your level of confidence in the momentum that they can have going forward, please?

Keith, thanks for your question. Look, I think I mentioned a few times, we are always reluctant to give specific information in regard to market share because this industry doesn't provide a lot of information. But having look at externals, DIS has indicated they would suggest that the market declined by about 2.2% in Australia. We had both volume and revenue growth. So by definition, we do believe that we've gained some market share.

Okay. And then the Win the Plumber program, quite clearly, there are some levels of success there. I'm not sure how best to ask or how you can best answer this, but plumber bundles, spare parts sales are up 9% versus PCP. I think that was slightly lower than the first half, if I recall correctly. So the exit run rate is still up, but not quite as good. But how can we monitor the progression for that program? And what are your thoughts? Can you give us a bit more color on how you're thinking about the Win the Plumber program, please?

Yes. Look, there's probably few responses to that. First of all, I think we discussed in previous meetings, when we are focusing on the plumbers, we ourselves in terms of debate on how do we measure progress, because, as you know, most of our sales are going through merchants, and we don't always have visibility in regards to end customers. So the way we're taking progress in regard to our strategy, first of all, we have identified a number of lead indicators. Lead indicators are how many plumbing businesses are we connected with, how many training sessions are we conducting, how many plumber attend. So that's one. But then we always said, "Well, leading indicators are fantastic, but what about the lagging indicators?" So because we don't have always clear visibility in regard to the sales of the merchants, that's why we sort of established what we call a plumber bundle. I said before, we're not selling them as a bundle. That's about somewhere around 80 products, which are typically maintenance plumber has on the back of the youth. And our belief is that as we see that growing faster than our overall sales, that's an indication that the strategy is actually working. And we continue to monitor that.

Okay. Next question is just around the Australian market. I think you talked about -- the point that was made was a cautious recovery amid structural issues. The word structural always kind of gives reason for us to ask, but what structural headwinds are you referring to in particular?

Some of the factors, and it's clearly the overall economic condition, the view of what happened with the Reserve Bank, the appetite for investors to invest in new properties, I think we discussed before, And particularly when you look at multi-residential, we do see a very good pipeline. But when you try to translate into specific timings, it gets fairly murky. Yes. Okay. That's fair, that's fair. Makes sense. And final one for me. Customer A, at least for the last couple of periods, has underperformed the rest of the other -- all the other 3 major customers. Can you help us understand whether that's a wallet share issue or a customer issue or a timing issue? It just seems like the variation in performance is quite different relative to the other customers or B, C and D that you've disclosed?

Yes, I can take that. Keith, it's Craig Probably 3 things, like each of our merchant partners, we have had very different mix of business across states and segments. That's probably the first one. Secondly, I think all of us have talked to the clarity we have on our strategy where our growth will come from. And certainly, over the last sort of 2 years, to your reference point, that's come through the maintenance plumber focus that you just spoke to us about and also broader renovation and replacement. It shows up differently in each of our partners based on the way that we engage with them and the mix of their business.

Your next question comes from Guus Vreeburg at Macquarie.

Just a follow-up on some of the questions from Keith on Australia. So the New South Wales market, commercial resi is still pretty weak. Do you think that end market exposure for you still gets worse before it gets better?

Thanks, Guus. We wouldn't say it gets worse. We would -- as Urs talked about on outlook, we would see relatively no major change in the short to medium term. There are structural headwinds Urs talked about, but also we're late in the construction cycle. So any upside, the impact on our invoice sales will be -- will have a lag. Hence, the focus for us on where our share gains come from in a volatile market, largely through each of growth drives we've identified, but we wouldn't say it will get worse.