GWA Group Limited (GWA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GWA Group FY '26 Results. [indiscernible] I would now like to turn to hand the conference over to Urs Meyerhans, MD and CEO. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us on the webcast or conference call for GWA's results for the year ended 30th of June 2026. I'm Urs Meyerhans, GWA's Managing Director. Joining me for today's presentation are Calin Scott, our Group CFO; Craig Norwell, our Group Executive Sales; and Urs Caroline Sunaryo, our Group Executive of Supply Chain. We appreciate your time and interest, and we look forward to continuing the conversation with many of you over the coming days and weeks. As usual, I will begin with an overview of our group results and key themes. Calin will discuss the group financial results, including P&L, cash flow and balance sheet. Craig then will provide an overview of business performance across our end markets. Supply chain resilience and innovation remain important enablers of our strategy and future growth. To provide greater insight into both areas, Calin will share an update on our supply chain initiatives and progress across our product development pipeline. I will conclude with an update on our strategic progress, outline the next phase of our transformation journey and provide a summary and outlook for financial year '27. As always, we will conclude with a Q&A session and welcome your questions at the end of the presentation. Moving to Slide 4. GWA delivered a resilient result in financial year '26. We achieved volume, revenue and earnings growth despite some headwinds in particular segments. It was pleasing to see this growth across all our geographic markets, Australia, New Zealand and the U.K. We maintained our operational and cost discipline, which resulted in a 2.5% increase in group normalized EBIT with an improvement in the EBIT margin. Our balance sheet remains strong despite the short-term impact of the proactive inventory build undertaken to mitigate product cost increases and capital employed through our on-market share buyback. That has assisted us to deliver a 6.5% lift in the full year dividend fully franked, while the share buyback contributed to earnings per share growth of 6.9%. We continue to make good progress with our strategic growth priorities. Our focus on winner Puma continues to drive results with over 30,000 transactions during the year, up from 26,000 for financial year '25. That led to a 3% increase in sales of our plumber bundle and spares. While this is one of our internal measures of program success, we also saw growth across the merchant channel, reflecting increased plumber engagement and customer preference for our brands. Our customer first priority continues to deliver. FO performance remains above 90% with a continued improvement in our Net Promoter Score from customers. In all, we delivered a solid result despite some continued market challenges, and that's a credit to the GWA team across our business. Moving to Slide 5. Our continued emphasis on incident and hazard reported has resulted in sustained high level of work participation and insights, an important lead indicator of a safety culture. Our total injury frequency rate increased to 11.3% compared to 5.5 in the prior year. This increase was primarily driven by a higher number of low consequent injuries being reported and recorded, while the increase in severity reflects a single injury event. Regardless of the underlying drivers, this performance is not where we expect it to be. We are strengthening leadership accountability, enhancing injury management processes and continue to invest in safety capability and workforce engagement to improve outcomes. I will now hand over to Calin to go through the group financial results.

Slide 7. 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 2026 were $800,000 after tax relating to investments in digital initiatives. The prior year of $3.1 million after tax included costs for the implementation of the ERP in our U.K. business as well as some digital initiatives. Group revenue for FY '26 was up 1%, reflecting sales and volume growth across all our geographies. Revenue in Australia was up approximately 1%, and we saw a return to growth in New Zealand with revenue up 1.3% in Australian dollars, while local currency was 7.1% up. Meanwhile, in the U.K., sales were up 0.8% Craig will detail the key components of revenue by market in his section. Normalized EBIT was up 2.5%. As I said, this is a resilient result given we experienced some weaker market conditions in the second half. Those earnings have come through at slightly improved EBIT margin of 18.5%, reflecting operating leverage through the P&L and our continued operational and cost discipline. With the reduction in significant items compared to the prior year, statutory EBIT was up 7% with statutory net profit up 11% after tax. Turning to Slide 8. This slide shows the FY '26 results from the first half to the second half. We delivered full year revenue growth despite weaker conditions in the second half. Revenue in Australia was down 2% in the second half, which reflects softness in the renovation and residential detached segments. This was partially offset by our focus on win the plumber and repair and maintenance. New Zealand was lower by 9% due to a weaker New Zealand dollar with revenue in local currency up 9% in the second half, while the U.K. declined on market weakness. Despite the weaker markets, we maintained normalized EBIT margin, reflecting our continued operational and cost discipline. Turning to Slide 9. This slide includes the waterfall chart we typically present to set up the key drivers of earnings over the year. As always, this is presented on a normalized basis. Looking at volume, Group volume increased 2.3%, reflects growth across all our geographic markets. Looking at price mix. Price mix reflected small gains from price increases, offset by an anticipated mix shift from increased sales and product ranges targeted at multi-residential and volume homebuilders. Notwithstanding the shift in mix, we maintained gross profit margin consistent with financial year '25. In relation to foreign exchange, the average Australian dollar-U.S. dollar exchange rate for FY '26 was $0.66 compared to $0.67 for the prior year. This impacts stock purchases and balance sheet revaluations. Looking at other, this bar includes higher product costs associated with increased sales volumes and elevated fuel costs arising from the second half global oil supply disruption, together with continued investment and strategic priorities that support future growth and strengthen our competitive position. Full House Group EBIT margin was up 0.3 percentage points to 18.5%. Turning to Slide 10. Operating cash flow was lower than the prior year. This primarily reflects the proactive decision we took to pull forward stock purchases to defer the impact of product cost increases. This resulted in a short-term increase in working capital at 30th of June, which also resulted in a temporary decline in cash conversion compared to our usual levels. This action helped to maintain gross profit margins through the second half of FY '26. cash conversion was 76% for FY '26, we expect this to improve and to be above our target range of 80% to 85% in FY '27. Capital expenditure was $4.3 million for FY '26 and remains focused on growth initiatives to drive revenue growth opportunities and cost efficiencies. Turning to Slide 11. Our continued solid balance sheet position enabled a final dividend of $0.085 per share, bringing the full year dividend to $0.165 per share fully franked. This is up 6.5% on the prior year. The final dividend is scheduled to be paid on the 4th of September 2026. Turning to Slide 12. GWA's financial position remains solid. Net debt as at the 30th of June 2026 was $127.9 million, which compares to $85.1 million for the prior year. The increase in net debt reflects working capital timing associated with the pull forward of stock purchase I mentioned earlier and also the on-market share buyback. Our credit metrics remain solid and also within our target ranges with a leverage ratio of 1.6x. We maintain total bank facilities of $205 million with a significant headroom of $77 million. I will now 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 14. 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 continue to deliver sales and volume growth in Australia. Our localized sales team remain focused where we see mutual opportunities to execute solutions partnering with our local customer base. We continue to focus on priority segments win the plumber, renovation and replacement and residential with a new focus on multi-residential, while the commercial market remains soft. This focus delivered sales growth in all states of Australia, except Victoria, which I'll talk about on the next slide. We returned to growth in New Zealand with revenue up 7% in local currency, resulting from 15% volume growth. This growth led by a solid performance in the commercial, care and residential segments. New product launches led by Methven's Waipori Mark II tap and shower collection and targeted trade activity also helped to drive share gains and strong customer engagement in New Zealand. U.K. sales increased by 1.3% in local currency, continuing to reflect the key national merchant partnerships and growth in social housing contracts. Turning to Slide 15. This slide details Australian sales by state. We successfully grew sales in all states, except Victoria, with the growth led by Win the Plumber, renovation and replacement and multi-residential. We had 3% growth in New South Wales as a result of growth in these 3 segments, which helped to offset the decline in detached residential completions and subdued commercial and care pipeline. In Victoria, our results were impacted by weaker market conditions and lapping a strong prior year, including 2 major hospital contracts. Queensland results were steady with solid contributions from care, multi-residential and renovation and replacement, partially offset by softness in detached residential and commercial. Over the West, we continue to experience sustained growth with sales up 11%, driven by Win the plumber, renovation replacement, care and residential. Our share gains more than offset the softer conditions in commercial. South Australia also continued to improve from growth in win the plumber, renovation replacement and care segments, partially offset by reduced commercial activity. Turning to Slide 16. This slide details sales through our main merchant customers in Australia. Overall, sales for our major merchant customers grew in FY '26, reflecting continued momentum despite variable performance across individual accounts. Growth was supported by the execution of our customer-first strategy, including targeted trade engagement initiatives, increased adoption of plumber bundle products and spare parts and local execution. We remain focused on deepening partnerships with merchants where we can jointly create value through enhanced trade engagement, superior execution and sustainable growth. I'll now hand over to Caroline.

Thank you, Craig. Good morning, everyone. On this slide, we want to update you on how GWA is responding to the current market dynamics and maintaining resilience across our supply chain. As you are no doubt aware, a range of events have impacted global supply chain over the past year. This includes the conflict in the Middle East, U.S. and China tariff tensions, freight disruptions and also FX and commodity cost volatility. GWA has a long established supply chain capability, and we have been proactively monitoring and responding to these market dynamics over the past year. We maintain a diversified supplier base across regions as well as dual sourcing capabilities between suppliers. This ensures ongoing supply continuity and product availability to our customers. Given the volatility in the global freight market, we established a direct partnership with a major freight carrier to provide greater certainty in stock movements. To mitigate currency volatility, we actively manage our foreign exchange exposure through an active hedging program, which typically goes up to around 6 months. For FY '27, we are currently 65% hedged at USD 0.69. GWA also benefits from long-term exclusive partnerships with our key suppliers. These established relationships, combined with our local on-the-ground teams enable us to closely monitor the financial and operational health of our supplier base. In addition, we have selectively increased inventory level of key fast-moving product lines to mitigate certain cost increases and further strengthen product availability and customer service levels. And finally, we remain committed to regulatory compliance and responsible sourcing across our supply chain. This includes independent supplier ethical trade audits by globally recognized platforms such as FedEx, together with a supplier code of conduct that reinforces our commitment to worker safety, human rights and ethical business practices throughout the value chain. Over the next 2 slides, I will provide an update on our new product development and the pilot of our new business opportunity. Moving to Slide 19. We continue to strengthen our product portfolio with the launch of key ranges targeting the residential and care markets. This includes the launch of Caroma Riviere Collection, which is a new hero range to complete Caroma product portfolio, targeting architects, volume homebuilders and renovation consumers. We are also launching the new Caroma format, an exclusive range with a key merchant to grow share in the sanitary ware and basin categories. NPD and innovation remains a core focus for the group with a strong pipeline of product launches planned over the near term. Turning to Slide 20. Many of you will recall that at the half year results, we announced a pilot new business opportunity, which is an AI-enabled leak protection solution for the residential sector. We believe there is a significant market opportunity for this solution with around 5 million serviceable residences in Australia, representing our primary target market where our solution can help protect homes against water leak damage. Around 20% of insurance claims are associated with water damage events with an estimated $1.6 billion in insurance claims annually. We have partnered with Phyn , a leading category leader in AI-powered leak protection to deliver an intelligent leak protection solution. Leak SmartShield by Caroma is designed to monitor homes leaks, provide real-time alerts and if necessary, automatically shut off the water supply to prevent costly water damage. The system learns the water usage patterns of each fixture and provide detailed insight via the model app. This helps homeowners to detect unusual water usage, conserve water and potentially lower bills. We have had encouraging feedback from our initial pilot program with over 60 trial systems delivered and positive customer feedback received from the program. While still in early days, we are excited about this new opportunity and look forward to sharing further details in due course. And with that, I will now hand back to Urs.

Thanks, Caroline. On Slide 21, I will make a few comments on our progress against the strategy and how our priorities are evolving to capture future growth opportunities. Moving to Slide 22. We made good progress across the core area of our strategy over the year. For Win the Plumber, as I highlighted earlier, plumbers remain central to our strategy and an important driver of growth in the merchant channel. During the year, we continue to extend our reach and engagement with plumbers. That's reflected in over 30,000 package interactions with plumbers during the year, up 15% on the prior year and also a 3% increase in sales of our plumber bundle and spares while also supporting broader growth across the merchant channel. The Care segment can be lumpy given the size of large-scale contracts such as hospitals and aged care facilities. We left a strong prior year, which included 2 hospital contracts in Victoria, while there were limited major new projects in financial year '26. In residential, we delivered strong growth in multi-residential, which was partially offset by the decline in completions in the detach segment during the period. Commercial new build, particularly in offices remains subdued and that continues to impact our performance in this segment. And finally, merchants. As Craig outlined, we delivered overall sales growth through our merchant channel despite mixed performance across individual customers. This reflects the increased traction of our Customer First strategy, supported by Win the Plumber, growth in bundles and spare sales and strong local execution. Moving to Slide 23. This slide represents an evolution of our strategy rather than a change in direction. The fundamentals remain unchanged, and we continue to be focused on delivering customer first outcomes and profitable volume growth. What we have done is simplify and sharpen the way we think about strategic execution. Horizon 1 is about strengthening and growing our core fittings and fixture business through operational excellence, innovation and disciplined execution. Horizon 2 builds on our successful Win the Plumber program. As I have discussed today, plumbers remains central to our strategy, and we see significant opportunity to deepen engagement, strengthen customer preference and drive growth to what we are calling our plumbObsession agenda. And Horizon 3 focuses on building new growth platforms in adjacent water solution markets. Initiatives such as Leak Smart Shield demonstrate how we can leverage our deep ethical expertise, trusted brands and customer relationships to address emerging customer needs while creating new avenues for growth. Taken together, these 3 horizons provide a clear framework for how we allocate resources, prioritize investment and create long-term value. We look forward to sharing more detail at the strategy update and site to our plan for October at our innovation and distribution center in Preston. This will provide an opportunity to see firsthand our innovation capability and the technical expertise that underpins our growth ambitions and competitive advantage. Moving to Slide 25. I will summarize the key points from today's presentation before turning to the outlook for financial year '27. Financial year '26 was a quality result. By executing our strategy and controlling the controllables, GWA delivered volume, revenue and earnings growth across all geographies despite challenging market conditions. Importantly, we achieved this while continuing to invest in the business, including innovation, customer engagement, digital capabilities and the strategic initiatives that will support future growth. Our cost and operational discipline enabled a lift in group EBIT margin in financial year '26 despite the softer market in the second half, demonstrating the resilience of our business model. Our focus on customer first and profitable volume growth continue to drive strong progress against our strategy with tangible results across our core business and growth initiatives. And our balance sheet remains solid, supporting a 6.5% increase in the full year dividend with our share buyback contributing to a further increase in earnings per share. Moving to Slide 26. I will conclude with an outlook for financial year '27, starting with a summary of our key geographic markets. In Australia, we anticipate an improvement in residential completions, while the renovation sector is expected to remain subdued. As discussed earlier, we have refreshed and sharpened our go-to-market approach, underpinned by disciplined execution across our 3 strategic horizons and a continued focus on customer first and profitable volume growth. In New Zealand, there is a market recovery is being tempered somewhat by rising interest rates. We are deepening our partnership with key merchants with new products and training while expanding our engagement with maintenance numbers. In the U.K., we expect the R&R segment to remain challenging in financial year '27. In response, we continue to leverage our customer service excellence while maintaining a strong focus on the affordable and social housing segment, where we see attractive opportunities. Moving to Slide 27. Moving more specifically to Australia, our largest market account for 84% of our group revenue. In commercial, we expect the overall market, and that's excluding data centers, to be broadly stable. Continued weakness in office new build is expected to be offset by growth in the health, aged care and education sector. We continue to prioritize these attractive sectors through increased specification activity and deep engagement with existing builders and developers. In residential detached, we expect a modest increase in completion in the first half, moderating in the second half of financial year '27. We continue to target greater market share through our strategic partnership with volume homebuilders and continued product and solutions innovation. In multi-residential, completions are expected to increase to financial year '27. We continue to collaborate with developers and builders, providing targeted products and water solutions that meet the evolving needs of this segment. Finally, in repair and renovation, demand remains subdued as cost of living pressure continues to weigh on consumer confidence. In response, we are focused on increasing our penetration with maintenance partners and strengthening our relationship with merchants who value trusted partnership through our customer-first approach, thus the brand and the service excellence. That concludes the presentation. We remain confident in our strategy, our market position and the opportunities ahead. Calin, Craig, Caroline and I will now be pleased to answer any questions.

[Operator Instructions] Your first question today comes from Ben Kairaitis with MST Marquee.

It's Ben Kairaitis on for Keith. Firstly, I appreciate the comments in the prepared remarks, but I was hoping you might be able to expand on what you're seeing in the market currently, especially since the federal budget tax changes were announced. I know you flagged some weaker market conditions, but has there been any notable adverse shift since the May budget? And just if there is any specific end markets to call out in that respect?

Thanks, Ben. It's Craig. So we haven't seen any marked, I suppose, changes. But as we talked about through the presentation, it was certainly obvious when you look at the impact of cost of living interest rates and some of the geopolitical headwinds through half 2. And you can see that in a lot of the sales reports we've published today. We don't see that sort of changing anytime soon. One of the most noticeable parts of the budget was obviously some of the stances on investment property, which is further, I suppose, enhance the headwinds on those either acquiring property or those investing in renovating it. So for us, our outlook for I suppose '27 is very much similar to what we've encountered and focused on what we can control over the course of '26.

Okay. Great. And then just looking at FY '27, obviously, related to that response there. But with the forecast of a 2% decline in the market, just wondering what the expectations are for continued share gains and looking to offset this negative market. Is there a chance that volumes will be able to be offset through share gains? Or is it likely that we're looking at a negative volume result for FY '27?

Thanks, Ben. As you know, we don't provide guidance in regard to financial year '27 or the outlook. But what I can say is our strategy clearly focuses on segments where we believe we have opportunity to gain share. So the whole strategic focus is really focused on those areas.

Okay. Great. And then finally, just on the 4 key customer slides. I appreciate there's always going to be variation on a half year basis. But just wondering if there's anything that you could call out just driving that stronger result for customer A and weaker result for customer B in the second half?

Yes, Steve, it's a good question. So certainly from an A point of view, over the last couple of years, we've talked about the strategy we reinforced that today, it's very consistent. We've had adoption vary across each of our key merchant partners and certainly a big part of what that sustained growth or improving growth trajectory and is very much about the mutual, I suppose, focus we have now on our Win the Plumber strategy and also some of the innovation that we're bringing to market together. Whereas on merchant fee, all of our merchants have quite distinctly different segment mixes where they source their sales from, be very much focused on more discretionary spend. It's the majority of what our product range is sold for in that merchant. And as we talked about today, in half 2, there was certainly an obvious change in headwinds in terms of people not spending in Australia that discretionary spend they had been prior to that. That's one key driver. Important to note in half 2 for that merchant, we were lapping a higher comparable period from the year before. But the other one relating to the merchant beat to half 1 is Caroline talked about our supply chain resilience. And certainly, that was quite a key advantage for the merchant's results in half 1 because our supply ability was maintained, whereas many of the competitors that supply to that merchant weren't in that position in half 1. So we benefited from that supply availability.

[Operator Instructions] Our next question today comes from Peter Steyn with Macquarie.

It's Will here on behalf of Peter. Well done on a solid result. I'm interested in the proactive pull forward of stock purchases. Could you please unpack the $23 million working capital outflow and the expected timing of its reversal in a little more detail?

So if you look at the $23 million working capital outflow in the cash flow, roughly $14 million of that actually sits with creditors. So what we did was pulled forward stock purchases from quarter 4 into quarter 3. So what that then meant, obviously, we paid for that stock through quarter 4. Then the other piece is about $9 million in relation to an increase in stock. So that gets you to $23 million. But in terms of unwind, look, we expect that to unwind through FY '27. I guess the caveat I'll put to that is assuming there's no major changes in market conditions. Obviously, we had a look and saw as the Iran war sort of took off, we had to look at supply chain. We had to look at global conditions and decided to pull forward stock if something of that magnitude or something of that nature occurs in FY '27, obviously, we'll relook at that and see how we can protect the business.

And to what extent was GWA supply side affected by U.S. tariff changes in the second half? How do you think about the dynamic tariff environment? Was this something that played into these working capital decisions?