Reece Limited (REH.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Reece Limited Half Year Results 2022. [Operator Instructions] I would now like to hand the conference over to Mr. Peter Wilson, CEO. Please go ahead.

Good morning, everyone, and thank you for joining us. I'm Peter Wilson, the Reece Group CEO. And I'm joined today by Andrew Cowlishaw, our Group CFO, to outline our half year results for the period ending 31st of December 2021. Today, we're going to take you through an overview of the results and our strategic priorities. A review of the operational highlights for the first half and some thoughts on the macro environment. Please note, for consistency, all figures are in Australian dollars, unless otherwise stated. The first 6 months of FY '22 were in many ways an extension of 2021. On one hand, we were navigating an unprecedented environment with the completing pressures of changing COVID rules, constrained global supply chains and capacity constraints. On the other hand, we were experiencing very positive demand. Our network and our customers remain busier than ever. In this context, the strong execution from the team across the group stood out. Our people were stretched to the limit but demonstrated what we were able to achieve when we all pull together. This environment translated into another record half for Reece. Sales were up 17% on the prior year to $3.6 billion, as we saw strong demand across all regions and a significant inflation tailwind of driving growth. ANZ sales were up 11%, and U.S. sales were up 24%, with immaterial FX impact for the half. Our philosophy of holding higher stock weight has been a key part of our customer promise and has served us well in an environment of supply chain disruption. As Andrew will outline, we experienced an increase in cost of doing business, driven largely by an increased FTE and wage inflation. We saw a step change in our CapEx program in line with our strategy and as previously flagged. Normalized EBITDA for the period was up 14% to $397 millio,n, translating to a net profit after tax up 28% to $157 million. The Board has declared a dividend of $0.075 per share. In short, this was a strong result, driven by the market conditions and supported by our resilient business model and strong execution. Turning now to our focus. Our blueprint guides what we do across all areas of our business, we are a purpose and value fleet organization, and our 2030 vision and strategic priorities help bring that to life. Each of these elements come together to help us deliver on our promise of customized service. We're now turning to the detail of that blueprint, I want to focus for a minute on our vision and our strategy. Our 2030 vision is to be the trade's most valuable partner, helping them succeed in a digital world. This means we are aiming to be both a bricks-and-mortar and a digital business, providing the quality products and service that we are known for and creating digital solutions to help trade people run their businesses more efficiently. We are already on this journey, and we are working to ensure that however our customers choose to do business with us, they will have the same personalized experience that they have grown to expect. We are bringing this vision to life through our 3 strategic priorities. The first is being brilliant at the fundamentals of trade distribution and intentional focus on the foundations of the Reece model. We cannot achieve our vision unless we are the best at the basics. The second is investing for growth, like we've always done, continuing to grow our business through reinvesting in our stores and systems and expanding into adjacencies and markets where we can realize growth opportunities. And finally, staying ahead of our customers' needs through our innovation approach. In the U.S., we are focusing on the first 2 areas. And in ANZ, we are focusing on all 3 and bring learnings realized through delivering innovation into the U.S. where it makes sense. Now let's look at the progress in our business segments in the half. First, looking at our ANZ business. As we've outlined, it was a half heavily influenced by the external environment, and we will focus on managing and competing external challenges. We kept our focus on the long term throughout. Through our brilliant fundamentals and investing for growth pillars, we continue delivering upgrades and improvements across many aspects of our business. We also continue to ensure we have the right capability and leadership in our business to execute on our ambitions. To that end, in December, after an extensive process that included a global search, we appointed Marius Vermeulen as the new CEO of the ANZ business. Marius joined us in 2020 to lead our supply chain, is already having a big impact, and I know he is the right leader to take us forward to 2030. And finally, under our delivering innovation pillar, we continue to work towards making life easy for our trades in a digital world. At a high level, we think we are positioned to maintain and build on our market leadership. We enjoy the benefits of scale and a resilient model heavily exposed to [indiscernible], and we have growth opportunities in New Zealand and strategic business units. Now let's look at some of the progress in a little more detail. Critical to the ANZ performance in the half was the team. As I've said earlier, in a period of disruption, their resilience has really stood out. We've put a dedicated focus on supporting them to be the best through health and well-being initiatives. And knowing the team was stretched, we maintained our focus on safety, completing over 16,000 safety walks and delivering another 15% improvement in our LTIFR rate, and we've continued to take a high-compliance high-care approach to managing the growing impact of COVID. Turning to the supply chain. We were able to leverage our scale and the flexibility of our distribution model during the half, and we think we've weathered the storm well. While navigating offshore delays and disruptions to domestic supply chains, we deliberately held high stock on hand. Our service model delivered by a knowledgeable team meant that we [indiscernible] alternative options. Our customers are adaptable, and we try to go the extra mile to find them solutions. We know that we were able to win pockets of market share by being in stock, and I think this helped drive our sales results. Turning now to the ANZ network. We have 644 branches with 2 new branches added during the full year. The density of our network continues to be a key competitive advantage, delivering convenience for our customers and enabling us to be flexible in the face of COVID and supply chain issues. And we continue to upgrade the network to ensure we are delivering the best experience to our customers with 17 refurbishments during the period. Looking now at our digital ecosystem. The customer experience remains [indiscernible], as we invest in functionality and efficiency. This half, we made enhancements to our customer-facing maX platform. We've seen a 25% increase in online sales off the back of 57% growth in FY '21. We also continued rolling out our new mobile-enabled point-of-sale system, which is now in 100 branches across our network. This is helping us deliver quicker service and gain new data insights. Reece Connect is our automated approach that helps integrate systems like job management and accounting software, giving customers time back in a day. We expanded our ecosystem over the first half, meaning more customers have the flexibility to connect to Reece using their preferred technology systems and deliver over 1 million electronic invoices directly into our customers' chosen accounting software. Moving now to our U.S. business. We faced similar macro challenges to ANZ, although the impact of COVID disruption on our own team and network decreased compared to FY '21. We maintained our focus on operational improvements and business fundamentals, and we've seen strong progress across multiple work streams covering both pillars of the strategy. For example, we invested in leadership and selling capabilities and accelerated our continuous improvement program. The team in the U.S. are working hard and are delivering on schedule. We continue to see a great runway for Reece in the Sunbelt. We are seeing positive customer responses to the improvements we are making and we have the benefit of a favorable demand setting while we go about making these changes. Almost 4 years in, the strategic rationale for inching the U.S. market is holding firm for us, despite the unexpected complexity in the external environment. Turning to our U.S. store network. We have a multipronged strategy to upgrade and improve our existing network and to roll out new stores in refreshed formats across our business units. In particular, we see an opportunity to increase our offering to the more resilient R&R market that we are heavily exposed to ANZ and where we believe we have a differentiated proposition. The store experience is very important to our customers as is the ability to get in and out quickly. As COVID restrictions eased in the U.S., our team has spent more time in the field. And one thing that customers continue to tell us is that they need a brilliant in-store experience, that means physical presentation, high-quality service, expertise and availability. In line with this strategy, we rolled out 5 new stores this half and completed an additional 5 refurbishments. We expect this pace to continue in the second half as COVID constraints slowed some of our earlier efforts. We also completed a small bolt-on acquisition of 7 stores in the R&R space on the 31st of December. Another critical part of reaching our customers and a key part of our 2030 strategy is to provide a great digital experience. In the U.S., we knew [indiscernible] MORSCO online platform was not fit for purpose. So we've been working towards launching a local version of maX, which we did during the half. We're focused on providing the best digital proposition for our customers on a platform that we will deliver a seamless experience as our digital ecosystem in the U.S. grows. maX is locally built and completely tailored to the needs of the U.S. customer. The online offering means we can truly partner with trades, honoring our long-held commitment to solving our customers' problems and helping their business thrive. And finally, in the U.S., at the last AGM, we shared that we are looking to launch the Reece brand locally. This is a symbolic milestone after almost 4 years of learning and growing together. We know we are approaching the moment when our customers' promise can be delivered in the U.S. market, and we're beginning the process of uniting under one single brand. This began with the Reece corporate brand launch, and we'll progress to rebranding the network over the next 2 years, starting in California later this year. I'll now hand over to Andrew to go through our financial performance in more detail.

Thank you, Peter. I'm pleased to share that Reece delivered a record half year, despite the backdrop of products and wage inflation, capacity constraints for our customers and supply chain complexities. For the first half of FY '22, sales revenue for the group was up 17% to $3.6 billion. Normalized EBITDA was up 14% to $397 million. Normalized EBITDA is calculated on the same basis as the prior period. EBIT increased 16% to $275 million and net profit after tax was up 28% to $157 million. Earnings per share for the half year of $0.24 is up 28% on the previous period. Normalized EBITDA margin decreased by 40 basis points, the result of increased operating expenses, primarily driven by higher numbers of FTE and wage inflation. Let's look at the ANZ segment. The ANZ region delivered well, but again, experienced COVID-related lockdowns and construction restrictions across various Australian states and New Zealand. Sales revenue in the ANZ operations was up 11% on the prior year, a record half. From a quality of earnings perspective, it is important to note that we experienced product inflation of 8% to 9% during the period. Normalized EBITDA was up 6% to $249 million, and EBIT has increased 6% to $186 million. ANZ normalized EBITDA margin decreased 60 basis points for the half. It is also relevant to note ongoing EBITDA margin. The 90 basis point margin compression excludes nonrecurring government subsidy revenue and debt refinance expenses. The key driver of the margin compression for the half year was increased operating expenses, primarily related to higher employee numbers to meet increased demand and associated wage inflation. These increased operating costs were foreshadowed in our FY 2021 investor materials and are likely to persist beyond FY '22. Now moving to the U.S. The U.S. region performed very strongly for the half year with record results being achieved across the majority of our markets. Sales revenue was up 24% with immaterial FX impact for the half year. From a quality of earnings perspective, it's important to note that the product inflation impact for the U.S. region was estimated in the low teens for the half year. COVID-19 has continued to impact our U.S. operations through supply chain disruptions, staff shortages and short-term branch closures. Operating expenses in the U.S. have increased, driven by additional headcount, wage inflation and project expenditures. Normalized EBITDA was up 30% to $148 million, and EBIT was up 44% to $89 million. Notwithstanding the higher operating expenses, the U.S. region was able to increase its normalized EBITDA margin by 30 basis points. Moving to the next slide. In December 2021, we announced the successful refinancing of our existing debt facilities with $1.25 billion of syndicated multicurrency revolving facilities. The new facilities were used to fully repay the secured Term Loan B debt and associated revolving facility and to provide ongoing working capital support for the group's operations. The Term Loan B facility had been in place since the acquisition of MORSCO in July 2018. As part of the refinance we reduced debt to $1.016 billion for the half year, down from $1.336 billion at 30 June 2021. The new facilities are governed by a common terms deed and provide [indiscernible], reduced interest expense and flexibility to draw down in Australian or U.S. dollars. Maintenance covenants of less than 3.5x net leverage ratio [indiscernible] 2.5x interest cover ratio will be applicable at reporting dates, and we were compliant with the covenants at 31 December 2021. The new facilities are expected to generate a lot of expense going forward. Based on drawn debt at 31 December 2021, we would expect interest expense in the range of $10 million to $12 million for the second half of FY '22, assuming no material changes to interest rates or FX. The new facilities are currently unhedged for interest rates. Moving to cash flow and net working capital. The group experienced an $84 million operating cash flow -- outflow for the first half of FY '22. The key driver of this outflow was a significant movement in net working capital for the period. The net working capital movement of $348 million was the outcome of the group investing in higher inventory levels, whilst ensuring strong supplier relationships in a competitive market for stock. Net working capital to sales for the half year was 23% versus 19% at 30 June 2021. There was no deterioration in the collections environment during the half, and we remain disciplined in managing our debtors across the group. The half year also presented a step-up in capital expenditure, which is in line with our expectations and was communicated in the FY 2021 earnings presentation. The capital expenditure has been targeted towards our focus areas of store refurbishments, new sites and investment into digital capabilities. As referenced in the previous slide, we used $344 million of our cash reserves to reduce drawn debt as part of the December refinance. Business acquisitions and investments includes payment of deferred consideration for the Todd Pipe acquisition, investments through Superseed and some small bolt-on acquisitions in ANZ and the U.S. Now looking at the net working capital movements in more detail. Net working capital has increased from 30 June by $348 million, which is primarily driven by an increase in inventory of $283 million. This inventory investment reflects the Reece philosophy regarding stock as a strategic asset. As supply chain disruptions have continued in the half year, we have been proactively buying inventory when it's available. This has allowed us to actively manage the incidence of being out of stock on items that are critical to our customers. During the pandemic, we have benefited from being well capitalized and having long-term supplier relationships. This has enabled us to be in stock and to fulfill the significant market demand across the U.S. and ANZ regions. We expect that our inventory levels will remain elevated from their pre-pandemic levels, until the supply chain and demand dynamics in our regions return to more normal levels. Moving to the balance sheet. Under the new bank facilities, the maintenance covenants are based on net leverage, excluding leases and using pre-AASB 16 EBITDA. The information on this slide has been prepared on this basis. At 30 June 2021, we had a cash balance of $829 million, largely due to the $647 million equity raise in April 2020. These cash reserves have been used to repay debt, investing working capital and capital expenditure, as previously discussed, with closing cash for the half year of $118 million. Senior debt was reduced to $1.016 billion at 31 December 2021. The net leverage ratio of 1.4x is up from 0.9x at 30 June. I'll now hand back to Peter.

Thank you, Andrew, and I'll now set you through our views on the current macro environment in our markets. The demand drivers are strong in ANZ. We are seeing estimates -- a steady growth in residential markets this year and next and a period of stronger growth in nonresidential markets. This is largely due to the backlog of pent-up demand remaining strong post lockdowns. We have pockets of potential softening our forecast like in alterations and additions, we would anticipate a soft landing given that capacity is currently constrained by the availability of trade. While we monitor factors that could influence this setting, today, we see a solid pipeline and strong demand, and we anticipate market conditions to remain strong in the near term. Turning to the U.S. Underlying demand drivers in our markets also remain healthy. Housing starts, remodeling and nonresidential markets are all anticipated to remain in growth in the near term. If we step back, we don't see any change in the long-term fundamentals we think will underpin growth in coming years, particularly strong population growth in the Sunbelt. Unlike in the lead up to 2008, where there was a significant overbuild, today, we see a cumulative underbuild in housing that has driven a large residential backlog. And in nonresidential, we expect continued growth as a post-pandemic bump is more likely to come in mid-calendar year 2022. We continue to monitor the interest rate environment but don't anticipate this resulting in an overnight change to these strong underlying factors in the near term, given we generally see an 8- to 12-month lag time between interest rate movement and housing impact. Clearly, the macro situation remains complex in both our markets, and we know the long-term outlook is less clear despite our optimism about the near-term demand. In this environment, we are focused on what we can control in our business. We believe we are well placed if any softening occurs due to our scale and our investments we are making in line with our strategy. So now turning to the summary. We have delivered a strong start to FY '22, driven by the positive external setting and strong execution by the team. We believe we are well placed to continue managing the current challenges for the remainder of the financial year, always maintaining our long-term focus and investing to deliver on our 2030 vision. Thank you for your time today, and we'll now take your questions.

[Operator Instructions] Your first question comes from Peter Steyn from Macquarie.

If I may just ask you for a little bit more detail on the expenses growth, just looking at it at a group level, employee expenses up 19% and other expenses up 23%. Just keen to understand first of all, on employee expenses, the underlying FTE growth and what you saw in terms of wage inflation both in ANZ and in the U.S.? And then if you could just give us a little bit more understanding of what drove the 23% increase in other expenses?

Yes, good question. It's Andrew speaking. So I'm going to start with employees. So look, for the half year, we had employee growth of about 11.3% for the group, different for different markets. But we would be saying that wage inflation during the period has been on new roles, somewhere between 20% and 30%. So I think that's the dynamic around employee growth. If you look to the, I guess, what you're calling other expenses in the stat accounts, Peter, across various segments of our business, we've had higher expenses, motor vehicles, IT and telecommunication, travel and entertainment has come back. Obviously, that was at very low levels previously. And we've also had quite a bit of consulting within the half year, also within that other expenses line is refinance expenses for the December debt refinance.

So it sounds like there's perhaps an element of that, that doesn't continue and does consulting also step down? Obviously, refi won't recur, but just wanting to understand what we need to think about on a go-forward basis?

I think what we're looking at, at the moment, Peter, is with the agenda that we've got around our strategic priorities. Consulting around technology is a large part of us being able to deliver on our goals. So we would be seeing that persisting. In general, COGS are doing business for us, has got significant upward inflationary pressure. We'd be expecting it to persist.

Perfect. And then I may just ask very quickly on gross profit margins. So those were flat in a pretty severe inflationary environment? Do you think that there's a possibility of some overrecovery on a forward-looking basis, perhaps some mitigation and some of the real strength you've seen from a cost perspective?

Yes. Look, I mean you're absolutely right. I mean they're flat on the previous half. What we've been able to do because of our, I guess, our in-stock position has been able to pass on some pretty significant price inflation to our customers. They've been able to obviously pass that on to their end customers. We don't believe there's any ability to effectively uplift gross margins. We work in a competitive environment in both ANZ and the U.S., we've got competitors who are effectively pricing based on commodity prices and market prices, and we don't see any advantage coming out of GP.

Your next question comes from Lisa Huynh from JPMorgan.

So just on the theme of inflation, I guess, if we look towards the second half with what you've got in the pipes in terms of planned price increases, do you see this ramping up across the balance of the year? And how should we think about that going into 2023 as well?

Yes. Look, for the balance of the year, Lisa, we do see it persisting. So what we had in ANZ was sort of an 8% to 9% inflation dynamic for the half. And in the U.S., it's around 12%. We don't think that's going to moderate between here and 30 June from what we're seeing in the market. Do we see there's upward pressure on it? In some lines possibly. But I think, on average, we'll be sort of seeing those numbers as persisting.

Sure. And I guess, it hasn't impacted demand yet in terms of price rises. But I guess what are the kind of warning signs you're looking at across your customer base before it starts impacting demand for renovation work overall?

Well, like, I think we -- Lisa, it's Peter here. We do see -- I mean, ultimately, it could be an impact, but the demand settings are pretty strong in both markets. And yes, you just only have to go -- if you try and find a tradesman, if you try to find a builder and do some work [indiscernible]. So we're pretty much at capacity. So you can see this playing out for the medium term. Ultimately, how far it will go to before [indiscernible] demand. I mean, I don't think we really know at this point. But from what we can see so far, we're seeing the demand settings remain where they are.

Okay. Sounds good. And just one quick one in terms of the U.S. rollout, I guess. How should we be thinking about the number of stores you're planning to roll out? You've done 12 this half. Is that kind of a right level to half going forward? Or does it step up?

The half we did 5 new and 5 refurbs. So there's only 5 new. So we anticipate that for the current half now because it has been hard. Going forward, our goal is to do between 10 to 15 new stores a year and that number of refurbs. So we want to make sure we're doing it right. We get the right locations and then good execution. So that's the level we see after the experimenting that is something that we can sustain.

Your next question comes from Brook Campbell-Crawford from Barrenjoey.

Just back on the gross margin and the inflation environment. Are you able to just provide a sense of how much of an impact that had on gross profit in the half, if at all? I mean you talked about not being able to put a price more than costs coming through, which is fair, but if you're able to quantify perhaps the impact in the half to GP from the inflationary environment?

Yes. Look, Brook, the goal of the Reece business in both markets is to allow our customers to trade as effectively as possible. So we haven't been trying to effectively hold on to any additional margin coming out of price rises, we pass it on. If you look at our reported GP for the half, it's effectively flat on the previous half. And if we look across our 2 regions, yes, there's changes in mix. But the way we've traded has basically meant we've been able to maintain GP in the inflationary environment of 8% to 9% in ANZ and circa 12% to 13% in the U.S.

Okay. And just on this acquisition in the U.S., are you able to provide some more color there, the name of the business, what the total cost was transaction multiple and/or usual basics, if you could?

We're not going to -- we won't -- it's very -- it's immaterial. It's very small. We're not going to go through the transaction costs and so on. But it's a small business called Schumacher, and it's in the R&R space in the Baltimore State. So getting a little bit further north of the Sunbelt, but it's a store-based opportunity that we liked. And we settled on the 31st of December. So yes, it keeps adding to the story, the growth story where these -- there's lots of these little potential acquisitions that will come up and where we feel they fit our strategy and fit the network [indiscernible].

Okay. Last one for me. There was an investment in intangibles in the half, $49 million, which I assume is digital, but correct me if I'm wrong. Are you able to provide a bit of color there on the increase and if that's more one-off or you expect that to persist at that level going forward?

So the intangibles, Brook, the variety of things. So some of the business acquisition that Peter just referred to, some of the investments through Superseed. So I mean, ultimately -- and also some of that is IT expenses. So it's effectively a mixed bag where no one item really was any greater than the others.

Your next question comes from James Casey from Ord Minnett.

Peter, I ask this question relatively cautiously. The sales revenue growth in Australia of 11%, with 8% to 9% inflation. How would you describe the volume growth compared to market because, obviously, the implication is there at low single-digit volume growth?

It's -- yes, I think it's a good question. I think we're -- look, I think we're growing with the market. I think our stock position, our scale and just the position in the market. I would say we're definitely going with the market. We're not -- so -- and there may even be some -- in some areas, there may be some gains as well because of the availability of stock in our store network. So I think given the big states had big strong lockdowns, it's a very good result.

Okay. In the U.S., since the acquisition of MORSCO, the earnings contribution -- well, the sales contributions kind of been 55%, 45% and the operating margin has been first half wages as well. Can you just remind me, is it just the sales leverage, the reason why the operating margin is lower in the second half? And is that expected to continue?

For the U.S., you're talking about, James?

Yes. Yes, Andrew.

Yes. So last year, the U.S. margin was impacted by management fee, which was only charged in the second half. We're now accruing that now on a monthly basis. So that will make their margin stronger in the second half that was previous H2.

Okay. And then just finally, just with your debt refinancing, what's the cost of debt on that facility?

Yes. So what we disclosed is the $8 million to $10 million -- sorry, the $10 million to $12 million interest, yes -- interest expenses for the second half. That's really on the drawn debt level of a bit over $1 billion as we came through 31 December. And that's on the basis that FX and interest rates stay at the level that they are at the moment because we haven't hedged that facility for interest rate risk. So effectively, if you effectively run rate the 10 over $1 billion, it's roughly about there, James.

Understand. And last one just on the CapEx. Just broadly speaking, if you double that, would that be a near enough guide to the full year CapEx?

Yes. So that's about 2.4% of revenue, the $87 million, James. We'd be sort of seeing 2% to 3% for the full year being the right sort of level. So if you run rate it, you'll be in the right area.

[Operator Instructions] Your next question comes from Andrew Scott from Morgan Stanley.

Peter, just a question for you on the U.S. I mean, a fantastic job in offsetting some of the supply chain issues. I was just wondering if you think bigger picture, does this make you think about the way you structure your business and I'm thinking do you rethink a distribution center strategy or anything like that?

That's a good long-term question, because we don't have a distribution center strategy. In the long term, our plan is to build a supply chain capability to the U.S. market. But that's still some time off because you need the big scale of stores. It's a significant capital investment, big tech investment and people investment. So we're still working through the -- what we're calling the fundamentals of trade distribution to make it as consistent as we can and then to get on with the -- sort of the organic store rollout and then complement with some M&A that actually makes sense. So like in the long -- definitely in the long term, you aren't going to win unless you've got great supply chain capability and great digital capability. So that definitely is on the agenda, but not for a little while.

Understood. And then just a quick one following up on Lisa's question. Could you give us a rule of thumb on a cost of new store and a store upgrade, please?

Well, look, there's some things for market-sensitive reasons, we don't disclose. So we never have closed that. So we can probably just leave it as we're going to continue with that policy.

Your next question is a follow-up question from Brook Campbell-Crawford from Barrenjoey.

The follow-up on the new stores in the U.S. Can you provide a sense of how long you think it will take for a new store to contribute to EBITDA over there? Just so I'm presuming you need to win new customers in new regions, et cetera, and it will take a period of time, but are you able to provide a sense of timeframe to profitability for new stores?

Yes. Again, Brook, we don't normally disclose this. They don't -- they do take some time to then break even. The organic way for us has been the best way, but it takes time. So in Australia, you're taking up the 3 years for profitability. So that's why it's not easy. You have to have a strong balance sheet and you got to have a really long-term mindset to do this. So I mean not just giving you something there for Australia. So hopefully, we can do it a bit quicker than that in the U.S. with -- the markets are bigger. So maybe we can do it a bit quicker. So that's the plan. So when we do these things, we wanted -- we basically set out to optimize everything, to optimize the store, the way we like to set them up, the way they manage with people and then to get to profitability as sustainably and quickly as possible.

Your next question is a follow-up question from Peter Steyn from Macquarie.

Just wanted to get a bit of a sense of how you guys are seeing the demand environment perhaps at a little bit more of a granular level and probably a little bit more focused on the U.S., because we understand, obviously, there's a lot of backlog in an Australian context. The U.S. tends to work that slightly differently from a new construction perspective. But I'm also curious on the R&R side because bathrooms and kitchens, which generally play into your space a lot better have been quite strong. And just curious how you guys are thinking about shaping the business in the context of that, whether you think of that it remains a sustained area of homeowner investment for the foreseeable future? And I'm thinking probably 12 to 24 months when I ask that question from a timeline perspective.

Well, I think that from the sort of the long-term underbuild and where demand is and all the settings from a residential home market, yes, I think we can see the [indiscernible] 12 to 24 months as long as there's no crazy crisis, and as long as they don't get interest rate rises or interest rate rises in a year. So definitely that's the housing part what's really strong. And the R&R is very resilient market, as we all know. And it does look like because of COVID, there's a step change into that market, and you can see that when you look at the -- where Home Depot and Lowe's, where those businesses have grown in the last couple of years. But just remember, we are -- the minor exposure to R&R, we are exposed to the construction market, and that's -- well, over time, we want to pivot more to have a bit more balance and that's -- the store rollout is to move into the R&R space. And we have a relatively small showroom exposure. So it's not like yet. So that's our long-term plan is to get the structure [indiscernible] in Australia, but that's going to take a long time because it's mostly for the residential and commercial construction, which is -- and all these markets are really strong right now.

That does conclude our question session for today. I'll now hand back to Mr. Wilson for closing remarks.

Well, as usual, just to thank everyone for your time today and also for the ongoing support and interest. And yes, with all things, when you look -- when I look back 4 years ago, when we're in the middle of the negotiation to buy MORSCO, it goes pretty quickly. Then you go 2 years ago with COVID coming. There's so many things that have come up our way and that to -- the result we've delivered is a really strong result. And definitely one that we're all proud of given all the circumstances. So I can honestly tell you that our people have done a great job. The frontline people are the real heroes. And they have -- I can honestly say they're really tired because they have to turn up day in, day out in the stores, serving customers [indiscernible]. So it's a credit to them. And so I just want to say thank you for your time, and we'll catch some of you around over the next little while. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.