Plumbing supply group Reliance Worldwide accelerates cost reduction as COVID lockdowns in China extend problems

However, the market for new home construction and renovation in Australia remained strong, even though the Reserve Bank of Australia rising interest rates for six consecutive months since May. Group sales in Asia-Pacific rose 1% in the September quarter.

The group’s Americas business accounts for approximately 50% of total revenues, with the company’s flagship product being the Sharkbite range of brass push-to-connect fittings, which saves plumbers time as they avoid the traditional welding of parts in place.

Reliance is also having a headache from prolonged COVID-19 lockdowns in China. That of the group EZ-Flo business, acquired for $434 million in November last year has a large manufacturing facility in China’s Ningbo Free Trade Zone which manufactures most of its products, while also using other third-party manufacturers in China for other stationery.

Mr Sharp said if a lockdown continues until the end of next week, Reliance “would have to scramble a bit” to ensure it had enough stock to fulfill orders.

Reliance reported on Tuesday that net sales for the September quarter rose 23% to $303.1 million ($479 million), with EZ-Flo contributing $53.8 million. . Reliance increased its earnings before interest and taxes by 15% to $64.6 million, but EBIT margins fell to 21.4% from 22.8% a year ago.

Mr. Sharp pointed out that it is very difficult to forecast demand due to the uncertainty surrounding the economic outlook. “It’s just super difficult right now,” he said.

“What next month will look like is really impossible to judge.”

Reliance chief financial officer Andrew Johnson said the group’s three main regions had been given cost reduction targets to achieve, but he declined to specify the size.

“We certainly have targets that we have assigned to the regions,” he said.

The company made a big bet in 2018 on overseas expansion when it spent $1.2 billion to acquire the John Guest in the UK.

Economists called the end of Australia’s pandemic-fueled renovation boom in early September. After jumping 25% over the past two years, alterations and additions activity, which is considered a proxy for home renovations, declined, falling 1.6% in the national accounts for the quarter of June.

Mr Sharp said Reliance should be spared the worst of any economic downturn as much of its business was related to repair and maintenance.