I listened to the presentation by Mr Peter Wilson (CEO/MD) and...

I listened to the presentation by Mr Peter Wilson (CEO/MD) and Mr Andrew Cowlishaw (CFO).

There was confusion from an analyst at Citi about first half sales, but this was clarified with REH confirming that the 1H 21 result included a full six months of sales from the acquisition of Todd Pipe in the USA, while the 1H 20 result had only three months. So USA sales were up roughly four per cent in US$ excluding the 'Todd Pipe effect', but seven per cent otherwise.

The extra costs re COVID-19 continue in the USA and Australia but are not considered 'material'. There was a brief comment about sales in Texas
or the USA increasing due to factors such as the weather. Most if not all Texas stores had to close for three days last week while as of yesterday Peter Wilson suggested that 10 per cent of Texans still lacked access to electricity and/or running water. He commented that REH would participate in the rebuild. Sounds like good demand for waterworks/plumbers as frozen pipes (something foreign to most of us in Australia) have been an issue.

REH's USA strategy remains a 20 year plan with a mixture of organic growth and M & A activity, but the latter only at the right price. Mr Wilson continually referred to how the USA market - by its standards, bearing in mind turnover may be higher per store than in Oz given USA's great population, some 15 times Oz's - is fragmented (although he didn't mention major competitor Ferguson). He referred to 'small independents' over there being a major part of the landscape in REH's speciality trading areas, and implied that over time more businesses will be acquired.

However the plan has inevitably been somewhat delayed by COVID-19, which is unsurprising.

The rebranding of stores to Reece in the USA has been driven by customers over there, plus the senior leadership but again, it is a gradual process. I got the impression REH isn't about to scare the horses.

It is early days with the new bathroom format stores in Sydney but customer feedback has been positive. REH's plan to roll out further such trial stores has been delayed due to COVID-19.

An analyst asked re the lower capital expenditure spending. I was distracted for a minute or two so didn't catch all, but Peter Wilson then went on to comment about how the Victorian and NZ lockdowns and the USA situation had changed how REH was approaching the second half.

This led on to a brief discussion about inventory. Peter Wilson made the interesting point that with (container shipping) delays (and lockdowns), REH was endeavouring to carry higher stock levels than it would normally, as this was considered prudent in current circumstances. Ths struck me as one example as to how REH is proactive: as a company, it thinks these potential risks through. Freight costs have risen but neither company gent went into great detail on that, but Mr Wilson said it was one more thing REH would have to live with. I assume much if not all will be passed on to customers, to their chagrin.

The CFO commented about how the three year old financing for the USA deal has seen 'the interest rate hedging move against us' but conversely 'the value of the T-Bill in A$ had increased by A$200 million with the continuing appreciation of the A$ against the US$.'

There was reference by an Ord Minett analyst to a $23 million loss - this may have been part of the foreign exchange A$97m adverse movement - but again I didn't hear all of the Q & A - with REH commenting that this may (obviously) rise further if the A$ keeps appreciating.

Early in trade REH shares were substantially up but that's reversed on what's predicted to be an ongoing day of severe losses for many ASX listed companies.

However it's fair to say the result was ahead of expectations and a great one. It's exciting that gradually, REH may expand in the USA, but do so only when it considers the price and time is right. Peter Wilson made the salient point that REH has to also be able to find suitable staff.

One thing that wasn't clarified was whether travel restrictions (albeit in some cases Border Force gives exemptions) are making life harder for REH executives based in Oz who like to travel to the USA given that REH is a business that constantly deals face-to-face with customers across plumbing, waterworks and HVAC plus other areas.

I came away with the impression that while there are some headwinds (COVID-19, the 'little Aussie battler' in the form of the A$ rising, and possible rises in interest rates/inflation creeping up on REH and the general Oz and USA communities), the company continues to have a sound focus, is enjoying the fruits of a better result than expected and has a good future.