@neoteric, Thank you; as alternative way to think about what...

@neoteric,

Thank you; as alternative way to think about what profit margins have done, that's a good observation.


Incidentally, I went back and checked my spreadsheet, which goes back to 1999. The FY2016 result showed the most pronounced Profit translation on Sales (i.e., the fastest annual margin increase) over that time period.

Delta in NPAT on Delta in Sales

FY00: 7%
FY01: 6%
FY02: 2%
FY03: 4%
FY04: 11%
FY05: 10%
FY06: 11%
FY07: 9%
FY08: 8%
FY09: -20% (GFC-induced)
FY10: <-300% (GFC peak)
FY11: 7%
FY12: N/A (Both Revenue and NPAT fell in that year...Can't quite remember why. I think there was some consumer uncertainty ahead of an upcoming federal election which combined with an hiatus in construction markets in the eastern states)
FY13: -26% (Big jump in depreciation expense as well as employee expenses following the commencement of the aggressive investment in new outlets which went from 438 @ June 2011 to 474 by June 2013)
FY14: 8%
FY15: 9%
FY16: 17% (I don't quite get the same figure as your 21%; I think the reason is that I stripped out the $10.4m forex gain which occurred in FY15, and then I also notionally tax-effected this figure, as well as tax effecting FY16's property sale profit and the Actrol-related goodwill impairment. But even if my figures aren't quite the same as yours, the conclusion is still the same: the business is simply going swimmingly).


As to why this FY16 metric was so remarkably high, I suspect strongly that is the result of the maturation of the new outlets that have been rolled out over the past 3 or 4 years, which has simultaneously coincided with strong cyclical demand for Reece's products.

Maybe a bit of strategic vision; maybe a bit of cyclical luck.



Finally, in terms of the operating cash flow blemish [*] you noted, that is probably explained by a $61m working capital investment during the year, with $41m of that relating to increased levels of inventory which, I suspect, has a lot to do with the stocking of the new distribution center in Perth and Sydney.


[*] I expect there will be CFOs of many a company who dream of being able to deliver operating cash flows of that quality even under a best-case scenario(!)