REH

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$23.72 reece limited

Very good, and reassuring point. My first reaction glancing at...

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MarsC

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31/08/18

10:53

Post #: 35320085
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Originally posted by madamswer ↑

Reece's last standalone result before the Great American Adventure kicks off.

And, hmm, it was yet another classic Reece, no-frills, no-pretences, no-embellishment, result

Because, hmmmm.... 10.7% top line growth translating into just 5.4% growth in EBITDA.
So, what's going on here then?

Well, it's not really a Gross Profit Margin issue, because Gross Profit was up 10%. a similar order of magnitude as Sales Revenue (The GP Margin slipped slightly to 33.1%, from 33.3% in pcp).

Instead, what has happened is that Employee Expenses, and the disconcertingly vague expense item called "Other" (which, apart from CoGS, are the only expense items in the P&L) increased by a whopping 15%.

This meant that Cost-of-Doing-Business - to - Sales kicked up a full 60bp, to 19.1%, from 18.6% in pcp.
Viewed another way, that CODB margin increase took some $13m off the Pre-Tax result (s0, ~4%).

No doubt, much of that $13m (and a lot more, I'll wager) would have been attributed to the incurring of expenses involved in the undertaking of three acquisitions during the year (2 small ones and one very, very large one). Why, I'll wager just the direct expenses involved in the Moresco deal will, alone, have racked up $15m or $20m of costs, even before the payment of success fees to advivors and investment bankers.

And then there are the acquisition-related expenses associated with the New Zealand plumbing business and the industrial and civil pipe distribution business which were acquired during the year. As well as the costs of integrating them into the Reece fold.

Ninety nine percent of companies would have isolated those sorts of non-recurring costs and loudly called them out as such, to make sure the market saw the "underlying" number.

But not Reece.
Reece just cops it on the P&L chin.

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Very good, and reassuring point. My first reaction glancing at the AR report was: "Here we go, lots of pics with smiling faces etc... slipping into typical corporate marketing to shareholders...". But that was probably the cynic in me looking for blemishes on the back of my dissatisfaction with the Morsco acquisition.

Not highlighting "abnormals" in the P&L is the very antithesis of marketing to shareholders.

REH Price at posting: $12.17 Sentiment: None Disclosure: Held
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