Tariff Pressures Push RWC to Revise FY25 Sales Outlook Lower

US Tariffs Prompt Strategic Response

Reliance Worldwide Corporation Limited (ASX: RWC) has provided a detailed update on how recently imposed US tariffs are reshaping its operational and financial outlook. Despite a significant US manufacturing footprint, nearly half of RWC's Americas cost of goods sold (COGS) is sourced internationally, exposing the company to steep tariff rates, particularly on Chinese imports now subject to a 145% incremental tariff.

In response, RWC is aggressively diversifying its sourcing away from China, redirecting procurement to countries such as Vietnam, Taiwan, Korea, and Thailand, as well as leveraging its own manufacturing facilities in the US, UK, and Australia. This strategic pivot aims to reduce China-sourced COGS by approximately 30% in FY25, down from a peak of US$160 million to an estimated US$80 million, with a goal of eliminating tariff-impacted Chinese imports by the end of FY26.

Mitigation Measures and Financial Impact

Alongside sourcing changes, RWC is implementing price increases in the US market to help offset tariff-related cost pressures. These price adjustments are being rolled out systematically with channel partners to preserve long-term market positioning. The company also continues to pursue further cost reduction initiatives.

Despite these efforts, RWC anticipates a net EBITDA cost from tariffs in the range of US$25 million to US$35 million for FY26, reflecting the lag in price increase implementation and the time required to complete sourcing transitions and regulatory approvals. However, the company expects that by FY27, these mitigation strategies will fully neutralize tariff impacts on gross margin dollars, assuming stable sales volumes.

Revised Sales Outlook Amid Market Uncertainty

RWC has revised its FY25 sales outlook downward for the Americas and Asia Pacific regions, citing deteriorating economic conditions and reduced consumer confidence linked to tariff uncertainties. Americas external sales are now expected at the lower end of a broadly flat range, fluctuating within low single-digit percentage points relative to FY24. Asia Pacific sales growth has been tempered to low single digits, down from prior mid-single digit expectations, due to delays in new product launches.

Sales expectations for the EMEA region remain unchanged, with a mid-single digit decline anticipated. Overall, group external sales are still forecast to grow by mid-single digits for FY25, but excluding acquisitions like Holman and Supply Smart, sales are expected to be broadly flat.

Margin and Cash Flow Outlook

Reflecting the combined effect of lower sales and tariff costs, RWC now expects its consolidated adjusted EBITDA margin (excluding Holman) to be slightly below FY24 levels, a revision from earlier targets of margin improvement. Notwithstanding these challenges, the company reports strong operating cash flow conversion, maintaining expectations above 90%, consistent with its long-term financial discipline.

RWC’s proactive approach to tariff challenges underscores its commitment to sustaining profitability and market position amid evolving geopolitical and trade dynamics. The company’s ability to execute on sourcing diversification and pricing strategies will be critical to navigating the uncertain tariff landscape ahead.