Wolseley reports 16% increase in trading profit in Q3 to £185M from £159M a year ago, strong U.S. trading helps offset £6M drop in U.K. profits of £24M
December 7, 2011
Quarter ended 31 October (£m)
1 Like-for-like growth is defined as the increase or decrease in revenue excluding the effect of currency exchange, acquisitions and disposals, sales days and branch openings and closures.
2 Trading profit is defined as operating profit before exceptional items and the amortisation and impairment of acquired intangibles.
First quarter highlights
"Wolseley has continued to grow well, with strong growth in the USA offset by lower growth in some of our European businesses. Given continuing macroeconomic uncertainty, trading conditions may get tougher in the coming months. We will remain vigilant on costs and continue to drive performance improvements, strong cash conversion and better customer service. Our balance sheet is strong and the Group is well positioned to continue to invest selectively where we can generate good returns."
First quarter trading performance
During the quarter the Group generated revenue of £3,641 million, 5% ahead of last year. The gross margin of 27.1% was 0.1% ahead of last year, despite increasing pricing pressure. We have grown market share in the key regions and continue to implement initiatives to protect margins. Operating costs were £24 million higher than last year, including the previously announced increases in employee share scheme expenses and pension contributions of £10 million. Headcount remains in line with the year-end position and the Group remains on target to extract all residual costs within 12 months of the completion of disposals. Trading profit of £185 million was £26 million higher than last year including £5 million of one-off credits, primarily from property disposals, and £3 million from businesses sold or held for sale. The Group also benefitted from an extra trading day in the USA, UK, Nordics and Canada which contributed £7 million of trading profit. Movements in foreign exchange rates added £29 million (0.8%) to revenue and £2 million to trading profit in the quarter.
On 31 October 2011 the Group disposed of Encon, the UK insulation business, which generated revenue of £183 million and trading profit of £5 million in the year ended 31 July 2011. Cash consideration of £20 million was paid on completion with a further £22 million satisfied through the issue of loan notes repayable in 2016. On 4 November 2011 the disposal of Build Center was completed as previously announced, and on 17 November 2011 the Group disposed of its remaining minority stake in Stock Building Supply for cash consideration of £15 million.
In the USA like-for-like revenue growth was 10% as all of the key businesses continued to take market share. While Residential and RMI markets were broadly flat, the Blended Branches business continued to generate strong like-for-like revenue growth and improved gross margins which contributed to good profit flow through. The Industrial and Waterworks businesses also made good progress growing strongly and improving their trading performance. Growth was weaker in the Heating, Ventilation and Air Conditioning business reflecting the removal of government tax incentives which expired in December 2010. The B2C business continued to perform strongly. Trading profit of £99 million was £19 million ahead of last year.
Two bolt-on acquisitions were completed during the period including SG Supply, a single location Blended Branch in Chicago, and Louisianna Chemical Pipe, Valve & Fitting an industrial PVF business with three locations based in Baton Rouge. Groeniger & Co., California’s leading pipeline materials supplier for the residential, commercial and public works sectors, with 8 branches, was acquired in November 2011.
Canada grew by 2% on a like-for-like basis. Blended Branches and HVAC improved their performance. The Waterworks businesses was lower largely as a result of the removal of government stimulus incentives. The Industrial business continued to benefit from the buoyant oil, gas and mining sector and made good progress. Trading profit of £17 million was £1 million ahead of last year.
Like-for-like revenue in the UK declined 3%. Excluding the impact of the contract loss last year, like-for-like growth was 1% as Plumb and Parts Center worked to replace lost business in weak construction markets. Pipe and Climate and Drain Center performed well generating strong growth and improving their performance. Bathstore revenues continued to be lower than last year. Trading profit for the quarter was £24 million which was £6 million below last year, £3 million of which was due to disposals. Trading profit included £1 million of one-off credits relating to the profit on disposal of surplus property (2010: £2 million).
In the Nordic region like-for-like revenue increased by 2%. All the Nordic countries continued to grow despite slowing markets, with Denmark and Norway outperforming Sweden and Finland and also growing market share. Trading profit of £39 million was £4 million ahead of last year, including £2 million of one-off credits and £1 million of foreign exchange gains.
Like-for-like revenue in France grew by 3%. New construction markets weakened in the period. Reseau Pro performed in line with the market and was able to mitigate intense pricing pressure and improve gross margins. Wood Solutions generated decent growth in the period. Trading profit was £2 million in the quarter and included £2 million of one-off profits on disposal of surplus property.
In Central Europe like-for-like revenue in the ongoing business grew by 1%. Gross margins were ahead due to the benefit of the strong Swiss franc. The plumbing and heating business in Austria generated higher revenues and improved gross margins in the period. Performance was weaker in Holland where the Group continues to focus on lowering the cost base. Trading profit of £14 million in the quarter was £2 million ahead of last year, including £1 million of foreign exchange gains.
Mislabelled product customer notification
Ferguson is today writing to certain customers in the USA and Canada in relation to the unintentional supply of gaskets which were mislabelled by a former supplier, Lortech Rubber Inc. of Canada as being non-asbestos. Four customers have found asbestos in gaskets above the 1% level at which they can be classified as non-asbestos. Ferguson’s independent expert advisers have conducted tests and consulted published scientific studies to confirm that no health or safety risk arises from the handling, installation and use of the gaskets. Well-established protocols are maintained by the US Occupational Safety and Health Administration to ensure the safe removal of all types of gaskets. Industry experts recommend that installed gaskets remain in place for the remainder of their lives. The performance of the gaskets is not affected and the supply of these products in the USA and Canada is legal. Lortech has not cooperated with Ferguson and it has not been possible to determine the number of asbestos-containing gaskets that they supplied. Between 2006 and 2009 Ferguson bought 1.2 million gaskets from them. Millions of asbestos gaskets are in use in commercial, industrial and public applications today.
Adjusted net debt at 31 October 2011 was £587 million (31 October 2010: £1,000 million). Proceeds from the sale of Build Center and the minority stake in Stock Building Supply were received after the end of the quarter. There has been no other significant change in the financial position of the Group.