Interim Results - 6 Months to 31 January 2000

Wolseley PLC 14 March 2000 Wolseley announces strong results for the half year to 31 January 2000: - Sales up by 17% - Profit before tax up by 13% - Earnings per share up - before goodwill amortisation and exceptionals by 9% - total by 21% - Interim dividend up by 10% 31 January 2000 1999 Change Sales £3,037m £2,602m +16.7% Profit before tax - before goodwill amortisation and exceptionals £155.6m £142.5m +9.2% - exceptionals - £ (7.7)m - goodwill amortisation £ (5.3)m £ (1.9)m - total £150.3m £132.9m +13.1% Earnings per share - before goodwill amortisation and exceptionals 18.13p 16.63p +9.0% - tax 1.05p - - other - (1.24)p - goodwill amortisation (0.93)p (0.33)p - total 18.25p 15.06p +21.2% Dividend per share 4.125p 3.75p +10.0% Net borrowings £492.3m £219.4m Gearing 42.1% 21.3% - 17% increase in group sales, including organic sales growth of 5%. - 16% increase in group trading profit before goodwill amortisation and exceptionals. - Increase in trading profit margin in both European and US distribution divisions. - Profit before tax up 13%. - Earnings per share up - before goodwill amortisation and exceptionals up 9% - total up 21%. - Interim dividend per share up 10%. - Sustained high level of acquisition spend (£153 million) on top of record acquisition spend last year (£310 million). 'This has been a good first half for the group with substantial growth in sales, profits and earnings per share. We expect further real growth over the remainder of this financial year.' Richard Ireland Group Chairman 'We are pleased with the strong underlying performance of our major building distribution companies. They have managed to increase their trading margin whilst integrating new companies into the Group. We continue to drive the business forward by acquisitions and strong organic growth, combining the resources of an international group with an extensive network of local operations.' John Young Group Chief Executive FOR FURTHER INFORMATION PLEASE CONTACT: Steve Webster - Group Finance Director - c/o London Underwriting Centre until midday (Telephone 0171 617 5066) - After midday (0802) 913485 (Mobile) Tony Knox - Financial Dynamics (Telephone 0171 831 3113) The unaudited results for the half year ended 31 January 2000 We are pleased to report results for the half year demonstrating substantial growth in sales, profits and earnings per share. Group sales increased by 16.7% from £2,602 million to £3,037 million, including organic growth of 5.2%. Trading profit before goodwill amortisation and exceptionals rose by 16.1% from £143.8 million to £167.0 million. Profit before tax, goodwill amortisation and exceptionals increased by 9.2% from £142.5 million to £155.6 million. The increase in earnings per share before goodwill amortisation and exceptionals was 9.0% and 21.2% once these are taken into account. Boosted by acquisitions and strong organic growth, our European and US Distribution divisions increased sales by over 16% and 19% respectively. The equivalent increases in trading profits were over 19% and 20%. The trading margin was slightly higher in both divisions, despite the integration of a record level of acquisitions over the last eighteen months. Sales in the manufacturing division increased but profits reduced after charging costs incurred in relation to actions taken to dispose of the energy businesses. The higher level of recent acquisition spend has resulted in an increase in goodwill amortisation and the interest charge. Goodwill amortisation increased from £1.9 million to £5.3 million. Interest was also affected by rate rises and increased from £1.3 million to £11.4 million. Currency translation had little overall effect on the group results for the half year. An exceptional credit relating to the disposal of a business in a prior year reduced the tax charge for the first half by £6 million. Building Distribution - Europe Sales for the division increased by £154.1 million (16.5%), including an organic increase of 4.9%. Approximately £120 million of the sales increase relates to the incremental effect of acquisitions made in the previous financial year, principally Hall & Co, British Fittings and Broughtons in the UK, Heatmerchants in Ireland and Porcher in France. A feature of the first half has been the strong underlying performance of existing companies despite the integration of new companies into the group. This has resulted in trading profit increasing by £10.3 million and an increase in the trading margin from 5.7% (before exceptionals) to 5.8%. The domestic market in the UK has remained solid despite recent interest rate rises although the industrial sector weakened in the last quarter. UK distribution sales increased by 20.9%, including an organic increase of 4.2%. UK trading profits increased by over 36% compared to the corresponding period in the previous year which was affected by £3.8 million of one-off costs relating to the integration of Hall & Co. The UK trading margin at 6.4% of sales was unchanged compared to last year's margin (before taking account of the Hall & Co integration costs last year). The UK lightside division reported a substantial increase in sales and profits, after costs associated with the merger of Broughtons and Crangrove. The UK heavyside division also showed good increases in sales and profits and is realising the expected benefits from the Hall & Co acquisition with its increased national presence and size. Trading profit in the commercial and industrial division in the UK was marginally lower on increased sales. The British Fittings acquisition is now fully integrated with Pipeline Center but is yet to make any significant contribution to profits. A gradually improving profit trend is expected over the coming months. The spares division reported a good increase in sales and profits. In France, Brossette benefited from an improved market and the end of a successful sales incentive programme. Local currency sales, assisted by the Porcher acquisition in the previous year, increased by over 12%. However, the increase in sterling sales was just under 4%, reflecting the strengthening of sterling against the Euro. Trading profit was substantially higher than the previous year (which was adversely affected by £1.7 million of one-off costs relating to the Porcher acquisition), which enabled Brossette to raise its trading margin above 6% once again. Conditions in Austria showed some improvement towards the end of the first half but local currency profits were down on marginally increased sales. Acquisitions in Italy and Luxembourg continue to develop in line with expectations. The European network of branches has been expanded by a net 37 (2.7%) resulting in 1,394 at the end of the half year. All but two of the increase related to new branch openings. Building Distribution - USA The results in this division reflect a continuation in the strong market conditions throughout the first half. Sales increased by 19.1% including an organic increase of 5.8%. Trading profit increased by over 20% giving a slightly improved trading margin. Sales in the plumbing and heating companies increased by over 15%, including organic growth of 4.7%. The corresponding increase in trading profit was 11.8%. Both Ferguson and Familian Northwest achieved improvements in their added value percentages. The core Ferguson business moved ahead strongly and continues to derive benefits from its ongoing investment in IT and distribution centres. Substantial progress was made last year in relation to the Familian Corp business following its integration with Ferguson. Although the progress achieved in the first half of this year has been somewhat slower than expected, all the Familian Corp systems have now been fully integrated with Ferguson's. Management attention has been refocused on securing additional sales from the Californian market-place which remains buoyant. Familian Northwest produced a double digit growth in sales and trading profits, securing additional growth through opening five new branches and adding a further ten through acquisition. Carolina Holdings, the lumber distribution business, achieved another period of outstanding growth in a more favourable pricing environment. Both sales and trading profit increased by over 18%. The organic growth in sales was 8.1%. An integral part of Carolina's strategy is to continue to add production capacity to deliver a wider range of value added product to meet customer demands. Greater geographic diversity remains a further important feature to consolidate its position as the market leader in supplying building materials to the professional contractor. Acquisitions made by Carolina in the first half include entries into the new markets of California and Florida which added wall panel and roof truss production capacity. The US branch network has increased by a net 90 during the first half to 725 including 72 from acquisitions. Manufacturing Sales relating to continuing operations in the division increased marginally from £188.6 million to £190.7 million. Trading profit was down by just over £2 million, after charging costs of £1.9 million relating to the aborted disposal of the energy businesses. These costs have been expensed through trading profit rather than treated as exceptional despite their one-off nature. Sales and trading profits of the division represent 6.3% (7.4%) and 8.1% (10.8%) of the group total. Profits in the energy businesses were down from the corresponding period in the previous year, primarily due to difficult conditions in a number of markets, particularly Switzerland. The motors division reported profits slightly up on marginally lower sales. The problems in the agricultural industry continue to adversely affect our agricultural businesses and the further strengthening of sterling against the Euro has been an additional unhelpful factor. These businesses did well to increase sales and marginally increase profits. The photographic businesses continued to show an improving trend with a significant improvement in trading profit on sales up by nearly 10%. Interim dividend The board has decided to pay an interim dividend of 4.125 pence per share compared with 3.75 pence per share; an increase of 10%. The dividend reinvestment plan, introduced last year, will continue to be available to shareholders. Finance Net cash flow from operating activities was £132.5 million compared to £137.5 million. Working capital increased by £68 million, partly reflecting less efficient working capital management in acquired businesses. Capital expenditure has increased substantially from £35.7 million to £58.4 million. This reflects the ongoing investment in distribution centres and IT in the USA which is designed to enhance service levels to customers and branches and should result in increased operating efficiency within our businesses. Consideration, including debt, for acquisitions amounted to £153.3 million (£190 million). A further £35 million has been spent since the end of the half year. In aggregate, in a full year, these acquisitions should add approximately £549 million to group turnover. Further details of acquired businesses are set out in note 7 to this statement. The majority of this acquisition spend has been in the USA, with £60 million relating to the plumbing and heating businesses and £79 million relating to lumber distribution. The acquisitions in Europe include the group's first entry into Luxembourg. The branch network has been extended through acquisition and new branch openings by a total of 127 (6.4%). Net borrowings, excluding construction loan borrowings, at 31 January 2000, amounted to £492.3 million compared to £309.0 million at 31 July 1999, reflecting a high level of acquisitions and increased capital expenditure. Gearing is 42.1% compared to 28.2% at 31 July 1999. E-commerce The group has been further developing its e-business strategy over the last six months. A small but growing proportion of sales are now transacted through e-commerce web sites (for example www.plumbcenter.co.uk) and we are experiencing an increasing use of this new sales channel. Group companies also have plans for more electronic interface with customers and for greater involvement with third party middle-ware providers, particularly in the USA, for the selling of goods through the internet. E-procurement will also play an increasing role in our supply chain. The building distribution companies have the infrastructure in place to support and adapt to these developments in e-commerce business to business activities on the internet. The group's market leadership positions, world-class logistics operations and unique pan European and US coverage will enable it to benefit from e-commerce opportunities as they evolve. Outlook The group has made a sound start to the second half. The trading outlook for the group's principal markets for the remainder of the financial year continues to be positive. Despite recent interest rate rises in Europe and the USA, markets are expected to remain reasonably strong. The group's building materials' distribution business should continue to achieve real growth, both organically and by acquisition. Further benefits from the recent step up in the rate of acquisition spend will materialise in the second half. Accordingly, the group has grounds to be optimistic that it will achieve further good progress over the remainder of this financial year. GROUP PROFIT AND LOSS ACCOUNT (UNAUDITED) Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 _____________________________________________________________________________ £m £m £m Turnover 5,505.0 Continuing operations 2,938.9 2,602.1 - Acquisitions 98.2 - ________ _______ _______ 5,505.0 3,037.1 2,602.1 ________ _______ _______ Trading profit before goodwill 330.2 amortisation and exceptionals 167.0 143.8 (5.5) Goodwill amortisation (5.3) (1.9) (11.6) Exceptional items (note 3) - (5.5) Trading profit __________ _______ __________ 313.1 Continuing operations 158.8 136.4 - Acquisitions 2.9 - __________ _______ __________ __________ _______ __________ Profit on ordinary activities 313.1 before interest 161.7 136.4 (3.1) Loss on disposal of operations - (2.2) __________ _______ __________ 310.0 Profit before interest 161.7 134.2 (3.6) Net interest payable (11.4) (1.3) __________ _______ __________ Profit on ordinary activities 306.4 before tax 150.3 132.9 Taxation (note 4) (107.7) Ordinary activities (51.4) (47.0) 0.7 Exceptional credit 6.0 0.6 __________ _______ _________ (107.0) (45.4) (46.4) __________ _______ _________ 199.4 Profit after tax 104.9 86.5 (0.5) Minority interests (0.2) (0.2) __________ ________ _________ Profit for the period attributable to ordinary 198.9 shareholders 104.7 86.3 (78.9) Dividends (note 6) (23.7) (21.5) ________ ________ _________ 120.0 Profit retained 81.0 64.8 Earnings per share (note 5) Before exceptionals and 38.08 p goodwill amortisation 18.13 p 16.63 p (0.96)p Goodwill amortisation (0.93)p (0.33)p (2.43)p Exceptionals 1.05 p (1.24)p ________ _________ _________ 34.69 p FRS 3 basis 18.25 p 15.06 p ________ _________ _________ 34.65 p Diluted earnings per share 18.21 p 15.05 p 13.75 p Dividends per share (note 6) 4.125 p 3.75 p Translation rates (note 2) 1.6360 US dollars 1.6250 1.6650 9.6942 French francs 10.3000 9.5500 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 _________ _____________ _____________ £m £m £m 198.9 104.7 86.3 6.1 Profit for the period (7.3) 0.7 _________ _____________ _____________ 205.0 Currency translation 97.4 87.0 _________ difference on foreign _____________ _____________ investments SUMMARISED BALANCE SHEET (UNAUDITED) Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 _________ _________ ___________ £m £m £m 179.0 Intangible assets 238.3 122.0 417.0 Tangible fixed assets 460.6 362.2 _________ _________ ___________ 826.9 Stocks 886.7 737.5 Debtors and property awaiting 1,022.2 disposal 1,022.1 886.0 Construction loans receivable 158.0 (secured) 161.1 154.9 (865.8) Creditors (810.4) (690.6) Construction loan borrowings (157.7) (unsecured) (161.1) (154.9) ________ _________ ____________ 983.6 Net operating assets 1,098.4 932.9 ________ _________ ____________ (309.0) Net group borrowings (492.3) (219.4) (49.2) Net liabilities for tax (42.1) (76.4) (57.4) Dividend (23.7) (21.5) Provisions for liabilities and (66.4) charges (66.4) (65.8) ________ _________ ____________ 1,097.6 TOTAL NET ASSETS 1,172.8 1,034.0 ======== ========= ============ 297.8 Capital and share premium 298.8 294.0 account 796.7 Reserves 870.9 737.1 ________ __________ ____________ 1,094.5 Shareholders' funds 1,169.7 1,031.1 3.1 Minority interests 3.1 2.9 ________ _________ ____________ 1,097.6 1,172.8 1,034.0 ======== ========= ============ Translation rates 1.6200 US Dollars 1.6209 1.6428 9.9287 French Francs 10.8674 9.4889 ______________________________________________________________________________ RECONCILIATION OF MOVEMENTS IN CAPITAL AND RESERVES Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 ___________ _______________ ______________ £m £m £m 120.0 Profit retained 81.0 64.8 6.1 Other recognised gains and (7.3) 0.7 losses 3.2 New share capital subscribed 1.0 0.2 6.9 Goodwill written back 0.5 7.1 ___________ ______________ ______________ 136.2 Net addition to shareholders' 75.2 72.8 funds 958.3 Opening shareholders' funds 1,094.5 958.3 ___________ ______________ ______________ 1,094.5 Closing shareholders' funds 1,169.7 1,031.1 ========= ========== ========== SUMMARISED GROUP CASH FLOW STATEMENT Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 _________ ___________ _____________ £m £m £m NET CASH FLOW FROM OPERATING 338.6 ACTIVITIES* 132.5 137.5 Net cash flow from returns on investments and servicing of 2.4 finance (4.4) (1.0) (130.4) Taxation paid (52.8) (42.5) (104.2) Capital expenditure (58.4) (35.7) (297.4) Acquisitions (145.2) (185.8) 7.3 Disposals 1.5 6.7 (73.1) Equity dividends paid (57.4) (51.6) 3.2 Financing - Issue of shares 1.0 0.2 ________ _______ __________ (253.6) Change in net debt resulting from (183.2) (172.2) cash flows (11.3) New loans and finance leases (5.1) (8.3) (2.5) Translation difference 5.0 2.7 ________ _______ __________ (267.4) Movement in net debt in period (183.3) (177.8) (41.6) Opening net debt (309.0) (41.6) ________ _______ __________ (309.0) Closing net debt (492.3) (219.4) ________ _______ __________ * RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 __________ ___________ ____________ £m £m £m 313.1 Operating profit 161.7 136.4 61.9 Depreciation charges 33.8 29.6 5.5 Goodwill amortisation 5.3 1.9 (49.7) (Increase)/decrease in stocks (26.6) 7.8 (59.4) Decrease/(increase) in debtors 46.6 38.8 (Decrease)/increase in 66.8 creditors and provisions (88.6) (77.8) Decrease in net construction 0.4 loans 0.3 0.8 ________ _________ _________ Net cash flow from operating 338.6 activities 132.5 137.5 ________ _________ _________ ANALYSIS OF RESULTS Half year to Half year to Year to 31 January 31 January 31 July 2000 1999 1999 ________ ____________ _____________ £m £m £m TURNOVER BY ACTIVITY Building Distribution - Europe 1,733.8 Continuing operations 1,074.4 873.3 212.9 Acquisitions 16.5 63.5 ________ _______ ______ 1,946.7 1,090.9 936.8 ________ _______ ______ Building Distribution - USA 3,063.7 Continuing operations 1,673.8 1,446.3 117.2 Acquisitions 81.7 27.5 ________ _______ _______ 3,180.9 1,755.5 1,473.8 ________ _______ _______ Manufacturing 373.1 Continuing operations 190.7 188.6 0.6 Acquisitions - - 3.7 Discontinued - 2.9 ________ _______ _______ 377.4 190.7 191.5 ________ _______ _______ 5,505.0 TOTAL 3,037.1 2,602.1 ========= ======= ======= TRADING PROFIT BY ACTIVITY (BEFORE GOODWILL AMORTISATION AND EXCEPTIONALS) Building Distribution - Europe 111.7 Continuing operations 62.9 53.8 8.5 Acquisitions 0.9 (0.3) ________ ______ ______ 120.2 63.8 53.5 ________ ______ ______ Building Distribution - USA 170.1 Continuing operations 87.0 73.7 7.7 Acquisitions 2.7 1.0 ________ ______ ______ 177.8 89.7 74.7 ________ ______ ______ Manufacturing 32.3 Continuing operations 13.5 15.8 - Acquisitions - - (0.1) Discontinued - (0.2) ________ ______ ______ 32.2 13.5 15.6 ________ ______ ______ 330.2 TOTAL 167.0 143.8 ======== ====== ====== ANALYSIS OF RESULTS (Continued) ANALYSIS OF MOVEMENT IN SALES Movement New Acquis- in Sales Acqu- itions in 1999 Ex- isit- Increment Discon- Organic 2000 change ions 1999 tinued Change 2000 Operations £m £m £m £m £m £m % £m Building Distribution Europe 936.8 (27.6) 16.5 120.3 - 44.9 4.9 1,090.9 USA 1,473.8 36.3 81.7 76.7 - 87.0 5.8 1,755.5 Manufacturing 188.6 (2.1) - 1.1 - 3.1 1.7 190.7 _______________________________________________________________ 2,599.2 6.6 98.2 198.1 - 135.0 5.2 3,037.1 Discontinued Operations 2.9 - - - (2.9) - - - _______________________________________________________________ 2,602.1 6.6 98.2 198.1 (2.9) 135.0 - 3,037.1 =============================================================== ANALYSIS OF MOVEMENT IN TRADING PROFIT (BEFORE GOODWILL AMORTISATION AND EXCEPTIONALS) Movement New Acqui- in Profit Acquis- sitions in Dis- 1999 Ex- itions Increment continued Organic 2000 change 2000 1999 Operations Change £m £m £m £m £m £m % £m Building Distribution Europe 53.5 (1.2) 0.9 1.3 - 9.3 17.8 63.8 USA 74.7 1.9 2.7 5.1 - 5.3 6.9 89.7 Manufacturing 15.8 (0.3) - - - (2.0) (12.6) 13.5 _________________________________________________________________ 144.0 0.4 3.6 6.4 - 12.6 8.7 167.0 Discontinued Operations (0.2) - - - (0.2) - - - __________________________________________________________________ 143.8 0.4 3.6 6.4 (0.2) 12.6 - 167.0 Goodwill of £0.7 million arises on the acquisitions made in the half year. Accordingly, the trading profit contribution, after goodwill amortisation, from these acquisitions is £2.9 million. NOTES: 1 Basis of preparation The figures for the year ended 31 July 1999 do not constitute the company's statutory accounts for that period but have been extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. The accounts for the six months ended 31 January 2000 have not been audited, nor were the accounts for the equivalent period in 1999. They comply with relevant accounting standards and have been prepared on a consistent basis using accounting policies set out in the 1999 Annual Report. 2 The results of overseas subsidiaries have been translated into sterling using average rates of exchange. 3 The exceptional items in the half year to 31 January 1999 relate to the costs of integration of the Hall & Co acquisition in the UK and Porcher in France. 4 The tax charge on ordinary activities for the half year has been calculated at the rate which it is expected will apply for the year ending 31 July 2000 and comprises the following elements: Half year to Half year to 31 31 January 2000 January 1999 £m £m Tax on profit for the year before exceptional gain - UK 13.7 12.4 - overseas 37.7 34.6 ____ ____ 51.4 47.0 Exceptional item: - Credit relating to the disposal of a business in a prior year (1999 tax credit on exceptional costs) (6.0) (0.6) ____ ____ 45.4 46.4 ==== ==== 5 Earnings per share, calculated on an average of 574.0 (573.0) million ordinary shares in issue, are as follows: Earnings per share Half Year to Half Year to 31 January 2000 31 January 1999 Pence per share Pence per share Before goodwill amortisation and exceptionals 18.13 16.63 Goodwill amortisation (0.93) (0.33) Exceptional tax credit (1999 exceptional acquisition integration costs) 1.05 (1.24) _____ ______ Total 18.25 15.06 _____ ______ 6 The interim dividend of 4.125 pence (3.75 pence) per share, which will absorb £23.7 million (£21.5 million) will be paid on 31 July 2000 to ordinary shareholders on the register on 14 July 2000. The shares will be quoted ex dividend on 10 July 2000. 7 The following table summarises the acquisitions made during the half year. In certain cases the consideration is subject to adjustment and includes net borrowings acquired. Estimated Expected contribution to consideration group turnover in a full Acquisitions including debt year £m £m European Distribution 14.3 51.0 US plumbing and heating distribution 59.5 148.0 US lumber distribution 79.5 254.0 _____ _____ 153.3 453.0 ===== ===== Since 31 January 2000 further acquisitions in the US and UK Distribution divisions have been made for an estimated consideration of approximately £35 million, including debt. In a full year these acquisitions are expected to contribute a further £96 million of turnover. 8 2000 Preliminary announcement In accordance with current best practice, Wolseley plc will make available to shareholders, on request, a copy of its preliminary announcement for the year ending 31 July 2000, to be issued on or about 26 September 2000. Requests for a copy of this announcement should be addressed to the Company Secretary, Wolseley plc, PO Box 18, Vines Lane, Droitwich Spa, Worcestershire, WR9 8ND. A copy of this Preliminary Announcement, together with copies of other recent public announcements can be found on Wolseley's web site at www.wolseley.com.

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