Trading Statement
Wolseley PLC
21 January 2008
NEWS RELEASE
21 January 2008
Wolseley plc
Pre-Close Period Trading Statement for the five months ended
31 December 2007
Wolseley plc, the world's largest specialist trade distributor of plumbing and
heating products to professional contractors and a leading supplier of building
materials, today issues its regular trading statement for the five months ended
31 December 2007, prior to entering its close period. The half year results for
the six months ending 31 January 2008 are due to be announced on 17 March 2008.
Summary for five months ended 31 December 2007:
• Group
• Revenue up 2%, c.4% in constant currency
• Trading profit down c.25%
• Profit before tax and amortisation and impairment of acquired
intangibles down almost a third
• Decisive management actions taken to further reduce the cost base of
the Group
• Strong operating cash flow performance
• 10 bolt-on acquisitions announced and completed for an aggregate
consideration of approximately £170 million.
• North America
• Revenue down c.10%, c.5% in constant currency
• Trading profit down more than 40%, c.40% in constant currency
• Previously announced headcount reduction of 3,000 people achieved in
year to date, giving annualised savings of £60 million.
• Europe
• Revenue up c.17%, c.15% in constant currency
• Trading profit up 1%
• Good performance in UK, Nordic region, Switzerland and the Netherlands
offset by lower profits in France, Austria and Italy.
• Outlook
• Market conditions are likely to worsen
• Continuing action to be taken to cut cost base and curtail capital
spend.
Chip Hornsby, Group Chief Executive of Wolseley, said:
'We have acted decisively and rapidly in response to the challenging market
conditions to take cost out of the Group and will continue to do so. We remain
committed to our strategy and are confident that with our size, scale, financial
strength and operating efficiencies, we will emerge from this slowdown as a
stronger Group with an excellent platform for future growth.'
Overview
For the five months ended 31 December 2007, the Group's results continued to be
affected by the worsening US housing market, low consumer confidence arising
from global credit restrictions and the weakness of the US dollar. Whilst the
liquidity squeeze has particularly affected the USA, consumer uncertainty is
also having some impact on European markets. Against this background, the Group
has taken further action to adjust its cost base and has continued to focus on
exploiting opportunities for profitable organic growth, value-enhancing
acquisitions and strong cash flow generation.
A variety of management actions have been taken to adjust the Group's cost base
in response to the deteriorating market conditions. Over the last year, in the
USA, significant headcount reductions in Stock and in Ferguson, have been
achieved. In Europe, more modest headcount reductions have been implemented. In
France and Central and Eastern Europe, further rationalisation and integration
of businesses has been undertaken. In both continents, there is a general
headcount freeze and decisions have been taken to reduce discretionary revenue
spending and capital spend. As previously announced, action has also been taken
to streamline central management resource.
Group revenue in the five months ended 31 December 2007, including acquisitions,
increased by 2% compared to the corresponding period in the prior year. Trading
profit was down by around 25%. In constant currency, revenue and trading profit
would have been around 2% higher than the reported figures in sterling.
The rigorous focus on cash flow and working capital improvement continues.
Operating cash flow for the first five months of the year showed a strong
increase compared to the equivalent period in the prior year. As a result, the
interest charge for the first five months is only marginally up on the
corresponding period, despite higher interest rates and the full period impact
of financing the acquisition of DT Group.
The Group's financial position remains strong, with net debt at 31 December 2007
around 15% higher than at 31 July 2007 following bolt-on acquisitions made
during the period, giving gearing of 82% (31 July 2007: 72%). Interest cover was
4.5 times.
Further details of market conditions and financial performance in each of the
Group's businesses are set out below.
North America
In North America, revenue in the five months ended 31 December 2007 in sterling,
including acquisitions, decreased by around 10% compared to the corresponding
period in the prior year. Trading profit was down by more than 40% reflecting
the loss reported by Stock, lower profitability in Ferguson and currency
translation. In constant currency, the revenue and trading profit decline would
have been around 5% and 3% lower, respectively, than for the reported figures in
sterling.
The Group's US results have been affected by the continuing decline in US
housing starts, falling consumer confidence and a weakening US dollar.
Ferguson continued to gain market share and, although benefiting from the
commercial and industrial sector that continued to grow, was adversely impacted
by a weakening new residential market and a slowing repairs, maintenance and
improvement (RMI) market. Revenue in local currency for the five months ended 31
December 2007 was up around 3% due to acquisitions, with organic revenue growth
being down around 3%. Trading profit was also around 3% lower. Since 1 August
2007 headcount has been reduced by 1,500 which will give rise to annualised
savings of £38 million.
At Stock, local currency revenue and trading profit have been impacted by the
continuing slowdown in the new residential market, which has also created
increased price competition. Housing starts in the USA have fallen 26% from an
average annual rate of around 1.614 million in the five months ended 31 December
2006 to 1.196 million in the five months ended 31 December 2007.
Stock's revenue is down by just over 25%, principally reflecting a 26% decline
in organic sales volumes, including the effect of previous branch closures (4%)
and price fluctuations in lumber and panels. Despite reducing headcount by a
further 1,500 in the first quarter, Stock's trading loss for the five month
period was just over £25 million compared to a trading profit of around £45
million in the comparable period in the prior year. These headcount reductions
will give rise to annual savings of £22 million. Acquisitions contributed around
£20 million (2%) to revenue growth. Stock has made progress in diversifying its
business, both organically and by acquisition, and continues to outperform in
most of its major markets.
The Canadian residential market continued to hold up well and has not been
significantly impacted by the factors affecting the US housing market. Wolseley
Canada achieved local currency revenue growth of more than 3%, although trading
profit was around 15% lower, due to branch closure costs of around C$4 million
(£2 million) and the inclusion of property gains in the comparative period.
Europe
The global liquidity squeeze has had some impact on European consumer
confidence, although the effect has not been as significant as that in the USA.
Revenue in sterling for Europe, including acquisitions, increased by around 17%
in the five months ended 31 December 2007, whilst trading profit was up 1%.
Excluding DT Group, which was acquired on 25 September 2006, European revenues
were up by around 4% whilst trading profit was almost 20% lower due to a
disappointing performance in France and some initial disruption, now
diminishing, caused by the IT systems implementation in Austria and the new
distribution centre (DC) in Italy.
Revenue for the UK and Irish businesses increased by 3%, the majority of which
was organic growth with a positive performance in the UK being partly offset by
tougher trading conditions in Ireland where housing starts were around 50% lower
and the RMI market is also weaker. Overall trading profit was up by around 1%
but the trading margin was slightly lower, as a result of the lower
profitability in Ireland.
There are increasing signs that the UK housing market is slowing in response to
the lower availability and increased cost of mortgage financing. In addition,
the rate of growth in the UK RMI market has been weakening in response to
deteriorating consumer sentiment and tighter credit conditions. Government
expenditure on social housing, health and education remains positive.
Wolseley France had a slower start to the financial year, partly reflecting
previously announced internal restructuring and start up issues at the new
national DC in Orleans, but also reflecting a generally less positive business
environment, including the effect of French national industrial disruption.
However, the performance of the DC continues to improve. Constant currency
revenue for the five months ended 31 December 2007 was marginally up on the
prior year and trading profit is down by around 35%, including previously
announced restructuring costs of €4 million (£3 million) relating to headcount
reductions.
Overall, markets in the Nordic region have generally held up well. The Danish
new housing and DIY markets continued to slow in response to higher interest
rates and the recent rate of growth in the professional market has been more
modest. The Swedish DIY market has also started to slow but other markets in the
Nordic region remained robust. DT Group continues to perform well with growth in
revenue and trading margin compared to last year. For the five months ended 31
December 2007 reported revenue, in sterling, was £879 million with a trading
margin of just over 6%. This reflects the seasonal nature of the business
compared to the trading margin of more than 7% reported for the first three
months.
The Group's Central and Eastern European businesses showed modest revenue growth
due to acquisitions. Trading profit was higher in Switzerland and the
Netherlands, with strong market outperformance, but was down in the other
regions. Overall for the division, trading profit in the period was almost half
that in the comparable period as a result of lower than expected revenue growth,
business disruption associated with the new IT systems implementation in Austria
and adjusting the infrastructure to accommodate the DC in Italy. During the
continuing integration process there will be further rationalisation
opportunities and subsequent cost reductions.
Acquisition Update
Since the beginning of the financial year on 1 August 2007, a total of 10
bolt-on acquisitions in Europe and North America have been announced and
completed for an aggregate consideration of approximately £170 million. These 10
acquisitions are expected to add approximately £219 million to Group revenue in
a full year and will be beneficial to the Group's trading margin in the current
financial year.
Outlook
The Board expects business conditions in a number of the Group's markets to
become more challenging over the next few months. Action will continue to be
taken in the remainder of the current financial year to reduce the Group's cost
base and to curtail capital expenditure.
In the USA, the housing market is likely to deteriorate further until the
current high levels of unsold inventory have declined and the full effects of
problems in the sub-prime market have been assimilated. These conditions,
together with reduced availability of credit, are expected to put further
pressure on the RMI market. The commercial and industrial market is expected to
show modest growth for the majority of the current financial year given the
longer lead times of many large projects within this sector. The Group expects
to continue to drive competitive advantage and increased market share from the
distribution centre network, customer focus and to exploit opportunities arising
from the impact that weakening markets will have on competitor positions.
There are signs of further weakening in some European markets as a result of
lower consumer confidence, credit pressures and the increased cost of credit.
The majority of the Group's activity in Europe is driven by the RMI and
commercial and industrial segments which are expected to be more robust,
although the rate of growth in RMI activity is likely to slow.
Management will continue to focus on opportunities for profitable growth whilst
achieving strong cash flow generation and an efficient cost base, appropriate to
the market conditions. The Board is confident that the Group will emerge from
the downturn as a stronger organisation with an excellent platform for future
growth.
There will be an analyst and investor meeting at 0930 (UK time) today at UBS, 1
Finsbury Avenue, London, EC2M 2PP. The meeting can also be accessed by
conference call:
UK free phone dial-in number: 0800 032 4094
US free phone dial-in number: 1866 239 0750
Rest of the World dial-in number: + 44 (0)20 7138 0809
Password: Wolseley/4115336
Slides relating to the meeting will be available on www.wolseley.com.
The meeting will be recorded and available on www.wolseley.com after the event.
It will also be available for playback until 28 January 2008 on the following
numbers:
UK free phone number: 0800 559 3271 4115336#
US free phone number: 1866 883 4489 4115336#
UK/European replay dial-in number: +44 (0)20 7806 1970 4115336#
Exchange Rates
The average profit and loss account translation rate for the five months ended
31 December 2007 was $2.03 to the £1 compared to $1.91 for the comparable period
last year, a weakening of 5.9%, and €1.43 to the £1 compared to €1.48, a
strengthening of 3.4%, compared to the prior year.
Trading profit, a term used throughout this announcement, is defined as
operating profit before the amortisation and impairment of acquired intangibles.
Trading margin is the ratio of trading profit to revenue stated as a percentage.
ENQUIRIES:
Analysts/Investors:
Guy Stainer +44 (0)118 929 8744
Group Investor Relations Director +44 (0)7739 778187
John English +1 513 771 9000
Vice President, Investor Relations, North America +1 513 328 4900
Media:
Mark Fearon +44 (0)118 929 8787
Director of Corporate Communications
Brunswick +44 (0)20 7404 5959
Andrew Fenwick
Kate Miller
Notes to Editors
Wolseley plc is the world's largest specialist trade distributor of plumbing and
heating products to professional contractors and a leading supplier of building
materials in North America, the UK and Continental Europe. Group revenue for the
year ended 31 July 2007 was approximately £16.2 billion and operating profit,
before amortisation and impairment of acquired intangibles, was £877 million.
Wolseley has around 77,000 employees operating in 28 countries namely: UK, USA,
France, Canada, Ireland, Italy, The Netherlands, Switzerland, Austria, Czech
Republic, Hungary, Belgium, Luxembourg, Denmark, Sweden, Finland, Norway, Slovak
Republic, Poland, Romania, Croatia, San Marino, Panama, Puerto Rico, Trinidad &
Tobago, Mexico, Barbados and Greenland. Wolseley is listed on the London Stock
Exchange (LSE: WOS) and is in the FTSE 100 index of listed companies.
Certain information included in this release is forward-looking and involves
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by forward-looking statements. Forward-looking
statements include, without limitation, projections relating to results of
operations and financial conditions and the Company's plans and objectives for
future operations, including, without limitation, discussions of expected future
revenues, financing plans and expected expenditures and divestments. All
forward-looking statements in this release are based upon information known to
the Company on the date of this report. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
It is not reasonably possible to itemise all of the many factors and specific
events that could cause the Company's forward-looking statements to be incorrect
or that could otherwise have a material adverse effect on the future operations
or results of an international Group such as Wolseley. Information on some
factors which could result in material difference to the results is available in
the Company's Annual Report to shareholders for the year ended 31 July 2007.
- ENDS -
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