26th Sep 2005 07:02
Wolseley PLC26 September 2005 NEWS RELEASE26 September 2005 Wolseley plc Preliminary Results for the Year Ended 31 July 2005 Wolseley plc announces ninth consecutive year of record results Summary of Results Financial highlights Change -------------------------- Year to Year to Reported In constant 31 July 31 July currency 2005 2004 £m £m % % ---------------------- ----------- --------- -------- -------- Group sales 11,257.7 10,128.1 +11.2 +14.2 ---------------------- ----------- --------- -------- -------- Group trading profit(1) 720.8 619.2 +16.4 +19.7 Group operating profit 677.4 580.2 +16.8 +20.1 ---------------------- ----------- --------- -------- -------- Group profit before 691.2 598.1 +15.6 +18.8 tax, before goodwill amortisation Group profit before tax 647.8 559.1 +15.9 +19.2 ---------------------- ----------- --------- -------- --------- Earnings per share, 85.93p 74.84p +14.8 +18.1 before goodwill amortisation Basic earnings per 78.53p 68.15p +15.2 +18.6 share ----------------------- ----------- --------- -------- -------- • As reported, in sterling (after currency translation effect):- - Group trading margin(1) increased from 6.1% to 6.4% - Strong operating cash flow of £763.6 million (2004: £325.2 million) - Total dividend for the year increased by 10.9% to 26.4 pence per share (2004: 23.8 pence) - Strong financial position with gearing(2) of 49.6% (2004:49.5%) and interest cover of 23 times (2004: 27 times) - Return on gross capital employed increased from 18.4% to 19.1% (1) Trading profit, a term used throughout this announcement, is defined asoperating profit before goodwill amortisation. Trading margin is the ratio oftrading profit to sales expressed as a percentage. Organic change is the totalincrease or decrease in the year adjusted for the impact of exchange, newacquisitions in 2005 and the incremental impact of acquisitions in 2004.(2) Gearing ratio is the ratio of net borrowings, excluding construction loanborrowings, to shareholders' funds. Operating highlights • Constant currency organic sales growth of 8.7% across the Group with double-digit increases in Ferguson (15.2%), Stock (10.7%) and Wolseley Canada (10.5%). • Constant currency trading profit growth of 19.7% across the Group: o Ferguson's trading profit grew 24.8% to exceed $500 million for the first time; o Stock's profit increased by 32.4% to more than $250 million for the first time; o Strong profit growth in PBM (13.8%), Wolseley Canada (11.8%), Wolseley UK (11.2%) and Wasco (95.7%) o Profits down 2.3% in Brossette due to reorganisation to improve future performance. • Trading margin increased in all three divisions with particularly strong improvements in the PBM, Stock and Ferguson businesses. • Total consideration of £430.6 million on 26 acquisitions should generate over £770 million per annum of incremental sales in a full year. • European Distribution division made further progress towards managing the businesses in a more integrated way. Initiatives include: sharing best practice across operating companies; supplier rationalisation; product standardisation; low cost country sourcing and logistics collaboration. • New North American structure established from 1 August 2005 to leverage assets and drive future growth. • Investment in infrastructure continues in order to enhance the Group's operational performance, achieve synergies and leverage its international strengths. Increase in capital expenditure reflects expansion of the distribution centre ("DC") network in the USA, continued investment in new head offices in France and the UK and further progress in developing the common IT platform. Branch network expanded by a net 283 locations to 3,920, including the 60th Ferguson XpressNet opening in the USA. Outlook • Market conditions in the USA are expected to remain favourable with repairs, maintenance and improvement ("RMI") and the commercial and industrial sectors continuing to grow. Although the number of housing starts may reduce as a result of higher interest rates, the US housing market is expected to remain fundamentally strong. In Canada, the overall environment is expected to remain positive. • In the UK, the RMI and housing markets are expected to show modest growth and positive trends in government spending are anticipated. The UK business should show gains in market share and growth for the year. • In France, growth in the RMI market is likely to remain modest. Both PBM and Brossette should see some benefit from their initiatives to improve performance and from the strong but slowing new housing market. Whilst the markets in the rest of Continental Europe are likely to remain broadly flat, Wolseley's operations are expected to continue to make progress. • Increasing benefits will be realised from the business improvement initiatives in place relating to supply chain, sourcing and procurement. The Group will continue to pursue its objective of achieving, on average, double-digit sales and profit improvements through a combination of organic growth and acquisitions. • The Board expects another year of good progress. SUMMARY OF RESULTS As at and for the year ended 31 July 2005 2004 Change Sales £11,257.7 £10,128.1m +11.2% Operating profit- before goodwill amortisation £720.8m £619.2m +16.4%- goodwill amortisation £(43.4)m £(39.0)m Operating profit £677.4m £580.2m +16.8%Interest £(29.6)m £(21.1)m Profit before tax- before goodwill amortisation £691.2m £598.1m +15.6%- goodwill amortisation £(43.4)m £(39.0m) Profit before tax £647.8m £559.1m +15.9% Earnings per share- before goodwill amortisation 85.93p 74.84p +14.8%- goodwill amortisation (7.40)p (6.69)p Basic earnings per share 78.53p 68.15p +15.2% Dividends per share 26.4p 23.8p +10.9% Net borrowings £1,143.5m £941.4m Gearing 49.6% 49.5% Interest cover (times) 23x 27x Charles Banks, Wolseley plc Group Chief Executive said:"The success of Wolseley's strategy is demonstrated, once again, as we reportour ninth consecutive year of record results. We have achieved an 11% increasein sales and 16% improvement in trading profit at the same time as securingimportant acquisitions and making significant investments in people, our branchand distribution centre network and technology, all of which will support ourfuture growth." ENQUIRIES: Investors/Analysts: Guy Stainer 0118 929 8744Head of Investor Relations 07739 778 187 Press: Penny Studholme 0118 929 8886Director of Corporate Communications Brunswick 020 7404 5959 Andrew FenwickDeborah Fairbrass An interview with Charles Banks, Group Chief Executive and Steve Webster, GroupFinance Director, in video/audio and text will be available from 0700 UK time onwww.wolseley.com and www.cantos.com There will be an analyst and investor meeting at 0915 UK time at UBSPresentation Centre, 1 Finsbury Avenue, London EC2. A live audio cast and slidepresentation of this event will be available at 0915 UK time on www.wolseley.com There will be a conference call at 1500 UK time:UK dial-in number: 020 7162 0083US dial-in number: +1 334 323 6201International Call in Number +44 20 7162 0083 The call will be recorded and available for playback until 10 October 2005 onthe following numbers: UK/European replay dial-in number: +44 (0) 20 7031 4064 Access code: 673303UK freephone number: 0800 358 1860 (UK only)North American replay dial-in number: +1 954 334 0342 Access code: 673303Free phone number: +1 888 365 0240 NEWS RELEASE26 September 2005 Wolseley plc Preliminary Results for the Year Ended 31 July 2005 Wolseley plc announces ninth consecutive year of record results Announcement of Preliminary Results Wolseley, the world's largest specialist distributor of plumbing and heatingproducts to professional contractors and a leading supplier of buildingmaterials, is pleased to announce its ninth consecutive year of record results.These results reflect strong organic growth, the additional contribution fromacquisitions and increased operational efficiency and have been achieved whilstalso investing in people, facilities and technology to secure future growth.On a constant currency basis, Group sales increased by 14.2% and trading profitby 19.7%. Currency translation reduced Group sales by £272.9 million (2.7%) andGroup trading profit by £17.2 million (2.8%), compared to the previous year. After taking account of currency translation, Group sales increased by 11.2%from £10,128.1 million to £11,257.7 million. Trading profit rose by 16.4% from£619.2 million to £720.8 million. After deducting goodwill amortisation of £43.4million (2004: £39.0 million), the reported sterling operating profit increasedby 16.8% from £580.2 million to £677.4 million. In the North American Plumbing and Heating Distribution division, Ferguson inthe USA achieved organic sales growth of more than 15% with trading profit upnearly 25% and Wolseley Canada contributed a strong performance with doubledigit sales and profit growth. The US Building Materials Distribution division("Stock") also performed strongly with an increase in organic sales of over 10%and trading profit up over 32%. Within the European Distribution division, thebusinesses in the UK, the Netherlands, Italy, Switzerland and Luxembourg alsoperformed well in their respective markets. Trading margin improvements were achieved in all three divisions with the Grouptrading margin up from 6.1% in 2004 to 6.4% in this financial year. Net interest payable was £29.6 million (2004: £21.1 million), the increasereflecting acquisition spending and higher interest rates, partly offset bystronger cash flow. Interest cover was 23 times (2004: 27 times). Profit before tax and before goodwill amortisation increased by 15.6% from£598.1 million to £691.2 million. Profit before tax increased by 15.9% to £647.8million (2004: £559.1 million). The increase in earnings per share beforegoodwill amortisation was 14.8%, from 74.84 pence to 85.93 pence. Basic earningsper share was up 15.2%, from 68.15 pence to 78.53 pence. European Distribution The results in the European Distribution division benefited from strong profitperformances from Wolseley UK, PBM, Wasco and from acquisitions. With theexception of Brossette, in France, which had marginally lower sales, all of theContinental European operations increased sales and most achieved profitimprovements, in generally flat markets. Sales for this division, in sterling, increased by 9.2% from £4,248.0 million to£4,638.4 million, including £265.7 million (6.2%) which relates to acquisitions,predominantly Brooks (Ireland) and Klockner (Austria) in August 2004 and IserZauli (Italy) in January 2005. The organic increase in sales was 2.7%. Tradingprofit rose by 11.5% from £263.2 million to £293.4 million. The overall divisional trading margin, after the allocation of central costs,improved from 6.2% to 6.3% of sales due to the achievement by PBM (France) of a6% margin for the first time and improvements at Tobler (Switzerland), CFM(Luxembourg), Cesaro (Czech Republic), Electro Oil (Denmark) and Wasco(Netherlands). In the year, a further net 93 branches were added to the European network,giving a total of 2,486 locations (2004: 2,393). UK and Ireland Wolseley UK performed strongly against a slowing UK market. Whilst thefundamentals of the UK economy remained positive, in terms of relatively lowinterest rates and low unemployment, RMI spending slowed in the second half ofthe financial year in response to weaker consumer confidence. Governmentspending, feeding through into the construction market, remains a bright spotand the industrial sector continues to improve. Against this more challenging background, Wolseley UK recorded an 11.7% increasein sales to £2,353.9 million (2004: £2,106.9 million). Organic growth at morethan 5% outperformed the market generally with the plumbing, heating, pipe andbathroom businesses performing particularly well. Wolseley UK's trading profit increased by more than 11% compared to the prioryear after taking account of gains from sales of properties of £11 million(2004: £3 million). Trading margin fell slightly from 7.8% to 7.7%, reflectingthe previously announced impact of including Brooks for the first time and thehigher pension, restructuring and rebranding costs in the UK business. Inaddition, there were some initial costs of the investment in the new nationaland regional distribution centre ("DC"). The new national DC in Leamington Spa,which is to be located alongside Wolseley UK's new headquarters, is expected tobe operational by autumn 2006 and the regional distribution centre, in the NorthWest, should open around a year thereafter. These investments and the currentinitiatives to centralise control of transport and branch inventory management,should enhance customer service and support continued growth in the business.Branch service levels continue to show improvements following the ongoinginvestment in the supply chain. In Ireland, which again experienced strong growth in the economy, Heatmerchantsproduced very strong organic growth of more than 20% and Brooks, the timber andbuilders merchant, also traded well ahead of expectations in its first yearwithin Wolseley. During the year, 57 net new locations were added in the UK and Ireland takingthe total number of branches for Wolseley UK to 1,570 (2004: 1,513), including18 branches added as a result of the Brooks acquisition. As a consequence of thestep up in the implant programme, 20% of locations now offer a broader productrange through a multi-brand offer. France In France, government tax incentives continue to underpin growth in the newresidential market, but repairs, maintenance and improvement ("RMI"), theprincipal driver for both Brossette and PBM, continue to show only marginalimprovement against the background of little growth in the overall economy, weakconsumer confidence and continued high levels of unemployment. Wolseley's French operations generated a 1.2% increase in sales to €2,401million. Local currency sales and trading profit in Brossette were marginally down on theprior year. The results reflect the ongoing disruption as a result of thereorganisation of the district, branch and management structures. During theperiod, Brossette made a significant number of management changes, has commencedthe roll-out of its national product range and is moving towards centralisedpurchasing. Plans for a new regional distribution centre network continue to bedeveloped to enhance customer service and facilitate future expansion. The firstcustomer delivery centre opened in June 2005 in the Alps region. PBM performed above expectations held at the time of the acquisition with localcurrency sales up 1.9% and trading profit up 13.8% and achieved a 6% tradingmargin for the first time. PBM is continuing to develop its tool hire business,with four locations having been opened, is expanding the number of joint siteswith Brossette and seeking opportunities to benefit from sharing of bestpractice and common supplier arrangements. PBM has made further progress duringthe year in improving its working capital efficiency. Rest of Europe The Group's other Continental European operations enjoyed generally good resultsdespite broadly flat markets. OAG in Austria, with its acquisition of Klockner, achieved an increase in salesof 13.9% although trading profit fell due to competitive pressure on prices, asa consequence of difficult housing and RMI markets. This was further exacerbatedby extremely poor weather conditions with very cold temperatures preventingconstruction for several weeks early in 2005. In Hungary and the Czech Republic,local market conditions remained difficult but both businesses improved sales,with Cesaro in the Czech Republic also increasing trading profit. In Italy, despite a weak economy and a fall in the overall construction andrenovation markets, Manzardo's branch opening programme helped to achieveorganic sales growth of almost 6%. Organic trading profit was up 7.5%. IserZauli, which was acquired in January 2005, traded in line with expectations andthis acquisition makes Manzardo one of the largest companies in the Italiansanitary/heating market. During the year the decision was taken to invest €20million in a new central distribution centre in northern Italy to support thegrowing business there. These facilities are expected to be completed aroundautumn 2006. The difficult economy in The Netherlands continued to affect the constructionand new housing markets but, despite this, Wasco made good progress expandingits product range, developing its offering to the more profitable RMI market andfocusing on cost control. Wasco achieved organic sales growth of almost 10% andtrading profit was up even more. In Luxembourg, CFM increased sales by more than2% and trading profits by more than 5% although the market has become morecompetitive. Tobler, in Switzerland, which was acquired on 1 December 2003,performed ahead of expectations with organic sales up more than 5% and organictrading profits up more than 17% on the prior year. The European Distribution division has made further progress during the year inimplementing its strategy to manage the businesses in a more integrated wayacross Europe. A number of initiatives are underway to share best practiceacross operating companies in areas such as branch format and product/serviceofferings. Work began to rationalise the number of suppliers across Europe andidentify suppliers who will work with Wolseley to remove costs from the supplychain. Areas of focus include product rationalisation and standardisation andlogistics collaboration. Progress is also being made in sourcing from low costcountries and around 30 product programmes are currently underway. All of theseinitiatives are designed to enable the Group to benefit from cross-bordersynergies and accelerate growth in Europe. North American Plumbing and Heating Distribution The North American Plumbing and Heating division performed strongly withsignificant rises in sales and profits and the highest ever trading margin,which increased from 6.6% to 6.8%, after the allocation of central costs. Reported sales of the division were up 13.9% from £3,836.4 million to £4,370.4million despite the adverse impact of currency translation. Trading profit, insterling, increased by 17.7% from £252.0 million to £296.5 million. Currency translation reduced divisional sales by £172.5 million (4.5%) andtrading profit by £11.6 million (4.6%). There was a net increase of 171 branchesin North American Plumbing and Heating Distribution to 1,179 locations (2004:1,008). Ferguson In the USA, Ferguson produced an outstanding performance generating strongorganic growth from its focus on selected markets, from new branch openings anddriving further commercial advantage from its DC network. These factorscontributed to significant market outperformance in the year. Of the sectors in which Ferguson operates, housing related activity remainedstrong with the more positive economic environment benefiting the RMI sector.RMI is becoming an increasingly important element of overall construction spendin the USA and, with the new XpressNet branch format being introduced and theemphasis being placed on opening new specialist heating, ventilation, andair-conditioning (HVAC) branches, should lead to further growth opportunities. The commercial sector, particularly smaller hotels, offices and supportbusinesses for residential construction, continues to improve and although theindustrial segment remains the weakest, it is gradually improving. Local currency sales in the US plumbing operations rose by 20.2% to $7,143.7million (2004: $5,941.1 million) with trading profit up by 24.8%. Organic salesgrowth was 15.2%, including the beneficial effects of commodity price inflationin products such as copper, steel and plastics in the first half, although, aspredicted, the commodity price inflation did not continue in the second half. Aspreviously reported, around $12 - $15 million of the organic increase in tradingprofit was commodity price driven in the first half of this year, compared witharound $30 million in the second half of the prior year. The rest of the profitgrowth reflects an increase in the gross margin as a result of continuingbenefits from the distribution centre network, a focus on organic growth andoperational leverage. The trading margin, at 7.1%, was ahead of the prior year'smargin of 6.8%. The increased margin reflects the benefits of commodity priceinflation and the change in the treatment of the revenues of the IntegratedSupply Division referred to below, partly offset by the additional costs ofinfrastructure investment to support future growth. During the year, Fergusonadded an additional 3,700 employees including 1,000 new college graduates. Further investment in the DCs continues and an additional 1.2 million squarefeet of capacity has been added since August 2004. Two of Ferguson's existingDCs were expanded, one was relocated, two new ones were opened, and one small DCin North Carolina was closed. The new DCs are a 600,000 square feet facility inWaterloo, Iowa which opened in May 2005 and a 120,000 square feet pipe yard inStockton, California which commenced operation in September 2005. Volumesthrough the DC network grew by 36% in the year compared to the prior year andaround 50% of branch sales now go through the DC network. Further expansion ofthe DC network is planned in the current financial year to build on Ferguson'scompetitive advantage and Board approval has recently been given for new DCs inFlorida and northern California. Following last year's successful pilot of five small ("XpressNet") branches, thetarget roll-out programme of 50 new locations to be opened during the year wasexceeded, with 60 open by 31 July 2005. The target is to open at least another60 in the current financial year. Ferguson's total branch numbers increased by 168 during the year to 941locations (2004: 773). As previously reported, the recorded sales value in Ferguson's Integrated SupplyDivision represents the gross profit rather than the gross sales value which wasrecorded in the year to 31 July 2004. This change is the result of a review ofrevised contractual arrangements. The effect of this change in the year to 31July 2005, which has no impact on profit, is to reduce sales by $203 million.There is, consequently, a positive impact on the trading margin of Ferguson forthe period of 0.2%. Wolseley Canada In Canada, the construction and housing markets continued to remain strong withlow interest rates supporting a strong residential market and the buoyant energysector in Western Canada helping sales in the industrial and commercialbusiness. Local currency sales increased by 12.5% to C$1,177.1 million (2004: C$1,046.3million). More than 10% of the sales growth was organic, ahead of the marketgenerally. Local currency trading profit rose by 11.8%. Gross margins wereaffected by competitive pricing pressure in some product areas and a change inbusiness mix. Investment in Wolseley Canada continues in order to support a growing business.The costs of restructuring the Industrial Products Group affected profits inthat business during the year, although the reorganisation and managementchanges resulted in an increase in sales. Across the company, more than 160 newposts were filled in order to sustain future growth. Further investments were made in new mobile warehouses which are used primarilyto supply plumbing products to commercial projects and the first of threeregional supply centres for larger items was opened in Burlington, Ontario.Further locations will be added in due course. These regional supply centresshould lead to lower inventory levels and enable the branch footprint to beutilised more effectively. US Building Materials Distribution The performance of Stock benefited from the improved market focus which wasbrought about by the recent business restructuring and from strong organicgrowth. However, the small benefit from higher average lumber prices was morethan offset by lower structural panel prices and the division was alsonegatively impacted by currency translation. Reported sales of the division, in sterling, grew by 10.0% to £2,248.9 million(2004: £2,043.7 million) despite an adverse currency impact of £109.5 million(5.4%). The division's trading profit was up by 25.9% at £130.9 million (2004:£104.0 million), after an adverse currency impact of £5.9 million (5.7%). Thedivisional trading margin, after the allocation of central costs, increased to5.8%, from 5.1% in the prior year. The trading margin for Stock, before theallocation of central costs, increased from 5.4% to exceed its target of 6.0%and return on gross capital employed was also substantially higher. In local currency, sales were up 16.3% to $4,163.7 million (2004: $3,581.0million) with trading profit up by 32.4% before central costs. Organic salesgrowth was 10.7%. Acquisitions added $199.3 million of sales. Commodity lumber prices, which directly affect approximately 33% of Stock'sproduct range, held up well. For the year, average lumber prices of $400 perthousand board feet were 6% up on the prior year average of $378 per thousandboard feet. Structural panel prices, however, which directly affect a further13% of Stock's product range, decreased by 19% to $403 per thousand square feet(2004: $496). Together, these commodity price movements had the effect ofreducing Stock's local currency sales by $16.4 million (0.5%) in the yearcompared to the prior year. Both lumber and structural panel prices are expectedto continue their recent trend downwards over the coming year towards their longterm averages of around $340 - $370 per thousand board feet and $325 perthousand square feet, respectively. New housing, which accounted for 84% (2004: 88%) of the activity in thisdivision, has generally continued to be a bright spot in the US economy.Aggregate housing starts during the period continued at a high level of aroundtwo million. In addition, the inventory of unsold new homes at 4 months in July2005, compared to the longer term average of around 6 months, furtherdemonstrates the overall strength of the housing market. Market share wasexpanded or maintained in nearly all major cities. There continues to besignificant variations in regional housing markets where Stock operates. Themarkets in Florida, the Carolinas, California, Washington DC and Boston havebeen strong, whereas Texas, Colorado, and the Midwest have been morechallenging. Stock's plans to increase the range of value-added products and services beingoffered and to increase the penetration of the RMI market, continue to beimplemented. As well as achieving this through its existing branch network,Stock's acquisition of Vegas General Construction ("Vegas") also contributed.Vegas is a turnkey supplier of construction materials and services to theresidential builder in the large, Las Vegas, housing market and gives Stockadditional installed service expertise. Overall, value-added sales in Stock wereup 25% on the previous year and, included within this figure, installed businesssales rose around 50%. Stock's branch numbers increased by 19 during the year to 255 locations (2004:236). Acquisitions provided entry to three states (Connecticut, New Mexico andNevada). Stock now operates in 30 states in total (2004: 27). International Integration and Infrastructure Developments The creation, with effect from 1 August 2005, of the North American managementteam will facilitate a closer relationship across the businesses, develop anduse a common infrastructure, create synergies and drive future growth. In support of the Group's ambitious growth targets and as part of its continuousimprovement programme, Wolseley is bringing about greater cohesion across itsoperating units through leveraging its international purchasing, internationalsourcing and supply chain efficiencies. To achieve this, the Group continues tomake investments in its infrastructure in terms of people, systems andlogistics. Employee numbers increased from 50,000 to 60,000 during the course of the year.Work on the common IT platform continues. The financial management system, whichwill generate financial data in a common and consistent format across the Group,is now live at Wolseley Canada, Wolseley UK and Stock, with the remainingcompanies scheduled to follow in the next six months. A number of other commonapplications are being developed and piloted including packages for warehousemanagement, human resources, budgeting, customer relationship management andbusiness intelligence. Significant benefits are expected to arise over the next few years from theGroup's continuous improvement programmes enabled by the common technologyplatform. Through its investments today, the Group is committed to creating asustainable competitive advantage to meet customers' changing needs. This willbe built around strong human resources, supported by efficient processes andtechnology driven supply chain management and logistics. Financial Review Net interest payable of £29.6 million (2004: £21.1 million) reflects an increasein Group debt as a result of acquisitions and an increase in interest rates,partly offset by strong cashflow. Net interest receivable on construction loansamounted to £8.7 million (2004: £8.7 million). Interest cover was 23 times(2004: 27 times). The effective tax rate reduced marginally from 27.1% to 27.0%. On a UK GAAPbasis, it is expected that this rate would have remained unchanged for the yearto 31 July 2006. However, the 2006 financial statements will be reported inaccordance with International Financial Reporting Standards ("IFRS"). Furtherguidance will be provided on the likely tax rate on an IFRS basis at theannouncement, referred to below, on 22 November 2005. Before goodwill amortisation, earnings per share increased by 14.8% from 74.84pence to 85.93 pence. Basic (FRS 3) earnings per share were up by 15.2% to 78.53pence (2004: 68.15 pence). The average number of shares in issue during the yearwas 587.2 million (2004: 582.6 million). Net cash flow from operating activities increased from £325.2 million to £763.6million, due to higher operating profit and an improved working capitalperformance. Capital expenditure increased by £84.0 million (54.2%) on the prior year to£238.9 million (2004: £154.9 million) reflecting continued investment in thebusiness. During the period the DC and branch network in the USA was expanded,investment continued in the new head offices in the UK and France and furtherexpenditure was incurred on the common IT platform. Cash received on the sale of fixed assets increased from £19.3 million to £73.9million, primarily due to the sale of properties acquired as part of the Brooksacquisition. Acquisition spend during the period, including any deferred consideration anddebt, amounted to £430.6 million (2004: £123.5 million). In a full year theseacquisitions are expected to add over £770 million in sales. There have been 5additional acquisitions, for a combined consideration of £21.3 million, since 31July 2005. Further details regarding acquisitions are included in note 7. The Group's branch network has been extended through acquisitions and branchopenings by a net total of 283, bringing the total to 3,920 at 31 July 2005(2004: 3,637). Net borrowings, excluding construction loan borrowings, at 31 July 2005 amountedto £1,143.5 million compared to £941.4 million at 31 July 2004, giving gearingof 49.6% compared to 49.5% at the previous year-end and down from 55.1% at thehalf year. Construction loan receivables, financed by an equivalent amount of constructionloan borrowings, were £263.9 million compared to £187.7 million at 31 July 2004.The increase is due to an expanding loan book partly offset by the weaker USdollar. New markets entered include Fredericksburg, Virginia and San Antonio,Texas along with new locations in Salt Lake City, Utah and Greenville/Spartanburg, South Carolina. The Group's employee benefit trusts purchased two million shares for £18.6million during the period in order to allow greater flexibility in thesettlement of long term employee incentives. Return on gross capital employed increased strongly from 18.4% to 19.1% as aresult of the significant organic growth in profit and the improved workingcapital performance. Provisions for liabilities and charges (note 6) in the balance sheet include theestimated liability for asbestos claims on a discounted basis. This liabilityhas been determined as at 31 July 2005 by independent professional actuarialadvisors. The asbestos related litigation is fully covered by insurance andaccordingly an equivalent insurance receivable has been included in debtors. Thelevel of insurance cover available significantly exceeds the expected level offuture claims and no profit or cash flow impact is therefore expected to arisein the foreseeable future. There were 235 (2004: 308) claims outstanding at theyear end. Final Dividend The board is recommending a final dividend of 17.6 pence per share (2004: 16.0pence per share) to be paid on 30 November 2005 to shareholders registered on 7October 2005. The total dividend for the year of 26.4 pence per share is anincrease of 10.9% on last year's 23.8 pence. Dividend cover is 2.9 times. Theincrease in dividend for the year reflects the Board's confidence in the futureprospects of the group and its strong financial position. The dividendreinvestment plan will continue to be available to eligible shareholders. Board Changes In a separate announcement today, the Company has announced that following Charlie Banks' retirement on 31 July 2006, Chip Hornsby will take over as Group Chief Executive. A replacement for Chip as Chief Executive North America will be announced in due course. John Stegeman, currently Chief Operating Officer of Ferguson, is named as its new President and Chief Executive Officer, with immediate effect. International Accounting Standards Under current European legislation the Group is required to adopt InternationalFinancial Reporting Standards ('IFRS') and International Accounting Standards('IAS') in the preparation of its financial statements from 1 August 2005onwards. The announcement on 18 July 2005 restating the financial results forsix months to 31 January 2005 under IFRS (available on the Wolseley plc websitewww.wolseley.com), showed that there was no significant impact on the Group'sfinancial position as a consequence of the accounting rule changes in relationto the half year. The results announced today for the year to 31 July 2005 willbe restated under IFRS and released on 22 November 2005. Outlook Market conditions in North America are expected to remain favourable for atleast the remainder of this calendar year and should enable the Group's NorthAmerican businesses to achieve further good progress. It is expected that the US housing market will remain strong although the numberof housing starts may reduce as a result of higher interest rates. The positiveRMI market is expected to continue and the strong US economy should presentfurther opportunities for organic growth. The improvement in the industrial andcommercial sectors is expected to continue. The upward trend in the performanceof the US Building Materials business should continue as further benefits of itsmarket focus and restructuring are realised, although some deterioration inlumber and structural panel prices is anticipated. In Canada, the overall environment is expected to remain positive although thenew residential housing market may fall slightly from recent high levels. In the UK, the private RMI and housing markets are expected to show modestgrowth. Positive trends in government spending, particularly in social housing,health and education, are also anticipated. In view of current consumer caution,the year is likely to prove more challenging but, overall, the UK businessshould show gains in market share and growth for the year as a whole. In France, growth in the RMI market is likely to remain modest. PBM shouldcontinue its upward trend and both PBM and Brossette, following recentinitiatives to improve performance, should see some benefit from the strong butslowing housing market and progress in the coming year. Whilst the markets in the rest of Continental Europe are likely to remainbroadly flat, Wolseley's operations are expected to continue the generally goodprogress achieved this year. There are a number of business improvement initiatives in place relating tosupply chain, sourcing and procurement that should deliver increasing benefitsto the bottom line. The Group will continue to pursue its objective ofachieving, on average, double-digit sales and profit improvements through acombination of organic growth and acquisitions, in new and existing countries. The Board expects another year of good progress. Certain information included in this release is forward-looking and involvesrisks and uncertainties that could cause actual results to differ materiallyfrom those expressed or implied by the forward looking statements.Forward-looking statements include, without limitation, projections relating toresults of operations and financial conditions and the Company's plans andobjectives for future operations, including, without limitation, discussions ofexpected future revenues, financing plans and expected expenditures anddivestments. All forward-looking statements in this release are based uponinformation known to the Company on the date of this report. The Companyundertakes no obligation to publicly update or revise any forward-lookingstatement, whether as a result of new information, future events or otherwise. It is not reasonably possible to itemise all of the many factors and specificevents that could cause the Company's forward looking statements to be incorrector that could otherwise have a material adverse effect on the future operationsor results of an international Group such as Wolseley. Information on somefactors which could result in material difference to the results is available inthe Company's SEC filings, including, without limitation, the Company's Reporton Form 20-F for the year ended 31 July 2004. FINANCIAL CALENDAR FOR 2005/2006 2005 5 October - Shares quoted ex-dividend7 October - Record date for final dividend9 November - Final date for DRIP elections17 November - Annual General Meeting22 November - Announcement of 2005 results restated under IFRS30 November - Final dividend payment date 2006 23 January - Trading update21 March - Interim Results for six months to 31 January 200629 March(*) - Shares quoted ex-dividend31 March(*) - Record date for final dividend31 May(*) - Interim dividend payment date17 July(*) - Trading update for 11 months to 30 June 200631 July - Financial year end25 September - Announcement of Preliminary results (*) expected A copy of this Preliminary Announcement, together with other recent publicannouncements can be found on Wolseley's web site at www.wolseley.com. Copies of the Preliminary Results' presentation given to stockbrokers' analysts are also available on this site. GROUP PROFIT AND LOSS ACCOUNT --------- --------- Year ended Year ended 31 July 2005 31 July 2004 --------- --------- £m £mTurnover (note 3)Continuing operations 10,875.0 10,128.1Acquisitions 382.7 - --------- --------- 11,257.7 10,128.1 ========= ========= Operating profit before goodwill amortisation(note 4) 720.8 619.2 Goodwill amortisation (43.4) (39.0) Operating profit --------- ---------Continuing operations 659.6 580.2Acquisitions 17.8 - --------- --------- 677.4 580.2 --------- --------- --------- ---------Profit on ordinary activities before interest 677.4 580.2 Net interest payable (29.6) (21.1) --------- ---------Profit on ordinary activities before tax 647.8 559.1 Taxation (note 5) --------- ---------Current tax charge (141.8) (153.0)Deferred tax charge (44.8) (9.1) --------- --------- (186.6) (162.1) --------- ---------Profit after tax (attributable to ordinaryshareholders) 461.2 397.0 Dividends (155.7) (139.1) --------- ---------Profit retained 305.5 257.9 ========= ========= Earnings per shareBefore goodwill amortisation 85.93p 74.84pGoodwill amortisation (7.40)p (6.69)p --------- ---------Basic earnings per share 78.53p 68.15p --------- --------- Diluted earnings per share 77.71p 67.36p Dividends per share 26.40p 23.80p Translation ratesUS dollars 1.8514 1.7522Euro 1.4587 1.4635 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES --------- --------- Year ended Year ended 31 July 2005 31 July 2004 --------- --------- £m £m Profit for the period 461.2 397.0 -------Currency translation differences (net of tax) 85.4 (147.2) --------- ---------Total gains and losses recognised during theyear 546.6 249.8 ========= ========= GROUP BALANCE SHEET --------- --------- As at As at 31 July 2005 31 July 2004 --------- --------- £m £mFIXED ASSETS Intangible assets 866.1 665.9Tangible assets 919.5 719.0 --------- --------- 1,785.6 1,384.9 --------- --------- CURRENT ASSETS Stocks 1,705.0 1,501.8Debtors and property awaiting disposal 2,275.5 1,964.5Construction loans receivable (secured) 263.9 187.7Investments 4.8 6.2Cash at bank, in hand and on deposit 381.1 291.3 --------- --------- 4,630.3 3,951.5 --------- ---------CREDITORS: amounts falling due within one year Bank loans, overdrafts and other loans 440.9 384.0Construction loan borrowings (unsecured) 263.9 187.7Corporation tax 70.3 152.5Proposed dividend 103.9 93.6Other creditors 1,924.7 1,605.1 --------- --------- 2,803.7 2,422.9 --------- ---------NET CURRENT ASSETS 1,826.6 1,528.6 --------- ---------TOTAL ASSETS LESS CURRENT LIABILITIES 3,612.2 2,913.5 --------- --------- CREDITORS: amounts falling due after one year Borrowings 1,088.5 854.9Other creditors 18.0 -PROVISIONS FOR LIABILITIES AND CHARGES (note 6) 198.8 156.7 --------- --------- 1,305.3 1,011.6 --------- --------- 2,306.9 1,901.9 ========= =========CAPITAL AND RESERVES Called up share capital 148.0 146.3Share premium account 241.3 199.9Profit and loss account 1,917.6 1,555.7 --------- --------- SHAREHOLDERS' FUNDS 2,306.9 1,901.9 ========= ========= Translation rates: 1.7564 1.8198US Dollars 1.4479 1.5144Euro SUMMARISED GROUP CASH FLOW STATEMENT Year ended Year ended 31 July 2005 31 July 2004 ------------ ------------ £m £m CASH FLOW FROM OPERATING ACTIVITIES* 763.6 325.2 Returns on investments and servicing of finance (30.1) (13.4) Taxation paid (150.7) (128.1) Capital expenditure and financial investment (238.9) (154.9) Proceeds from disposal of fixed assets 73.9 19.3 Acquisitions (405.5) (123.5) Disposals 4.5 - Equity dividends paid (145.4) (136.0) Financing - Issue of shares 32.7 17.0 Purchase of shares by Employee Benefit Trusts (18.6) - --------- --------- CHANGE IN NET DEBT RESULTING FROM CASH FLOWS (114.5) (194.4) New finance leases and finance leases acquiredwith subsidiary (24.9) (5.3) Translation difference (62.7) 85.0 --------- --------- Movement in net debt in period (202.1) (114.7) Opening net debt (941.4) (826.7) --------- ---------Closing net debt (1,143.5) (941.4) ========= ========= * RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS --------- --------- Year ended Year ended 31 July 2005 31 July 2004 --------- --------- £m £m ---------Operating profit 677.4 580.2 Depreciation charge 113.7 107.7 (Profit)/loss on fixed asset disposals (11.1) 0.2 Goodwill amortisation 43.4 39.0 Increase in stocks (54.2) (274.3) Increase in debtors (181.6) (236.3) Increase in creditors & provisions 176.0 108.6 Increase in net construction loans - 0.1 --------- ---------Net cash flow from operating activities 763.6 325.2 ========= ========= NOTES TO THE PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JULY 2005 1 The preliminary results for the year ended 31 July 2005 have been prepared on the basis of the accounting policies set out in the Group's 2005 Annual Report and Accounts. 2 The preliminary results have been extracted from the Group's full accounts for the years ended 31 July 2004 and 31 July 2005. Statutory accounts for 2004 have been delivered to the Registrar of Companies, and those for 2005 will be delivered following the Annual General Meeting. 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. 3 Analysis of change in sales Acquisitions --------------- 2004 Exchange New Increment 2005 2004 Organic Change 2005 ---------------- £m £m £m £m £m % £mEuropean 4,248.0 9.1 211.4 54.3 115.6 2.7 4,638.4Distribution North American 3,836.4 (172.5) 120.9 49.9 535.7 14.6 4,370.4Plumbing &HeatingDistribution US BuildingMaterialsDistribution 2,043.7 (109.5) 50.4 57.2 207.1 10.7 2,248.9 ------ ------- ------- ------- ------ ------ ------ 10,128.1 (272.9) 382.7 161.4 858.4 8.7 11,257.7 ------ ------- ------- ------- ------ ------ ------ Organic change is the total increase or decrease in the year adjusted for theimpact of exchange, new acquisitions in 2005 and the incremental impact ofacquisitions in 2004. 4 Analysis of change in operating profit before goodwill amortisation Acquisitions --------------- 2004 Exchange New Increment 2005 2004 Organic Change 2005 ---------------- £m £m £m £m £m % £m European 263.2 0.3 9.6 4.5 15.8 6.0 293.4Distribution North AmericanPlumbing &HeatingDistribution 252.0 (11.6) 6.4 4.0 45.7 19.0 296.5 US BuildingMaterialsDistribution 104.0 (5.9) 5.3 3.6 23.9 24.4 130.9 ------ ------- ------- ------- ------ ------ ------ 619.2 (17.2) 21.3 12.1 85.4 14.2 720.8 ------ ------- ------- ------- ------ ------ ------ Goodwill amortisation attributable to the above segments is EuropeanDistribution: £23.0 million (2004: £20.3 million); North American Plumbing &Heating Distribution: £12.6 million (2004: £11.9 million); US Building MaterialsDistribution: £7.8 million (2004: £6.8 million). 5. Taxation --------- ---------- Year ended Year ended 31 July 2005 31 July 2004 --------- ---------- £m £m UK current year tax charge 42.2 191.3- Less: double tax relief (0.9) (161.6) --------- ---------- 41.3 29.7- UK prior year (3.3) (2.2) --------- ----------Total UK tax charge 38.0 27.5 --------- ----------Overseas current year tax charge 108.6 125.6Overseas prior year (4.8) (0.1) --------- ----------Total overseas tax charge 103.8 125.5 --------- ----------Total current tax 141.8 153.0Deferred tax charge 44.8 9.1 --------- ----------Total tax charge 186.6 162.1 ========= ========== 6. Provisions for Liabilities and Charges --------- ---------- As at As at 31 July 2005 31 July 2004 --------- ---------- £m £mPensions 49.0 48.0Wolseley Insurance 35.0 33.4Environmental & Legal 33.2 29.4Deferred Taxation 70.4 31.0Other 11.2 14.9 --------- ---------- 198.8 156.7 ========= ========== Environmental and legal liabilities include known and potential legal claims andenvironmental liabilities arising from past events where it is probable that apayment will be made and the amount of such payment can be reasonably estimated.Included in this provision is an amount of £31.7 million (2004: £27.9 million)related to asbestos litigation involving certain group companies. This liabilityis fully covered by insurance and accordingly an equivalent insurance receivablehas been recorded in debtors in line with FRS 12 'Provisions, contingencies andcontingent assets'. The liability has been determined as at 31 July 2005 byindependent professional actuarial advisors. The provision and the relatedreceivable have been stated on a discounted basis using a long term US treasuryrate of 4.5% (2004: 5%). The level of insurance cover available significantlyexceeds the expected level of future claims and no profit or cash flow impact istherefore expected to arise in the foreseeable future. 7 Acquisitions The following table summarises the acquisitions made during the year. In certaincases the consideration is deferred or subject to adjustment and includes netborrowings acquired. Division Expected Consideration full year including net contribution to debt turnover ------------- --------------- £m £mEuropeanDistribution 171.4 236.9North AmericanPlumbing &HeatingDistribution 100.1 251.7US BuildingMaterialsDistribution 159.1 283.3 --------- ---------- 430.6 771.9 ========= ========== Since the year end, there have been a further 5 acquisitions in North AmericanPlumbing & Heating Distribution division, for a combined consideration of £21.3million. In a full year these acquisitions are expected to add around £50million in additional sales. 8 Pensions and post-retirement benefits The following table sets out the funding position of the defined benefitspension schemes operated by the group and the adjustment to net assets requiredwere the Group to apply FRS17 instead of its current reporting under SSAP24. As at As at 31 July 2005 31 July 2004 --------- ---------- £m £m --------- ----------Market value of pension liabilities 704.4 582.6Market value of pension assets (513.7) (399.7) --------- ---------- 190.7 182.9 --------- ----------Pension provisions under current UK GAAP (49.0) (48.0)Deferred tax asset (44.3) (40.8) --------- ----------FRS 17 reduction in net assets 97.4 94.1 ========= ========== - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ferguson