21st Mar 2005 07:03
Wolseley PLC21 March 2005 NEWS RELEASE21 March 2005 Wolseley plc Unaudited Interim Results for the half year ended 31 January 2005 Wolseley plc announces a ninth set of record first half results Summary of Results Financial highlights Change -------------------- Half year to Half year to Reported In constant 31 January 31 January currency 2005 2004 £m £m % %----------------------------------------------------------------------------- Group sales 5,331.9 4,828.3 +10.4 +16.5----------------------------------------------------------------------------- Group trading profit 322.3 257.1 +25.4 +32.6 (1) Group operating 301.5 237.9 +26.7 +34.1 profit ----------------------------------------------------------------------------- Group profit before 308.0 245.5 +25.5 +32.9 tax, before goodwill amortisation Group profit before 287.2 226.3 +26.9 +34.6 tax ----------------------------------------------------------------------------- Earnings per share, 38.40p 30.44p +26.1 +33.7 before goodwill amortisation Basic earnings per 34.86p 27.15p +28.4 +36.3 share ----------------------------------------------------------------------------- • As reported, in sterling (after currency translation effect):- - Group trading margin(1) increased from 5.3% to 6.0% - Strong operating cash flow of £300.7 million (2004: £99.4 million) - Interim dividend increased by 12.8% to 8.80 pence per share (2004: 7.80 pence) - Strong financial position with gearing(2) of 55.1% (2004: 53.9%) and interest cover of 21.1 times (2004: 20.5 times) - Return on gross capital employed increased from 16.7% to 19.4%. (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(2) Gearing ratio is the ratio of net borrowings, excluding construction loanborrowings, to shareholders' funds. Operating highlights • Constant currency organic sales growth of 11.2% across the Group with double-digit increases in Ferguson (17.0%), Stock Building Supply (15.1%) and Wolseley Canada (11.2%). Wolseley UK organic sales growth up 7.7%, well ahead of the market. • Improvement in trading margin achieved across all three divisions: o Ferguson achieved its highest ever trading margin of 7.4%, well ahead of the original target of 6% for this year and up from 6.1% in the first half of 2004; o Wolseley UK increased from 6.7% to 7.0%; o Stock Building Supply up from 4.7% to 5.5%. • Significant improvement in performance from: o Ferguson due to strong organic growth and continued supply chain efficiencies; o Stock Building Supply resulting from enhanced market focus, restructuring and higher lumber prices; o PBM outperforming profit expectations. • Total consideration of £217.8 million for 13 acquisitions completed in the first six months should generate around £354 million per annum of incremental sales in a full year. •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 network in the USA, continued investment in new head offices in France and the UK and further progress in developing the common IT platform. •New North American management structure announced to create synergies and additional growth opportunities across the Group's three North American businesses. Outlook •Overall, market conditions in North America and the UK are expected to remain favourable for the remainder of this financial year and should enable the Group to achieve further good progress, although there is likely to be a lower rate of growth in the second half of 2005 due to the stronger comparatives and the likely absence of further significant commodity price inflation. •The strong North American economies should present further opportunities for organic growth. The housing markets are likely to remain strong; the positive repairs, maintenance and improvement ("RMI") market is expected to continue and the industrial and commercial markets should show further progress. •In the UK, the RMI market will continue to be the main driver of growth with benefits arising from a strong economy and further government spending. •In France, some benefit should arise from the stronger new housing market in the second half but growth in the RMI market is likely to remain modest. •In the rest of Continental Europe, the Group expects a continuation of the general pattern seen in the first half of broadly flat markets but improved sales and profits. •The Group is well placed to take advantage of the favourable market conditions in its key trading markets and will continue to pursue its objective of achieving double-digit sales and profit growth through implementing business improvement initiatives. SUMMARY OF RESULTS As at, and for the six months ended 31 January 2005 2004 Change Sales £5,331.9m £4,828.3m 10.4% Operating profit- before goodwillamortisation £322.3m £257.1m 25.4%- goodwill £(20.8)m £(19.2)mamortisation Operating profit £301.5m £237.9m 26.7%Interest £(14.3)m £(11.6)m Profit before tax- before goodwillamortisation £308.0m £245.5m 25.5%- goodwill £(20.8)m £(19.2)mamortisation Profit before tax £287.2m £226.3m 26.9% Earnings per share- before goodwillamortisation 38.40p 30.44p 26.1%- goodwill (3.54)p (3.29)pamortisation Basic earnings pershare 34.86p 27.15p 28.4% Dividend per share 8.80p 7.80p 12.8% Net borrowings £1,115.6m £947.2m Gearing 55.1% 53.9% Interest cover 21.1 20.5(times) Operating cash flow £300.7m £99.4m Charles Banks, Wolseley plc Group Chief Executive said: "We are delighted to report record half-year results for the ninth consecutivetime. Overall, sales increased by more than 10% and trading profit was up morethan 25%, with strong improvements being achieved by each of the threedivisions. We are continuing to invest significantly in further improving oursupply chain, sourcing and procurement to deliver growth and enhanced returns.The business is performing well and the economic outlook for the rest of theyear gives us confidence going forward." ENQUIRIES: Wolseley plc BrunswickTel: 0118 929 8700 Tel: 020 7404 5959Guy Stainer - Head of Investor Relations Andrew Fenwick Nina Coad---------------------------------------- ---------------------- An interview with Charles Banks, Group Chief Executive and Steve Webster, GroupFinance Director, in video/audio and text will be available from 0700 (GMT) onwww.wolseley.com and www.cantos.com There will be an analyst and investor meeting at 0930 (GMT) at UBS PresentationCentre, 1 Finsbury Avenue, London EC2. A live audio cast and slide presentationof this event will be available at 0930 (GMT) on www.wolseley.com There will be a conference call at 1500 (GMT):UK/European dial-in number: +44 (0) 20 7162 0181US toll free dial-in number: +1 334 323 6203 The call will be recorded and available for playback until 4 April 2005 on thefollowing numbers: UK/European replay dial-in number: +44 (0) 20 7031 4064 Pin: 647885UK freephone number: 0800 358 1860North American replay dial-in number: +1 954 334 0342 Pin: 647885 NEWS RELEASE21 March 2005 Wolseley plc Unaudited Interim Results for the half year ended 31 January 2005 Wolseley plc announces a ninth set of record first half results Announcement of Interim Results Wolseley, the world's largest specialist trade distributor of plumbing andheating products and a leading supplier of building materials to professionalcontractors, is pleased to announce another set of record first half results,the ninth consecutive improvement in interim figures. These results reflectstrong organic growth and increased operational efficiency. Wolseley's US businesses performed particularly strongly in the first six monthsof the year. Ferguson achieved organic sales growth of 17.0%, including thebeneficial effects of commodity price inflation, and Stock Building Supply("Stock") increased organic sales by 15.1% as a result of its improved marketfocus, restructuring and higher lumber prices. The businesses in the UK, Canada,the Netherlands, Italy and Luxembourg also performed well in their respectivemarkets. Trading margin improvements were achieved in all three divisions withthe Group trading margin up from 5.3% in the first half of 2004 to 6.0% in thefirst half of this financial year. On a constant currency basis, Group sales increased by 16.5% and trading profitby 32.6% for the first six months compared to the previous comparable period.Currency translation reduced Group sales by £249.8 million (5.2%) and Grouptrading profit by £14.1 million (5.5%) in the six month period. After taking account of currency translation, Group sales increased by 10.4%from £4,828.3 million to £5,331.9 million. Trading profit rose by 25.4% from£257.1 million to £322.3 million. After deducting goodwill amortisation of £20.8million (2004: £19.2 million), operating profit increased by 26.7% from £237.9million to £301.5 million. Net interest payable was £14.3 million (2004: £11.6 million), reflectingacquisition spending and higher working capital required to support strongorganic growth, notably in the USA. Interest cover was 21.1 times (2004: 20.5times). Profit before tax and goodwill amortisation increased by 25.5% from £245.5million to £308.0 million. Profit before tax after goodwill amortisationincreased by 26.9% from £226.3 million to £287.2 million. The increase inearnings per share before goodwill amortisation was 26.1%, from 30.44 pence to38.40 pence. Basic earnings per share was up 28.4%, from 27.15 pence to 34.86pence. European Distribution The results in the European Distribution division benefited from another strongperformance by Wolseley UK and PBM and underlying profit improvements in almostall of the other European businesses. Reported sales for this division increased by 11.2% from £2,028.0 million to£2,255.0 million, of which 5.3% was from organic growth. Recent acquisitionsaccounted for £132.5 million (6.5%) of sales, including Tobler (Switzerland) inDecember 2003 together with Brooks (Ireland) and Klockner (Austria) in August2004. Trading profit rose by 18.2% from £107.8 million to £127.4 million. Wolseley UK, PBM in France and the businesses in Austria (OAG), Czech Republic(Cesaro), Hungary (Mart), the Netherlands (Wasco), Luxembourg (CFM) and Denmark(Electro Oil), all increased their trading margin. These improvementscontributed to the overall divisional trading margin increasing to 5.6% of sales(2004: 5.3% of sales). In the first six months a further net 67 branches were added to the Europeannetwork, giving a total of 2,460 locations (31 July 2004: 2,393). UK and Ireland The UK has been the most positive of the Group's European markets in the firsthalf, with demand in the RMI sector together with social housing remainingstrong. The commercial sector, including government spending, and the industrialmarkets are showing signs of improvement. Against the background of slowing newresidential construction, Wolseley UK recorded a 13.6% increase in sales to£1,156.7 million (2004: £1,018.4 million). Organic growth at 7.7% outperformedthe market. Wolseley UK's gross margin improved slightly in the first halfcompared to the same period last year. Brooks, the Ireland based timber andbuilders merchant, also traded well, ahead of expectations. As a result of the high rate of organic growth and continued strong costcontrol, Wolseley UK's trading profit increased by more than 15% in the firsthalf compared to the prior year period. The trading margin improved from 6.7% to7.0%. This was achieved despite the major reorganisation in the UK which is ontrack to complete by September 2005. As previously announced, the second half trading margin will reflect higherpension, restructuring and rebranding costs, and also the initial costs of theinvestment in the new national and regional distribution centres. The newnational distribution centre in Leamington Spa is expected to be operationalwithin 18 months and the regional distribution centre, in the North West, shouldopen around a year thereafter. This investment and the current initiatives tocentralise control of transport and branch inventory management, should supportcontinued growth in the business and enhance customer service and lead toimproved margins. During the first six months, 31 net new locations were added taking the totalnumber of branches for Wolseley UK (including Ireland) to 1,544 (31 July 2004:1,513), including 18 branches added as a result of the Brooks acquisition. France In France, government tax incentives are helping the new residential market.RMI, the principal driver of both Brossette and PBM, continues to show limitedgrowth against the background of little growth in the overall economy andcontinued high levels of unemployment. Wolseley's French operations generated first half sales up 2.9% at £783.9million compared to £762.0 million in the prior year. Local currency sales in Brossette were 1.2% up on the first half last year andtrading profit up 1.3%. The results reflect some short term disruption followingthe recent reorganisation of the district, branch and management structures.Brossette has made a number of management changes, is consolidating around anational product range and is adopting centralised purchasing. Plans are beingdeveloped for a new regional distribution centre network to enhance customerservice and facilitate future expansion. PBM outperformed the Group's expectations with local currency sales up 6.6% andtrading profit up 9.7%. It remains on track to achieve its return target of16.7% by the year ending 31 July 2006. Work continues between PBM and the other Group operating businesses to sharebest practice, seek common supplier arrangements and develop the branch network,for example, through joint sites with Brossette and through the launch of HireCenters, based on the UK model. Good progress continues to be made on improvingworking capital efficiency. Rest of Europe The Group's other Continental European operations enjoyed generally good resultsin uninspiring markets. OAG in Austria performed well and together with the acquisition of Klocknerachieved an increase in trading profit of more than 30%. This was achievedagainst a backdrop of difficult housing and RMI markets where volumes and pricesremained under pressure. In Hungary and the Czech Republic local marketconditions remained difficult but both businesses improved sales and tradingprofit. In Italy, Manzardo's organic growth and recent new branch openings helpedincrease sales by almost 8% despite a weak economy and a fall, in real terms, inthe overall construction and renovation markets. Trading profit for the firsthalf was broadly flat compared to the prior year. The acquisition of Iser Zauliin January 2005 is trading in line with expectations. This acquisition makesManzardo the third largest company in the Italian sanitary/heating market. In Luxembourg, CFM continued to benefit from a number of larger orders in thecommercial sector with steel related products contributing strongly. CFMincreased sales by more than 7% and trading profit by more than 15%. The difficult economy in The Netherlands continued to affect the constructionand new housing markets but, despite this, Wasco made good progress expandingits product range and developing its offering to the more profitable RMI market.Wasco's sales were up by more than 8% and trading profit up by 50%. Tobler, in Switzerland, continued to perform in line with expectations despitecompetitive market conditions putting pressure on prices. The division has made further progress during the first half in implementing itsstrategy to manage the businesses in a more integrated way across Europe. Anumber of initiatives are under way to share best practice across operatingcompanies in areas such as branch format and product/service offerings and toidentify European suppliers who will work with Wolseley to remove costs from thesupply chain. These initiatives will enable the Group to benefit fromcross-border synergies and should ensure it maximises available growthopportunities. North American Plumbing and Heating Distribution The performance of the North American Plumbing and Heating division wasparticularly impressive with strong increases in sales and profits andachievement of the highest ever trading margin. Reported sales of the division, in sterling, were up 10.0% from £1,835.1 millionto £2,018.6 million despite the adverse impact of currency translation. Tradingprofit increased by 31.3% from £106.7 million to £140.1 million. Currencytranslation reduced divisional sales by £149.9 million (8.2%) and trading profitby £9.3 million (8.7%). There was a net increase of 55 branches in North American Plumbing and HeatingDistribution from 1,008 at 31 July 2004 to 1,063 locations at 31 January 2005. Ferguson In the USA, Ferguson produced an outstanding performance generating strongorganic growth, driving further efficiencies from its distribution centrenetwork and benefiting from commodity price inflation. These factors contributedto significant market outperformance in the first half. Local currency sales in the US plumbing operations rose by 20.9% to $3,287.1million (2004: $2,719.6 million) with trading profit up by 45.4%. Organic salesgrowth was 17.0%, and included the beneficial effects of price inflation inproducts such as copper, steel and plastics. Such effects are unlikely tocontinue at the same rate into the second half due to the generally higher levelof commodity prices in the second half of 2004. Around $12 - $15 million (16 to20%) of the organic increase in trading profit was commodity price driven, withthe remainder reflecting an increase in the gross margin as a result ofcontinuing benefits from the distribution centre network, a focus on organicgrowth and operational leverage. The trading margin, at 7.4%, was significantlyahead of the prior year's first half margin of 6.1%. Volumes through the distribution centre ("DC") network grew by 46% in the firsthalf compared to the first half last year and 48% of branch sales now go throughthe DC network. Further investment continues in the DCs and in the first half anadditional 500,000 square feet of capacity was added through the expansion andrelocation of two of Ferguson's existing DCs. In the second half the networkwill be boosted further with the expansion of another DC and the opening ofFerguson's eighth DC, a brand new 600,000 square feet facility in Waterloo,Iowa. Following last year's very successful pilot of five small ("XpressNet")branches, the roll-out programme of more than 50 new locations to be opened inthe year to 31 July 2005 is on track, with 15 branches opened in the first sixmonths. Of the sectors in which Ferguson operates, housing related activity held up welland the more positive economic environment benefited the RMI sector. RMI isbecoming an increasingly important element of overall construction spend in theUSA and, with the new express branch format being introduced, should lead tofurther growth opportunities. The commercial sector continued to improve,underpinned by increased government spending and although the industrial segmentcontinues to be the weakest, there have been early signs of an improvement inthis area. As reported in the Trading Update on 17 January 2005, with effect from 1 August2004 the recorded sales value in Ferguson's Integrated Supply Divisionrepresents the gross profit rather than the gross sales value which was recordedin the year to 31 July 2004. This change is the result of a review of revisedcontractual arrangements. The effect of this change in the first half, which hasno effect on profit, was to reduce sales by $102.0 million. There is a positiveimpact on the trading margin of Ferguson for the period of 0.2%. Wolseley Canada In Canada, the construction and housing markets remained strong with lowinterest 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% with 11.2% organic growth, ahead of themarket generally. Local currency trading profit rose by more than 17%. Investment in Wolseley Canada continues in order to support a growing business.More than 100 new posts were filled during the first half and investments weremade in 17 new mobile warehouses which are used primarily to supply plumbingproducts to commercial projects. The Company is also about to roll out the firstof a number of regional supply centres for larger items which should lead tolower inventory levels overall and enable the branch footprint to be utilisedmore effectively. US Building Materials Distribution The performance of Stock Building Supply benefited from the improved marketfocus which was brought about by the recent business restructuring, and fromstrong organic growth and higher lumber prices. However, the division wasnegatively impacted by lower structural panel prices and currency translation. Reported sales in sterling grew 9.6% to £1,058.3 million (2004: £965.2 million)despite an adverse currency impact of £86.8 million (9.0%). Trading profit wasup 28.6% at £54.8 million (2004: £42.6 million), despite an adverse currencyimpact of £4.1 million (9.6%). The divisional trading margin in the first half,after the allocation of central costs, increased to 5.2% from 4.4% in the sameperiod last year. A continuation of the improved trading performance is expectedin the second half. In local currency, sales were up 20.5% to $1,962.9 million (2004: $1,629.3million) with trading profit up by 39.2%. Organic sales growth was 15.1%including the beneficial effects of commodity price inflation. Acquisitionsadded $87.0 million of sales. Commodity lumber prices, which directly affect approximately 35% of Stock'sproduct range, held up well. For the six months, average lumber prices of $399per thousand board feet were 17% up on the prior comparable period average of$340 per thousand board feet. Structural panel prices, however, which directlyaffect a further 13% of Stock's product range, decreased by 15% to $401 perthousand square feet. These commodity price movements had the effect ofincreasing Stock's local currency sales by $66 million (4.0%) in the first halfcompared to the first half of last year. Although lumber prices are expected tohold up in coming months, structural panel prices remain above their long termaverage of around $325 per thousand square feet and may, therefore, continue totrend downwards. Recent management action to reorganise the business and improvemarket focus continues to have a beneficial effect helping to drive organicvolume growth of more than 10%. New housing, which accounted for 88% of the activity in this division in theyear to 31 July 2004, has generally continued to be a bright spot in the USeconomy. Aggregate housing starts during the period continued at a high annualrate of around two million. In addition, the inventory of unsold new homes at4.7 months in January 2005, compared to the longer term average of around 6months, further demonstrates the overall strength of the housing market. Therecontinues to be significant variations in regional housing markets where Stockoperates. The markets in California, Florida, Virginia and the Carolinas havebeen strong. Michigan, Ohio, Indiana, Wisconsin and Minnesota have been flat,while Atlanta and Texas have been more challenging. Plans to increase the range of value-added products and services being offeredand increase the penetration of the RMI market continue to make inroads, withvalue-added sales up 20% and installed business sales up more than 50% in thefirst half compared to the same period last year. Interim Dividend The Board has decided to pay an interim dividend of 8.80 pence per share (2004:7.80 pence per share) to be paid on 31 May 2005 to shareholders on the registeron 1 April 2005. This represents an increase of 12.8% on last year's interimdividend and reflects the Board's confidence in the future prospects of theGroup and its strong financial position. It is expected that the interimdividend will be one third of the total dividend for the year. The dividendreinvestment plan will continue to be available to eligible shareholders. North American Management Structure It was announced today that Chip Hornsby, currently Chief Executive of Ferguson,will take over the role of Chief Executive North America with effect from 1August 2005. He will put in place a management team to help him identify newgrowth opportunities across the Group's three North American businesses. International Integration and Infrastructure Developments 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. Common financial IT systems are currently being implemented across the Groupwith completion expected in the next 12 months. In addition, a number of othercommon applications are being developed and piloted. For example, a branchwarehouse management package is being piloted and is now being considered forrollout to other locations around the Group. 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 will bebuilt around strong human resources, supported by efficient processes,technology driven supply chain management and logistics. Financial Review Net interest payable of £14.3 million (2004: £11.6 million) reflects an increasein the interest payable on Group debt following an increase in working capitalprincipally in the USA and acquisitions. Interest cover was 21.1 times (2004:20.5 times). The effective tax rate of 27.0% for the half-year to 31 January 2005 isconsistent with the rate for the year to 31 July 2004. The Group's current viewis that the tax rate for the full year to 31 July 2005 is likely to remainunchanged but this will be reviewed once the Finance Act following the UKGovernment's Budget on 16 March 2005 is available. Before goodwill amortisation, earnings per share increased by 26.1% from 30.44pence to 38.40 pence. Basic earnings per share were up by 28.4% to 34.86 pence(2004: 27.15 pence). The average number of shares in issue during the first halfwas 585.5 million (2004: 581.1 million). Net cash flow from operating activities increased from £99.4 million to £300.7million, due to higher operating profit and an improved working capitalperformance. Capital expenditure increased by £37.8 million (52.6%) on the comparablehalf-year to £109.6 million (2004: £71.8 million) reflecting continuedinvestment in the business. During the period the DC network in the USA wasexpanded, investment continued in the new head offices in the UK and France andfurther expenditure was incurred on the common IT platform. Cash received on the sale of fixed assets increased from £3.2 million to £57.1million, primarily due to the sale of properties acquired as part of the Brooksacquisition. Acquisitions completed during the first half, including any deferredconsideration and net debt, amounted to £217.8 million (2004: £72.9 million).Two additional acquisitions, for a consideration of £5.0 million, have beencompleted since 31 January 2005. Further details regarding acquisitions areincluded in note 8. The Group's branch network during the first half has been extended throughacquisitions and branch openings by a net total of 122, bringing the total to3,759 (3,637 at 31 July 2004). Net borrowings, excluding construction loan borrowings, at 31 January 2005amounted to £1,115.6 million compared to £941.4 million at 31 July 2004, givinggearing of 55.1% compared to 49.5% at the previous year-end and 53.9% at 31January 2004. Construction loan receivables, financed by an equivalent amount of constructionloan borrowings, were £211.4 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. 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 employee share options. Return on gross capital employed increased strongly from 16.7% to 19.4%primarily as a result of the significant organic growth in profit. There has been no significant change concerning asbestos claims since theposition reported at 31 July 2004. The estimated liability, which is fullycovered by insurance, is not material to the Group's financial position.Insurance cover significantly exceeds the estimated liability and is a multiplethereof. There has been no profit and loss account charge in this, or any priorfinancial year, relating to asbestos claims and no such charge is expected toarise in the future. An update on the estimated liability and number of claimsoutstanding will be provided with the Group's Preliminary Results announcementon 26 September 2005. At 31 July 2004 there were 308 (2003: 484) claimsoutstanding. International Accounting Standards Under current European legislation the Group will be required to adoptInternational Financial Reporting Standards ('IFRS') and InternationalAccounting Standards ('IAS') in the preparation of its financial statements from1 August 2005 onwards. The project to manage the transition of financialreporting from UK GAAP to international accounting has completed an initialassessment of the impact on the accounts of the Group and work to ensure fullcompliance for the year ending 31 July 2006 is continuing. Based on the initial assessment, the areas of greatest impact for the Group arethe changes in respect of the accounting treatment for goodwill, intangibleassets, property leases, share based payments, pensions, deferred tax anddividends. On this basis, no significant net impact is expected on the Group'sfinancial statements. Further information will be made available at the time ofWolseley's next trading update on 18 July 2005. Outlook Overall, market conditions in North America and the UK are expected to remainfavourable for the remainder of this financial year and should enable the Groupto achieve further good progress, although there is likely to be a lower rate ofgrowth in the second half of 2005 due to the stronger comparatives and thelikely absence of further significant commodity price inflation. In the UK, the RMI market should continue to be the main driver of growth withbenefits arising from a relatively strong economy and further governmentspending, particularly in social housing. Whilst there are risks that consumersentiment may soften over the remainder of the financial year, Wolseley UK hasmaintained its level of organic growth, so far, in the second half. In France, the strong new housing market should have some positive impact onboth PBM and Brossette but growth in the RMI market is likely to remain modest.PBM should continue the upward momentum of the first half and Brossette,following recent initiatives to improve performance, should see some progress inthe second half. In the rest of Continental Europe the Group's principal markets are likely toremain broadly flat but the Group expects a continuation of the general patternin the first half of improved sales and profits. It is expected that the US housing market will remain strong. The positive RMImarket is expected to continue and the strong US economy should present furtheropportunities for organic growth. The improvement in the commercial sector isexpected to continue and there are the early signs of a pick up in someindustrial markets. In Canada, the overall environment is expected to remain positive although thenew residential housing market may fall slightly from the very high levels of2004. The Group is well placed to take advantage of the favourable market conditionsin its key trading markets. Additional investment in a number of businessimprovement initiatives for achieving improved supply chain, sourcing andprocurement should deliver increasing benefits. The Group will continue topursue its objective of achieving double-digit sales and profit growth through acombination of organic and acquisition growth. ------------------------------------------------------------------------------- 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 forward looking statements. Forward-lookingstatements include, without limitation, projections relating to results ofoperations and financial conditions and the Company's plans and objectives forfuture operations, including, without limitation, discussions of expected futurerevenues, financing plans and expected expenditures and divestments. Allforward-looking statements in this release are based upon information known tothe Company on the date of this report. The Company undertakes no obligation topublicly update or revise any forward-looking statement, whether as a result ofnew 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 CALENDER FOR 2005 30 March - Shares quoted ex-dividend1 April - Record date for final dividend31 May - Interim dividend payment date18 July - Trading update for 11 months to 30 June 200531 July - Financial year end26 September* - Announcement of Preliminary results5 October* - Shares quoted ex-dividend7 October* - Record date for final dividend9 November* - Final date for DRIP elections17 November - Annual General Meeting30 November* - Final dividend payment date (*) expected A copy of this Interim Announcement, together with all other recent publicannouncements can be found on Wolseley's web site at www.wolseley.com. Copies ofthe Preliminary Results' presentation given to stockbrokers' analysts are alsoavailable on this site. Group Profit and Loss Account (unaudited) --------- -------- -------- Year to Half year to Half year to 31 July 31 January 31 January 2004 2005 2004 --------- -------- -------- £m £m £m Turnover 10,128.1 Continuing operations 5,234.1 4,828.3 - Acquisitions 97.8 - --------- -------- -------- 10,128.1 5,331.9 4,828.3 --------- -------- -------- 619.2 Operating profit before goodwill 322.3 257.1 amortisation (note 3) (39.0) Goodwill amortisation (20.8) (19.2) Operating profit --------- -------- -------- 580.2 Continuing operations 298.0 237.9 - Acquisitions 3.5 - --------- -------- -------- 580.2 301.5 237.9 --------- -------- -------- 580.2 Profit on ordinary activities 301.5 237.9 before interest (21.1) Net interest payable (14.3) (11.6) --------- -------- -------- 559.1 Profit on ordinary activities 287.2 226.3 before tax Taxation (note 5) (153.0) Current tax charge (87.2) (71.3) (9.1) Deferred tax credit/(charge) 4.0 2.6 --------- -------- -------- (162.1) (83.2) (68.7) --------- -------- -------- 397.0 Profit for the period attributable 204.0 157.6 to ordinary shareholders (139.1) Dividends (note 7) (51.7) (45.5) --------- -------- -------- 257.9 Profit retained 152.3 112.1 --------- -------- -------- Earnings per share (note 6) 74.84p Before goodwill amortisation 38.40p 30.44p (6.69)p Goodwill amortisation (3.54)p (3.29)p --------- -------- -------- 68.15p Basic earnings per share 34.86p 27.15p --------- -------- -------- 67.36p Diluted earnings per share 34.43p 26.81p 23.80p Dividends per share (note 7) 8.80p 7.80p Translation rates (note 4) 1.7522 US dollars 1.8548 1.6881 1.4635 Euro 1.4546 1.4343 Summarised Balance Sheets (unaudited) 31 July 2004 31 January 31 January 2005 2004 £m £m £m ------- -------------------- --------- --- ---------- 665.9 Intangible fixed assets 732.4 659.7 719.0 Tangible fixed assets 787.6 685.2 ------- --------- --- ---------- 1,384.9 1,520.0 1,344.9 1,501.8 Stocks 1,589.5 1,297.7 1,865.7 Debtors and property awaiting 1,839.2 1,451.4 disposal 187.7 Construction loans receivable 211.4 176.3 (secured) (1,605.1) Creditors (1,547.1) (1,160.6) (187.7) Construction loan borrowings (211.4) (176.3) ------- (unsecured) --------- --- ---------- 3,147.3 Net operating assets 3,401.6 2,933.4 ------- --------- --- ---------- (941.4) Net Group borrowings (1,115.6) (947.2) (84.7) Net liabilities for tax (79.3) (67.9) (93.6) Dividend (51.7) (45.5) (125.7) Provisions for liabilities and (128.7) (114.9) ------- charges --------- --- ---------- 1,901.9 Total net assets 2,026.3 1,757.9 ------- --------- --- ---------- 346.2 Capital and share premium account 363.0 336.5 1,555.7 Reserves 1,663.3 1,421.4 ------- --------- --- ---------- 1,901.9 Shareholders' funds 2,026.3 1,757.9 ------- --------- --- ---------- ---------- Translation rates (note 4) 1.8198 US Dollars 1.8833 1.8244 1.5144 Euro 1.4449 1.4620 ------- ------------------ ----- --------- --- ---------- Statement of Total Recognised Gains and Losses Year to Half year to Half year to31 July 2004 31 January 31 January 2005 2004 £m £m £m ------- -------------------- --------- --------- 397.0 Profit for the period 204.0 157.6 (147.2) Currency translation difference on (26.1) (141.9) ------- foreign investments --------- --------- 249.8 Total recognised gains and losses 177.9 15.7 ------- for the financial year --------- --------- Reconciliation of Movements in Capital and Reserves Year to Half year to Half year to31 July 2004 31 January 31 January 2005 2004 £m £m £m ------- -------------------- --------- --------- 257.9 Profit retained 152.3 112.1 (147.2) Other recognised gains and losses (26.1) (141.9) 17.0 New share capital subscribed 16.8 13.5 - Purchase of own shares (18.6) - ------- --------- --------- 127.7 Net addition to/(reduction in) 124.4 (16.3) shareholders' funds 1,774.2 Opening shareholders' funds 1,901.9 1,774.2 ------- --------- --------- 1,901.9 Closing shareholders' funds 2,026.3 1,757.9 ------- --------- --------- Summarised Group Cash Flow Statement Year to Half year to Half year to31 July 2004 31 January 31 January 2005 2004 £m £m £m --------- ------------------- --------- ---------- 325.2 Net Cash Flow from Operating 300.7 99.4 Activities* (13.4) Net cash outflow from returns on (11.9) (10.9) investments and servicing of finance (128.1) Taxation paid (97.1) (54.3) (154.9) Purchase of tangible fixed assets (109.6) (71.8) 19.3 Sale of tangible fixed assets 57.1 3.2 (123.5) Acquisitions (206.5) (72.9) (136.0) Equity dividends paid (93.6) (88.8) 17.0 Financing - Issue of shares 16.8 13.5 - Financing - purchase of shares by (18.6) - --------- Employee Benefit Trusts --------- ---------- (194.4) Change in net debt resulting from (162.7) (182.6) cash flows --------- --------- ---------- (5.3) New finance leases (3.4) - 85.0 Translation difference (8.1) 62.1 --------- --------- ---------- (114.7) Movement in net debt in period (174.2) (120.5) (826.7) Opening net debt (941.4) (826.7) --------- --------- ---------- (941.4) Closing net debt (1,115.6) (947.2) --------- --------- ---------- * Reconciliation of the Operating Profit to Net Cash Flow from OperatingActivities Year to Half year to Half year to31 July 2004 31 January 31 January 2005 2004 £m £m £m --------- ------------------ ---------- ---------- 580.2 Operating profit 301.5 237.9 107.9 Depreciation charges 50.0 59.5 39.0 Goodwill amortisation 20.8 19.2 (274.3) Increase in stocks (47.5) (71.6) (236.3) Decrease/(increase) in debtors 95.5 27.8 108.6 (Decrease)/increase in creditors (119.6) (173.5) and provisions 0.1 Decrease in net construction - 0.1 --------- loans ---------- ---------- 325.2 Net cash flow from operating 300.7 99.4 --------- activities ---------- ---------- Analysis of Results Turnover by activity Year to Half year to Half year to31 July 2004 31 January 31 January 2005 2004 £m £m £m ------- -------------------- -------- -------- European Distribution 4,248.0 - Continuing operations 2,171.4 2,028.0 - - Acquisitions 83.6 - ------- -------- -------- 4,248.0 2,255.0 2,028.0 ------- -------- -------- North American Plumbing & Heating Distribution 3,836.4 - Continuing operations 2,004.4 1,835.1 - - Acquisitions 14.2 - ------- -------- -------- 3,836.4 2,018.6 1,835.1 ------- -------- -------- US Building Materials Distribution 2,043.7 - Continuing operations 1,058.3 965.2 - - Acquisitions - - ------- -------- -------- 2,043.7 1,058.3 965.2 ------- -------- -------- 10,128.1 Total 5,331.9 4,828.3 ------- -------- -------- Operating Profit by Activity (Before Goodwill Amortisation) ------- -------------------- -------- -------- Year to Half year to Half year to31 July 2004 31 January 31 January £m 2005 2004 £m £m ------- -------------------- -------- -------- European Distribution 263.2 - Continuing operations 123.8 107.8 - - Acquisitions 3.6 - ------- -------- -------- 263.2 127.4 107.8 ------- -------- -------- North American Plumbing & Heating Distribution 252.0 - Continuing operations 139.5 106.7 - - Acquisitions 0.6 - ------- -------- -------- 252.0 140.1 106.7 ------- -------- -------- US Building Materials Distribution 104.0 - Continuing operations 54.8 42.6 - - Acquisitions - - ------- -------- -------- 104.0 54.8 42.6 ------- -------- -------- 619.2 Total 322.3 257.1 ------- -------- -------- Goodwill amortisation attributable to the above segments is: EuropeanDistribution £11.2 million; North American Plumbing and Heating Distribution£6.0 million; US Building Materials Distribution £3.6 million. Analysis of Results continued Analysis of Movement in Sales New Acquisitions Acquisitions Increment Organic 2004 Exchange 2005 2004 Change 2005 £m £m £m £m £m % £m-------------------------------------------------------------------------------- EuropeanDistribution 2,028.0 (13.1) 83.6 48.9 107.6 5.3 2,255.0 North AmericanPlumbing &HeatingDistribution 1,835.1 (149.9) 14.2 45.0 274.2 16.3 2,018.6 US BuildingMaterialsDistribution 965.2 (86.8) - 46.9 133.0 15.1 1,058.3 --------- -------- -------- ------ ----- ----- ------- 4,828.3 (249.8) 97.8 140.8 514.8 11.2 5,331.9 --------- -------- -------- ------ ----- ----- ------- Analysis of Movement in Operating Profit (Before Goodwill Amortisation) New Acquisitions Acquisitions Increment Organic 2004 Exchange 2005 2004 Change 2005 £m £m £m £m £m % £m-------------------------------------------------------------------------------- EuropeanDistribution 107.8 (0.7) 3.6 4.4 12.3 11.5 127.4 North AmericanPlumbing &HeatingDistribution 106.7 (9.3) 0.6 0.1 42.0 43.1 140.1 US BuildingMaterials 42.6 (4.1) - 4.3 12.0 31.2 54.8Distribution ------- -------- -------- ----- ----- ----- ------ 257.1 (14.1) 4.2 8.8 66.3 27.3 322.3 ======= ======== ======== ===== ====== ===== ====== Goodwill of £83.3 million arose on the acquisitions made in the half year. Theoperating profit contribution, after goodwill amortisation, from theseacquisitions was £3.5 million. Notes 1 Basis of preparation The figures for the year ended 31 July 2004 do not constitute the company'sstatutory accounts for that period but have been extracted from the statutoryaccounts, which have been filed with the Registrar of Companies. The auditorshave reported on those accounts; their reports were unqualified and did notcontain statements under Section 237(2) or (3) of the Companies Act 1985. Theaccounts for the six months ended 31 January 2005 have not been audited, norwere the accounts for the equivalent period in 2004. They comply with relevantaccounting standards and have been prepared on a consistent basis usingaccounting policies set out in the 2004 Annual Report. 2 Geographical analysis of sales Half year to Half year to 31 January 31 January 2005 2004 £m £m ---------- ----------European DistributionUK and Ireland 1,156.7 1,018.4France 783.9 762.0Other 314.4 247.6 ---------- ---------- 2,255.0 2,028.0 ---------- ----------North America Plumbing and Heating DistributionUSA 1,772.3 1,611.0Canada 246.3 224.1 ---------- ---------- 2,018.6 1,835.1 ---------- ---------- US Building Materials DistributionUSA 1,058.3 965.2 ---------- ----------Group Total 5,331.9 4,828.3 ---------- ---------- 3 Operating profit Operating profit includes £4.3 million (2004: £1.7 million) of property profits. 4 Exchange rates The results of overseas subsidiaries have been translated into sterling usingaverage rates of exchange. The period end rates of exchange have been used toconvert balance sheet amounts. The average profit and loss account translation rate for the first six monthswas $1.8548 to the £1 compared to $1.6881 for the comparable period last year, afall of 9.0%, and €1.4546 to the £1 compared to €1.4343 a fall of 1.4%. Shouldthe exchange rates between the US$ and £, and the • and the £, remain at the 31January 2005 spot rates ($1.8833 and €1.4449) then the averages for the year asa whole would be $1.8680 and €1.4501 and this would have the effect of reducingsales and trading profit for the first half by a further £16.8 million and £1.2million, respectively. 5 Taxation The tax charge on ordinary activities for the half year has been calculated atthe rate which it is expected will apply for the year ending 31 July 2005 andcomprises the following elements: Half year to Half year to 31 January 2005 31 January 2004 £m £m ---------- ----------Tax on profit for the period- UK 21.7 12.6- Overseas 65.5 58.7Related Shares:
Ferguson