19th Mar 2007 07:03
Wolseley PLC19 March 2007 NEWS RELEASE 19 March 2007 Wolseley plc Wolseley plc announces its Unaudited Interim Results for the half year ended 31 January 2007 Summary of Results Financial highlights Change --------------- 31 January 31 January Reported In 2007 2006 constant currency £m £m % %--- ---------------------- ---------- -------- -------- -------- Group revenue 7,870 6,734 +16.9 +23.7--- ---------------------- ----------- -------- -------- -------- Group trading profit 390 385 +1.3 +7.8 (1) Group operating 345 371 -7.0 -1.0 profit ----------------------- ---------- -------- -------- --------- Group profit before 330 360 -8.3 -3.7 tax, before amortisation of acquired intangibles Group profit before 285 346 -17.6 -13.4 tax ---------------------- ---------- -------- -------- --------- Earnings per share, 38.72p 43.91p -11.8 -3.4 before amortisation of acquired intangibles Basic earnings per 32.97p 41.58p -20.7 -13.0 share ---------------------- ---------- -------- -------- --------- Interim dividend per 10.85p 9.85p +10.2 share ---------------------- ---------- -------- --------- Overview • Market outperformance in the Group's principal markets • Strong revenue growth but profits held back by US residential market, commodity price deflation and currency translation • One off costs of £11 million in the first half giving rise to benefits of £30 million in the second half. Further rationalisation costs of £6 million expected in the UK in the second half • First half operating cash flow up significantly (73%) reflecting increased focus on cash flow to finance future growth • Trading margin target of 7% within 4 years • Continuation of double digit growth target Operating highlights • North American revenues slightly up reflecting strong growth in Ferguson, including 9% organic growth, offsetting the tougher trading conditions for Stock caused by the slowing US residential market. Trading profit was down 15% due to Stock's lower profitability. • Revenue growth of 44.5% in Europe included 26% from the acquisition of DT Group and double digit organic growth. Trading profit was up 33%. Trading margin was lower, reflecting lower UK margins due to ongoing investment. • Good progress in France with 11.1% increase in revenue and 13.1% in trading profit. • DT Group performing ahead of expectations and Central and Eastern Europe achieved more than 20% increase in revenue and around 50% increase in trading profit. • Further investment with DCs opened in the UK and Italy. A total of 581 new branches added and expansion into 8 new European countries. • Bolt on acquisition investment of £325 million for 30 acquisitions completed in the first half, which are expected to add £566 million of revenues in a full year. A further £34 million of investment in the second half so far to bring aggregate investment to £359 million. This is in addition to the £1,339 million acquisition of DT Group completed on 25 September 2006. Outlook • The US housing market is expected to continue to remain soft for the remainder of the calendar year. The repairs maintenance and improvement ("RMI") and commercial and industrial markets are expected to continue to hold up. Ferguson should increase its market share and achieve good levels of organic growth, albeit at a more modest rate than the first half. • In Canada, exploration related business is expected to improve but the new residential housing market is likely to slow from recent high levels. • The UK business is expected to show improved profits and underlying trading margin in the second half against the background of a positive economy and a gradual improvement in the RMI market. • The recent improved performance of the French operation is expected to continue, although growth in the French RMI market is likely to remain modest. • The outlook for the markets in which DT Group operates remain positive and its second half contribution will benefit from its seasonal bias in the second half. • The Central and Eastern European operations are expected to continue to progress well. • Increasing benefits are expected in the second half from the recent cost reduction initiatives. These actions, together with an increased focus on enhancing trading margins, and working capital efficiency should position the Group well in to the next financial year, to achieve its growth objectives. SUMMARY OF RESULTS As at, and for the six months ended 31 January 2007 2006 Change Revenue £7,870m £6,734m +16.9% Operating profit- before amortisationof acquired intangibles £390m £385m +1.3%- amortisation ofacquired intangibles £(45)m £(14)m Operating profit £345m £371m -7.0%- Net finance costs £(60)m £(25)m Profit before tax- before amortisationof acquired intangibles £330m £360m -8.3%- amortisation ofacquired intangibles £(45)m £(14)m Profit before tax £285m £346m -17.6% Earnings per share- beforeamortisationof acquired intangibles 38.72p 43.91p -11.8 %- amortisation ofacquired intangibles (5.75)p (2.33)p Basic earnings pershare 32.97p 41.58p -20.7% Dividend per share 10.85p 9.85p +10.2% Net borrowings £2,917m £1,671m Gearing(2) 89.6% 68.1% Interest cover (times) (3) 7x 15x Operating cash flow £447m £258m Return on grosscapital employed(4) 15.9% 18.8% Chip Hornsby, Wolseley plc Group Chief Executive said: "The decline in US housing starts has clearly had an impact on our results forthe first half, but we have taken swift and decisive action to reduce our costbase and to position the Group to benefit from improving markets. Meanwhile, weare very encouraged with the progress being made in Europe including theacquisitions which have taken us into 8 new countries. We will continue topursue our double-digit growth targets through a combination of organic andacquisitive growth with a renewed focus on margin, cash flow and working capitalimprovement." (1) Trading profit, a term used throughout this announcement, is defined asoperating profit before the amortisation of acquired intangibles. Trading marginis the ratio of trading profit to revenues expressed as a percentage. Organicchange is the total increase or decrease in the year adjusted for the impact ofexchange rates, new acquisitions in 2007 and the incremental impact ofacquisitions in 2006.(2) Gearing ratio is the ratio of net debt, excluding construction loanborrowings, to shareholders' funds.(3) Interest cover is trading profit divided by net finance costs, excluding netpension related finance costs.(4) Return on gross capital employed is the ratio of trading profit to theaggregate of average shareholders' funds, minority interests, net debt andcumulative goodwill written off. ENQUIRIES: Guy Stainer 0118 929 8744Head of Investor Relations 07739 778187 John English 001 513 771 9000Vice President, Investor Relations, North America 001 513 328 4900 Brunswick 020 7404 5959Andrew FenwickNina Coad An interview with Chip Hornsby, Group Chief Executive and Steve Webster, GroupFinance Director, in video/audio and text will be available from 0700 onwww.wolseley.com and www.cantos.com There will be an analyst and investor meeting at 0930 at UBS, 4th Floor, 100Liverpool Street, London EC2M 2RH. A live audio cast and slide presentation ofthis event will be available at 0930 on www.wolseley.com. There will also be a conference call at 1500 (UK time): UK free phone dial-in number: 0800 0281299US free phone dial-in number: 888 935 4577Rest of the World dial-in number: + 44 (0)20 7806 1955 Password: Wolseley The call will be recorded and available for playback until 1st April 2007 on thefollowing numbers: UK free phone number: 0800 559 3271 Passcode: 1049772#US free phone number: 1866 239 0765 Passcode: 1049772#UK/European replay dial-in number: +4420 7806 1970 Passcode: 1049772# Photographs of Chip Hornsby, Group Chief Executive and Steve Webster, GroupFinance Director are available at: www.newscast.co.uk and www.wolseleyimages.com NEWS RELEASE 19 March 2007 Wolseley plc Wolseley plc announces its Unaudited Interim Results for the half year ended 31 January 2007 Announcement of Interim Results Wolseley, the world's largest specialist trade distributor of plumbing andheating products to professional contractors and a leading supplier of buildingmaterials and services, today announces its interim figures. These results reflect strong organic revenue growth, particularly in the USplumbing and heating business (Ferguson), Wolseley UK, Central & Eastern Europeand the additional contribution from acquisitions. Brossette in France showedgood momentum with revenues and profits up. DT Group performed ahead ofexpectations. These factors were largely offset by the performance of StockBuilding Supply ("Stock") which was adversely affected by the significantslowdown in US new residential construction and its exposure to commodity lumberand structural panels which declined sharply in price. Adverse currencytranslation also impacted the reported figures. The Group continues to invest inpeople, facilities and technology to secure future growth. After taking account of currency translation, Group revenue increased by 16.9%from £6,734 million to £7,870 million. Trading profit rose by 1.3% from £385million to £390 million. The Group's trading margin fell from 5.7% to 5.0%primarily due to the lower margins in Stock and Wolseley UK, commodity pricegains last year which were not repeated and additional investments in thebusiness to position the Group for further growth. After deducting amortisationof acquired intangibles of £45 million (2006: £14 million), operating profitdeclined by 7.0% from £371 million to £345 million. On a constant currency basis, Group revenue increased by 23.7% and tradingprofit by 7.8% for the first six months compared to the previous comparableperiod. Currency translation reduced Group revenue by £370 million (5.5%) andGroup trading profit by £23 million (5.9%) in the six month period. Reported profit before tax, after amortisation of acquired intangibles, declinedby 17.6% from £346 million to £285 million. Net finance costs of £60 million(2006: £25 million) reflect the increase in acquisition spend and higherinterest rates, partly offset by stronger operating cash flow. Interest coverwas 7 times (2006: 15 times).The decrease in earnings per share beforeamortisation of acquired intangibles was 11.8%, from 43.91 pence to 38.72 pence,reflecting the lower level of profitability and the increase in the number ofshares in issue following the placing on 25 September 2006. Basic earnings pershare were down 20.7%, from 41.58 pence to 32.97 pence. North America Wolseley's North American division performed well ahead of a market which wassignificantly impacted by a slowdown in the new housing sector, maintaining itsposition as the leading distributor of construction products to the professionalcontractor in North America. Reported revenue of the division was up 1.3% from £4,309 million to £4,367million, reflecting acquisitions, partly offset by an organic revenue decline of1.3% and the impact of currency translation. Trading profit, in sterling,declined by 15.0% from £270 million to £229 million, after charging £6 millionof one off costs relating to headcount reductions and branch closures and £5million (2006: £5 million) of North American head office costs. Currency translation reduced divisional revenue by £348 million (8.1%) andtrading profit by £22 million (8.1%). There was a net increase of 166 branchesin North America from 1,797 at 31 July 2006 to 1,963 locations at 31 January2006. In the USA, new housing starts have fallen more sharply than originallyexpected, but the repairs maintenance and improvement ("RMI") market and thecommercial and industrial sectors continue to hold up. Aggregate local currencyrevenue from the Group's US businesses was around 11% higher and US tradingprofit was down by around 8%. US Plumbing and Heating Ferguson produced another strong performance with a balance of organic growthand acquisitions. Investment continued to strengthen the company and todiversify its business. Commercial and industrial activity and continued focuson the RMI sector, allowed for further outperformance in the first half, even asthe new residential market declined. Local currency revenue in the US plumbing and heating operations rose by 18.8%to $5,384 million (2006: $4,530 million) with trading profit up by 13.4%.Organic revenue growth of 9.1% was more than twice that of the market generally.Gross margin fell slightly due to tougher business conditions. As expected, thetrading margin of 6.2% was lower in the first half compared to the prior year'sfirst half margin of 6.5%. This was due to the initial impact of acquisitions,the effects of the weakening new residential markets and the absence of one-offcommodity price gains of around $8 million which benefited the first half of2006. In response to the slowing new housing market in the first half, Fergusonreduced its headcount by around 1,000 from its peak in August 2006. There havebeen a further 150 reductions since 31 January 2007. These reductions equate toaround 5% of its total employees and should give rise to cost savings of around$12 million in the second half. Ferguson's total branch numbers increased by 156 during the first half to 1,393locations (31 July 2006: 1,237). US Building Materials The continued slowdown in the new residential market over the past few monthshas caused a reduction in volumes, increased price competition and has also ledto significantly lower lumber and structural panel prices. This has impactedStock's financial performance despite an aggressive cost reduction programme.Stock continues to outperform in most of its major markets with a 10% reductionin volumes compared to the 25% average decline in housing starts. New housing, which accounted for 80% of the activity in this business in thefirst half, has continued to be a difficult market. Housing starts have fallenfrom an average annual rate of 2.1 million for the six months to 31 January 2006to an average of 1.6 million this half, with the figure in January 2007 beingeven lower, at 1.4 million. There continues to be significant regionalvariations with the markets in Georgia, Utah, Idaho, Texas and the Carolinasholding up well while the north east, mid West, Las Vegas and Florida marketshave been weak. In local currency, Stock's revenue was down 3.1% to $2,419 million (2006: $2,497million) with trading profit down 48.6% from $157 million to $81 million, aftercharging one off costs of around $11 million relating to branch closures andheadcount reductions. Between the peak in June 2006 and the period end, therewas a reduction of around 4,000 people, representing approximately 25% of thetotal workforce. Since 31 January 2007, there has been a further reduction of500. Cost savings as a result of all these reductions should amount to between$40 million and $50 million in the second half of the financial year. Thedecline in organic revenue in the first half was 20.4%, reflecting the 10% fallin volume and commodity price deflation in lumber and structural panels, whichfell 23% and 34%, respectively. The deflation in commodities, which account foraround 43% of Stock's revenue, had the effect of reducing local currency revenueby $270 million (11%) in the first half compared to the first half of last year.Acquisitions contributed $431 million (17.3%) to revenue growth. Stock's trading margin reduced significantly from 6.3% to 3.3% primarily due tolower volumes and prices and the effect of one-off costs. The gross margin wasslightly higher due to acquisitions and a more favourable sales mix arising fromincreased value added products and installed services. As part of a cost cutting programme, a number of initiatives have beenundertaken including centralising the sourcing of commodity products and theclosure of 22 branches. Stock's branch numbers increased by 6 during the firsthalf to 320 locations (31 July 2006: 314) with the acquired branches more thanoffsetting closed facilities. Of the previously announced 22 planned branchclosures, 15 will occur in the second half. Stock currently operates in 34states, having entered the Phoenix, Arizona market in the first half. Wolseley Canada In Canada, although housing markets held up reasonably well, business from theoil and gas exploration industries in Western Canada slowed as a result ofwarmer weather, lower gas prices and higher gas inventory levels. Against thisbackground, Wolseley Canada's local currency revenue increased by 0.6% to C$660million (2006: C$656 million). Gross margin improved and trading profit rose by3.1% to C$41 million (2006: C$40 million). Trading margin was up slightly at6.2% (2006: 6.1%). Wolseley Canada opened a new regional distribution centre and its total branchnumbers increased from 246 to 250 locations. Europe Most of the European operations achieved good revenue and profit improvements inmarkets which showed little growth in the first half. The results in Europe alsobenefited from acquisitions which expanded the geographic diversity of theGroup. Reported revenue for this division increased by 44.5% from £2,425 million to£3,503 million, of which 10.1% was from organic growth. Recent acquisitionsaccounted for £857 million (35.3%) of revenue growth, including DT Group in theNordic region in September 2006. Trading profit, after the allocation ofEuropean central costs of £5 million (2006: £5 million), increased 33% from £135million to £180 million. The overall divisional trading margin, after the allocation of central costs,declined from 5.6% to 5.1% of revenue, primarily due to the lower tradingmargins in Wolseley UK and Italy and the dilutive effect of the first halfmargin in DT Group which reflects the seasonal bias towards the second half inthat business. Underlying margin improvements were achieved in France (both PBMand Brossette) and nearly all of the Central and Eastern European operations. In the first six months, a further net 415 branches were added to the Europeannetwork, giving a total of 3,276 locations (31 July 2006: 2,861), including 344added through acquisitions. UK and Ireland Wolseley UK grew strongly in an improving market. The fundamentals of the UKeconomy remained positive, with good economic growth and relatively lowunemployment. The Irish economy continued to be positive. Against this background, Wolseley UK, which includes Ireland, recorded a 23.1%increase in revenue to £1,554 million (2006: £1,262 million). Organic growth of11.0% significantly outperformed the market generally, which is estimated tohave risen by 2%. Wolseley UK's trading profit increased by 3.2% in the first half compared to theequivalent period in the prior year. Price competition in the core Plumb andBuild brands continued, but the effect was more than offset at the gross marginlevel by the benefits from the other brands including the recent acquisitions.However, the trading margin fell from 7.1% to 6.0%. This was as a result of thecontinuing investment in the business to improve supply chain in terms of DCspace, the initial dilutive impact of opening new branches, integration costs ofthe prior year's record acquisitions and increasing the management resource,including a doubling of the graduate programme. Following the closure of anumber of regional offices, certain functions have been successfully centralisedinto Wolseley UK's new head office in Leamington Spa, with support services forthe core brands fully integrated. One off costs in the first half were approximately £5m including those relatedto the step up in the number of branch openings. Further rationalisation costsof approximately £6 million are anticipated in the second half relating torefinement of the branch network and planned headcount reduction following thecentralisation of head offices. The emphasis in the second half will be more onmargin improvement. The new national DC in Leamington Spa began operations in autumn 2006 and theregional DC, in the North West is now under construction. These investments andthe current initiatives to centralise control of transport and branch inventorymanagement, should enhance customer service and support continued growth in thebusiness. The central branch replenishment programme has been fully rolled outin Plumb Center and Parts Center and has improved inventory turn and stockavailability in the branches. This will be introduced to other brands. During the first six months, 68 net new locations were added in the UK andIreland taking the total number of branches for Wolseley UK to 1,926 (31 July2006: 1,858). More than 30 new Bathstore branches were opened as well asadditional investment in its office and distribution space and this openingprogramme will continue in the second half. The electrical distributionbusinesses, AC Electrical and William Wilson, were brought together as ElectricCenter and a further 11 new branches were opened. The integration of Hire Centerwith Brandon Hire was also completed, with a further 2 branches added. France In France, government tax incentives continued to underpin growth, albeit at aslowing rate, in the new residential market. However, RMI, which representsapproximately two thirds of revenue for both Brossette and PBM, continues toshow only marginal improvement against the background of little growth in theoverall economy, weak consumer confidence and persistent high levels ofunemployment. Wolseley's French operations now operate under one central management as threedivisions, namely: Building Materials (PBM Heavyside), Import and Wood solutions(PBM Import) and Plumbing and Heating (Brossette Lightside). Overall, in France,first half revenue was up 12.8% to €1,321 million (2006: €1,170 million),including organic growth of 7.1%, slightly ahead of the market. Trading profitwas up 14.9% to €60 million (2006: €52 million), as a result of the continuingreorganisation and rationalisation of back office functions and goodperformances from all three divisions. The underlying trading margin improved to4.6% (2006: 4.3%). PBM (Heavyside and Import and Wood Solutions) achieved an increase in revenue of15.9% in local currency, half of which was organic growth. Gross margin was upslightly and PBM also improved its trading margin, after adjusting for one-offitems in the corresponding period in the prior year. PBM's branch openingprogramme continued with 5 new locations added, giving 354 in total. PBMcontinues to centralise its back office functions. Against the background of ongoing restructuring, local currency revenue inBrossette was 8.2% up on the first half last year, 6.1% of which was organicgrowth. Underlying trading profit was up 12.8%, on a comparable basis.Brossette's results reflect the benefits from its recent reorganisationincluding the centralisation of a number of functions including purchasing andlogistics. As the majority of regional management teams are now in place, theongoing restructuring that is expected to continue for the next two years, willprincipally be in relation to its distribution and branch network. Brossette'sbranch opening programme continued with 29 new locations added, giving 467 intotal. Wolseley's French businesses continue to seek opportunities to generatesynergies by expansion of the number of joint sites, cross selling of productsand centralisation of functions such as sourcing and purchasing. Nordic In the Nordic region, DT Group has made a good start since being acquired byWolseley on 25 September 2006 for £1,339 million. The response from the DTmanagement team to the integration process has been very positive and theintegration will be completed by the year end, ahead of schedule. The four Nordic countries in which DT Group operates continue to show goodeconomic growth as well as benefiting from favourable winter weather conditionsin what is normally a quieter business period. This positive environment helpedDT Group report a good financial performance ahead of expectations at the timeof acquisition. For the four months of Wolseley ownership to 31 January 2007, revenue wasDKK6,878 million (£621 million) and trading profit was DKK338 million (£31million). The trading margin was 4.9%.DT Group is expected to achieve a much higher level of profitability in thesecond half, reflecting the normal seasonal bias of the business. For the 12 months to 31 January 2007, DT Group's year end prior to beingacquired by Wolseley, management accounts show an underlying increase in revenueover the prior year of 12.9% and in trading profit, of 28.0%. Central and Eastern Europe The Group's other Continental European operations enjoyed generally good resultswith growth significantly ahead of generally flat markets. Revenue in CentralEurope was up by 21.2% to £439 million (2006: £362 million), reflecting organicgrowth of 13.8% and the benefit of acquisitions. Trading profit was up 47.2% to£21 million (2006: £14 million). The trading margin improved to 4.8% (2006:3.9%). In the Benelux countries, the business achieved revenue growth of more than 30%,including organic growth of 18%, with Wasco in The Netherlands and CFM inLuxembourg making excellent progress. Trading profit rose more than 60% ascentralisation of sourcing, logistics and inventory management across Benelux isprogressed. Tobler, in Switzerland, had another strong half with double digit improvementsin revenue and trading profit, including 12.5% organic revenue growth. Tradingmargin also rose. OAG, in Austria, benefited from its recent business restructuring and managementchanges to report 16.8% organic revenue growth and a significant improvement intrading margin. In Italy, revenue in the first half increased although profits were down, asexpected, due to the initial costs of the new €20 million DC that commencedbranch deliveries at the end of 2006. The DC will gradually roll out deliveriesto other branches over the next 12 months, allowing a return to margin growth. In Eastern Europe, the Woodcote acquisition in October 2006, which took Wolseleyinto Croatia, Slovakia, Poland and Romania for the first time, is performing inline with expectations and across all markets Wolseley businesses areoutperforming the local markets. Interim Dividend The Board has decided to pay an interim dividend of 10.85 pence per share (2006:9.85 pence per share) to be paid on 31 May 2007 to shareholders on the registeron 30 March 2007, which will absorb £71 million of cash. This represents anincrease of 10.2% over last year's interim dividend and reflects the Board'sconfidence in the future prospects of the Group and its strong financialposition. It is expected that the interim dividend will be approximately onethird of the total dividend for the year. The dividend reinvestment plan willcontinue to be available to eligible shareholders. Management and organisational changes Larry Stoddard has been appointed to the Wolseley Executive Committee as ChiefOperations Officer. The Executive Committee provides overall leadership to theWolseley Group, ensuring that its strategy and initiatives are implementedthroughout the organisation. Larry has been with Ferguson Enterprises for 25years and is now responsible for driving overall business and marginimprovement. The Executive Committee comprises: Chip Hornsby (Chief Executive Officer), SteveWebster (Chief Financial Officer), Rob Marchbank (Chief Executive Officer -Europe), Frank Roach (Chief Executive Officer - North America), Fenton Hord(President & Chief Executive Officer Stock Building Supply), Larry Stoddard(Chief Operations Officer) and Adrian Barden (Chief Business DevelopmentOfficer). Mark White, Group Company Secretary and Counsel, will be leaving the Group on 31May 2007 to take up another position. Strategy The Group's strategy continues to be to grow the business both organically andby acquisition and pursue geographic, customer, product and business segmentdiversity to help underpin the resilience in its performance over economiccycles. The Group's scale, diversity, operational excellence and emphasis oncustomer service represent a clear competitive advantage and it will continue toinvest to build on this strength. Over the last few months the Group has placed an increased emphasis on increasedworking capital efficiency and margin enhancement, in order to support itsinvestment programme and drive greater efficiency across the business. Theinitiatives in the areas of supply chain, sourcing, business improvement, humanresource development and organic and acquisitive growth have delivered positiveresults and will continue to drive future benefits. The Group will focusaggressively on driving the full benefit from the step-up in its investmentsover the last few years in people, technology and infrastructure. There will be no change to the Group's overall financial targets of double digitsales growth and a higher rate of profit growth whilst maintaining anincremental return on gross capital employed of at least 4% more than thepre-tax Weighted Average Cost of Capital. The Group still believes it has thepotential to double its size over the next five to seven years in the fragmentedmarkets in which it operates, which is equivalent to a compound annual growthrate of 10% to 14%. The Group's business improvement initiatives and increasedscale and leverage should produce a trading margin of at least 7% within thenext four years, subject to business conditions and the mix of businesses withinthe Group at that time. The Board will continue to carefully monitor itsprogress against this target. Financial Review Net finance costs of £60 million (2006: £25 million) reflect a significantincrease in Group debt as a result of a higher level of acquisition spend and anincrease in interest rates, partly offset by strong operating cash flow. Netinterest receivable on construction loans amounted to £6 million (2006: £5million). Interest cover was 7 times (2006: 15 times). The effective tax rate, being tax payable on profit before tax and amortisationof acquired intangibles, decreased from 27.9% to 25.6% due to a higherproportion of the Group's profits coming from lower tax jurisdictions in Europefollowing the DT acquisition and the impact of deferred tax on share options.The effective tax rate for the half-year to 31 January 2007 is consistent withthe rate expected for the year to 31 July 2007. Before the amortisation of acquired intangibles, earnings per share decreased by11.8% from 43.91 pence to 38.72 pence, reflecting the lower level ofprofitability and the placing of 59.5 million shares on 25 September 2006. Basicearnings per share were 20.7% lower at 32.97 pence (2006: 41.58 pence). Theaverage number of shares in issue during the first half was 635 million (2006:590 million). Net cash flow from operating activities increased by 73% from £258 million to£447 million, due to the increased focus on improving working capital and cashflow management throughout the Group. Capital expenditure increased from £144 million to £206 million reflectingcontinued investment in the business, particularly in the DCs in the UK andItaly, IT and new branch openings. Capital expenditure in the second half isexpected to be at a similar level. The Group's branch network during the first half has been extended throughacquisitions and branch openings by a net of 581 branches, bringing the total to5,239 (31 July 2006: 4,658). Net borrowings, excluding construction loan borrowings, at 31 January 2007amounted to £2,917 million compared to £1,950 million at 31 July 2006, givinggearing of 89.6% compared to 75.2% at the previous year end and 68.1% at 31January 2006. The increase principally relates to acquisitions partially offsetby the share placing of £655 million on 25 September 2006 and strong operatingcash flow. In the USA, construction loan receivables, financed by an equivalent amount ofconstruction loan borrowings, were £293 million compared to £313 million at 31July 2006. Return on gross capital employed (ROGCE) fell from 18.8% in 2006 to 15.9% in thefirst half of 2007 primarily as a result of the initial impact of the DT Groupacquisition and the lower organic growth in profit. The ROGCE remains above theGroup's weighted average cost of capital. Provisions in the balance sheet include the estimated liability for asbestosclaims on a discounted basis. This liability has been determined as at 31January 2007 by independent professional actuarial advisors. The asbestosrelated litigation is fully covered by insurance and accordingly an equivalentinsurance receivable has been included in receivables. The level of insurancecover available significantly exceeds the expected level of future claims and noprofit or cash flow impact is therefore expected to arise in the foreseeablefuture. There were 246 claims outstanding at 31 July 2006 (31 July 2005: 235).An update on the estimated liability and number of claims outstanding will beprovided with the Group's Preliminary Results announcement in September 2007. Acquisitions Investment in bolt on acquisitions completed during the first half, includingany deferred consideration and net debt, amounted to £325 million (2006: £436million). These 30 acquisitions are expected to add around £566 million perannum of incremental revenues in a full year. In addition, on 25 September 2006,the Group completed the acquisition of DT Group for £1,339 million which bringsaggregate acquisition spend for the six months to 31 January to £1,664 million. Six additional acquisitions, for a consideration of £34 million, have beencompleted since 31 January 2007. This includes three further bolt onacquisitions not previously announced which were acquired for an aggregateconsideration of £24 million. In a full year, these bolt on acquisitions areexpected to add approximately £39 million to total revenue. Further details ofthese acquisitions follows below. On 26 February 2007, Stock Building Supply acquired certain assets of OregonPacific Building Products (New Mexico), Inc. ("Albuquerque Door") from OrepacBuilding Products. Albuquerque Door is a single facility, based in Albuquerque,which assembles pre-hung exterior and interior doors and specialty architecturalmillwork items. In the year ended 31 October 2006, Albuquerque Door had revenueof $10.9 million (£5.6 million) and gross assets of $3.3 million (£1.7 million)at that date. On 1 March 2007, Improvement Direct, Inc. ("Improvement Direct") was acquiredfrom Christian B. Friedland, David T.S. Boctor, Craig S. Stilwell, Daniel R.Davis, Brett D. Morse and Nathan J.Kanemoto. Improvement Direct owns a networkof online stores selling a wide variety of home improvement products, includingtaps, plumbing supplies, lighting fixtures, cabinet hardware, window treatments,tools, heating, ventilation and air conditioning. In the year ended 31 December2006, Improvement Direct had revenue of $55.7 million (£28.7 million) and grossassets of $0.3 million (£0.2 million) at that date. On 19 February 2007, Wolseley UK acquired the business of Conlon Quinn. Ltd.("CQL") from Gay Doran, Brian Conlon, Sean Conlon and Sean McGee. CQL is anIrish wholesaler of electrical installation and maintenance materials with ahead office and main branch in Dundalk and further branches in Monaghan andNavan. CQL services the electrical contracting market in counties Louth, Meath,Cavan, Monaghan and North Dublin. In the year ended 31 March 2006, CQL hadrevenue of €7.3 million (£5.0 million) and gross assets of €3.4 million (£2.6million) at that date. The divisional split of the total acquisition spend since 1 August 2006 is: Division No. of Acquisitions Spend £ Million Europe 17 84North America 19 275TOTAL BOLT ONS 36 359Acquisition of DT Group 1 1,339TOTAL ACQUISITION SPEND 37 1,698 The following exchange rates have been used for the acquisitions since 31January 2007 included above: £1 = $1.94, £1 = €1.47. Further details regarding acquisitions are included in note 12. Outlook In the USA, the housing market is expected to continue to remain soft for theremainder of the calendar year, but with significant regional variations. TheRMI and commercial and industrial markets are expected to continue to hold up.Ferguson should increase its market share and achieve good levels of organicrevenue growth, albeit at a more modest rate than the first half. Based onexpected market conditions for the second half no further headcount reductionsare planned in the USA, however, if markets show signs of weakening further,prompt action will be taken to reduce the cost base. In Canada, activity in the exploration industries in Western Canada is expectedto improve although the new residential housing market is likely to continue toslow from recent high levels. In the UK, the fundamentals of the UK economy are expected to remain positiveand the gradual improvement in the RMI market is expected to be maintained,although it is still too early to assess the full impact that recent interestrate increases may have on consumer and housing related expenditure. Againstthis background, the UK business is expected to show improved profit growth andunderlying trading margin in the second half compared to the correspondingperiod in the prior financial year as the business begins to obtain the benefitsfrom previous investment in central management systems, acquisition integrationand the branch network. Although growth in the French RMI market is likely to remain modest, the recentpositive performance of the French operations is expected to continue. A numberof initiatives continue to be implemented to reorganise the French businessesand the investment in Brossette will continue as it refines its branch andlogistics network. The outlook for the markets in which DT Group operates remain generally positiveand its second half profit contribution will benefit from its seasonal bias. TheCentral and Eastern European operations are expected to continue to progresswell. The Group should see increasing benefits in the second half from the recent costreduction initiatives. These actions, together with an increased focus onenhancing trading margins and working capital efficiency should position theGroup well in to the next financial year, to achieve its growth objectives. Notes to Editors Wolseley plc is the world's largest specialist trade distributor of plumbing andheating products to professional contractors and a leading supplier of buildingmaterials in North America, the UK and Continental Europe. Group revenue for theyear ended 31 July 2006 was approximately £14.2 billion and operating profit,before amortisation of acquired intangibles, was £882 million. Wolseley hasaround 78,200 employees operating in 28 countries namely: UK, USA, France,Canada, Ireland, Italy, The Netherlands, Switzerland, Austria, Czech Republic,Hungary, Belgium, Luxembourg, Denmark, Sweden, Finland, Norway, Slovak Republic,Poland, Romania, Croatia, San Marino, Panama, Puerto Rico, Trinidad & Tobago,Mexico, Barbados and Greenland. Wolseley is listed on the London and New YorkStock Exchanges (LSE: WOS, NYSE: WOS) and is in the FTSE 100 index of listedcompanies. 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 2006. FINANCIAL CALENDAR FOR 2007 28 March - Shares quoted ex-dividend30 March - Record date for final dividend31 May - Interim dividend payment date16 July - Trading update for 11 months to 30 June 200731 July - Financial year end24 September - Announcement of Preliminary results for year to 31 July 20073 October - Shares quoted ex-dividend5 October - Record date for final dividend28 November - Annual General Meeting30 November - Final dividend payment date A copy of this release, together with all other recent public announcements canbe found on Wolseley's web site at www.wolseley.com. Copies of the presentationgiven to institutional investors and analysts are also available on this site. Condensed Group Income Statement (unaudited) Year to Half year to 31 Half year to 3131 July 2006 January 2007 January 2006 £m £m £m -------- ---------------------------- -------- -------- 14,158 Revenue 7,870 6,734(10,222) Cost of sales (5,702) (4,889) -------- -------- -------- 3,936 Gross profit 2,168 1,845 (2,413) Distribution costs (1,432) (1,167) -------- -------- -------- (48) Administrative expenses: amortisation (45) (14) of acquired intangibles (665) Administrative expenses: other (360) (298) -------- -------- -------- (713) Administrative expenses: total (405) (312) 24 Other income 14 5 -------- -------- -------- 834 Operating profit 345 371 49 Finance revenue (note 3) 34 20 (114) Finance costs (note 3) (94) (45) -------- -------- -------- 769 Profit before tax 285 346 (232) Tax expense (note 4) (76) (101) -------- -------- -------- 537 Profit for the period attributable to 209 245 -------- equity shareholders -------- -------- Earnings per share (note 6) 90.77p Basic earnings per share 32.97p 41.58p -------- -------- -------- 90.02p Diluted earnings per share 32.78p 41.13p -------- -------- -------- -------- -------- -------- Dividends (note 5) 27.45p Dividends per share 10.85p 9.85p -------- -------- -------- Non-GAAP measures of performance (note 7) 882 Trading profit 390 385 -------- -------- -------- 817 Profit before tax and the amortisation 330 360 -------- of acquired intangibles -------- -------- Translation rates 1.7885 US dollars 1.9198 1.7604 1.4577 Euro 1.4850 1.4619 Condensed Group Statement of Recognised Income and Expense (unaudited) Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m-------- ---------------------------- -------- -------- 537 Profit for the period 209 245 (124) Net exchange adjustments offset in (110) (17) reserves Cash flow hedges 14 - fair value gains and losses 3 12 (1) - reclassified and reported in net (1) - profit for the period 7 Actuarial gains/(losses) 54 (4) (7) Change in fair value of 2 - available-for-sale investments (13) Tax charge not recognised in the income (9) (11) statement -------- ---------------- ---------------------------- (124) Net losses not recognised in the income (61) (20) statement -------- ---------------- ------------------------------------ ---------------------------- -------- -------- 413 Total recognised income and expense 148 225-------- ---------------------------- -------- -------- Condensed Group Balance Sheet (unaudited) As at As at 31 As at 3131 July January 2007 January 2006 2006 £m £m £m-------- ---------------------------- -------- -------- ASSETS Non-current assets 1,173 Intangible assets: goodwill 1,908 1,004 333 Intangible assets: other 804 230 1,144 Property, plant and equipment ("PPE") 1,668 990 16 Deferred tax assets 35 35 36 Trade and other receivables 37 34 21 Financial assets: available-for-sale 20 4 investments -------- ---------------------------- -------- -------- 2,723 4,472 2,297-------- ---------------------------- -------- -------- Current assets 1,954 Inventories 2,086 1,887 2,650 Trade and other receivables 2,679 2,279 1 Current tax receivable 25 33 4 Financial assets: trading investments 6 4 10 Derivative financial assets 11 14 313 Financial receivables: construction loans 293 294 (secured) 416 Cash and cash equivalents 286 439-------- ---------------------------- -------- -------- 5,348 5,386 4,950-------- ---------------------------- -------- -------- 7 Assets held for resale 9 6-------- ---------------------------- -------- -------- 8,078 Total assets 9,867 7,253-------- ---------------------------- -------- -------- Liabilities Current liabilities 2,294 Trade and other payables 2,389 1,868 91 Current tax payable 107 94 313 Borrowings: construction loans 293 294 (unsecured) 192 Bank loans and overdrafts 261 699 18 Obligations under finance leases 16 16 29 Derivative financial liabilities 20 13 29 Provisions 30 30 29 Retirement benefit obligations 19 17-------- ---------------------------- -------- -------- 2,995 3,135 3,031-------- ---------------------------- -------- -------- Non-current liabilities 25 Trade and other payables 19 18 2,084 Bank loans 2,860 1,352 57 Obligations under finance leases 63 49 88 Deferred tax liabilities 330 79 77 Provisions 81 78 160 Retirement benefit obligations 123 191-------- ---------------------------- -------- -------- 2,491 3,476 1,767-------- ---------------------------- -------- -------- 5,486 Total liabilities 6,611 4,798-------- ---------------------------- -------- -------- 2,592 Net assets 3,256 2,455-------- ---------------------------- -------- -------- Shareholders' equity 149 Called up share capital 165 149 288 Share premium account 930 270 (49) Foreign currency translation reserve (159) 56 2,204 Retained earnings 2,320 1,980-------- ---------------------------- -------- -------- 2,592 Equity shareholders' funds 3,256 2,455-------- ---------------------------- -------- -------- Condensed Group Cash Flow Statement (unaudited) Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m-------- ---------------------------- -------- -------- Cash flows from operating activities 850 Cash generated from operations 447 258 45 Interest received 25 14 (102) Interest paid (82) (32) (206) Tax paid (104) (95)-------- ---------------------------- -------- -------- 587 Net cash generated from operating 286 145 activities -------- ---------------------------- -------- -------- Cash flows from investing activities (822) Acquisition of businesses (net of cash (1,272) (420) acquired) 2 Disposals of businesses (net of cash - - disposed of) (326) Purchases of property, plant and (179) (139) equipment 52 Proceeds from sale of property, plant 25 11 and equipment (20) Purchases of intangible assets (27) (5) (23) Purchases of investments - - - Proceeds from disposal of investments - 1-------- ---------------------------- -------- --------(1,137) Net cash used in investing activities (1,453) (552)-------- ---------------------------- -------- -------- Cash flows from financing activities 31 Proceeds from the issue of shares to 658 13 shareholders (27) Purchases of shares by Employee Benefit (24) (11) Trusts 2,486 Proceeds from new borrowings 604 854(1,405) Repayments of borrowings and (66) (150) derivatives (17) Finance lease capital payments (16) (4) (162) Dividends paid to shareholders (128) (104)-------- ---------------------------- -------- -------- 906 Net cash generated from financing 1,028 598 activities -------- ---------------------------- -------- -------- 356 Net cash (used)/generated (139) 191 (8) Effects of exchange rate changes (19) (17)-------- ---------------------------- -------- -------- 348 Net (decrease)/increase in cash, cash (158) 174 equivalents and bank overdrafts (56) Cash, cash equivalents and bank 292 (56) overdrafts at the beginning of the period-------- ---------------------------- -------- -------- 292 Cash, cash equivalents and bank 134 118 overdrafts at the end of the period -------- ---------------------------- -------- -------- Reconciliation of Profit to Net Cash Flow from Operating Activities (unaudited) Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m-------- ---------------------------- -------- -------- 537 Profit for the period 209 245 65 Net finance costs 60 25 232 Tax expense 76 101 134 Depreciation of property, plant and 88 59 equipment 6 Amortisation of non-acquired 2 3 intangibles (16) Profit on disposal of property, plant (11) (3) and equipment 48 Amortisation of acquired intangibles 45 14 (171) Decrease/(increase) in inventories 81 (120) (243) Decrease/(increase) in trade and other 202 71 receivables 217 (Decrease)/increase in trade and other (319) (170) payables 19 Increase in provisions and other 4 20 liabilities 22 Share based payments and other non cash 10 13 items -------- ---------------------------- -------- -------- 850 Net cash flow from operating 447 258 activities -------- ---------------------------- -------- -------- Notes to the condensed unaudited financial information for the six months ended31 January 2007 1 Basis of preparation The Group prepares its annual financial statements in accordance withInternational Financial Reporting Standards (IFRS) as adopted for use in the EU,and those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The condensed financial information presented in these interimfinancial statements has been prepared in accordance with the Listing Rules ofthe Financial Services Authority. The accounting policies applied by the Groupin these interim consolidated financial statements are the same as those appliedby the Group in its audited consolidated financial statements as at and for theyear ended 31 July 2006. The results for the first half of the financial year have not been audited andwere approved by the Board of Directors on 19 March 2007. The summary of resultsfor the year ended 31 July 2006 does not constitute the full financialstatements within the meaning of section 240 of the Companies Act 1985. The fullfinancial statements for that year, prepared under IFRS, have been reported onby the Group's auditors and delivered to the Registrar of Companies. The auditreport was unqualified and did not contain a statement under sections 237(2) or237(3) of the Companies Act 1985. 2 Segmental analysis of results The Group has a single business segment, the distribution and supply ofconstruction materials and services. The Group's geographical segments are Europe, consisting of UK and Ireland,France, Nordic and Central & Eastern Europe, and North America. The Group hasdetermined that its geographical segments are its primary segments for IFRSreporting purposes. The revenue, trading profit and operating profit of theGroup's geographical segments are detailed in the following three tables. Revenue by geographical segment Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m--------- ------------------------ -------- -------- 2,690 UK and Ireland 1,554 1,262 1,725 France 889 801 - Nordic 621 - 735 Central and Eastern Europe 439 362--------- -------- -------- 5,150 Europe 3,503 2,425--------- -------- ----------------- -------- -------- 9,008 North America 4,367 4,309--------- -------- ----------------- -------- -------- 14,158 Total 7,870 6,734--------- -------- -------- Trading profit by geographical segment Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m --------- ------------------------ -------- -------- 201 UK and Ireland 92 90 91 France 41 36 - Nordic 31 - 31 Central and Eastern Europe 21 14 (7) European central costs (5) (5) --------- -------- -------- 316 Europe 180 135 --------- -------- -------- --------- -------- -------- 603 North America 229 270 --------- -------- -------- --------- -------- -------- (37) Group central costs (19) (20) --------- -------- -------- --------- -------- -------- 882 Total trading profit (note 7) 390 385 --------- -------- -------- Notes to the condensed unaudited financial information for the six months ended31 January 2007 2 Segmental analysis of results (continued) Operating profit by geographical segment Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m--------- ------------------------ -------- -------- 188 UK and Ireland 84 87 90 France 41 35 - Nordic 21 - 30 Central and Eastern Europe 20 14 (7) European central costs (5) (5)--------- -------- -------- 301 Europe 161 131--------- -------- ----------------- -------- -------- 570 North America 203 260--------- -------- ----------------- -------- -------- (37) Group central costs (19) (20)--------- -------- ----------------- -------- -------- 834 Total operating profit 345 371--------- -------- -------- The Group will prepare segmental disclosures in accordance with US GAAP anddisclose them in its Form 20-F for the full year ending 31 July 2007. The disclosure requirements under US GAAP differ from those under IFRS, such thatrevenue and operating profit for North America will be further analysed by operating segment in the Form 20-F. In order to ensure consistency of information disclosed to all investors, the following table is included in these interim financial statements. Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m--------- ------------------------ -------- -------- Revenue 5,396 US Plumbing and Heating 2,804 2,574 2,966 US Building Materials 1,260 1,418 646 Canada 303 317--------- -------- -------- 9,008 North America 4,367 4,309--------- -------- -------- Trading profit 378 US Plumbing and Heating 173 167 192 US Building Materials 42 89 44 Canada 19 19 (11) North American central costs (5) (5)--------- -------- -------- 603 North America 229 270--------- -------- -------- Operating profit 369 US Plumbing and Heating 163 164 168 US Building Materials 26 82 44 Canada 19 19 (11) North American central costs (5) (5)--------- -------- -------- 570 North America 203 260--------- -------- -------- Notes to the condensed interim financial information for the six months ended 31January 2007 2 Segmental analysis of results (continued) Analysis of movement in revenue New Acquisitions Acquisitions Increment 2006 Exchange 2007 2006 Organic Change 2007 £m £m £m £m £m % £m--------------- ------- -------- -------- -------- ------ ------ ------ UK and Ireland 1,262 (2) 8 148 138 11.0 1,554France 801 (13) 10 35 56 7.1 889Nordic - - 621 - - - 621Central andEastern Europe 362 (7) 16 19 49 13.8 439 ------- -------- -------- -------- ------ ------ ------Europe 2,425 (22) 655 202 243 10.1 3,503 ------- -------- -------- -------- ------ ------ ------ US Plumbing andHeating 2,574 (213) 96 132 215 9.1 2,804US BuildingMaterials 1,418 (118) 6 219 (265) (20.4) 1,260Canada 317 (17) 1 2 - - 303 ------- -------- ------- -------- ------ ------ ------North America 4,309 (348) 103 353 (50) (1.3) 4,367 ------- -------- -------- -------- ------ ------ ------ ------- -------- -------- -------- ------ ------ ------ TOTAL 6,734 (370) 758 555 193 3.0 7,870 ------- -------- -------- -------- ------ ------ ------ Analysis of movement in trading profit 2006 Exchange New Acquisitions Organic Change 2007 Acquisitions Increment 2007 2006 £m £m £m £m £m % £m--------------- ------- -------- -------- -------- ------ ------- ------ UK and Ireland 90 - 1 10 (9) (8.8) 92France 36 (1) - 1 5 12.5 41Nordic - - 31 - - - 31Central andEastern Europe 14 - 1 1 5 35.1 21Europeancentral costs (5) - - - - - (5) ------- -------- -------- -------- ------ ------ ------Europe 135 (1) 33 12 1 1.0 180 ------- -------- -------- -------- ------ ------ ------ US Plumbingand Heating 167 (14) 6 8 6 3.9 173US BuildingMaterials 89 (7) - 13 (53) (64.3) 42Canada 19 (1) - 1 - 1.4 19North Americancentral costs (5) - - - - (5) ------- -------- -------- -------- ------ ------ ------North America 270 (22) 6 22 (47) (18.7) 229 ------- -------- -------- -------- ------ ------ ------ ------- -------- -------- -------- ------ ------ ------Group centralcosts (20) - - - 1 (19) ------- -------- -------- -------- ------ ------ ------ ------- -------- -------- -------- ------ ------ ------ TOTAL 385 (23) 39 34 (45) (12.2) 390 ======= ======== ======== ======== ====== ====== ====== 3 Net finance costs Year to Half year to 31 Half year to 3131 July J anuary 2007 January 2006 2006 £m £m £m-------- ------------------------- -------- -------- 49 Interest receivable 34 19 - Net pension finance income - 1-------- -------- -------- 49 Finance revenue 34 20-------- -------- -------- Interest payable (110) - Bank loans and overdrafts (93) (43) (3) - Finance lease charges (1) (1) (1) Net pension finance cost (1) - Valuation gains/(losses) on financial instruments (27) - Derivatives held at fair value 5 (2) through profit and loss 26 - Loans in a fair value hedging (5) 1 relationship 1 - Recycled from equity 1 --------- -------- -------- (114) Finance costs (94) (45)-------- -------- ---------------- -------- -------- (65) Net finance costs (60) (25)-------- -------- -------- Notes to the condensed interim financial information for the six months ended 31January 2007 4 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 2007 andcomprises the following elements: Year to Half year to 31 Half year to 3131 July January 2007 January 2006 2006 £m £m £m-------- ------------------------- -------- -------- Tax on profit for the period 18 - UK 17 11 205 - Overseas 50 68-------- ------------------------- -------- -------- 223 67 79 9 Deferred tax 9 22-------- ------------------------- -------- -------- 232 76 101-------- ------------------------- -------- -------- 5 Dividends Year to Half year to 31 Half year to 3131 July January 2007 January 2006 2006 £m £m £m-------- ------------------------- -------- -------- 58 Interim paid - - 104 Final paid 128 104-------- ------------------------- -------- -------- 162 128 104-------- ------------------------- -------- -------- The proposed interim dividend of £71 million (10.85 pence per share assuming 653million shares in issue) is not included as a liability in these financialstatements. 6 Earnings per share Basic earnings per share of 32.97 pence (31 January 2006: 41.58 pence) iscalculated on the profit for the year attributable to equity shareholders of£209 million (31 January 2006: £245 million) on a weighted average number ofordinary shares in issue during the year of 635 million (31 January 2006: 590million). As detailed in note 7 below, the Group believes that profit measuresbefore the amortisation of acquired intangibles provide valuable additionalinformation for users of the financial statements. Basic earnings per share,before the amortisation of acquired intangibles, has, therefore, been presentedin the following table. Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006Pence per share Pence per share Pence per share -------- ------------------------- -------- -------- 98.90p Before amortisation of 38.72p 43.91p acquired intangibles (8.13)p Amortisation of acquired (5.75)p (2.33)p -------- intangibles -------- -------- ------------------------- 90.77p Basic earnings per share 32.97p 41.58p -------- ------------------------- -------- -------- The impact of all potentially dilutive share options on earnings per share wouldbe to increase the weighted average number of shares in issue to 639 million (31January 2006: 597 million) and to reduce basic earnings per share to 32.78 pence(31 January 2006: 41.13 pence). Diluted earnings per share before amortisationof acquired intangibles is 38.49 pence (31 January 2006: 43.44 pence). 7 Non-GAAP measures of performance Trading profit is defined as operating profit before the amortisation ofacquired intangibles and is a non-GAAP measure. The current businesses withinthe Group have arisen through internal organic growth and through acquisition.Operating profit includes only the amortisation of acquired intangibles arisingon those businesses that have been acquired subsequent to 31 July 2004 and assuch does not reflect equally the performance of businesses acquired prior to 31July 2004 (where no amortisation of acquired intangibles was recognised),businesses that have developed organically (where no intangibles are attributed)and those businesses more recently acquired (where amortisation of acquiredintangibles is charged). The Group believes that trading profit providesvaluable additional information for users of the financial statements inassessing the Group's performance since it provides information on theperformance of the business that local managers are more directly able toinfluence and on a basis consistent across businesses. Notes to the condensed interim financial information for the six months ended 31January 2007 7 Non-GAAP measures of performance (continued) Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m-------- ------------------------- -------- -------- 834 Operating profit 345 371 48 Add back: amortisation of acquired 45 14-------- intangibles -------- -------- 882 Trading profit 390 385-------- -------- -------- 769 Profit before tax 285 346 48 Add back: amortisation of acquired 45 14-------- intangibles -------- -------- 817 Profit before tax and the amortisation 330 360-------- of acquired intangibles -------- -------- 8 Capital expenditure Intangible assets Property, plant Tangible and and equipment intangible assets £m £m £m------------------ ----------- ---------- ------------ Net book valueat 1 August2006 1,506 1,144 2,650Acquisitions 1,289 481 1,770Additions 27 187 214Disposals - (16) (16)Depreciationandamortisation (47) (88) (135)Exchange rateadjustment (63) (40) (103)------------------ ----------- ---------- ------------Net book valueat 31 January2007 2,712 1,668 4,380------------------ ----------- ---------- ------------ 9 Provisions Environmental Wolseley Other Total and legal Insurance provisions £m £m £m £m--------------- ---------- --------- --------- ---------- At 1 August2006 39 47 20 106Utilised inthe period (5) (11) (2) (18)Charge for theperiod 1 20 5 26New businesses - - 1 1Exchangedifference (2) (2) - (4) ---------- --------- --------- ---------- 33 54 24 111 ---------- --------- --------- ---------- 10 Reconciliation of movements in capital and reserves Year to Half year to 31 Half year to 31 31 July January 2007 January 2006 2006 £m £m £m-------- ------------------------- -------- -------- 537 Profit for the period attributable to 209 245 equity shareholders (182) Exchange loss on translation of (215) (24) overseas operations 58 Exchange gain on translation of 104 7 borrowings designated as hedges of overseas operations 8 Valuation gain on interest rate swaps 2 6 (less amounts reclassified and reported in net income) 5 Valuation gain on currency swaps 1 6 7 Actuarial gain/(loss) on retirement 54 (4) benefits (7) Change in fair value of 2 - available-for-sale investments (13) Tax charge not recognised in the income (9) (11)-------- statement -------- -------- 413 Total recognised income and expense 148 225 31 New share capital subscribed 658 13 (27) Purchase of own shares by Employee (24) (11) Benefit Trust 36 Credit to equity for share based 10 31 payments (162) Dividends paid (128) (104)-------- -------- -------- 291 Net addition to/(reduction in) 664 154 shareholders' funds 2,301 Opening shareholders' funds 2,592 2,301-------- -------- -------- 2,592 Closing shareholders' funds 3,256 2,455-------- -------- -------- 11 Analysis of change in net debt Fair value Exchange At 31 January Fair value At New adjustments 31 July finance and other Exchange 2007 2006 Cashflow Acq's leases movements movement £m £m £m £m £m £m £m--------------- ------ ------- -------- ------ -------- -------- ------ Cash and cashequivalents 416 (102) - - - (28) 286Bankoverdrafts (124) (37) - - - 9 (152) ------ ------- -------- ------ -------- -------- ------ 292 (139) - - - (19) 134 ------ ------- -------- ------ -------- -------- ------ Financialassets:tradinginvestments 4 - - - 2 - 6Derivativefinancialinstruments (19) - - - 9 1 (9)Bank loans (2,152) (538) (362) - (6) 89 (2,969)Obligationsunder financeleases (75) 16 (4) (19) - 3 (79) ------ ------- -------- ------ -------- ------- -------Total net debt (1,950) (661) (366) (19) 5 74 (2,917) ------ ------- -------- ------ -------- ------- ------- 12 Acquisitions In all acquisitions during the half year to 31 January 2007, the Group acquired100% of the issued share capital, and has accounted for the transaction by thepurchase method of accounting. Fair Provisional Book values value fair values acquired alignments acquiredAll acquisitions £m £m £m Intangible fixed assets- Customer relationships - 266 266- Trade names and brands - 236 236- Other - 6 6Property, plant and equipment 254 227 481Inventories 306 (24) 282Receivables 327 (1) 326Cash, cash equivalents and bank overdrafts 11 - 11Borrowings (366) - (366)Payables and provisions (487) (1) (488)Deferred tax (39) (172) (211)Retirement benefit obligations (15) - (15) Total (9) 537 528Goodwill arising 781 Consideration 1,309 Satisfied by:Cash 1,260Deferred and contingent consideration 43Directly attributable costs 6Total consideration 1,309 The fair value adjustments shown above are provisional figures, being the bestestimates currently available. Further adjustments to goodwill and otherintangible fixed assets may be necessary when additional information becomesavailable. Notes to the condensed interim financial information for the six months ended 31January 2007 12 Acquisitions (continued) A list of businesses acquired during the period, and the month of acquisition,is as follows: Water Works Suppliers Inc. August 2006Palermo Supply Co., Inc. et al August 2006Lunts Heath Limited August 2006Sigmatec SAS August 2006United Automatic Heating Supply Ltd September 2006Morris Insulation Limited, et al September 2006DT Group A/S September 2006Atout K-RO September 2006Castle Group October 2006Northern Water Works Supply, Inc October 2006Murdock EDC Limited & Murdock Haworth Limited October 2006Helatukku Finland Oy October 2006Gulf Refrigeration Supply Inc. October 2006Kandall Fabricating & Supply Corporation KF Industries LLC October 2006Lee Window & Door Company October 2006Perfection Truss Company, Inc. October 2006Woodcote stavebni materialy, a.s. October 2006Adelgaard Byggeforum October 2006Hjalmars Tra AB November 2006Ditac SAS November 2006Kempsville Building Materials, Inc. November 2006Hudson Plumbing Supplies Limited November 2006Etablissements Pochon Felix December 2006Onda-Lay Pipe & Rental, Inc. December 2006T'N'T Sales , Inc. trading as Page's Appliances December 2006Tonto Verde Construction, Inc. and Precision Forest Products, LLC December 2006Guntersville Fabrication and Sprinkler Co, Inc. and Guntersville Pipe and Supply December 2006R J Hosking Building Supplies Limited December 2006Kopex Groothandel in Sanitaire Installatie Artikelen BV et al December 2006Cal-Steam Supply, Inc December 2006Superbygg Kalaallit Nunaat A/S January 2007 All these businesses are engaged in the distribution and supply of constructionmaterials and services. The acquisitions contributed £758 million to revenue, £39 million to tradingprofit and £28 million to the Group's operating profit for the period betweenthe date of acquisition and the balance sheet date. If each acquisition had been completed on the first day of the financial year,Group revenue would have been £8,328 million and Group trading profit would havebeen £435 million. 13 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 $1.9198 to the £1 compared to $1.7604 for the comparable period last year, adecrease of 8.3%, and €1.4850 to the £1 compared to €1.4619 a decrease of 1.6%.Should the exchange rates between the US$ and £, and the • and the £, remain atthe 31 January 2007 spot rates ($1.9637 and €1.5065) then the averages for theyear as a whole would be $1.9401 and €1.4949 and this would have the effect ofdecreasing revenue and trading profit for the first half by £50 million and£3 million, respectively. Independent review report to Wolseley plc IntroductionWe have been instructed by the company to review the financial information forthe six months ended 31 January 2007 which comprises the consolidated interimbalance sheet as at 31 January 2007 and the related consolidated interimstatements of income, cash flows statement, statement of recognised income andexpense for the six months then ended and related notes. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 January 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon19 March 2007 Notes: (a) The maintenance and integrity of the Wolseley plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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