18th Jul 2005 07:00
Wolseley PLC18 July 2005 NEWS RELEASE Wolseley plc Pre-Close Period Trading Statement for 11 months to 30 June 2005, Update on Eight Recent Acquisitions and Impact of IFRS on First Half Results Wolseley plc, the world's largest specialist trade distributor of plumbing andheating products to professional contractors and a leading supplier of buildingmaterials, issues its regular trading statement for the 11 months to 30 June2005, prior to entering its close period. It also announces details of a furthereight acquisitions for an estimated combined consideration of approximately £171million and restates its first half results for the six months to 31 January2005 in accordance with International Financial Reporting Standards ("IFRS").The preliminary results for the 12 months ending 31 July 2005 are due to beannounced on 26 September 2005. Trading Update Overview Business conditions in the Group's principal markets have been broadly in linewith comments made in the Interim Results statement on 21 March 2005. Asexpected, the rate of growth in the second half of 2005 has been slower than inthe first half due to the strong comparators in the second half of 2004, theabsence of commodity price gains in products such as copper, steel, plastics andlumber and a slowing in the UK market. During the second half, investments inhuman resources, logistics and new branches have been accelerated to positionthe Group for continued growth. The Group's results for the first 11 months to 30 June 2005 show a strongincrease in sales and profits driven by high rates of organic growth in NorthAmerica and good growth in the UK, albeit at a slower rate in recent months. Themarkets in Continental Europe continue to be broadly flat, although all of theGroup's businesses showed sales growth. The Group's trading margin for theperiod is also ahead of the equivalent period in the prior year. After currency translation and including the effect of acquisitions, Group salesfor the 11 months to 30 June 2005 were up by more than 10% and trading profit upby more than 15% on the same period in 2004. The adverse currency translationeffect was approximately £292 million on sales and £18 million on tradingprofit, broadly representing an additional 3% on the reported sterling figures. Further details of market conditions in each of the Group's business segmentsare set out below. North American Plumbing and Heating Distribution In the US, housing related activity has been strong, with the repairs andremodelling market benefiting from the more positive economic environment. Thecommercial and industrial sectors continue to improve. The US plumbing operations performed strongly with sales in local currency forthe 11 months to 30 June 2005 up by 20%, and trading profit up by 25% on theequivalent period in the prior year. More than half of the sales growth wasorganic, including the beneficial effects of commodity price inflation inproducts such as copper, steel and plastics in the first half. This followsapproximately $30 million of additional trading profit attributed to commodityprice increases in the second half of 2004 which has not been repeated in thesecond half of 2005. For the 11 month period, the net margin remains up on thecomparable period in the prior year. This is despite the lower benefit fromcommodity price inflation and reflects the decision to increase the investmentin people, logistics and new branch openings in the second half of the year. Ferguson's market outperformance continues to be driven by the commercialadvantage gained from its distribution centre network and from management'sfocus on achieving organic growth in selective markets. The latest distributioncentre in Iowa opened in May 2005 and the rollout of the XpressNet storescontinues with the 60th store expected to open before the end of July 2005. Tosupport this continued growth, Ferguson has added an additional 3,300 employeessince 1 August 2004, including approximately 850 new college graduates. As previously announced, as a result of a review of revised contractualarrangements and following the guidance contained in Application Note G to FRS5,with effect from 1 August 2004 the recorded sales value in Ferguson's IntegratedSupply Division represents the gross profit rather than the gross sales valuewhich was recorded in the year to 31 July 2004. The effect of this change in the11 months to 30 June 2005, which has no effect on profit, is to reduce sales by$187 million. There is, consequently, a positive impact on the trading margin ofFerguson for the 11 month period of 0.2%. In Canada, the construction and housing markets remained strong. In localcurrency, Wolseley Canada achieved a double-digit increase in both sales andtrading profit over the equivalent 11 month period in the prior year, althoughthere is recent evidence of some increased pressure on gross margins. US Building Materials Distribution US Building Materials sales in US$ were up more than 15% for the first 11 monthsand trading profits up by more than 25% compared to the equivalent period in theprior year. Organic sales growth was more than 10%. The continued strength of the US housing market is illustrated by the level ofhousing starts which remain robust at between 1.8 million to 2.1 million perannum and the inventory of unsold houses at around 4.2 months, which comparesfavourably to the long-term average of around 6 months. Commodity lumber prices, which directly affect approximately 35% of StockBuilding Supply's product range, held up well in the period. For the 11 monthsto 30 June 2005, average lumber prices of $402 per thousand board feet were 7%up on the prior comparable period average of $374 per thousand board feet. Theincreased sales benefit from higher lumber prices was almost entirely offset bythe 20% price decline to $406 per thousand square feet in structural panels,which directly affect a further 13% of Stock Building Supply's product range.Lumber and structural panel prices are currently slightly lower than a year ago. Both the trading margin and the return on capital of Stock Building Supply areshowing substantial increases on the prior year. European Distribution In European Distribution, sales and trading profit in the 11 months to 30 June2005 in sterling were both up by around 10% compared to the same period in theprior year, with the trading margin improving slightly. Wolseley UK has continued to outperform a slowing UK market with sales andtrading profit both showing double-digit increases for the 11 months to 30 June2005. More than 5% of the sales growth was organic. The commercial sector,including government spending, continues to show a positive trend. The tradingmargin was negatively impacted by the higher pension, rebranding andrestructuring costs that were announced previously. Property gains of around £10million have been realised in the 11 months to 30 June 2005. In France, government tax incentives underpin growth in the new residentialmarket, but repairs, maintenance and improvement ("RMI"), the principal driverof both Brossette and PBM, continues to show only marginal growth. Brossette'sresults continue to reflect the disruption caused by its reorganisation of thebranch and management structure and distribution network. For the 11 months to30 June 2005 sales were up only slightly compared to the similar period in theprior year, whilst profits were down. PBM performed in line with expectationswith local currency sales up more than 3% and the trading margin improving. In the rest of Continental Europe there was a mixed picture with all of theGroup's businesses showing sales growth, despite most markets remaining broadlyflat. During the period the decision was taken to invest €20 million in a new centraldistribution centre in northern Italy to support the growing business there,following the acquisition of Iser Zauli in January 2005. Work is alsoprogressing on Wolseley UK's new national distribution centre in Leamington Spa.These facilities are expected to be completed around autumn 2006. Financial The Group's financial position remains strong with Group gearing, as at 30 June2005, of around 52% at current exchange rates (compared to 55.1% at 31 January2005). The gearing reflects acquisition spend offset by strong operating cashflow. The interest charge is higher than the corresponding period in the prioryear due to interest rate rises and the higher level of average borrowings. Outlook Market conditions in North America are expected to remain strong for theforeseeable future. Although the market in the UK has slowed in recent months,the Group expects its UK business to continue to show modest growth. InContinental Europe the Group's principal markets are likely to remain flat. Exchange Rates The average profit & loss account translation rate for the first 11 months was$1.8593 to the £1 compared to $1.7466 for the comparable period last year, afall of 6.1%, and €1.4596 to the £1 compared to €1.4593. Trading profit, a term used throughout this announcement, is defined asoperating profit before goodwill amortisation. Trading margin is the ratio oftrading profit to sales stated as a percentage. Acquisitions Update Since Wolseley's last acquisitions update announcement on 7 April 2005, anadditional eight distribution businesses in Europe and North America have beenacquired for an aggregate consideration of approximately £171 million in cash,including an estimated amount for consideration relating to earn-outarrangements based on future profits. These acquisitions bring Wolseley's total spend on acquisitions, including debtacquired, since the beginning of the financial year, to approximately £430million. In total, the 26 acquisitions completed to date are expected to addapproximately £771 million to Group turnover in a full year. Goodwill related tothese 26 acquisitions is estimated to be around £213 million. These additional eight acquisitions have been made from a variety ofindividuals, trusts, companies and other business entities. Further details areset out below. European Distribution In May 2005, Brossette in France acquired two companies, namely, Serge BarralSARL ('Barral') and Dispotherm. Barral is a distributor of plumbing, heating and sanitary products operatingfrom a single branch close to Lyon. It achieved sales of €3.2 million (£2.2million) in the year to 31 December 2004 and had gross assets of €1.4 million(£1.0 million) at that date. Dispotherm is a distributor of spare parts and accessories to heating and airconditioning installers. Operating from a single branch in Poitiers, centralFrance, Dispotherm achieved sales of €0.1 million (£0.1 million) in the year to30 September 2004 and had gross assets of €0.1 million (£0.1 million) at thatdate. North American Plumbing and Heating Distribution In May 2005, Ferguson acquired the trade and assets of United Supply &Distributing ("US&D"). US&D is a distributor of HVAC products operating fromthree branches in Maryland and Virginia. In the year ended 31 December 2004, US&D had sales of $13.6 million (£7.6 million) and gross assets of $5.1 million(£2.9 million) at that date. In June 2005, Ferguson acquired Webb Distributors Inc. ("Webb"). Webbdistributes HVAC equipment through seven branches, principally in the greaterPhoenix, Arizona area. In the year ended 28 February 2005, Webb had sales of$50.0 million (£28.1 million) and gross assets of $23.4 million (£13.1 million)at that date. US Building Materials Distribution In April 2005, Stock Building Supply ("Stock") acquired J.C. Baldridge Lumber("Baldridge") based in Albuquerque, New Mexico. Baldridge was founded in 1881and is Stock's first operation in the state of New Mexico. Operating from asingle branch, Baldridge supplies building materials, lumber and architecturalproducts to professional home builders and light commercial contractors. It hadsales of US$33.1 million (£18.6 million) for the year ended 31 December 2004 andgross assets of $4.4 million (£2.5 million) at that date. In May 2005, Stock acquired Adams Building Materials ("Adams"), a distributor ofbuilding materials to the professional contractor in central Florida. Operatingfrom seven locations, Adams had sales of US$90.7 million (£50.9 million) for theyear ended 30 September 2004 and gross assets of $20.9 million (£11.7 million)at that date. In July 2005, Stock acquired two further businesses, namely, Vegas GeneralConstruction and its affiliates ("Vegas") and East Haven Builders Supply ("EastHaven"). Vegas is a turnkey supplier of construction materials and services to theresidential builder in the Las Vegas and Denver markets. The acquisition ofVegas represents Stock's first operation in Las Vegas, one of the largesthousing markets in the USA. Vegas had sales of US$231.0 million (£130.0 million)for the year ended 31 December 2004 and gross assets of $50.1 million (£28.1million) at that date. East Haven is a distributor of building materials, timber and kitchen cabinetsto the professional contractor in the state of Connecticut and representsStock's initial entrance into the state of Connecticut. East Haven, operatingfrom four facilities, had sales of US$72.1 million (£40.5 million) for the yearended 31 December 2004 and gross assets of $17.9 million (£10.1 million) at thatdate. Following these acquisitions, Stock now operates in 30 states in the USA. The segmental split of the total acquisition spend since 1 August 2004 has been: Division No. of Acquisitions Spend £ million European Distribution 10 161North American Plumbing & Heating Distribution 10 103US Building Materials Distribution 6 166 TOTAL 26 430 Exchange Rates The following exchange rates have been used for the acquisitions noted above:£1 = $1.78, £1 = €1.46. Adoption of International Financial Reporting Standards ("IFRS")Wolseley plc has today published a statement setting out the restatement inaccordance with International Financial Reporting Standards ("IFRS") of itsunaudited interim results for the half year ended 31 January 2005. Copies of thestatement are available on the company's website www.wolseley.com in the"Investor Centre" section. Adoption of IFRS would have increased the Group's operating profit for the sixmonths to 31 January by £13.4 million (4.4%) to £314.9 million and its profitbefore tax by £9.6 million (3.3%) to £296.8 million. The net assets of the Groupat 31 January 2005 would have reduced by £65.2 million (3.2%) to£1,961.1 million and net debt would have increased by £26.3 million (2.3%) to£1,141.9 million. This would have resulted in an increase in gearing from 55.1%to 58.2%. As noted in previous announcements relating to the adoption of IFRS, theprincipal areas of impact are in respect of leases, taxation, pensions,goodwill, other intangible assets and stock compensation. The Group's first fullset of audited IFRS financial statements will be those for the year ending 31July 2006. Further information on the restatement of the Group's financial statements forthe year to 31 July 2005 will be provided in November 2005, after thepublication of the Group's full year results to 31 July 2005 prepared under UKGAAP. The summary below shows how the Group's financial highlights prepared under UKGAAP would have been reported if they had been prepared in accordance with IFRS. Reported under Adjustments Restated under UK GAAP IFRS £m £m £m------------------------------- ---------- --------- ----------Half year ended 31 January 2005 Group revenue 5,331.9 - 5,331.9---------------------- ---------- --------- ---------- Group trading profit(1) 322.3 (5.9) 316.4Group operating profit 301.5 13.4 314.9---------------------- ---------- --------- ---------- Group profit before tax 287.2 9.6 296.8Group profit before tax andamortisation of intangibleassets 308.0 (9.7) 298.3---------------------- ---------- --------- ---------- Basic earnings per share 34.86p 1.46p 36.32pEarnings per share, beforeamortisation of intangibleassets 38.40p (1.83)p 36.57p---------------------- ---------- --------- ----------As at 31 January 2005 Total net assets 2,026.3 (65.2) 1,961.1Gearing(2) 55.1% 3.1% 58.2%---------------------- ---------- --------- ---------- (1) Trading profit is defined as operating profit before the amortisation ofintangible assets.(2) Gearing is the ratio of net borrowings, excluding construction loanborrowings, to shareholders' funds. The European Commission may not endorse all the pronouncements issued to date bythe International Accounting Standards Board, new interpretations may be issuedon existing accounting and financial reporting standards and best practicecontinues to evolve. It is therefore possible that the IFRS financialinformation provided in this news release and the statement on thewww.wolseley.com website might have been revised by the time it forms thecomparative to the Group's first interim results announcement under IFRS (forthe six months ended 31 January 2006). Charlie Banks, Group Chief Executive of Wolseley, said: "We are on track to achieve another good performance across our businesses thisyear. Our principal operating companies continue to successfully increase theirlocal market shares and improve their financial performance. Although Europeremains slow, the three North American businesses all enjoyed record monthlysales in June and this encourages us for the months ahead. Furthermore, theacquisitions and other investments we have announced today provide a furtherplatform for future growth." Certain statements included in this announcement may be forward-looking and mayinvolve risks, assumptions and uncertainties that could cause actual results todiffer materially from those expressed or implied by the forward lookingstatements. Forward-looking statements include, without limitation, projectionsrelating to results of operations and financial conditions and the Company'splans and objectives for future operations including, without limitation,discussions of the Company's business and financial plans, expected futurerevenues and expenditures, investments and disposals, risks associated withchanges in economic conditions, the strength of the plumbing and heating andbuilding materials market in North America and Europe, fluctuations in productprices and changes in exchange and interest rates. All forward-lookingstatements in this respect are based upon information known to the Company onthe date of this announcement. The Company undertakes no obligation to publiclyupdate or revise any forward-looking statement, whether as a result of newinformation, future events or otherwise. It is not reasonably possible toitemise all of the many factors and events that could cause the Company'sforward-looking statements to be incorrect or that could otherwise have amaterial adverse effect on the future operations or results of the Company. There will be analyst/investor meeting today at 9.30 a.m. taking place at UBS, 1Finsbury Avenue, London, EC2. A dial-in facility will be available for this meeting:UK dial-in 020 7162 0089International dial-in +44 20 7162 0089US toll free dial-in +1 877 491 0064 A replay facility will be available until 1 August 2005 by dialling:UK freephone 0800 358 1860 (UK only)UK & International +44 (0)20 7031 4064 Pass code 665761 US dial-in +1 954 334 0342Free phone +1 888 365 0240 Passcode 665761 Press/Investor Enquiries: Wolseley plc 0118 929 8700 Guy StainerHead of Investor Relations Brunswick 020 7404 5959 Andrew FenwickDeborah Done Notes to Editors Wolseley plc is the world's largest specialist trade distributor of plumbing andheating products and a leading supplier of building materials to professionalcontractors in North America, the UK and Continental Europe. Group sales for theyear ended 31 July 2004 were approximately £10.1 billion and operating profit,before goodwill, was £619 million. Wolseley has more than 55,000 employeesoperating in 13 countries namely: UK, USA, France, Canada, Ireland, Italy, TheNetherlands, Switzerland, Austria, Czech Republic, Hungary, Luxembourg andDenmark. Wolseley is listed on the London and New York Stock Exchanges (LSE:WOS.L, NYSE: WOS) and is in the FTSE 100 index of listed companies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ferguson