22nd Jan 2007 07:02
Wolseley PLC22 January 2007 NEWS RELEASE 22 January 2007 Wolseley plc Pre-Close Period Trading Statement for five months to 31 December 2006 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 five months to 31December 2006, prior to entering its close period. The interim results for thesix months ending 31 January 2007 are due to be announced on 19 March 2007. Overview As indicated in the Group's AGM statement on 29 November 2006, the Group hasbeen affected by the continuing slowdown in the housing market and lower lumberprices in the USA. For the five months ended 31 December 2006, the effect ofthese factors has been partially offset by good organic revenue growth in the USplumbing and heating business (Ferguson), an improved performance in continentalEurope and the contribution from acquisitions. After currency translation and including the effect of acquisitions, Grouprevenue for the five months to 31 December 2006 was up by around 15%, includingaround 3% organic growth. Trading profit for the same period was slightly lower.In constant currency, revenue and trading profit would have been around 5%higher. The Group's trading margin for the five month period is lower than theequivalent period in the prior year primarily due to the lower margins in NorthAmerica and Wolseley UK, commodity price gains last year which were not repeatedand additional investments in the business to position the Group for furthergrowth. Group profit before tax and before amortisation of acquired intangibles for thefive months to 31 December 2006 was around 14% lower after reflecting certainone-off costs and a higher interest charge relating to the recent acquisitionspend and increased interest rates. Further details of market conditions in each of the Group's business segmentsare set out below. North America In North America, revenue in the five months to 31 December 2006 in sterling,including acquisitions, increased by around 2% compared to the correspondingperiod in the prior year. Trading profit was down by around 15%, after chargingone off costs relating to headcount reductions and branch closures. In the USA, new housing starts have fallen more sharply than originallyexpected, but the repairs and remodelling market ("RMI") and the commercial andindustrial sectors continue to hold up. Aggregate local currency revenue fromthe Group's US businesses was around 10% higher and US trading profit was downby around 8%. US Dollar weakness has led to an 8% adverse currency translationimpact when US trading profits are reported in sterling. The US plumbing operations (Ferguson) produced good growth, albeit at a slowerrate, with revenue in local currency for the five months to 31 December 2006 upby more than 15%. Organic growth was nearly 10%. Trading profit was up by around10% on the equivalent period in the prior year. The slightly lower tradingmargin reflects the lower level of commodity price inflation, the initial effectof acquisitions and the effects of the weakening new residential markets whichhas necessitated headcount reductions of around 500 people in the softermarkets. At Stock Building Supply ("Stock"), local currency revenue and trading profithave also been impacted by the continued slowdown in the new residential marketresulting in increased price competition and also by the significantly lowerlumber and structural panel prices. Housing starts in the USA have fallen froman average annual rate of 2.1 million for the five months to 31 December 2005 to1.6 million in the comparable period in 2006. There continues to be significantregional variations. Lumber and structural panel prices, which when combinedaccount for around 45% of Stock's revenues, have fallen by 22% and 35%,respectively. Including the impact of acquisitions, local currency revenue forthe first five months of the current financial year was slightly down. Organicsales volumes were down by around 9% compared to the 22% decline in averagehousing starts. Trading profit was down by around 45%, after charging one offcosts of around $11 million relating to 22 branch closures and headcountreductions of around 3,500. The cost base will continue to be kept under reviewin response to changing market conditions. In Canada, business from the exploration industries in Western Canada has slowedas a result of warmer weather, lower gas prices and higher inventory levels.Against this background, Wolseley Canada achieved modest revenue and tradingprofit growth compared to the equivalent period in the prior year. Europe In Europe, revenue in sterling, including acquisitions, increased by around 40%in the five months to 31 December 2006, whilst trading profit was up by around25%. Excluding DT Group, European revenues and trading profit were up by morethan 15% and around 5%, respectively. Wolseley UK, including Ireland, achieved revenue growth of around 20%, includingdouble digit organic growth, reflecting generally improving trading conditionsacross most brands. Trading profit was only slightly up. The trading margin waslower as a result of more aggressive pricing and additional investments inpeople and facilities, including the new national distribution centre inLeamington Spa. In France, government tax incentives continue to underpin growth in the newresidential market, but repairs, maintenance and improvement ("RMI"), theprincipal driver of both Brossette and PBM, continues to show only modestgrowth. PBM achieved revenue growth in excess of 15%, approximately half ofwhich was organic and also improved its trading margin, after adjusting forone-off items in the corresponding period in the prior year. Against thebackground of ongoing restructuring, Brossette produced a much improvedperformance with organic revenue growth in excess of 5% and trading profit up bynearly 10% on a comparable basis. This restructuring will continue into 2007/8,principally in relation to its distribution network. Trading in the Nordic region by DT Group in its first three months of Wolseleyownership was encouraging and continued to exceed expectations at the time ofacquisition. Central Europe showed strong revenue growth, despite most markets remainingbroadly flat. Overall, in sterling, revenue in Central Europe was up around 20%with the majority being organic growth and the trading margin also improved. Thebusinesses in Switzerland and the Netherlands continued to show particularlygood growth. Financial Group gearing, as at 31 December 2006, of around 95.6% at current exchange ratescompares to 75.2% at 31 July 2006. The higher gearing reflects acquisition spendand a higher level of capital expenditure, partly offset by the share placing of£655 million on 25 September 2006 and strong operating cash flow. In the firstfive months to 31 December 2006, a total of 29 bolt on acquisitions have beencompleted for an aggregate consideration of approximately £328 million. These 29acquisitions are expected to add approximately £560 million to Group revenue ina full year. In addition, on 25 September 2006, the Group completed theacquisition of DT Group for an estimated consideration of £1,353 million whichbrings aggregate acquisition spend for the year to £1,681 million. Outlook In the USA, the housing market is expected to continue to remain soft for thenext several months, but with significant regional variations. As the yearprogresses, the relative performance of Stock should improve as the housingstarts and lumber/panel price comparators become more favourable and thebenefits of the cost reduction programme are realised. The RMI and commercialand industrial markets are expected to continue to hold up. Ferguson shouldincrease its market share and achieve good levels of organic revenue growth,albeit at a more modest rate than the first five months. Where there are signsof slowing residential markets, action will continue to be taken to reduce thecost base. In the UK, the gradual improvement in the RMI and housing markets is expected tobe maintained, although it is too early to assess whether recent interest rateincreases may have an adverse impact on consumer and housing relatedexpenditure. Growth in the French RMI market is likely to remain modest,although sales trends are expected to continue to improve. The outlook for themarkets in which DT Group operates remain positive. The Central Europeanoperations are expected to continue to progress well. The Board remains confident of the Group's ability to outperform the markets inwhich its principal businesses operate. The Group has initiated a substantialreview of its cost base, the benefits of which will increasingly materialise inthe second half and will reinforce the Group's plans for future margin growth.Although the uncertainties relating to the future direction of the US housingmarket are likely to remain throughout the second half, the Board currentlyexpects the Group to make progress for the financial year as a whole. Chip Hornsby, Group Chief Executive of Wolseley, said: "The Group continues to outperform in most of its principal markets. The currentactions being taken to adjust the operational cost base, whilst continuing toinvest in the business, will position the Group for sustained growth and marginimprovement." Exchange Rates The average profit and loss account translation rate for the first five monthswas $1.91 to the £1 compared to $1.76 for the comparable period last year, afall of 8.1%, and €1.48 to the £1 compared to €1.46, a fall of 1.3%. Trading profit, a term used throughout this announcement, is defined asoperating profit before amortisation of acquired intangibles. Trading margin isthe ratio of trading profit to sales stated as a percentage. There will be an analyst/investor meeting today at 9.30 a.m. taking place atUBS, 1 Finsbury Avenue, London, EC2. A dial-in facility will be available for this meeting: UK Toll Free dial-in 0800 032 3808 International dial-in +44 (0)207 3651855 ID Wolseley Slides to accompany the call will be available from 09.15 a.m. onwww.wolseley.com. A replay facility will be available until 31st January 2007 by dialling: UK Toll Free 0800 559 3271 International +44 (0)20 7365 1827 US Toll Free +1 866 239 0765 US Toll +1 718 354 1112 Replay Passcode 4791040# ENQUIRIES: Guy Stainer 0118 929 8744Head of Investor Relations 07739 778187 John English 001 513 771 9000Vice President, Investor Relations, 001 513 328 4900 North America Brunswick 020 7404 5959Andrew FenwickNina Coad 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. 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 79,000 employees operating in 27 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 and Barbados. Wolseley is listed on the London and New York StockExchanges (LSE: WOS, NYSE: WOS) and is in the FTSE 100 index of listedcompanies. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Ferguson