Wolseley plc announces a tenth set of record first half results
CINCINNATI, March 21 /PRNewswire-FirstCall/ -- Summary of Results
Financial highlights Change Half year to Half year to Reported In
January 31 January 31 constant 2006 2005 currency mil. pounds mil.
pounds % % Group revenue 6,734.5 5,331.9 +26.3 +22.3 Group trading
profit (1) 384.9 315.6 +21.9 +17.8 Group operating profit 371.1
314.9 +17.8 +13.7 Group profit before tax, before amortization of
acquired intangibles 359.8 297.5 +20.9 +17.1 Group profit before
tax 346.0 296.8 +16.6 +12.9 Earnings per share, before amortization
of acquired intangibles 43.91p 36.44p +20.5 +17.6 Basic earnings
per share 41.58p 36.32p +14.5 +11.7 Interim dividend per share
9.85p 8.80p +11.9 - Group revenue up 26.3%, including organic
growth of 12.2%. - Significant increase in Group half year profits:
- Operating profit up 17.8% - Trading profit up 21.9% - Profit
before tax and before amortization of acquired intangibles up
20.9%. - Operating cash flow of 258.1 million pounds Sterling
(2005: 303.1 million pounds). Reduction compared to prior year
principally reflects higher rates of organic growth in North
America. - Strong financial position with gearing(2) of 68.1%
(2005: 58.6%) and interest cover(3) of 15 times (2005: 21 times). -
Return on gross capital employed (ROGCE(4)) at 18.8%, well ahead of
the Group's weighted average cost of capital and demonstrating
significant shareholder value creation. Operating highlights -
Record first half results achieved, despite generally flat European
markets and significant investment in the business to position the
Group for continued growth. - Increased diversity of the business
as the Group has expanded into distribution of electrical products
and insulation materials, achieved an entry into the Belgian market
and increased its presence in installed services in the USA. -
North American revenues up 40.1% and trading profit up 39.0%. -
European revenues up 7.6% but trading profit marginally down,
reflecting the more difficult market environment in the UK and
restructuring in France. UK and Ireland revenues up 9.3%, including
1.5% organic growth and trading profit up 5.9%. - Market
outperformance in all of the Group's principal markets except
France, mainly due to restructuring to accelerate future growth. -
Acquisition investment of 436 million pounds for 22 acquisitions
completed in the first half, which are expected to add 701 million
pounds of revenues in a full year. A further 162 million pounds of
investment in the second half so far to bring aggregate investment
to 598 million pounds, a record in any one year for the Group.
Outlook - Market conditions in North America are expected to remain
favorable and Wolseley's North American operations are expected to
make good progress in the second half. This is against the
background of an improving industrial and commercial market, a
growing RMI market and a strong housing market, although the number
of starts may show a small decline. - For Europe, overall, it is
likely that trading profit for the second half will be broadly flat
compared to the equivalent period in the prior year, reflecting the
generally flat market conditions. - The UK business expects to see
a gradual but steady improvement in the RMI and housing markets as
the second half progresses. - The business improvement initiatives
relating to information technology, supply chain, sourcing and
procurement will continue as the Group pursues its double-digit
growth targets. - The acquisition pipeline remains strong and the
Group will continue to pursue opportunities for product and
geographic diversity. - The Board expects another year of good
progress, driven by strong growth in North America and the benefits
from recent acquisitions. (1) Trading profit, a term used
throughout this announcement, is defined as operating profit before
the amortization of acquired intangibles. Trading margin is the
ratio of trading profit to revenues expressed as a percentage.
Organic change is the total increase or decrease in the year
adjusted for the impact of exchange rates, new acquisitions in 2006
and the incremental impact of acquisitions in 2005. (2) Gearing
ratio is the ratio of net borrowings, excluding construction loan
borrowings, to shareholders' funds. (3) Interest cover is trading
profit divided by net finance costs, excluding net pension related
finance costs. (4) Return on gross capital employed is the ratio of
trading profit (before loss on disposal of operations and goodwill)
to the aggregate of average shareholders' funds, minority
interests, net debt and cumulative goodwill written off. SUMMARY OF
RESULTS As at, and for the six months ended January 31 2006 2005
Change Revenue 6,734.5m pounds 5,331.9m pounds +26.3% Operating
profit - before amortization of acquired intangibles 384.9m pounds
315.6m pounds +21.9% - amortization of acquired intangibles (13.8)m
pounds (0.7)m pounds Operating profit 371.1m pounds 314.9m pounds
+17.8% Net finance costs (25.1)m pounds (18.1)m pounds Profit
before tax - before amortization of acquired intangibles 359.8m
pounds 297.5m pounds +20.9% - amortization of acquired intangibles
(13.8)m pounds (0.7)m pounds Profit before tax 346.0m pounds 296.8m
pounds +16.6% Earnings per share - before amortization of acquired
intangibles 43.91p 36.44p +20.5% - amortization of acquired
intangibles (2.33)p (0.12)p Basic earnings per share 41.58p 36.32p
+14.5% Dividend per share 9.85p 8.80p +11.9% Net borrowings
1,670.7m pounds 1,144.0m pounds Gearing 68.1% 58.6% Interest cover
(times) 15x 21x Operating cash flow 258.1m pounds 303.1m pounds
Charles Banks, Wolseley plc Group Chief Executive said: "We are
delighted to report record half-year results for the tenth
consecutive time. Overall, revenue increased by more than 26% and
trading profit was up more than 21%. We are continuing to invest
significantly in further improving our supply chain, sourcing and
procurement to deliver growth and enhanced operational efficiency.
The business is performing well, we are finding good acquisitions
and the economic outlook for the rest of the year gives us
confidence going forward." An interview with Charles Banks, Group
Chief Executive and Steve Webster, Group Finance Director, in
video/audio and text will be available from 0700 on
http://www.wolseley.com/ and http://www.cantos.com/ There will be
an analyst and investor meeting at 0930 at UBS Presentation Suite,
100 Liverpool Street, London EC2M 2RH. A live audio cast and slide
presentation of this event will be available at 0930 on
http://www.wolseley.com/. There will be a conference call at 1500
(UK time): UK/European dial-in number: + 44 (0)20 7162 0125 US
dial-in number: + 1 334 323 6203 The call will be recorded and
available for playback until April 4, 2006 on the following
numbers: UK/European replay dial-in number: +44 (0)20 7031 4064
Passcode: 695501 UK-only free phone number: 0800 358 1860 North
American replay dial-in number: +1 954 334 0342 Passcode: 695501
North American free phone number: +1 888 365 0240 Announcement of
Interim Results Wolseley (NYSE:WOS) (LSE:WOS.L), the world's
largest specialist trade distributor of plumbing and heating
products and a leading supplier of building materials and services
to professional contractors, is pleased to announce another set of
record first half results, the tenth consecutive improvement in its
interim figures. These results reflect strong organic growth,
particularly in North America and the additional contribution from
acquisitions. They have been achieved whilst the Group continues to
invest in people, facilities and technology to secure future
growth. Wolseley's US plumbing and heating business, Ferguson,
performed very strongly in the first six months of the year,
achieving organic revenue growth of 27.0% and trading profit
growth, including acquisitions, up 36.4%. Stock Building Supply
("Stock") achieved growth in revenue, including acquisitions, of
34.0% and trading profit up 59.6%. The businesses in the UK,
Ireland, Canada, the Netherlands, Italy and Switzerland also
performed well in their respective markets although Brossette in
France lost ground mainly due to its restructuring. After taking
account of currency translation, Group revenue increased by 26.3%
from 5,331.9 million pounds to 6,734.5 million pounds. Trading
profit rose by 21.9% from 315.6 million pounds to 384.9 million
pounds. After deducting amortization of acquired intangibles of
13.8 million pounds (2005: 0.7 million pounds), operating profit
increased by 17.8% from 314.9 million pounds to 371.1 million
pounds. On a constant currency basis, Group revenue increased by
22.3% and trading profit by 17.8% for the first six months compared
to the previous comparable period. Currency translation increased
Group revenue by 175.8 million pounds (3.3%) and Group trading
profit by 11.3 million pounds (3.6%) in the six month period.
Profit before tax and amortization of acquired intangibles
increased by 20.9% from 297.5 million pounds to 359.8 million
pounds. Profit before tax, after amortization of acquired
intangibles, increased by 16.6% from 296.8 million pounds to 346.0
million pounds. The increase in earnings per share before
amortization of acquired intangibles was 20.5%, from 36.44 pence to
43.91 pence. Basic earnings per share were up 14.5%, from 36.32
pence to 41.58 pence. North America Wolseley's North American
division performed strongly with significant rises in revenue and
profits, maintaining its position as the leading distributor of
construction products to the professional contractor in North
America. Reported revenue of the division was up 40.1% from 3,076.9
million pounds to 4,309.3 million pounds, reflecting organic growth
of 19.2%, acquisitions and the beneficial impact of currency
translation. Trading profit, in sterling, increased by 39.1% from
194.2 million pounds to 270.0 million pounds, after North American
central costs. Currency translation increased divisional revenue by
181.5 million pounds (5.9%) and trading profit by 11.6 million
pounds (6.0%). There was a net increase of 175 branches in North
America from 1,434 at July 31, 2005 to 1,609 locations at January
31, 2006. North American central costs increased by 4.9 million
pounds, reflecting the creation of the new North American
management structure with effect from August 1, 2005. US Plumbing
and Heating Ferguson produced an outstanding performance generating
strong organic growth from its focus on selected markets, from new
branch openings and driving further commercial advantage from its
distribution centre ("DC") network. These factors contributed to
significant market outperformance in the first half. Local currency
revenue in the US plumbing and heating operations rose by 37.8% to
$4,530.5 million (2005: $3,287.1 million) with trading profit up by
29.5%. Organic revenue growth was 27.0%. Gross margin fell slightly
due to the absence of commodity price benefits in the first half
compared to the prior year, partly offset by the continuing
benefits from the distribution centre network, a focus on organic
growth and operational leverage. As expected, the trading margin of
6.5% was marginally lower in the first half compared to the prior
year's first half margin of 6.9%, which included one-off commodity
price gains. Volumes through the DC network grew by 44% in the
first half compared to the first half last year and more than 50%
of branch sales now go through the DC network. Further investment
continues in the DC's and in the first half an additional 200,000
square feet of capacity was added through the expansion of the DC
in McGregor, Texas. Further expansion of the DC network is planned
in the current financial year to build on Ferguson's competitive
advantage and Board approval has recently been given for new DC's
in Florida and northern California. Of the markets in which
Ferguson operates, housing related activity remained strong with
the more positive economic environment benefiting the repairs,
maintenance and improvement ("RMI") sector. RMI is becoming an
increasingly important element of overall construction spend in the
USA. To benefit from this opportunity, Ferguson is rolling out both
the XpressNet branch format and also continuing to expand its very
successful showrooms. Furthermore, greater emphasis is being placed
on opening new specialist branches for heating, ventilation, and
air-conditioning (HVAC) and waterworks and this focus should lead
to further growth opportunities. The commercial and industrial
sectors continue to show signs of improvement. Investment in people
and IT continued during the period. More than 2,500 people joined
the business and the rollout of the new warehouse management system
to large branches started. This should lead to better customer
service as a result of faster and more accurate product picking and
more accurate and efficient inventory management. Ferguson's total
branch numbers increased by 156 during the first half to 1,097
locations (July 31, 2005: 941). US Building Materials The strong
performance of Stock benefited from improved market focus which was
brought about by the recent business restructuring and from strong
organic growth, partly offset by lower lumber prices. Reported
figures also benefited from currency translation and slightly
higher structural panel prices. In local currency, Stock's revenue
was up 27.2% to $2,497.2 million (2005: $1,962.9 million) with
trading profit up by 51.5% from $104.0 million to $157.3 million.
Organic revenue growth was 7.9% reflecting some commodity price
deflation in lumber and structural panels. These commodity price
movements had the effect of decreasing Stock's local currency
revenue by $39 million (2.0%) in the first half compared to the
first half of last year. Acquisitions contributed $378 million
(19.3%) to revenue growth. Stock's trading margin increased
significantly from 5.3% to 6.3% primarily due to a more favorable
sales mix arising from increased value added products and installed
services. New housing, which accounted for 87% of the activity in
this business in the first half, has generally continued to be a
bright spot in the US economy. Aggregate housing starts during the
period continued at a high annual rate of around two million.
Whilst the inventory of unsold new homes has been rising recently,
reaching 5.2 months in January 2006, it remains below the long term
average of around 6 months, demonstrating the current strength of
the housing market. There continue to be significant variations in
regional housing markets in which Stock operates. The markets in
Florida, Georgia, Utah and the Carolinas have been strong. Texas
and California have enjoyed an improving trend although Michigan,
Ohio, Indiana, Colorado and the North East have been more
challenging. Plans to increase the range of value-added products
and services being offered and increase the penetration of the RMI
and commercial markets continue to be implemented. Value-added
sales were up 41%, installed business sales up more than 100% and
sales to commercial and RMI contractors increased by 10%. As well
as achieving this through its existing branch network and
acquisitions, Stock opened a number of new facilities and has
expanded its turnkey supply model from the Las Vegas market into
Denver. These initiatives further complement Stock's installed
service expertise. Stock's branch numbers increased by 17 during
the first half to 272 locations (July 31, 2005: 255). Since January
31, 2006, the branch opening program has continued so that Stock
currently operates in 33 states. The latest is a joint facility
with Ferguson in New Orleans, which takes Stock into Louisiana for
the first time. Wolseley Canada In Canada, the construction and
housing markets remained strong with the buoyant energy sector in
Western Canada helping sales in the industrial and commercial
sector. Local currency revenue increased by 14.9% to C$655.8
million (2005: C$570.7 million). More than 11% of the revenue
growth was organic, ahead of the market generally. Local currency
trading profit rose by 4.4% reflecting pricing pressure and the
investment to position the business for future growth. Work
continued to consolidate back offices, recruit additional people to
fill management and trainee positions and to improve logistics. The
second of three regional supply centres for larger inventory items
was opened in Quebec in October 2005. These regional supply centres
should lead to lower inventory levels and enable the branch network
to be utilized more effectively. Wolseley Canada's total branch
numbers increased from 238 to 240 locations. Europe The markets in
Europe showed very little growth in the first half. Nonetheless,
with the exception of CFM in Luxembourg, which had marginally lower
revenue, all of the Continental European operations increased
revenue and most achieved profit improvements. The results in
Europe also benefited from acquisitions and from the net benefit of
the matters unrelated to normal trading in France, described below.
Reported revenue for this division increased by 7.6% from 2,255.0
million pounds to 2,425.2 million pounds, of which 2% was from
organic growth. Recent acquisitions accounted for 129.8 million
pounds (5.8%) of revenue growth, including William Wilson and Encon
(UK) in October 2005 and Iser Zauli (Italy) in January 2005.
Trading profit, after the allocation of European central costs,
fell 3.0% from 139.3 million pounds to 135.2 million pounds.
European central costs rose by 2.7 million pounds due to the
planned expansion of the European infrastructure to drive future
growth initiatives. The overall divisional trading margin, after
the allocation of central costs, reduced from 6.2% to 5.6% of
revenue, primarily due to acquisitions and the lower trading
margins in Brossette and Austria. Margin improvements were achieved
in PBM (France), Manzardo (Italy), Cesaro (Czech Republic), Electro
Oil (Denmark) and Wasco (Netherlands). In the first six months a
further net 146 branches were added to the European network, giving
a total of 2,632 locations (July 31, 2005: 2,486). UK and Ireland
Wolseley UK's performance held up well against a UK market which is
estimated to be around 4% down on the prior period. Whilst the
fundamentals of the UK economy remained positive, with relatively
low interest rates and low unemployment, RMI spending slowed in the
first half of the financial year in response to weaker consumer
confidence. Government spending remains a relative bright spot
although there have been noticeable delays on planned social
housing expenditure. Against this more challenging background,
Wolseley UK, which includes Ireland, recorded a 9.3% increase in
revenue to 1,262.1 million pounds (2005: 1,155.0 million pounds).
Organic growth of 1.5% outperformed the market generally, with
Bathstore, the retail bathroom offering, and Heatmerchants and
Brooks, the Irish businesses, performing particularly well.
Wolseley UK's trading profit increased by 5.9% in the first half
compared to the equivalent period in the prior year mainly as a
result of the acquisitions of William Wilson and Encon in October
2005, both of which have outperformed expectations at the time of
acquisition. Although the trading margin increased before taking
account of the dilutive effect of acquisitions, Wolseley UK's
overall reported trading margin fell slightly from 7.3% to 7.1%.
The new national DC in Leamington Spa, which is to be located
alongside Wolseley UK's new headquarters, is expected to be
operational by autumn 2006. The regional DC, in the North West,
should open around a year later. These investments and the current
initiatives to centralize control of transport and branch inventory
management, should enhance customer service and support continued
growth in the business. Early trials from the central branch
replenishment program were very encouraging with improved inventory
turn and increased stock availability in the branches. Within
Wolseley UK, the Irish businesses, Heatmerchants and Brooks, both
produced double digit organic revenue growth, benefiting from a
strong local economy. During the first six months, 100 net new
locations were added in the UK and Ireland taking the total number
of branches for Wolseley UK to 1,670 (July 31, 2005: 1,570),
including 67 branches added as a result of the William Wilson and
Encon acquisitions. 23 new Bathstore branches were opened in the
first half and this opening program will continue in the second
half, together with new electrical and insulation branch openings
and the expansion of the Unifix direct sales offering, through mail
order and e-commerce channels to the RMI market. France In France,
government tax incentives continue to underpin growth in the new
residential market, but RMI, representing approximately two thirds
of revenue for both Brossette and PBM, continues to show only
marginal improvement against the background of little growth in the
overall economy, weak consumer confidence and persistent high
levels of unemployment. Wolseley's French operations generated
first half revenue up 2.6% to euro 1,170.3 million (2005: euro
1,140.3 million), including organic growth of 1.1%. Trading profit
for France was down to euro 52.4 million (2005: euro 59.2 million)
as a result of the lower level of profitability in Brossette. As
previously announced, the French results for the first half have
benefited from matters unrelated to normal trading. An outstanding
claim with the French customs authorities relating to wood import
duties has been settled in PBM's favor, resulting in a benefit to
trading profit and interest of euro 11.5 million (8 million pounds)
and euro 5 million (3 million pounds), respectively. In addition,
Brossette (together with many other French companies) has been
fined by the French Competition Authorities. A provision for euro
7.6 million (5 million pounds) has been charged against trading
profit in the period but relates to matters which took place more
than ten years ago. Overall, therefore, there was a net 3 million
pounds benefit at the trading profit level and 3 million pounds
benefit on the interest line arising from matters unrelated to
normal trading. Local currency revenue in Brossette was 2.3% up on
the first half last year. Trading profit was lower, before taking
account of the fine from the French Competition Authorities.
Brossette's results reflect the ongoing reorganization of the
district, branch and management structures and the move to
centralization of purchasing and logistics, all of which are
designed to enhance customer service and facilitate future
expansion. Another new customer delivery centre opened in the first
half. A significant number of management changes have been made
with associated one off severance costs. PBM achieved an increase
in revenue of 2.9% in local currency, more than half of which was
organic growth. The sales trends in PBM improved in the second
quarter and this upward momentum is expected to continue. Five new
satellites and ten hire locations were added in the first half and
a further six satellites and eight hire locations are planned for
the second half. The underlying trading profit, before taking
account of the wood import duties rebate referred to above and
other one off items, showed an improvement, as did the underlying
trading margin. PBM is expanding the number of joint sites with
Brossette and exploiting opportunities to create purchasing
synergies and indirect cost savings in co-operation with other
group companies. Central Europe Revenue in the Group's other
Continental European operations were up by 14.6% reflecting organic
growth of 6.3% and the benefit of acquisitions. Trading profit was
down due to the lower level of profitability in Austria. Tobler, in
Switzerland, had a strong half with revenue up 20%, including 13%
organic growth. Despite competitive market conditions putting some
pressure on prices and a change in the business mix to lower margin
products, trading profit was up 14%. During the first half, two new
branches were opened and three branches from previous acquisitions
were rebranded. OAG, in Austria, increased revenue slightly
although trading profit fell due to continued competitive pressure
on prices as a consequence of difficult housing and RMI markets and
business restructuring. In Hungary and the Czech Republic, local
market conditions remained difficult but both businesses improved
revenue, with Cesaro in the Czech Republic also increasing trading
profit. Hungary experienced a higher level of provisions for bad
debts reflecting slower payments from customers. In Italy, revenue
in the first half increased by 49% and profits more than doubled,
compared to the comparable period in the prior year, mainly due to
the acquisition of Iser Zauli in January 2005. Despite a flat
economy, the aggressive branch opening program of the past few
years continued to benefit Manzardo with organic revenue and
trading profit growth up more than 10%. Three new branches were
opened in the first half. Iser Zauli traded ahead of expectations
and is currently being integrated into the Manzardo operations. In
addition, purchasing synergies between the two companies have
exceeded expectations. This acquisition makes Manzardo one of the
largest companies in the Italian sanitary/heating market. Progress
on the euro 20 million new central DC in northern Italy continues.
This facility is expected to be completed around autumn 2006 and
will enable further expansion of the business. In The Netherlands,
Wasco continued to make good progress expanding its product range
into sanitary ware, developing its offering to the more profitable
RMI market and focusing on cost control. It achieved organic
revenue growth of 10% and trading profit improved by 27%. In
Luxembourg, CFM's revenue fell by 6% principally due to the absence
of large commercial orders for underground pipe that occurred in
the previous year. Centratec, the Belgian business acquired in
October 2005, performed in line with expectations and is now
working with Wasco and CFM to obtain improvements in sourcing,
logistics and inventory management. Interim Dividend The Board has
decided to pay an interim dividend of 9.85 pence per share (2005:
8.80 pence per share) to be paid on May 31, 2006 to shareholders on
the register on March 31, 2006, which will absorb 58.4 million
pounds of cash. This represents an increase of 11.9% over last
year's interim dividend and reflects the Board's confidence in the
future prospects of the Group and its strong financial position. It
is expected that the interim dividend will be approximately one
third of the total dividend for the year. The dividend reinvestment
plan will continue to be available to eligible shareholders.
International Integration and Infrastructure Developments In
support of the Group's ambitious growth targets and as part of its
continuous improvement program, Wolseley is bringing about greater
cohesion across its operating units through leveraging its
international purchasing, international sourcing and supply chain
efficiencies. To achieve this, the Group continues to make
investments in its infrastructure in terms of systems, logistics
and people, with employee numbers increasing from 60,000 to more
than 64,000 during the first half. With respect to IT systems
development, two years ago the Group announced plans to develop a
common technology platform. The first phase of this project
included the development of common financial applications across
the Group and, in parallel, a number of other common applications
were to be developed and piloted including packages for a warehouse
management system and a human resource application. The
implementation of the financial application is well on the way to
completion, with most of the Group's operating companies having
implemented the new system with the rest expected in the next 6
months. Work on the human resource package, which is at an early
stage of development, continues to progress. The warehouse
management system ("WMS"), which having been successfully piloted
in a Ferguson branch in the US, is currently being rolled out
across Ferguson's largest branches and will be used by locations in
Europe in due course, including the new DC's in Italy and the UK
which will open later this year. The Group continues with
initiatives such as global sourcing and creating a more efficient
supply chain, supported by the implementation of the WMS, described
above. Significant benefits are expected to arise over future years
from the Group's continuous improvement programs enabled by the
common technology platform. Through its investments today, the
Group is committed to creating a sustainable competitive advantage
to meet customers changing needs. This will be built around strong
human resources, supported by efficient processes, technology
driven supply chain management and logistics. Financial Review Net
finance costs of 25.1 million pounds (2005: 18.1 million pounds)
reflect an increase in Group debt as a result of acquisitions and
an increase in interest rates, partly offset by operating cash flow
and interest on the French customs refund. Net interest receivable
on construction loans amounted to 5.4 million pounds (2005: 4.3
million pounds). Interest cover was 15 times (2005: 21 times). The
effective tax rate decreased marginally from 28.3% to 27.9%. The
effective tax rate for the half-year to January 31, 2006 is
consistent with the rate expected for the year to July 31, 2006.
Before the amortization of acquired intangibles, earnings per share
increased by 20.5% from 36.44 pence to 43.91 pence. Basic earnings
per share were up by 14.5% to 41.58 pence (2005: 36.32 pence). The
average number of shares in issue during the first half was 590.4
million (2005: 585.5 million). Net cash flow from operating
activities reduced from 303.1 million pounds to 258.1 million
pounds, mainly due to the increase in working capital to support
higher organic growth in the USA, partly offset by higher operating
profit. Capital expenditure increased from 109.7 million pounds to
143.5 million pounds reflecting continued investment in the
business. During the period the DC and branch network in the USA
was expanded, investment commenced on DC's in the UK and Italy and
further expenditure was incurred on the common IT platform.
Brossette and Wolseley UK moved into new corporate offices. Cash
received on the sale of fixed assets was 11.2 million pounds,
compared with 57.1 million pounds in the comparable period when
receipts were higher due to the sale of properties acquired as part
of the Brooks acquisition. Investment in acquisitions completed
during the first half, including any deferred consideration and net
debt, amounted to 436 million pounds (2005: 218 million pounds).
These 22 acquisitions are expected to add around 701 million pounds
per annum of incremental revenues in a full year. Ten additional
acquisitions, for a consideration of 162 million pounds, have been
completed since January 31, 2006. Details of the three acquisitions
not previously announced are set out below. On March 10, 2006,
Ferguson acquired Indiana Plumbing Supply Co., Inc., ("The Plumbers
Warehouse") a plumbing wholesaler, from John Muckel and Russ Long.
In the year ended December 31, 2004 Indiana had sales of $63.9
million (36.5 million pounds) and gross assets of $12.5 million
(7.2 million pounds) at that date. On March 10, 2006, Wolseley
Canada acquired Can-Con Industries Inc. ("Can- Con"), a fabricator
and distributor of pipe fittings for the natural gas, oil and water
industries, from Mark Mercier, Brian Cropley, Garry Pickieson and
Scott Toshack. Can-Con has one outlet in Edmonton, Alberta. In the
year ended January 31, 2005 it had sales of C$6.6 million (3.3
million pounds) and gross assets of C$3.4 million (1.7 million
pounds) at that date. On March 13, 2006, Ferguson acquired the
assets of Alamo Pipe and Supply ("Alamo") a plumbing distributor
based in Ruidoso, New Mexico. In the year ended December 31, 2004
Alamo had sales of $2.3 million (1.3 million pounds) and gross
assets of $0.5 million (0.3 million pounds) at that date. Further
details regarding acquisitions are included in note 9. The Group's
branch network during the first half has been extended through
acquisitions and branch openings by a net of 321 branches, bringing
the total to 4,241 (July 31, 2005: 3,920). Net borrowings,
excluding construction loan borrowings, at January 31, 2006
amounted to 1,670.7 million pounds compared to 1,170.5 million
pounds at July 31, 2005, giving gearing of 68.1% compared to 50.8%
at the previous year end and 58.6% at January 31, 2005. The
increase principally relates to acquisitions. In the USA,
construction loan receivables, financed by an equivalent amount of
construction loan borrowings, were 293.7 million pounds compared to
262.0 million pounds at July 31, 2005. The increase is due to an
expanding loan book. Return on gross capital employed (ROGCE) fell
from 19.1% for the year to July 31, 2005 to 18.8% in the first half
of 2006 as a result of acquisitions partly offset by the
significant organic growth in profit. The ROGCE remains well above
the Group's weighted average cost of capital, demonstrating
significant shareholder value creation. Provisions for liabilities
and charges in the balance sheet include the estimated liability
for asbestos claims on a discounted basis. This liability has been
determined by independent professional actuarial advisors. The
asbestos related litigation is fully covered by insurance and
accordingly an equivalent insurance receivable has been included in
debtors. The level of insurance cover available significantly
exceeds the expected level of future claims and no profit or cash
flow impact is therefore expected to arise in the foreseeable
future. There were 235 claims outstanding at July 31, 2005 (July
31, 2004: 308). An update on the estimated liability and number of
claims outstanding will be provided with the Group's Preliminary
Results announcement. Outlook Market conditions in North America
are expected to remain favorable for the remainder of this
financial year and should enable the Group's North American
businesses to achieve further good progress. It is expected that
the US housing market will remain strong, although the number of
housing starts may show a small decline as a result of higher
interest rates. The positive RMI market is expected to continue and
the strong US economy should present further opportunities for
organic growth, albeit at a lower rate than the first half. The
improvement in the industrial and commercial sectors is also
expected to continue. Stock should continue to make further good
progress and benefit from a more favorable product mix, allowing
continued margin progression. Although lumber and panel prices are
expected to hold up relatively well, there is likely to be some
price deflation in the second half compared to the comparable
period in the prior year. In Canada, the overall environment is
expected to remain positive although the new residential housing
market may fall slightly from recent high levels. For Europe
overall, it is likely that trading profit for the second half will
be broadly flat compared to the equivalent period in the prior
year, reflecting the generally flat market conditions. The
fundamentals of the UK economy are expected to remain positive and
there are indicators which would suggest a gradual but steady
improvement in the UK RMI and housing markets as the second half
progresses. Against this background, the UK business is expected to
show modest profit growth in the second half compared to the
corresponding period in the prior financial year as the business
continues to invest in branch openings and infrastructure, and
obtains further benefits from recent acquisitions. In France,
growth in the RMI market is likely to remain modest. PBM is
expected to show progress compared to the second half, benefiting
from acquisitions, new branch openings and other business
improvement initiatives. Investments to accelerate future growth
will continue. The reorganization of Brossette will continue
throughout the second half and further investments in the business
will be made to create a platform for future growth. It is unlikely
that the trading profit in Brossette will match that of the
equivalent period in the prior year. Whilst the markets in the rest
of Continental Europe are likely to remain broadly flat and
competitive, Wolseley's operations are expected to show solid
progress, particularly in Italy, Switzerland and the Netherlands.
There are a number of business improvement initiatives in place
relating to supply chain, sourcing and procurement that should
deliver increasing benefits to the bottom line. The Group will
continue to pursue its objective of achieving, on average, double
digit sales and profit improvements through a combination of
organic growth and acquisitions. The acquisition pipeline remains
strong and the Group will continue to pursue opportunities for
product and geographic diversity. The Board expects another year of
good progress, driven by strong growth in North America and the
benefits of recent acquisitions. Certain information included in
this release is forward-looking and involves risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by forward-looking statements.
Forward-looking statements include, without limitation, projections
relating to results of operations and financial conditions and the
Company's plans and objectives for future operations, including,
without limitation, discussions of expected future revenues,
financing plans and expected expenditures and divestments. All
forward-looking statements in this release are based upon
information known to the Company on the date of this report. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise. It is not reasonably possible to
itemize all of the many factors and specific events that could
cause the Company's forward-looking statements to be incorrect or
that could otherwise have a material adverse effect on the future
operations or results of an international Group such as Wolseley.
Information on some factors which could result in material
difference to the results is available in the Company's SEC
filings, including, without limitation, the Company's Report on
Form 20-F for the year ended July 31, 2005. FINANCIAL CALENDAR FOR
2006 2006 March 29 - Shares quoted ex-dividend March 31 - Record
date for final dividend May 31 - Interim dividend payment date July
17 - Trading update for 11 months to June 30, 2006 July 31 -
Financial year end September 25* - Announcement of Preliminary
results October 4* - Shares quoted ex-dividend October 6* - Record
date for final dividend November 9* - Final date for DRIP elections
November 29* - Annual General Meeting November 30* - Final dividend
payment date (*) expected A copy of this Interim Announcement,
together with all other recent public announcements can be found on
Wolseley's web site at http://www.wolseley.com/. Copies of the
Preliminary Results' presentation given to stockbrokers' analysts
are also available on this site. DATASOURCE: Wolseley plc CONTACT:
Investors-Analysts, John English, Director of Investor Relations,
North America, +1-513-771-9000, or +1-513-328-4900, or Press, Penny
Studholme, Director of Corporate Communications, +44 (0)118 929
8886, or +44 (0)7860 553 834, both of Wolseley plc
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