Ferguson Regulatory News (FERG)

28 Nov 2007 07:01

Wolseley PLC28 November 2007 NEWS RELEASE 28 November 2007 Wolseley plc Interim Management Statement Wolseley plc, the world's largest specialist trade distributor of plumbing andheating products to professional contractors and a leading supplier of buildingmaterials, is today issuing its first Interim Management Statement to coincidewith its Annual General Meeting at noon today, at Haberdasher's Hall, 18 WestSmithfield, London, EC1A 9HQ. In accordance with normal practice, a pre-closehalf year trading update will be issued on 21 January 2008. Summary for three months ended 31 October 2007: Group- Revenue up more than 5%, c.8% in constant currency- Trading profit down c.12%, c.9% in constant currency- Profit before tax and amortisation and impairment of acquired intangibles down almost 15%, c.10% in constant currency- Operating cash flow more than double the prior year- 10 bolt on acquisitions completed between 1 August 2007 and 28 November 2007 for an aggregate consideration of approximately £170 million. North America- Revenue down c.10%, c.3% in constant currency- Trading profit down c.30%, c.25% in constant currency- Further action taken to adjust cost base - US reduction in headcount of 1,700 people. Around 1,300 further reductions planned in the second quarter. Combined annual savings relating to these headcount reductions of £60 million. Europe- Revenue up more than 25%- Trading profit up more than 15%- Good performance in UK and Nordic region partially offset by underperformance in France and Central and Eastern Europe. Chip Hornsby, Group Chief Executive of Wolseley, said: "The Group continues to take swift and decisive action in the more challengingbusiness conditions. Although sales trends and the outlook are uncertain, weremain committed to our strategy. Whilst keeping a tight control on costs, wewill continue to invest to create competitive advantage. We remain confidentthat with our size, scale and financial strength, we will emerge from thisslowdown as a stronger competitor with an excellent platform for future growth." Overview For the three months ended 31 October 2007, the Group's results continued to beaffected by the slowing US housing market, low consumer confidence followinguncertainty relating to liquidity in global financial markets and the weaknessof the dollar. Whilst the global liquidity squeeze has had some impact onEuropean consumer confidence, the effect has been principally in the USA. Salestrends over this period in both North America and Europe have been difficult tointerpret and have not been consistent from month to month. Against thisbackground, the Group has taken further action to adjust its cost base and hascontinued to focus on exploiting opportunities for profitable organic growth,value-enhancing acquisitions and strong cash flow generation. Group revenue in the three months ended 31 October 2007, including acquisitions,increased by more than 5% compared to the corresponding period in the prioryear. Trading profit was down by around 12%. In constant currency, revenue andtrading profit would have been around 3% higher than the reported figures insterling. In response to more challenging conditions, the Group has reduced headcount,reduced indirect costs, realigned its management structure and re-establishedpriorities in the businesses for the current year. In the three months ended 31 October 2007, the Group reduced headcount in its USoperations by a further 1,700 people. There will be a further 1,300 headcountreductions in the second quarter. The combined annual savings relating to theseheadcount reductions will be £60 million. When complete, the cumulativeheadcount reductions, since their peaks, will represent around a third of theStock workforce and more than 10% of the Ferguson workforce. Action is also currently being taken to streamline central management resourceto focus attention on specific opportunities within each continent and toaccelerate decision making in response to local market conditions. As a result,the roles of Chief Business Development Officer and Chief Operations Officer arebeing eliminated. Therefore, by mutual agreement, Adrian Barden and LarryStoddard, the holders of these roles, are leaving the Group. The initiatives inrelation to private label, managing the Group's expense base and developing thesupply chain will be the responsibilities of the North American and Europeancontinental structures. The rigorous focus on cash flow and working capital improvement continues.Operating cash flow for the first three months of the year more than doubledcompared to the equivalent period in the prior year. As a result of the recentstrong cash flow generation, the interest charge for the first quarter, ataround £30 million, is only marginally up on the corresponding period, despitehigher interest rates and the full quarter impact of financing the acquisitionof DT Group. The Group's balance sheet remains strong, with net debt at 31 October 2007around 3% higher than at 31 July 2007 following bolt-on acquisitions made duringthe period, giving gearing of 72%, unchanged since 31 July 2007. Further details of market conditions and financial performance in each of theGroup's businesses are set out below. North America In North America, revenue in the three months ended 31 October 2007 in sterling,including acquisitions, decreased by almost 10% compared to the correspondingperiod in the prior year. Trading profit was down by just over 30% reflecting afirst quarter loss reported by Stock and currency translation. In constantcurrency, revenue and trading profit would have been around 6% higher than thereported figures in sterling. The Group's US results have been affected by the continuing decline in UShousing starts, falling consumer confidence and a weakening US dollar. Ferguson continued to gain market share and its financial results benefited fromthe commercial and industrial sector that continues to grow and accounts forover 60% of its revenue. However, Ferguson was affected by the weakening newresidential market and a slowing RMI market. Revenue in local currency for thethree months ended 31 October 2007 was up around 5% due to acquisitions, withorganic revenue growth being slightly negative. Organic growth was marginallynegative in August and October, but positive in September. Local currencytrading profit for the quarter was marginally higher due to acquisitions. Thetrading margin was slightly lower, reflecting increasing price competition andlower revenue growth. In addition to the 1,150 headcount reduction in the prioryear, a further programme of cost reduction has been instigated with the loss ofan additional 200 employees in the three months ended 31 October 2007 and 1,300planned in the second quarter. Once these headcount reductions are completed,Ferguson's headcount will have been reduced by more than 10% from its peak. At Stock, local currency revenue and trading profit have been impacted by thecontinuing slowdown in the new residential market, which has also createdincreased price competition. Housing starts in the USA have fallen 22% from anaverage annual rate of around 1.62 million in the three months ended 31 October2006 to 1.26 million in the three months ended 31 October 2007. There continueto be significant regional variations. Stock's revenue is down by 25%, principally reflecting a 22% decline in organicsales volumes, including the effect of previous branch closures and pricefluctuations in lumber and panels which reduced revenue by around 1%. Stock isnow cumulatively reporting a trading loss for the three month period followinglosses in September and October. In addition to the 3,500 headcount reduction inthe prior year, a further major programme of cost reduction has been instigatedwith the loss of an additional 1,500 employees in the three months ended 31October 2007. Stock's headcount has been reduced by around one-third from itspeak and significant further reductions are unlikely. Acquisitions contributedaround $30 million (2%) to revenue growth. The Canadian residential market continues to hold up well and has not beensignificantly impacted by the factors affecting the US housing market. WolseleyCanada achieved modest local currency revenue growth, although trading profitwas lower, following C$3.5 million (£1.6 million) of branch closure costs. Europe Whilst the global liquidity squeeze has had some impact on European consumerconfidence, the effect has not been as significant as that in the USA. Althoughthe UK housing market is showing signs of softening due to lower liquidity andreduced consumer confidence, the weakness in some other European housing marketsis the result of other local factors, outlined below. Around 70% of the Group'sEuropean business relates to the RMI and commercial and industrial markets wherethe fundamentals are structurally more sound. Revenue in sterling for Europe, including acquisitions, increased by more than25% in the three months ended 31 October 2007, whilst trading profit was up morethan 15%. Excluding DT Group, which was acquired on 25 September 2006, Europeanrevenues were up by almost 5% whilst trading profit was over 10% lower due to apoor performance in August and September in France and some initial anticipateddisruption caused by IT implementation in Central and Eastern Europe. Revenue for the UK and Irish businesses increased by around 5%, the majority ofwhich was organic growth. Trading profit was up by a similar amount, despite areduction in trading profit in Ireland. The overall trading margin improvedmarginally on the equivalent period in the prior year. There are increasing signs that the UK housing market is slowing in response tothe lower availability and increased cost of mortgage financing. However, demandfor UK housing continues to exceed supply and the market is currently morestable structurally than the US housing market. There are indications of the UKRMI market weakening in response to deteriorating consumer sentiment and tightercredit conditions. Signals from the Group's UK businesses remained mixed.Bathstore, geared to servicing the consumer, reported strong sales trends in thefirst quarter, but those of our trade businesses that are more heavily focusedon the residential RMI market are showing signs of softening as that marketbecomes more challenging. Government expenditure on social housing, health andeducation continued to underpin construction spending in the UK. In Ireland, housing starts are over 30% down on the equivalent quarter of theprior year and the RMI market is now being affected. Wolseley's French businesses had a slower start to the financial year, althoughsales and profits were higher in October than the corresponding period in theprior year. The French heavyside business lost some market share due to theacceleration of the new NDC implementation and further restructuring andcentralisation of functions in the first quarter, which caused some additionaldisruption. Revenue for the three months ended 31 October 2007 is marginallydown on the prior year and underlying trading profit is down by more than 40%,before charging one-off restructuring costs of €4 million (£2.8 million)relating to headcount reductions. Markets in the Nordic region have generally held up well, although sales to theDanish new housing and DIY markets, which account for around 18% of the Group'sNordic revenues, are slowing in response to higher interest rates. Other housingmarkets in the Nordic region appear unaffected. DT Group continues to growstrongly and for the three months ended 31 October 2007 reported revenue, insterling, of £571 million with a trading margin of over 7%. The Group's Central and Eastern European businesses showed high single digitrevenue growth as a result of good market outperformance in Switzerland and theNetherlands, and of acquisitions. These acquisitions are designed to increasecritical mass in the region, which will have a positive impact on future tradingmargins and return on capital. Trading profit in the quarter was lower as aresult of some business disruption and the additional costs associated with thenew IT systems implementation. The extent of the disruption was in line withexpectations and diminished over the period. Acquisition Update Since the beginning of the financial year on 1 August 2007, a total of 10bolt-on acquisitions in Europe and North America have been completed for anaggregate consideration of approximately £170 million. These 10 acquisitions areexpected to add approximately £219 million to Group revenue in a full year andwill be beneficial to the Group's trading margin in the current financial year. In addition, on 27 November 2007, Wolseley Eastern Europe a.s signed anagreement, conditional upon obtaining Slovak competition clearance, to acquireGama Myjava s.r.o. from Mr. Jan Holi and Mr. Pavol Majdlen and the business ofGama Bohemia from Gama Bohemia s.r.o. (together "Gama"). Gama is a plumbing,heating and sanitaryware distributor operating from eight branches in Slovakiaand five branches in the Czech Republic. In the year ended 31 December 2006,Gama had consolidated revenue of SKK741.6million (£16.0 million) and grossassets of SKK214.0 million (£4.6 million) at that date. Completion of thisacquisition is expected early in 2008. This acquisition supports Wolseley'sstrategy of increasing critical mass in Central and Eastern Europe. Outlook The Board anticipates that business conditions in a number of the Group'smarkets will become more challenging over the next few months. In the USA, the housing market is likely to deteriorate further until thecurrent high levels of unsold inventory have declined and the full effects ofproblems in the sub-prime market have been assimilated. These conditions,together with reduced availability of credit, are expected to put pressure onthe RMI market and its recovery will depend on consumer sentiment and theoverall health of the US economy. The commercial and industrial market isexpected to show growth, albeit at lower rates, for the majority of thefinancial year given the longer lead times of many large projects within thissector. The Group expects to continue to drive competitive advantage andincreased market share from the distribution centre network and to exploitopportunities arising from the impact that weakening markets will have oncompetitor positions. In Europe, there are signs of weakening in some housing markets, but themajority of the Group's activity in Europe is driven by the RMI and commercialand industrial segments. In general, these are structurally more sound andshould offer opportunities for growth for the year as a whole. The RMI market inthe UK is likely to soften in the short term as a result of weakening consumersentiment. The Group will continue to carefully monitor market conditions and take swiftand decisive action to realign its cost base and to take a more cautiousapproach to limit capital expenditure, where necessary. The Group is in a strongfinancial position and will continue to pursue its strategy of growingorganically and by acquisition, driving competitive advantage through leveragingits scale and size. There will be a conference call for analysts/investors at 0830 (UK time) today: UK free phone dial-in number: 0800 559 3272US free phone dial-in number: 1866 239 0753Rest of the World dial-in number: +44 (0)20 7138 0815 Password: Wolseley/4066822 Slides relating to the call will be available on www.wolseley.com. The call will be recorded and available on www.wolseley.com after the event. Itwill also be available for playback until 4th December 2007 on the followingnumbers: UK free phone number: 0800 559 3271 4066822#US free phone number: 1866 883 4489 4066822#UK/European replay dial-in number: +44 (0)20 7806 1970 4066822# Exchange Rates The average profit and loss account translation rate for the three months to 31October 2007 was $2.03 to the £1 compared to $1.89 for the comparable periodlast year, a weakening of 6.8%, and €1.45 to the £1 compared to €1.48, astrengthening of 1.8%, compared to the prior year. Trading profit, a term used throughout this announcement, is defined asoperating profit before the amortisation and impairment of acquired intangibles.Trading margin is the ratio of trading profit to revenue stated as a percentage. ENQUIRIES: Guy Stainer +44 (0)118 929 8744Group Investor Relations Director +44 (0)7739 778187 John English +1 513 771 9000Vice President, Investor Relations, North America +1 513 328 4900 Brunswick +44 (0)20 7404 5959Andrew FenwickKate Miller 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 Ireland and Continental Europe. Grouprevenue for the year ended 31 July 2007 was approximately £16.2 billion andoperating profit, before amortisation and impairment of acquired intangibles,was £877 million. Wolseley has around 77,000 employees operating in 28 countriesnamely: 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, PuertoRico, Trinidad & Tobago, Mexico, Barbados and Greenland. Wolseley plc is listedon the London and New York Stock Exchanges (LSE: WOS, NYSE: WOS) and is in theFTSE 100 index of listed companies. 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. The financial calendar is shown below with a change to the date for the tradingupdate in July 2008. This will now take place on the 16th July 2008 (previouslyscheduled for 14th July). FINANCIAL CALENDAR FOR 2007/2008 2007 28 November - Annual General Meeting and Interim Management Statement30 November - Final dividend payment date 2008 21 January - Trading update for five months to 31 December 200717 March - Interim Results for six months to 31 January 200826 March - Shares quoted ex-dividend28 March - Record date for final dividend21 May - Interim Management Statement30 May - Interim dividend payment date16 July - Trading update for 11 months to 30 June 200831 July - Financial year end22 September - Announcement of Preliminary results for year to 31 July 20081 October - Shares quoted ex-dividend3 October - Record date for final dividend7 November - Final date for DRIP elections18 November - Annual General Meeting and Interim Management Statement1 December - 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. - ENDS - This information is provided by RNS The company news service from the London Stock Exchange