Wolseley looks to US to offset UK profits fall

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PLUMBING and heating merchant Wolseley weathered a 20 per cent fall in UK profits yesterday, after benefiting from strong trading in the United States.

The loss of a national boiler supply contract worth £70m a year and continued tough trading at its Bathstore consumer arm contributed to a fall in UK profits to £24m for the quarter to October 31.

Like-for-like sales were down by three per cent but Wolseley said that, excluding the recent contract loss, the figure would have been one per cent higher as its Plumb and Parts Center businesses battled to replace the lost work.

The profits slide at the Leamington Spa-based UK business also reflected the impact of recent disposals.

Across the group, which is the world’s largest specialist distributor of plumbing and heating products, profits were five per cent higher at £988m.

Wolseley said a 10 per cent rise in like-for-like revenues in the United States came as its operations took market share from weaker rivals.

Wolseley chief executive Ian Meakins said yesterday in a statement to accompany the results: “Wolseley has continued to grow well, with strong growth in the United States offset by lower growth in some of our European businesses.

“Given continuing macroeconomic uncertainty, trading conditions may get tougher in the coming months.

“We will remain vigilant on costs and continue to drive performance improvements, strong cash conversion and better customer service.

“Our balance sheet is strong and the group is well positioned to continue to invest selectively where we can generate good returns.”

Earlier this year, the company sold its French distribution division Brossette and its UK-based Build Centre business for £310m to Saint-Gobain, which also owns the UK chain Jewson, as part of a disposal strategy.

On October 31, the group disposed of Encon, the UK insulation business, which generated revenue of £183m and trading profit of £5m in the year ended July 31, 2011.

Kevin Lapwood, an analyst at Seymour Pierce stockbrokers, said the company was surviving in tough conditions.

He added: “The better than expected results do not mark the end of the construction slump in North America, but they do give clear evidence that large well-funded operators like Wolseley are better placed to weather the current economic conditions than many smaller competitors.”

Mr Lapwood upgraded his forecast for full-year revenues to nearly £13bn and increased his target for pre-tax profits by £9m to £587m.

In Central Europe, like-for-like revenue in the ongoing business grew by one per cent.

Gross margins were also ahead due to the benefit of the strong Swiss franc.

The plumbing and heating business in Austria generated higher revenues and improved gross margins during the period.

The performance was weaker in Holland where the group continued to focus on lowering its cost base.

Trading profit of £14m in the quarter was £2m ahead of last year, including £1m of foreign exchange gains.

In the Nordic region, like-for-like revenue increased by two per cent.

All the Nordic countries continued to grow despite slowing markets, with Denmark and Norway outperforming Sweden and Finland and also growing market share.

Trading profit of £39m was £4m ahead of last year, including £2m of one-off credits and £1m of foreign exchange gains.

Like-for-like revenue in France grew by three per cent, although new construction markets weakened in the period.

The group’s Canadian business grew by two per cent on a like-for-like basis.

In Canada, the industrial business continued to benefit from the buoyant oil, gas and mining sector and made good progress. The trading profit of £17m was £1m ahead of last year.

In the United States, two bolt-on acquisitions were completed during the period – SG Supply, a single location blended branch in Chicago, and Louisianna Chemical Pipe, Valve & Fitting, which is an industrial business with three bases in Baton Rouge.

Commenting on the quarterly results, analysts at Shore Capital said: “Though the balance sheet remains in good shape, we remain cautious on the medium term prospects for the group as forecasts for economic growth in Wolseley’s key markets remain subdued.”

A note from Liberum Capital analysts said: “There is some caution in outlook – Europe may get tougher – and comment that gross margin has risen in spite of price competition in the market.

“However, the main positive for us is that US business is accelerating as market share grows and the company committed to increasing margins.”

The group also revealed that it will issue its interim results on March 27, 2012.