News Column

Wolseley Profit Up, But Takes A Big Hit From Currency Moves

June 2, 2014

Steve McGrath

LONDON (Alliance News) - Plumbing and heating products distributor Wolseley PLC Tuesday reported higher trading profit for its fiscal third quarter, driven by strong growth in the US and Nordic countries, but adverse currency movements knocked GBP200 million off its revenue and GBP12 million off its profit.

Wolseley reported trading profit of GBP153 million for the three months to April 30, up from GBP150 million a year earlier, as margin improvements offset a slight decrease in revenue to GBP3.12 billion, from GBP3.23 billion. However, profit from ongoing businesses would have been up 9.1% at constant currencies on a 6.0% rise in revenue.

"The group grew its gross margin and controlled operating expenses to generate good conversion into trading profit, though reported results were affected by significant unfavourable foreign exchange rate movements," Chief Executive Ian Meakins said in a statement.

It said its gross margin from ongoing businesses was 28.1% in the quarter, up 10 basis points on the year-earlier period. Its trading margin increase by the same amount to 5.1%.

The company said like-for-like revenue was up 9.0% in the US and 7.5% in the Nordic region, which more than offset declines in Canada, the UK, France and Central Europe. Group like-for-like revenue growth was 5.1%, although the company expects this to moderate to about 4.0% over the next six months.

Wolseley said it sacrificed revenue growth in the UK to protect gross margin. It said the new residential build market is still growing strongly, but that only represents about 5% of its revenue, while the repair, maintenance and improvements market, which represents about 60% of its revenue, is only seeing modest growth. The industrials market remains weak, it said.

Wolseley was hit hard by the financial crisis and resulting economic crisis as its markets in North America and Europe came under severe pressure. It has been recovering over the last couple of years, particularly in the US thanks to the strong recovery in housing markets and the general economy there. The recovery in Europe has been much slower.

It has also been selling off less profitable businesses, as well as buying new businesses and investing in things like IT.

Late last month, it said it had agreed to sell its Austrian plumbing and heating business ÖAG.

Wolseley said Tuesday that cash generation was strong in the third quarter. Still, net debt stood at GBP914 million at the end of April, up from GBP694 million a year earlier, after a cash outflow of GBP90 million for acquisitions in the quarter. It made five bolt-on acquisitions for a total of approximately GBP119 million in the quarter.

"Cash generation was good and we are continuing to invest in technology and new business models to deliver better customer service and gain profitable market share," Chief Executive Meakins said.

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Source: Alliance News

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