Wolseley plc Preliminary Results for the Year Ended July 31, 2004
Wolseley plc announces eighth consecutive year of record results
with sales over 10 billion pounds Sterling NEW YORK, Sept. 27
/PRNewswire-FirstCall/ -- Announcement of Preliminary Results
Wolseley is pleased to announce another set of record results, the
eighth consecutive year of improvement. These results reflect both
strong organic growth and the additional contribution from
acquisitions. Each of the principal businesses increased market
share. Benefits have also been gained from the restructuring of
certain activities within the Group which have improved market
focus and increased operational efficiency. In US Plumbing and
Heating, organic sales growth of around 15%, including the
beneficial effects of commodity price inflation, was achieved. The
UK, French, Italian and Canadian businesses, also performed well in
their markets. The US Building Materials Distribution division
("Stock") performed particularly strongly with an increase in
organic sales of nearly 26% as a result of its restructuring
program and higher lumber and structural panel prices. Trading
margin improvements were achieved in the North American Plumbing
and Heating and US Building Materials Divisions. European
Distribution's trading margin was down slightly, primarily due to
the inclusion for the first time of PBM, which has a lower margin
than the divisional average, and as a result of higher central
costs allocated to the division. Improvements in trading margin
were, however, seen in the UK, French, Austrian, Italian and
Luxembourg businesses. On a constant currency basis, Group sales
increased by 29.5% and trading profit by 37.2%. Currency
translation reduced Group sales by 400.1 million pounds (4.9%) and
Group trading profit by 21.5 million pounds (4.5%), compared to the
previous year. After taking account of currency translation, Group
sales increased by 23.2% from 8,221.0 million pounds to 10,128.1
million pounds. Trading profit rose by 30.9% from 472.9 million
pounds to 619.2 million pounds. After deducting goodwill
amortization of 39.0 million pounds (2003: 29.9 million pounds),
the reported sterling operating profit increased by 31.0% from
443.0 million pounds to 580.2 million pounds. Net interest payable
was 21.1 million pounds (2003: 17.0 million pounds), the increase
reflecting acquisition spending and higher working capital required
to support the strong organic growth, notably in the USA, partly
offset by lower interest rates. Interest cover was 27 times (2003:
26 times). Profit before tax and goodwill amortization increased by
31.2% from 455.9 million pounds to 598.1 million pounds. The
increase in earnings per share before goodwill amortization was
32.0%, from 56.69 pence to 74.84 pence. European Distribution The
results in the European Distribution division benefited from a
number of factors, with PBM performing well ahead of expectations,
another strong performance in the UK and profit improvements in
nearly all of the other European operations. Sales for this
division increased by 43.7% from 2,956.7 million pounds to 4,248.0
million pounds, including 1,093.0 million pounds (37.0%) which
relates to acquisitions, predominantly PBM in July 2003 and Tobler
in December 2003. The organic increase in sales was 5.6%. Trading
profit rose by 36.2% from 193.2 million pounds to 263.2 million
pounds. Wolseley UK, Brossette in France, Manzardo in Italy, OAG in
Austria and CFM in Luxembourg, all increased their trading margin,
although the overall divisional trading margin reduced from 6.5% to
6.2% of sales primarily due to the inclusion for the first time of
PBM which has a lower margin than the divisional average and as a
result of higher central costs allocated to the division. In the
year a further net 127 branches were added to the European network,
giving a total of 2,393 locations (2003: 2,266). UK Wolseley UK
grew strongly during the year as the strength of the UK economy and
housing market continued. The RMI market remained the principal
driver, buoyed by strong consumer demand against the backdrop of
historically low (albeit rising) interest rates, low unemployment
and house price inflation. Sales increased by 11.5% to 2,106.9
million pounds (2003: 1,888.8 million pounds). Organic growth was
6.3%, which was in excess of the market generally, with the
plumbing and heating businesses being the strongest performers and
building materials having a strong second half. The commercial and
industrial business improved its position although the sector
remained difficult. The distribution centers continue to support
the expanding branch network through improved efficiency with costs
per stock pick down 5% over the prior year. These and other
operational efficiencies were reflected in an improvement in
trading margin from 7.6% to 7.8%. During the period, 97 net new
locations were added taking the total number of branches for
Wolseley UK (including Ireland) to 1,513. Since the year end Brooks
Group Limited has been acquired for euro 183 million (120 million
pounds), a leading Ireland based timber and builders merchant with
18 branches located throughout Ireland. France The French
construction market started the year nervously, with the industrial
environment weak and high levels of unemployment holding back
consumer confidence. In the second half, however, there were signs
of an improvement with lead indicators such as housing permits and
housing starts increasing and public works and infrastructure
projects more evident. Wolseley's French operations generated sales
of 1,621.5 million pounds, an increase of 963.2 million pounds
compared to the prior year, principally as a result of the PBM
acquisition. Local currency sales in Brossette were up 6.0% on the
previous year due to acquisitions and organic growth of more than
3.0%. The trading margin also improved to above 6% due to more
stringent cost control and the emerging benefits of the
reorganization of Brossette's branch and management structure which
was completed during the year. The move from a single branch to a
multi- branch organization is a significant change to the way that
Brossette conducts its business, enabling management specialization
and focus. Further benefits should result from this in 2005. PBM
performed above expectations, as a result of the post acquisition
initiatives taken by the Group. Sales and profits were up on the
prior year in a gradually improving market, although the first half
started slowly due to the heat wave in France in August 2003 and a
sluggish timber import market. Underlying trading margins were
higher before absorbing the additional costs of redundancies and of
the branch rebranding program which was completed during the year.
Working capital management was a particular area of the post
acquisition focus and this showed good progress. The return on
capital for PBM in its first full year was in excess of the Group's
weighted average cost of capital (WACC). PBM is on track in
delivering synergies with other Wolseley Group companies in order
to achieve its return target of 16.7% by the year ending July 31,
2006. Rest of Europe The Group's other Continental European
operations enjoyed generally good results in uninspiring markets.
Following a number of management changes in Austria, OAG performed
well to increase sales and achieve a double-digit trading profit
increase, even though the new housing market remained depressed and
increased competition put pressure on prices. Good progress was
made in Hungary with sales up 17% in local currency and sales in
the Czech Republic were also up slightly. In Italy, despite a weak
economy and a fall in the overall construction and renovation
markets, Manzardo's branch opening program helped achieve organic
sales growth of more than 9%, trading profit growth of 30%, and a
trading margin above 5% for the first time. In Luxembourg, CFM
increased sales by more than 10% and further improved the trading
margin, demonstrating resilience against the fall in the local
construction market. Wasco, in The Netherlands, was adversely
affected by the poor economy and lower construction and new housing
expenditure. In response to these market conditions, Wasco has
expanded its product range, moved to a central distribution center,
opened new express branches and is seeking to expand its small
customer base in the more profitable RMI market. While sales
increased by more than 10%, additional costs and competitive market
conditions led to a fall in profits. Tobler, in Switzerland, which
was acquired on December 1, 2003, performed ahead of expectations
with sales, trading profits and margins up on the prior year. The
European Distribution division has made good progress during the
year in implementing its strategy to manage the businesses in a
more integrated way across Europe. Several key appointments were
made during the year in marketing, finance and supply chain
management, which incorporates sourcing, procurement and logistics.
Additional investment is planned over the current year to build
further the infrastructure necessary to obtain cross-border
synergies, facilitate the sharing of best practice and accelerate
the benefits from the growth opportunities that exist. North
American Plumbing and Heating Distribution The North American
Plumbing and Heating division performed strongly with significant
rises in sales and profits and the highest ever trading margin.
Reported sales of the division were up 8.0% from 3,551.5 million
pounds to 3,836.4 million pounds despite the adverse impact of
currency translation. Trading profit, in sterling, increased by
24.6% from 202.2 million pounds to 252.0 million pounds. Currency
translation reduced divisional sales by 276.8 million pounds (7.8%)
and trading profit by 15.9 million pounds (7.9%). There was a net
increase of 47 branches in North American Plumbing and Heating
Distribution to 1,008 locations (2003: 961). Ferguson In the USA
Ferguson produced an outstanding performance generating strong
organic growth and benefiting from commodity price inflation. Local
currency sales in the US plumbing operations rose by 18.0% to
$5,941.1 million (2003: $5,032.8 million) with trading profit up by
40.3%. Organic sales growth was 15%, and included the beneficial
effects of price inflation in products such as copper, steel and
plastics. Around 40% of the increase in trading profit was
commodity price driven, with the remainder reflecting an increase
in the gross margin as a result of continuing benefits from the
distribution center network, a focus on organic growth and
operational leverage. A new distribution center was opened at
Richland, Washington, in November 2003 and volumes through the
distribution center network as a whole increased 49% over the prior
year. Ferguson's eighth distribution center is planned to open in
Iowa in the current financial year. The trading margin, at 6.8%,
was substantially ahead of the prior year (2003: 5.7%), and exceeds
the 6% target a year ahead of the original schedule. During the
year, the final phases of the integration of Familian Northwest
were completed and the business realized the benefits of having a
single plumbing and heating organization in the USA, including the
elimination of duplicated costs. The completion of this integration
enables Ferguson management to focus more attention on the
achievement of organic growth. During the year, the Wolseley UK
model of small express branches was piloted at five Ferguson
locations in the USA, including Washington DC and Boston, and
proved to be very successful. A roll-out program of similar
"XpressNet" branches is planned with more than 50 new locations
expected to open in the year to July 31, 2005. Of the sectors in
which Ferguson operates, housing related activity held up well and
the more positive economic environment benefited the repair and
remodeling (RMI) sector. RMI is becoming an increasingly important
element of overall construction spend in the USA and with the new
express branch format being introduced, should lead to further
growth opportunities. The commercial sector started to show some
signs of improvement towards the end of the year, underpinned by
increased government spending. The weakest segment continues to be
industrial, although the energy sector has been more buoyant as a
consequence of higher oil prices. Investment in working capital was
increased substantially during the year to support the significant
organic growth that Ferguson achieved, to build inventory levels at
the new distribution center, as a consequence of the higher unit
cost of materials and to ensure customer demand was met at a time
of tightening supply of commodities such as copper and steel.
Wolseley Canada Following a slow start to the year in Canada due to
external factors, positive business sentiment returned and once
again it proved to be an attractive business environment. Low
interest rates supported a strong residential market and the
buoyant energy sector in Western Canada helped sales in the
industrial and commercial business. However, the cooler summer
dampened sales in the HVAC/R (heating ventilation air conditioning
and refrigeration) business and the strong Canadian dollar has
affected sales to a number of customers who are dependent on
exports. Local currency sales increased by 10.7% to more than C$1
billion for the first time. Around half of the sales increase was
organic growth, slightly ahead of the market. Local currency
trading profit rose by nearly 10%, slower than the sales growth as
a result of pricing pressure in some product areas, the additional
costs of restructuring the Industrial Products Group and the
increase in headcount in order to sustain future growth. US
Building Materials Distribution The performance of Stock benefited
from the completion of the NOVA restructuring project which
improved market focus and resulted in cost savings in excess of the
$5 million originally targeted. Net benefits of at least $10
million are expected to be achieved in the next financial year and,
more importantly, the reorganization into 10 districts and the new
market focused approach, for example, in its relationship with
national house builders, will build on the improvements already
achieved. Plans to increase the number of value-added products and
services being offered, and increase the penetration into the RMI
market are already making inroads, with value-added sales up 30% on
the prior year. Average lumber and structural panel prices were
higher but the division was negatively impacted by currency
translation. Reported sales in sterling grew 19.3% to 2,043.7
million pounds (2003: 1,712.8 million pounds) despite an adverse
currency impact of 153.6 million pounds (9.0%). The division's
trading profit was up 34.2% at 104.0 million pounds (2003: 77.5
million pounds), after an adverse currency impact of 7.2 million
pounds (9.3%). The divisional trading margin, after the allocation
of central costs, increased to 5.1%, from 4.5% in the prior year,
and return on capital was also substantially higher at 16.4%,
reflecting higher profits and an improvement in the working capital
ratio. In local currency, sales were up 31.1% to $3,581.0 million
(2003: $2,732.3 million) with trading profit up by almost 50%.
Organic sales growth was 25.8% including the beneficial effects of
commodity price inflation. Acquisitions added $142.9 million of
sales. Commodity lumber and structural panel prices, which directly
affected around 35% and 9% of Stock's product range respectively,
rose strongly compared to the prior year. Average lumber prices
rose 31.7% to $378 per thousand board feet (2003: $287) and average
structural panel prices rose 86.5% to $496 per thousand square feet
(2003: $266). Together these price increases had the effect of
increasing sales by $514.6 million (18.8%). Organic sales volumes
were higher in the year with organic growth from on- going branches
up by more than 6%. New housing, which accounted for 88% (2003:
93%) of the activity in this division, has generally continued to
be a bright spot in the US economy. Aggregate housing starts during
the period continued at a high level of more than 1.8 million. In
addition, the inventory of unsold new homes at 4.2 months in July
2004, compared to the longer term average of around 6 months,
further demonstrates the overall strength of the housing market.
There continues to be significant variations in regional housing
markets where Stock operates. The markets in California, Florida,
Virginia and the Carolinas have been strong. Colorado, Ohio, Dallas
and Michigan have been weak markets, while Atlanta and Georgia have
improved. Final Dividend The board is recommending a final dividend
of 16.0 pence per share (2003: 15.6 pence per share) to be paid on
November 30, 2004 to shareholders registered on October 8, 2004.
The small increase in the final dividend reflects, as announced at
the interim results, the rebalancing of the split of the total
dividend paid so that a greater proportion, approximately
one-third, is paid at the interim stage. The total dividend for the
year of 23.8 pence per share is an increase of 12.3% on last year's
21.2 pence. Dividend cover is 2.9 times. The increase in dividend
for the year reflects the board's confidence in the future
prospects of the group and its strong financial position. The
dividend reinvestment plan will continue to be available to
eligible shareholders. Financial Review Net interest payable of
21.1 million pounds (2003: 17.0 million pounds) reflects an
increase in the interest payable on Group debt as a result of
acquisitions and an increase in working capital principally in the
USA, offset by the effect of lower interest rates on the Group's
borrowings compared to the prior year. Interest cover was 27 times
(2003: 26 times). The effective tax rate reduced from 28.0% to
27.1% and it is expected that this will be the rate for the next
financial year. Before goodwill amortization, earnings per share
increased by 32.0% from 56.69 pence to 74.84 pence. Basic (FRS 3)
earnings per share were up by 32.3% to 68.15 pence (2003: 51.53
pence). The average number of shares in issue during the year was
582.6 million (2003: 579.1 million). Net cash flow from operating
activities decreased from 607.7 million pounds to 325.2 million
pounds, due to a net absorption of working capital of 401.9 million
pounds. Group inventory levels increased by 274.3 million pounds
during the year as a result of the rapid growth in sales of the
North American operations, the effects of opening an additional
distribution center in the US Plumbing and Heating Distribution
business, an increase in US inventory levels in response to the
market shortage of copper and steel commodities and the effects of
inflation on the value of items carried. Creditors increased by
108.6 million pounds during the period, compared with an increase
of 123.0 million pounds in the previous year. Debtors increased by
236.3 million pounds, compared with an increase of 32.9 million
pounds in the prior year, driven by the growth in sales. As the
rate of sales growth outpaced that of working capital, the working
capital to sales ratio showed a further improvement from 15.4% to
15.2%. The targeted working capital ratio remains 15%. Net capital
expenditure increased by 27.4 million pounds (25.3%) on the prior
year to 135.6 million pounds reflecting continued investment in the
business, including the new Richland distribution center in the
USA, a new head office in France and the initial investment in the
new head office in the UK and the common IT platform. Acquisition
spend during the period, including any deferred consideration and
debt, amounted to 123.5 million pounds (2003: 512.5 million
pounds). There have been six additional acquisitions, for a
combined consideration of 142.6 million pounds, since July 31,
2004. Further details regarding acquisitions are included in note
6. The Group's branch network has been extended through
acquisitions and branch openings by a net total of 188, bringing
the total to 3,637 at July 31, 2004. Net borrowings, excluding
construction loan borrowings, at July 31, 2004 amounted to 941.4
million pounds compared to 826.7 million pounds at July 31, 2003,
giving gearing of 49.5% compared to 46.6% at the previous year-end
and down from 53.9% at the half year stage. Construction loan
receivables, financed by an equivalent amount of construction loan
borrowings, were 187.7 million pounds compared to 176.1 million
pounds at July 31, 2003. The increase is due to an expanding loan
book partly offset by the weaker US dollar. Return on gross capital
employed increased strongly from 16.7% to 18.4% as a result of the
significant organic growth in profit and the improved working
capital ratio. Provisions for liabilities and charges (note 5) in
the balance sheet include the estimated liability for asbestos
claims on a discounted basis. This liability has been determined
actuarially as at July 31, 2004 by independent professional
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 308 (2003: 484) claims outstanding
at the year end. International Accounting Standards Under current
European legislation the Group will be required to adopt
International Financial Reporting Standards ('IFRSs') and
International Accounting Standards ('IASs') in the preparation of
its financial statements from August 1, 2005 onwards. The project
to manage the transition of financial reporting from UK GAAP to
international accounting has completed an initial assessment of the
impact on the accounts of the Group and work is underway to ensure
full compliance for the year ending July 31, 2006. Based on the
initial assessment, the areas of greatest impact for Wolseley plc
are the changes in respect of the accounting treatment for
goodwill, intangible assets, property leases, share based payments,
pensions, deferred tax and dividends. The presentation of the
financial statements will also be affected. International
Integration and Infrastructure Developments During the year further
investment was made in the Group's infrastructure, in logistics,
systems and human resources. In order to support its 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. The
previously announced new common technology platform, involving
expenditure of around 30 million pounds in the first two years,
will support these initiatives. A multinational team is currently
working on the common financial applications and these are expected
to be implemented across the Group within the next 12 months. In
parallel, other applications are being developed for the common
platform and will initially be implemented as pilot systems. For
example, a branch warehouse management package is currently being
piloted in Atlanta, Georgia, with the objective of rolling this
package out to other locations around the Group when required.
Significant benefits are expected to arise over the next few years
from the Group's continuous improvement programs enabled by the
common IT platform. Outlook The Group has made a good start to the
new financial year with the positive momentum in the latter part of
the financial year carrying through into the new financial year. In
the UK, including Ireland, the RMI and new housing markets are
expected to continue to show steady growth, against the backdrop of
a relatively strong UK economy. In France, there are signs that the
market is starting to improve and further progress by PBM is
expected in the coming year. Whilst the markets in the rest of
Continental Europe are likely to remain broadly flat, Wolseley's
operations are expected to continue the good progress achieved this
year. US markets will continue to vary both in terms of geography
and business sector. Residential housing and RMI markets are
expected to hold up well and there are signs that demand from the
commercial sector is picking up. As the US economic recovery
continues this should present further opportunities for organic
growth, although industrial markets are expected to remain
relatively weak. The upward trend in the performance of the US
Building Materials business should continue as further benefits of
its market focus and restructuring are realized. In Canada, the
overall environment is expected to remain positive. There are
uncertainties relating to the possible effects of commodity price
and exchange rate movements on the Group's results in the coming
year. 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 Board
views the future with optimism and expects another year of good
progress. 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 the 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, 2003. FINANCIAL CALENDAR FOR
2004/2005 2004 October 6 - Shares quoted ex-dividend October 8 -
Record date for final dividend November 10 - Final date for DRIP
elections November 18 - Annual General Meeting November 30 - Final
dividend payment date 2005 January 17 - Trading update March 21(*)
- Interim Results for six months to January 31, 2005 March 30(*) -
Shares quoted ex-dividend April 1(*) - Record date for final
dividend May 31(*) - Interim dividend payment date (*) expected A
copy of this Preliminary Announcement, together with 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. GROUP PROFIT AND LOSS ACCOUNT Year to Year to July 31,
2004 July 31, 2003 m pounds m pounds Turnover (note 3) Continuing
operations 9,956.1 8,221.0 Acquisitions 172.0 - 10,128.1 8,221.0
Operating profit before goodwill amortization (note 4) 619.2 472.9
Goodwill amortization (39.0) (29.9) Operating profit Continuing
operations 573.4 443.0 Acquisitions 6.8 - 580.2 443.0 Profit on
ordinary activities before interest 580.2 443.0 Net interest
payable (21.1) (17.0) Profit on ordinary activities before tax
559.1 426.0 Taxation Current tax charge (153.0) (118.0) Deferred
tax charge (9.1) (9.6) (162.1) (127.6) Profit after tax
(attributable to ordinary shareholders) 397.0 298.4 Dividends
(139.1) (123.1) Profit retained 257.9 175.3 Earnings per share
Before goodwill amortization 74.84p 56.69p Goodwill amortization
(6.69)p (5.16)p Basic earnings per share 68.15p 51.53p Diluted
earnings per share 67.36p 51.12p Dividends per share 23.80p 21.20p
Translation rates US dollars 1.7522 1.5951 Euro 1.4635 1.5039
STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES Year to Year to July
31, 2004 July 31, 2003 m pounds m pounds Profit for the period
397.0 298.4 Currency translation difference (147.2) (10.4) Total
gains and losses recognized during the year 249.8 288.0 GROUP
BALANCE SHEET AT JULY 31 2004 2003 Total Total m pounds m pounds
FIXED ASSETS Intangible assets 665.9 686.8 Tangible assets 719.0
716.8 1,384.9 1,403.6 CURRENT ASSETS Stocks 1,501.8 1,303.5 Debtors
and property awaiting disposal 1,964.5 1,780.3 Construction loans
receivable (secured) 187.7 176.2 Investments 6.2 6.9 Cash at bank,
in hand and on deposit 291.3 215.9 3,951.5 3,482.8 CREDITORS:
amounts falling due within one year Bank loans, overdrafts and
other loans 384.0 207.0 Construction loan borrowings (unsecured)
187.7 176.1 Corporation tax 152.5 72.6 Proposed dividend 93.6 90.5
Other creditors 1,605.1 1,579.6 2,422.9 2,125.8 NET CURRENT ASSETS
1,528.6 1,357.0 TOTAL ASSETS LESS CURRENT LIABILITIES 2,913.5
2,760.6 CREDITORS: amounts falling due after one year Borrowings
854.9 842.5 PROVISIONS FOR LIABILITIES AND CHARGES (note 5) 156.7
143.9 1,011.6 986.4 1,901.9 1,774.2 CAPITAL AND RESERVES Called up
share capital 146.3 145.2 Share premium account 199.9 177.8 Profit
and loss account 1,555.7 1,451.2 SHAREHOLDERS' FUNDS 1,901.9
1,774.2 Translation rates: US Dollars 1.8198 1.6076 Euro 1.5144
1.4171 SUMMARIZED GROUP CASH FLOW STATEMENT Year to Year to July
31, 2004 July 31, 2003 m pounds m pounds CASH FLOW FROM OPERATING
ACTIVITIES* 325.2 607.7 Returns on investments and servicing of
finance (13.4) (24.8) Taxation paid (128.1) (108.1) Net capital
expenditure and financial investment (135.6) (108.2) Acquisitions
(123.5) (507.2) Disposals - 3.0 Equity dividends paid (136.0)
(113.0) Financing - Issue of shares 17.0 9.4 CHANGE IN NET DEBT
RESULTING FROM CASH FLOWS (194.4) (241.2) New finance leases and
finance leases acquired with subsidiary (5.3) (20.6) Translation
difference 85.0 (19.3) Movement in net debt in period (114.7)
(281.1) Opening net debt (826.7) (545.6) Closing net debt (941.4)
(826.7) * RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH
FLOWS Year to Year to July 31, 2004 July 31, 2003 m pounds m pounds
Operating profit 580.2 443.0 Depreciation charges 107.9 93.1
Goodwill amortization 39.0 29.9 Increase in stocks (274.3) (48.3)
Increase in debtors (236.3) (32.9) Increase in creditors &
provisions 108.6 123.0 Increase/(decrease) in net construction
loans 0.1 (0.1) Net cash flow from operating activities 325.2 607.7
NOTES ON THE ATTACHED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET 1
These accounts have been prepared on the basis of the accounting
policies set out in the Group's 2004 Annual Report and Accounts. 2
The financial information set out above is extracted from the
Group's full accounts for the years ended July 31, 2003 and July
31, 2004. Statutory accounts for 2003 have been delivered to the
Registrar of Companies, and those for 2004 will be delivered
following the Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain
statements under section 237(2) or (3) of the Companies Act 1985. 3
Analysis of change in sales New Acquisi- Acquisi- tions tions
Increment 2003 Exchange 2004 2003 Organic Change 2004 m pounds m
pounds m pounds m pounds m pounds % m pounds European Distribution
2,956.7 30.3 70.0 1,023.0 168.0 5.6 4,248.0 North American Plumbing
& Heating Distribution 3,551.5 (276.8) 55.3 54.1 452.3 13.8
3,836.4 US Building Materials Distribution 1,712.8 (153.6) 46.7
34.9 402.9 25.8 2,043.7 8,221.0 (400.1) 172.0 1,112.0 1,023.2 13.1
10,128.1 4 Analysis of change in operating profit before goodwill
amortization New Acquisi- Acquisi- tions tions Increment 2003
Exchange 2004 2003 Organic Change 2004 m pounds m pounds m pounds m
pounds m pounds % m pounds European Distribution 193.2 1.6 2.2 56.2
10.0 5.1 263.2 North American Plumbing & Heating Distribution
202.2 (15.9) 2.0 3.2 60.5 32.5 252.0 US Building Materials
Distribution 77.5 (7.2) 4.1 1.4 28.2 40.1 104.0 472.9 (21.5) 8.3
60.8 98.7 21.9 619.2 Goodwill amortization attributable to the
above segments is European Distribution: 20.3 million pounds; North
American Plumbing & Heating Distribution: 11.9 million pounds;
US Building Materials Distribution: 6.8 million pounds. 5
Provisions for Liabilities and Charges As at As at July 31, 2004
July 31, 2003 m pounds m pounds Pensions 48.0 52.1 Wolseley
Insurance 33.4 32.1 Environmental & Legal 29.4 27.7 Deferred
Taxation 31.0 22.7 Other 14.9 9.3 156.7 143.9 Environmental and
legal liabilities include known legal claims and environmental
liabilities where the costs and timing of any payment is inherently
uncertain. Included in this provision is an amount of 27.9 million
pounds (2003: 26.2 million pounds) related to asbestos litigation
involving certain group companies. This liability is fully covered
by insurance and accordingly an equivalent insurance receivable has
been recorded in debtors in line with FRS 12 'Provisions,
contingencies and contingent assets'. The liability has been
actuarially determined as at July 31, 2004 by independent
professional advisors. The provision and the related receivable
have been stated on a discounted basis using a long term US
treasury rate of 5%. 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. 6 Acquisitions An analysis of the acquisition
spend incurred in the year to July 31, 2004 and the expected
contribution to turnover in a full year is as follows: Acquisition
Full year Spend contribution to Division turnover m pounds m pounds
European Distribution 59.5 117.2 North American Plumbing &
Heating Distribution 28.1 94.7 US Building Materials Distribution
35.9 92.9 123.5 304.8 Since the year end, there have been a further
six acquisitions, one of which is conditional on Court approval.
Details of the acquisition spend and the expected contribution to
turnover in a full year is as follows: Acquisition Full year Spend
contribution to Division turnover m pounds m pounds European
Distribution 129.6 168.8 North American Plumbing & Heating
Distribution 13.0 36.0 US Building Materials Distribution - - 142.6
204.8 The above consideration is subject to adjustment in certain
of the acquisitions. 7 Pensions and post-retirement benefits The
following table sets out the funding position of the defined
benefits pension schemes operated by the group and the adjustment
to net assets required were the Group to apply FRS17 instead of its
current reporting under SSAP24. As at As at July 31, 2004 July 31,
2003 m pounds m pounds Market value of pension liability 583 546
Market value of pension assets (400) (340) 183 206 Pension
provisions under current UK GAAP (48) (50) Deferred tax asset (41)
(48) FRS 17 adjustment to net assets 94 108 The Group is in the
process of finalizing the triennial actuarial valuation as at May
1, 2004 of the UK scheme. It is expected that it will give rise to
an incremental P&L charge of approximately 6 million pounds in
the year to July 31, 2005. DATASOURCE: Wolseley plc CONTACT: Guy
Stainer, Head of Investor Relations of Wolseley plc,
+44-0118-929-8700; or John English, Director, Investor Relations of
Wolseley, North America, +1-513-771-9000; or Andrew Fenwick or Nina
Coad of Brunswick, +020-7404-5959 Web site:
http://www.wolseley.com/ http://www.cantos.com/
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