United Kingdom - Woleseley plc released third quarter results.
Commenting on the results, Ian Meakins, Chief Executive, said: "We continued to make good progress in the third quarter with strong growth in the USA and the Nordics offsetting more challenging conditions elsewhere. Like-for-like revenue growth in the UK was lower as we continued to focus on protecting gross margins. 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. 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."
During the quarter the Group generated revenue in the ongoing businesses of £3,048 million, 6.0% ahead of last year at constant exchange rates and 5.1% ahead on a like-for-like basis. The impact of inflation on Group revenue was negligible. The gross margin of 28.1% for the ongoing businesses was 10 basis points ahead of last year. Operating costs, which increased by 6% at constant exchange rates, included £2 million of acquisition costs and planned technology and process investment of £7 million. Exchange rate movements were unfavourable in the quarter and reduced trading profit by £12 million. The number of trading days was the same as in the third quarter last year. Trading profit for the ongoing businesses of £155 million was 0.6% higher than last year, 9.1% higher at constant exchange rates. The trading margin improved by 10 basis points to 5.1% for the ongoing businesses. Businesses closed, disposed of or classified as held for sale incurred a loss of £2 million (2013: loss of £4 million).
|£ million||Q3 2014|
|Change||Like-for-like change||Q3 2014 Trading profit||Q3 2013 Trading profit|
|Central and other costs||-||-||(10)||(9)|
|Closed, disposed of or held for sale||67||155||(2)||(4)|
Quarterly like-for-like revenue growth
|Q3 2013||Q4 2013||Q1 2014||Q2 2014||Q3 2014|
In the USA, like-for-like revenue growth was 9.0% including 0.7% price deflation principally due to movements in commodity prices. The Blended Branches, Waterworks, Fire and Fabrication and B2C businesses all generated good like-for-like revenue growth and improved returns whilst the Industrial segment remained comparatively weaker. Acquisitions contributed 0.6% of additional revenue growth. Gross margins were ahead of last year and operating costs were 8% higher at constant exchange rates including the continuing planned investment in technology and processes. Exchange rate movements were unfavourable in the quarter and reduced trading profit by £9 million. Trading profit of £122 million was £7 million ahead of last year.
During the quarter we acquired Factory Direct Appliances, a small appliance showroom business with annualised revenue of £36 million, and Waterworks Industries, a water meter business with annualised revenue of £5 million.
In Canada, like-for-like revenue declined by 1.6% with negligible price inflation. Market conditions in Quebec remained weak but this was largely offset by continued growth in the West. Gross margins were lower than last year principally as a result of more expensive US$ denominated imports. Operating costs were well controlled. Exchange rate movements were unfavourable in the quarter and reduced trading profit by £2 million. Trading profit of £3 million was £4 million behind last year.
In the UK, like-for-like revenue declined by 3.5% including price inflation of less than 1%. New residential construction, which represents approximately 5% of UK revenue, continued to grow strongly but growth in residential RMI markets, which represents approximately 60% of UK revenue, remained modest and Industrial markets remained weak. Like-for-like revenue growth was impacted as we declined some very low margin sales to protect our gross margins, which improved in all businesses. Operating costs were tightly controlled and included £2 million of acquisition costs. Trading profit for the period was £24 million, in line with last year.
During the quarter we agreed to acquire Fusion Provida and Utility Power Systems, two suppliers of utility infrastructure products. The acquisitions have annualised revenue of £55 million and are being held separately until clearance is received from the Competition and Markets Authority.
In the Nordic region, the ongoing businesses generated like-for-like revenue growth of 7.5% including 1% price inflation. Market conditions improved in Denmark and Sweden although the year-on-year growth rate was flattered by very weak comparative figures for the same period last year. Gross margins were slightly lower due to pricing pressure. Exchange rate movements were unfavourable in the quarter and reduced trading profit by £1 million. Trading profit of the ongoing businesses of £10 million was £3 million ahead of last year.
The previously announced acquisition of Puukeskus was completed in the quarter.
In France, like-for-like revenue of the ongoing businesses declined by 1.6% including 1% price inflation, as the new residential market weakened. Gross margins were ahead of last year and operating costs were again tightly controlled. Trading profit of the ongoing businesses of £3 million was £2 million behind last year.
In Central Europe, like-for-like revenue of the ongoing businesses declined by 1.8% including 1% price inflation. Gross margins were lower than last year as markets remained challenging and operating costs were reduced. Trading profit of the ongoing businesses of £3 million was £2 million behind last year.
In May we agreed to dispose of the ÖAG plumbing and heating business in Austria, subject to competition clearance, and the business has been classified as held for sale. In the year ended 31 July 2013 ÖAG generated revenue of £239 million and trading profit of £2 million.
Nine Months Trading Performance
|£ million||Yth 2014 Revenue||Yth 2013 Revenue||Change||Like-for-like change||Yth 2014 Trading profit||Yth 2013 Trading profit|
|Central and other costs||-||-||(31)||(30)|
|Closed, disposed of or held for sale||290||456||(9)||(10)|
In May the Group acquired Capstone, a sourcing agent based in Taiwan.
Foreign exchange movements in the third quarter reduced revenue by £200 million and trading profit by £12 million. At current exchange rates Q4 2013 revenue would have been £236 million lower and trading profit £16 million lower.
Net debt at 30 April 2014 was £914 million (30 April 2013: £694 million). There has been no other significant change in the financial position of the Group since 31 January 2014.
On 1 May 2014 Darren Shapland joined the Board as a Non Executive Director and on 21 May 2014 John Daly and Jacky Simmonds joined the Board as Non Executive Directors. They will also become members of the Audit, Remuneration and Nominations Committees of the Board. From July 2014 Jacky will also chair the Remuneration Committee at which point Alan Murray will step down as its chairman. Alan will continue to be Wolseley's Senior Independent Director.
The overall like-for-like revenue growth rate in May has been broadly in line with the year to date. The USA has continued to grow well, whilst market conditions remain more challenging in Continental Europe. We expect the Group's like-for-like revenue growth rate for the next 6 months to be about 4%.