Overseas growth offsets UK weakness at Wolseley

By This Is Money
Updated: 07:20 EDT, 1 June 2011

Strong overseas trading has allowed building goods supplier Wolseley to shrug off a difficult quarter in the UK market.

Looking abroad: Wolseley is seeing growth in the US, France and the Nordics

Gains in its US, Nordic and French arms helped lift Wolseley's operating profit by 30% to £131m in the three months to April 30. Like-for-like revenue was up 6% at £3.27bn.

But the firm reported lower UK revenues and profits after a tough quarter for its brands Bathstore and Plumb Center.

UK operating profit was 11% lower at £28m. Like-for-like revenue rose 1% to 601m, but this was a sharp slowdown on the 8% growth achieved in the previous three months.

Wolseley's shares gained yesterday on rumours it was putting three UK units – Build Center, Electric Center and Encon - up for sale. But the stock fell 17p to 2.041p following today's results.

The UK operation was hit by a £4m rise in bad debt charges and 'significantly' lower revenues at consumer-focused Bathstore,

Plumbing chain Plumb Center was also affected by the loss of a large parts supply contract as well as fewer boiler replacements following the end of the Government's scrappage scheme a year ago.

Build Center improved its performance while the company's drain, pipe and climate businesses all did well.

Meanwhile, Wolseley's like-for revenue growth continues to be strongest in the US at 10%, with good trends in the Nordic region at 6% and France at 8%.

The US accounts for about 40% of Wolseley's business and it has been buoyed recently by repair, maintenance and improvement work which is still holding up, the firm said.

However, figures released yesterday showed US house prices hitting a double dip – falling 4.2% in the first three months of 2011 and averaging 5.1% below their level last year.

Chief executive Ian Meakins said: 'The group continued to make progress in the third quarter broadly maintaining the revenue growth trends achieved in the first half despite tougher comparatives.

'New residential construction, which accounts for 20% of group revenue, remained subdued in most regions, while demand in repair, maintenance and improvement segments held up well in most markets.'

Mr Meakins, who took over in 2009, has been selling off peripheral businesses to cut debt after the firm slumped into the red as property markets crashed after the credit crunch. Borrowings fell by £109m over the quarter to £824m.

For the year to July, the City is pencilling in profits of £605m on revenues of £13.6bn. Mr Meakins said he remained confident of meeting market expectations for the full year.

View from the City

'For those who believe the housing market is through the worst, Wolseley may be worth looking at,' said Graham Spooner, investment adviser at online broker The Share Centre.

'We continue to recommend investors "hold" for now as the restructuring has had the desired effect and the shares have had a fantastic run over the last year. However, we still remain cautious of the instability in the sector.'

Anthony Codling of broker Oriel Securities noted there was no mention in today's statement of the potential disposals of Build Center, Electric Center and insulation specialist Encon – all of which may interest rival Travis Perkins.

'The trade press also suggests Wolseley is close to closing the sale of its French business Brossette, which we would welcome. The statement itself was therefore blander than we had expected and the recent rally may therefore pause for breath,' he said.