Wolseley plc announces another record year, achieving a decade of
continuous growth CINCINNATI, Sept. 25 /PRNewswire-FirstCall/ --
Summary of Results Financial highlights Change Year to Year to
Reported In July 31 July 31 constant 2006 2005 currency mil pounds
mil pounds % % Group revenue 14,158 11,256 25.8 22.8 Group trading
profit (1) 882 708 24.7 21.6 Group operating profit 834 702 18.8
15.9 Group profit before tax, before amortization of acquired
intangibles 817 671 21.8 19.3 Group profit before tax 769 665 15.6
13.3 Earnings per share, before amortization of acquired
intangibles 98.90p 82.60p 19.7 17.4 Basic earnings per share 90.77p
81.61p 11.2 9.1 Total dividend per share 29.40p 26.40p 11.4 11.4 -
Group revenue up 25.8%, including organic growth of 10.9% -
Significant increase in Group profits: - Trading profit up 24.7% -
Profit before tax and before amortization of acquired intangibles
up 21.8% - Cash flow from operations up 11.1% from 765 million
pounds to 850 million pounds - Strong financial position with
gearing(2) of 75.2% (2005: 50.8%) and interest cover(3) of 14 times
(2005: 23 times), before the acquisition of the DT Group - Return
on gross capital employed (ROGCE(4)) at 18.8% (2005: 19.1%), well
ahead of the Group's weighted average cost of capital and
demonstrating continuing significant shareholder value creation -
Increase in dividend of 11.4% for the full year to 29.40 pence per
share reflecting the Board's confidence in the future prospects of
the Group Operating highlights - Tenth consecutive year of record
results achieved, while continuing with significant investment in
the business to position the Group for further growth. - Increased
diversity as the Group has expanded its activities in the
distribution of electrical products, insulation materials and tool
hire in the UK, achieved an entry into the Belgian market and
increased its presence in installed services in the USA. - North
American revenues up 36.1% and trading profit up 41.5%. Ferguson
achieved strong organic revenue growth of 24.3% and increased
trading margin to 7%. Stock Building Supply's ("Stock") improved
market focus and business mix helped trading margin rise
significantly from 5.9% to 6.5%. - European revenues up 11.1% and
trading profit up 2.9%, reflecting acquisitions offset by the more
difficult market environment in Austria and restructuring of
Brossette in France. Revenues in Wolseley UK were up 14.4%,
including 2.1% organic growth. - Market out performance by all of
the Group's principal businesses except Brossette, which is
continuing to restructure to accelerate future growth. - Record
acquisition investment of 914 million pounds for 53 completed
acquisitions which are expected to add 1,418 million pounds of
revenues in a full year. - Acquisition of DT Group, announced on
July 24, 2006, is expected to complete today. This 1.35 billion
pound acquisition of the leading Nordic distributor of building
materials with revenues of 1.7 billion pounds in the year to June
30, 2006, diversifies the Group into three new countries. Outlook -
Although the economic background in the USA is uncertain, the
repairs, maintenance and improvement ("RMI") and industrial and
commercial markets should continue to grow and more than outweigh
the softening in the new residential market. The outlook for Stock
will be more challenging but the diversity of the Group's US
operations should enable them to outperform the market and make
good progress overall. - In Canada, the overall environment is
expected to remain positive. - The UK market is expected to
continue to show a gradual improvement with Wolseley UK also
benefiting from recent acquisitions, product expansion and enhanced
supply chain efficiency. - In France, growth in the RMI market is
likely to remain modest; both Brossette and PBM are expected to
show sound progress. - The Nordic region is expected to remain
positive and while the majority of markets in the rest of
continental Europe are likely to remain broadly flat, Wolseley's
operations are expected to show growth relative to their respective
markets. - There are a number of business improvement initiatives
in place that should improve performance. The Group will continue
to aim for, on average, double-digit sales and profit improvements
through a combination of organic growth and acquisitions. - The 10%
placing of new ordinary shares, announced today, will enable the
Group to continue to pursue its growth strategy and its program of
bolt-on acquisitions. - The Board expects another year of good
progress benefiting from its geographic, product and customer
diversity. Chip Hornsby, Wolseley plc Group Chief Executive said:
"Achieving a decade of continuous growth is a fantastic achievement
by the Wolseley Group and reflects the benefits of our customer,
product and geographic diversity. More importantly, the fragmented
nature of the construction materials distribution market in Europe
and North America gives us confidence that we can look forward to
many more years of substantial growth. Although the slowing US
housing market may bring us challenges next year, we will continue
to pursue our double-digit growth targets through a combination of
organic and acquisitive growth, utilizing our competitive
advantages of our scale, people, supply chain and reaping the
rewards of our commitment to delivering customer solutions."
SUMMARY OF RESULTS As at, and for the year ended July 31 2006 2005
Change Revenue 14,158 mil pounds 11,256 mil pounds +25.8% Operating
profit - before amortization of acquired intangibles 882 mil pounds
708 mil pounds +24.7% - amortization of acquired intangibles (48)
mil pounds (6) mil pounds Operating profit 834 mil pounds 702 mil
pounds +18.8% Net finance costs (65) mil pounds (37) mil pounds
Profit before tax - before amortization of acquired intangibles 817
mil pounds 671 mil pounds +21.8% - amortization of acquired
intangibles (48) mil pounds (6) mil pounds Profit before tax 769
mil pounds 665 mil pounds +15.6% Earnings per share - before
amortization of acquired intangibles 98.90p 82.60p +19.7% -
amortization of acquired intangibles (8.13)p (0.99)p Basic earnings
per share 90.77p 81.61p +11.2% Dividend per share 29.40p 26.40p
+11.4% Net debt 1,950 mil pounds 1,171 mil pounds Gearing 75.2%
50.8% Interest cover (times) 14x 23x Operating cash flow 850 mil
pounds 765 mil pounds (1) Trading profit, a term used throughout
this announcement, is defined as operating profit before the
amortization of acquired intangibles. Trading margin is the ratio
of trading profit to revenues expressed as a percentage. Organic
change is the total increase or decrease in the year adjusted for
the impact of exchange rates, new acquisitions in 2006 and the
incremental impact of acquisitions in 2005. (2) Gearing ratio is
the ratio of net debt, excluding construction loan borrowings, to
shareholders' funds. (3) Interest cover is trading profit divided
by net finance costs, excluding net pension related finance costs.
(4) Return on gross capital employed is the ratio of trading profit
(before loss on disposal of operations and goodwill) to the
aggregate of average shareholders' funds, minority interests, net
debt and cumulative goodwill written off. An interview with Chip
Hornsby, Group Chief Executive and Steve Webster, Group Finance
Director, in video/audio and text will be available from 0700 on
http://www.wolseley.com/ and http://www.cantos.com/ There will be
an analyst and investor meeting at 0930 at UBS Presentation Suite,
1 Finsbury Avenue, London EC2M 2PP. A live audio cast and slide
presentation of this event will be available at 0930 on
http://www.wolseley.com/. There will also be a conference call at
1500 (UK time): UK/European dial-in number: + 44 (0)20 7162 0125 US
dial-in number: + 1 334 323 6203 The call will be recorded and
available for playback until October 9, 2006 on the following
numbers: UK/European replay dial-in number: +4420 7031 4064 Pass
code: 717312 UK-only free phone number: 0800 358 1860 Pass code:
717312 North American free phone number: +1 888 365 0240 Pass code:
717312 Announcement of Preliminary Results Wolseley (NYSE:WOS)
(LSE:WOS.L), the world's largest specialist trade distributor of
plumbing and heating products to professional contractors and a
leading supplier of building materials and services, is pleased to
announce its tenth consecutive year of record results. These
results reflect strong organic growth in North America where
additional benefits were obtained from a significant increase in
copper prices, partially offset by a decrease in lumber prices in
the latter part of the year. There was also an incremental
contribution from acquisitions in both North America and Europe.
They have been achieved whilst the Group continues to invest in
people, facilities and technology to secure future growth.
Wolseley's US plumbing and heating business, Ferguson, performed
very strongly, achieving revenue growth of 35.1%, of which 24.3%
was organic, and trading profit growth, including acquisitions, of
40.4%. Stock Building Supply ("Stock"), Wolseley's US building
materials business, achieved growth in revenue, including
acquisitions, of 27.4% and trading profit growth of 40.6%. The
Group's businesses in the UK, Ireland, Canada, The Netherlands,
Italy, Switzerland and PBM in France also performed well in their
respective markets, although Brossette in France recorded lower
profits as a result of its continuing restructuring. Group revenue
increased by 25.8% from 11,256 million pounds to 14,158 million
pounds. Trading profit rose by 24.7% from 708 million pounds to 882
million pounds. After deducting amortization of acquired
intangibles of 48 pounds million (2005: 6 million pounds),
operating profit increased by 18.8% from 702 million pounds to 834
million pounds. On a constant currency basis, Group revenue
increased by 22.8% and trading profit by 21.6% compared to the
previous year. Currency translation increased Group revenue by 274
million pounds (2.4%) and Group trading profit by 18 million pounds
(2.5%). The Group's trading margin fell slightly from 6.3% to 6.2%.
Reported profit before tax and amortization of acquired intangibles
increased by 21.8% from 671 million pounds to 817 million pounds.
Profit before tax and after amortization of acquired intangibles,
increased by 15.6% from 665 million pounds to 769 million pounds.
Net finance costs of 65 million pounds (2005: 37 million pounds)
reflect the increase in acquisition spend and higher interest
rates, partly offset by stronger operating cash flow. Interest
cover was 14 times (2005: 23 times). Earnings per share before
amortization of acquired intangibles increased 19.7%, from 82.60
pence to 98.90 pence. Basic earnings per share were up 11.2%, from
81.61 pence to 90.77 pence. North America Wolseley's North American
division performed strongly with significant rises in revenue and
profits, maintaining its position as the leading distributor of
construction products to the professional contractor market in
North America. Reported revenue of the division was up 36.1% from
6,619 million pounds to 9,008 million pounds, reflecting organic
growth of 16.4%, net gains from price fluctuations in commodities,
acquisitions and the beneficial impact of currency translation.
Trading profit, in sterling, increased by 41.5% from 426 million
pounds to 603 million pounds, after an increase of 10 million
pounds in North American central costs, reflecting the creation of
the new North American management structure with effect from August
1, 2005. Currency translation increased divisional revenue by 274
million pounds (4.1%) and trading profit by 18 million pounds
(4.2%). There was a net increase of 363 branches in North America
to 1,797 (2005:1,434). US Plumbing and Heating Ferguson produced
another outstanding performance generating strong organic growth
from its focus on selected markets, new branch openings and driving
further commercial advantage from its distribution center ("DC")
network. These factors contributed to significant market
outperformance in the year. Local currency revenue in the US
plumbing and heating operations rose by 35.1% to $9,651 million
(2005: $7,144 million) with trading profit up by 40.4% to $676
million (2005: $481 million). Organic revenue growth was 24.3%. The
second half gross margin benefited from further increases in
commodity prices, mainly copper towards the latter part of the
financial year. Ferguson's scale and distribution capability
allowed it to take advantage of price movements in a rising
commodity market to secure additional one-off profits amounting to
around $35 million in the second half in addition to the one-off
gains of around $8 million in the first half. Taking into account
the one-off gains, the trading margin increased from 6.7% to 7.0%.
The underlying trading margin was approximately 20 basis points
higher, year on year, increasing from 6.5% to 6.7%, despite
significant revenue investments. Volumes through the DC network
grew by 34% compared to the prior year and more than 50% of branch
sales now go through the network. Further investment was made in
the DCs with an additional 700,000 square feet of capacity added
through the expansion of four existing facilities. Board approval
has recently been given for a new DC in both Florida and northern
California, which should be operational within twelve months. Of
the markets in which Ferguson operates, the commercial and
industrial sectors continued to improve and although new housing
slowed towards the end of the financial year, other housing related
activity remained strong, with the positive economic environment
benefiting the repairs, maintenance and improvement ("RMI") sector.
RMI is becoming an increasingly important element of overall
construction spend in the USA. To address this opportunity,
Ferguson opened a further 64 XpressNet branches and 30 new
showrooms during the year. More than 60 new specialist branches for
heating, ventilation, and air-conditioning (HVAC) or waterworks
were also opened and this expansion should lead to additional
growth opportunities. As well as new branch openings, investment in
people and IT continued during the period. More than 4,300 people
joined the business and the new warehouse management system is
being introduced into the large branches. This should lead to
enhanced customer service as a result of faster and more accurate
product picking and more efficient inventory management. Ferguson's
total branch numbers increased by 296 during the year to 1,237
locations (2005: 941 branches). US Building Materials The strong
performance of Stock benefited from improved market focus which was
brought about by the recent business restructuring and from
acquisitions. Reported figures also benefited from currency
translation. In local currency, Stock's revenue was up 27.4% to
$5,305 million (2005: $4,164 million) with trading profit up by
40.6% from $244 million to $343 million. Organic revenue growth was
4.1%, reflecting some commodity price deflation in lumber and
structural panels. These commodity price movements had the effect
of decreasing Stock's local currency revenue by $167 million (4.0%)
in the year compared to the prior year with the greater impact
being in the second half. Acquisitions contributed $970 million
(23.3%) to revenue growth. Stock's trading margin increased
significantly from 5.9% to 6.5% primarily as a result of a more
favorable sales mix arising from increased management focus on
value added products and installed services, both of which
represent significant growth opportunities. For the majority of the
financial year, new residential housing starts were around record
levels at between 1.9 and 2.0 million starts, although there were
significant regional variations. The markets in Georgia, Utah,
Texas and the Carolinas have been the strongest throughout the year
whereas the weakest markets have been in the upper Midwest and the
north east. As expected, housing starts declined in the final
quarter of the year as a result of rising interest rates, increased
inventory of unsold houses and a reversal in the trend of house
price inflation. Housing starts ended the year at just below 1.8
million per annum, with the previously buoyant markets such as
Washington DC, Florida and Las Vegas showing significant fourth
quarter year on year declines. Management action has already been
taken to reduce headcount and indirect costs and to shift emphasis
to the more resilient housing markets and increase penetration of
the RMI and industrial and commercial markets. Initiatives are also
being taken to expand the product range throughout the branch
network, which should help Stock continue to outperform in these
softening market conditions. Value-added sales were up 31%,
construction service and installed business sales were up more than
140% and sales to commercial and RMI contractors increased by 47%
and 20%, respectively. As well as achieving this through its
existing branch network and acquisitions, Stock opened 19 new
Greenfield branches and these initiatives further complement
Stock's installed service expertise. Stock's branch numbers
increased by 59 during the year to 314 locations (2005: 255
branches) and it now operates in 33 states. Wolseley Canada In
Canada, the construction and housing markets remained mostly
strong, while the buoyant energy sector in Western Canada helped
sales in the industrial and commercial sector. Local currency
revenue increased by 13.0% to C$1,330 million (2005: C$1,177
million). Of this, 10.7% of the revenue growth was organic, ahead
of the market generally. Gross margin improved and local currency
trading profit rose by 12.4%, resulting in an unchanged trading
margin of 6.9%. Work continued to consolidate back offices, recruit
additional people to fill management and trainee positions and to
improve logistics. The second of three regional supply centers for
larger inventory items was opened in Quebec in October 2005, with
the third likely to open near Toronto in Spring 2007. These
regional supply centers should lead to lower inventory levels and
enable the branch network to be utilized more effectively. Wolseley
Canada's total branch numbers increased from 238 to 246 locations.
Europe Construction markets in Europe showed very little growth
during the year. Nonetheless, with the exception of the Czech
Republic, which had marginally lower revenue, all of the
continental European operations increased revenue and most achieved
profit improvements. The results benefited from the effect of
acquisitions but were adversely impacted by the fall in Brossette's
profits due to its restructuring and lower profitability in
Austria. Reported revenue for this division increased by 11.1% from
4,637 million pounds to 5,150 million pounds, of which 2.8% was
from organic growth. Acquisitions accounted for 382 million pounds
(8.2%) of revenue growth. Trading profit, after European central
costs, increased 2.9% from 307 million pounds to 316 million
pounds. European central costs rose by 3 million pounds to 7
million pounds due to the planned expansion of the European
infrastructure to drive future growth and profit initiatives. The
overall divisional trading margin, after European central costs,
fell from 6.6% to 6.1% of revenue, primarily due to the lower
trading margins in Brossette, Austria and the UK and the effect of
acquisitions. Margin improvements were achieved in PBM (France),
Manzardo (Italy), Cesaro (Czech Republic), Electro Oil (Denmark)
and Wasco (Netherlands). In the year, a further net 375 branches
were added to the European network, giving a total of 2,861
locations (2005: 2,486). UK and Ireland Wolseley UK's performance
held up well against a UK building materials market which is
estimated to be around 4-5% down on the prior period. Whilst the
fundamentals of the UK economy remained positive, with relatively
low interest rates and low unemployment, RMI spending slowed in the
first half of the financial year in response to weaker consumer
confidence, but sales trends started to show a gradual improvement
in the final quarter. Government spending remained a relative
bright spot, although there have been noticeable delays on planned
social housing expenditure. Against this more challenging
background, Wolseley UK, which includes Ireland, recorded a 14.4%
increase in revenue to 2,690 million pounds (2005: 2,351 million
pounds). Organic growth of 2.1% outperformed the market generally,
with Bathstore, the retail bathroom offering, and Heatmerchants and
Brooks, the Irish businesses, performing particularly well,
producing double- digit organic revenue growth. Wolseley UK's
trading profit increased by 9.9% on the prior year mainly as a
result of the acquisitions of William Wilson, Encon, AC Electrical
and Brandon Hire, all of which have outperformed expectations at
the time of acquisition. Although the gross margin improved, the
trading margin fell slightly from 7.8% to 7.5%. This was the result
of the ongoing investment in the business to increase the
management resource, improve supply chain and logistics and expand
the branch opening program. These investments provide a platform
for future growth in both the traditional brand areas as well as
those recently entered. The new national DC in Leamington Spa,
which is located alongside Wolseley UK's new headquarters,
commenced deliveries to branches in August 2006. The regional DC,
in the North West, is scheduled to open in autumn 2007. These
investments and the current initiatives to centralize control of
transport and branch inventory management should enhance customer
service, improve efficiency and support continued growth in the
business. During the year, 288 net new locations were added in the
UK and Ireland, including 262 branches added as a result of
acquisitions, taking the total number of branches for Wolseley UK
to 1,858 (2005: 1,570 branches). France In France, government tax
incentives continue to underpin growth in the new residential
market, but RMI, representing approximately two thirds of revenue
for both Brossette and PBM, continued to show only marginal
improvement against the background of little growth in the overall
economy, weak consumer confidence and persistent high levels of
unemployment. Wolseley's French operations, which since May have
been managed through one central team, generated revenue up 4.8% to
2,515 million euros (2005: 2,399 million euros), including organic
growth of 2.1%. Trading profit for France was down to 132 million
euros (2005: 143 million euros) with a trading margin of 5.3%
(2005: 6.0%) as a result of the lower level of profitability in
Brossette. PBM achieved an increase in revenue of 6.8% in local
currency, almost half of which was organic growth. The sales trends
in PBM improved in the second half and this upward momentum is
expected to continue. Gross margin was down slightly. PBM's branch
numbers increased by 57 during the year to 347 branches including
the opening of eight new satellites and twelve hire locations. The
underlying trading profit, excluding the previously announced 11.5
million euros (8 million pounds) wood import duties rebate, showed
an improvement, as did the underlying trading margin. Local
currency revenue in Brossette was 1.8% up on the prior year.
Trading profit was significantly lower, before taking account of
the previously announced 7.6 million euros (5 million pounds) fine
from the French Competition Authorities relating to matters which
took place more than ten years ago. Brossette's results reflect the
ongoing reorganization of the district, branch and management
structures and the move to centralization of purchasing and
logistics, all of which are designed to enhance customer service
and facilitate future expansion. In order to accelerate the changes
being made at Brossette a number of management and employee changes
were made during the year with associated one-off severance costs
of approximately 3.5 million euros. PBM is expanding the number of
joint sites with Brossette, continuing to cross sell each others'
products in their respective branches and exploiting opportunities
to create purchasing synergies and indirect cost savings in co-
operation with other Group companies. Central Europe The Group's
other Continental European operations enjoyed generally good
results despite broadly flat markets. Revenue in Central Europe was
up by 14.6% to 735 million pounds (2005: 642 million pounds),
reflecting organic growth of 7.4% and the benefit of acquisitions.
Trading profit was up 3.9% to 31 million pounds (2005: 30 million
pounds). Tobler, in Switzerland, had another record year with
revenue up 17.8% to more than CHF300 million for the first time,
including 10.1% organic growth. Despite competitive market
conditions exerting some pressure on prices and a change in the
business mix to lower margin products, trading margin improved. In
The Netherlands, Wasco continued to make good progress expanding
its product range into sanitary ware, developing its offering to
the more profitable RMI market and focusing on cost control. It
achieved organic revenue growth of 16.1% and trading profit
improved by 57.0%. In Luxembourg, CFM's revenue increased by 3.6%
although trading profit was down, reflecting an increasingly
competitive market. Centratec, the Belgian business acquired in
October 2005, performed in line with expectations and is now
working with Wasco and CFM to achieve improvements in sourcing,
logistics and inventory management. OAG, in Austria, increased
revenue by nearly 2.7% although trading profit fell due to
continued competitive pressure on prices as a consequence of
difficult housing and RMI markets and business restructuring. In
Hungary and the Czech Republic, local market conditions remained
difficult but Wolseley Hungary achieved strong organic revenue
growth and Cesaro in the Czech Republic improved profits. In Italy,
Manzardo increased revenue by 21.4% compared to the prior year,
including 6.7% organic growth in a flat market and the incremental
effect of Iser Zauli acquired in January 2005. The branch opening
program of the past few years continued to benefit Manzardo's
revenue growth. Trading profit rose 13% reflecting the costs of
branch openings and preparations for the DC opening. Four new
branches were opened during the year. Progress on the 20 million
euros new central DC in northern Italy continues and the first
branch deliveries are expected to commence before the end of 2006,
with other branches being rolled out over the following 12 to 18
months. Further progress was made during the year to manage the
businesses in a more integrated way across Europe. The focus was on
sharing best practice in areas such as branch format and
product/service offerings, rationalizing the product and supplier
base, improving the supply chain and sourcing from low cost
countries. All of these initiatives are designed to enable the
Group to benefit from cross-border synergies and accelerate growth
in Europe. Final Dividend The Board is recommending a final
dividend of 19.55 pence per share (2005: 17.60 pence per share) to
be paid on November 30, 2006 to shareholders registered at close of
business on October 6, 2006. The total dividend for the year of
29.40 pence per share is an increase of 11.4% on last year's 26.40
pence. Dividend cover is 3.1 times (2005: 3.1 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. Strategy/Organization Charlie Banks retired
as Group CEO on July 31, 2006 after five years of successful growth
and strategic repositioning of the Group. Over the last few months,
before his appointment as Group CEO on August 1, Chip Hornsby has
been visiting the Group's operations and has carried out a
preliminary review of the strategy and future direction of the
Group. There will be no major change in strategic direction or in
the Group's existing financial targets, although there will be
increased focus on the execution of the business improvement
programs and increasing its market share in the 700 billion pounds
construction materials market. The Group will continue to grow the
business both organically and by acquisition and pursue geographic,
customer, product and business segment diversity to help underpin
the resilience in its performance over economic cycles. The
construction materials markets in Europe and North America are
worth around 237 billion pounds and 460 billion pounds
respectively. Although Wolseley is one of the market leaders, it
has less than 3% of this addressable market and therefore sees a
huge opportunity to continue with its aggressive double-digit
growth targets, whilst generating superior returns on capital to
drive the creation of significant shareholder value. The Group has
created a competitive advantage from its scale, diversity,
operational excellence and superior customer service and will
continue to invest to build on this competitive advantage. The
management team will focus on driving increasing benefits from
sourcing, supply chain, the use of technology and business
improvement programs, all of which provide increased net margin
potential over the next few years. One of the key competitive
advantages is the quality, experience and ambition of its employees
and the Group will continue to invest in recruitment, training,
development and leadership programs to sustain this position. One
of Wolseley's core competencies is the ability to integrate and
improve the performance of acquisitions to increase market share
and create the platform for future organic growth. The recent
appointment of Adrian Barden, formerly Managing Director of
Wolseley UK to head up the Group's acquisitions team and to oversee
the integration of DT Group, will provide an even greater focus in
the more competitive environment for acquisitions. Other changes in
the Group's senior management to create similar focus on driving
competitive advantage and growing market share, organically, will
be made in due course. Placing Wolseley is today undertaking a
placing of approximately 10% of its issued ordinary share capital.
The placing will reduce debt which has built up as a result of the
914 million pounds of acquisitions in 2006 and the 1.35 billion
pound acquisition of DT Group, announced on July 24, 2006, which is
expected to be completed today. The placing will also restore the
Group's financial flexibility to enable it to continue to pursue
its strategy of organic and acquisitive growth. Financial Review
Net finance costs of 65 million pounds (2005: 37 million pounds)
reflect an increase in Group debt as a result of acquisitions and
an increase in interest rates, partly offset by strong operating
cash flow and 5 million euros (3 million pounds) of interest
received on the previously announced French wood tax refund. Net
interest receivable on construction loans amounted to 12 million
pounds (2005: 9 million pounds). Interest cover was 14 times (2005:
23 times). Pro-forma interest cover, following the acquisition of
DT Group, is 14 times, after taking into account the expected net
proceeds from the placing. The effective tax rate, being tax
payable on profit before tax and amortization of acquired
intangibles, increased marginally from 27.7% to 28.4%. Before the
amortization of acquired intangibles, earnings per share increased
by 19.7% from 82.60 pence to 98.90 pence. Basic earnings per share
were up by 11.2% to 90.77 pence (2005: 81.61 pence). The average
number of shares in issue during the year was 592 million (2005:
587 million). Net cash flow from operating activities increased
from 765 million pounds to 850 million pounds, despite the increase
in working capital required to support higher organic growth in the
USA. Free cash flow, after dividends, was 285 million pounds (2005:
321 million pounds). Capital expenditure increased from 239 million
pounds to 346 million pounds reflecting continued investment in the
business. During the period the DC and branch network in the USA
was expanded, investment continued in DCs in the UK and Italy and
further expenditure was incurred on the common IT platform. Capital
expenditure is expected to remain at a relatively high level over
the next few years with further investments in DC, new branch
openings and IT as the Group continues to put in place the
infrastructure required to support substantial growth and improved
margins. Investment in acquisitions completed during the year,
including any deferred consideration and net debt, amounted to 914
million pounds (2005: 431 million pounds). These 53 acquisitions
are expected to add around 1,418 million pounds per annum of
incremental revenues in a full year. Six additional acquisitions,
for a consideration of 49 million pounds, have been completed since
August 1, 2006 and the acquisition of DT Group for approximately
1.35 billion pounds is expected to complete today. Further details
regarding acquisitions are included in note 10. The Group's branch
network has been extended through acquisitions and branch openings
by a net of 738 branches, bringing the total to 4,658 at 31 July
2006 (2005: 3,920 branches). Net borrowings, excluding construction
loan borrowings, at July 31, 2006 amounted to 1,950 million pounds
compared to 1,171 million pounds at July 31, 2005, giving gearing
of 75.2% compared to 50.8% at the previous year end and 68.1% at
January 31, 2006. The increase principally relates to acquisitions.
Pro-forma gearing, following the acquisition of DT Group and the
expected net proceeds from the placing is 79.1%. In the USA,
construction loan receivables, financed by an equivalent amount of
construction loan borrowings, were 313 million pounds (2005: 262
million pounds). The increase is due to an expanding loan book and
additional business generated from the opening of five new
construction lending offices. Return on gross capital employed
(ROGCE) reduced slightly from 19.1% to 18.8% as a result of
acquisitions, partly offset by the significant organic growth. The
ROGCE remains well above the Group's weighted average cost of
capital, demonstrating significant shareholder value creation.
Provisions in the balance sheet include the estimated liability for
asbestos claims on a discounted basis. This liability has been
determined by independent professional actuarial advisers. 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 246 claims outstanding at July 31, 2006 (2005:
235). Outlook In the USA, the new residential housing market, which
is expected to account for around 30% of Group revenue, is likely
to continue to soften with significant regional variations. Against
a more uncertain economic background, but with relatively low
unemployment and good levels of business investment, the RMI and
industrial and commercial markets should continue to grow and more
than outweigh the slowing new residential market. The diversity of
the Group's US operations should enable them to outperform the
market and make good progress overall. However, for Stock, the
outlook is more challenging due to the slowing housing market and
lumber prices which are likely to remain lower than the equivalent
period in the prior year. In Canada, the overall environment is
expected to remain positive and although the new residential
housing market is slowing from recent high levels, the industrial
and commercial markets are expected to remain strong, driven by a
buoyant energy sector. The UK market is expected to continue to
show a gradual improvement into calendar 2007, with Wolseley
operations in the UK and Ireland also benefiting from the recent
acceleration of acquisition activity, product expansion and
improved supply chain efficiency. In France, growth in the RMI
market is likely to remain modest. PBM is expected to continue to
show good momentum, benefiting from acquisitions, new branch
openings and other business improvement initiatives. The
reorganization of Brossette will continue and further investments
in the business will be made to create a platform for future
growth. Brossette is expected to make progress in the coming year.
The integration of the DT Group into Wolseley will provide
additional growth and opportunities for synergies against the
background of a positive economic outlook in the Nordic region.
Whilst the majority of markets in the rest of continental Europe
are likely to remain broadly flat, Wolseley's operations are
expected to show solid progress. There are a number of business
improvement initiatives in place relating to supply chain, sourcing
and procurement that should deliver enhanced performance. The Group
will continue to pursue its objective of achieving, on average,
double-digit sales and profit improvements through a combination of
organic growth and acquisitions. The 10% placing of new ordinary
shares, announced today, will enable the Group to continue to
pursue its growth strategy and its program of bolt-on acquisitions.
The Board expects another year of good progress, benefiting from
the diversity of the Group in terms of geography, customer and
product. Notes to Editors Wolseley plc is the world's largest
specialist trade distributor of plumbing and heating products to
professional contractors and a leading supplier of building
materials in North America, the UK and Continental Europe. Group
revenues for the year ended July 31, 2006 were approximately 14.2
billion pounds and operating profit, before amortization of
acquired intangibles, was 882 million pounds. Wolseley has more
than 71,000 employees operating in 19 countries namely: UK, USA,
France, Canada, Ireland, Italy, The Netherlands, Switzerland,
Austria, Czech Republic, Hungary, Belgium, Luxembourg, Denmark, San
Marino, Puerto Rico, Panama, Trinidad & Tobago and Mexico.
Wolseley is listed on the London and New York Stock Exchanges
(LSE:WOS) (NYSE:WOS) and is in the FTSE 100 index of listed
companies. 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 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. This announcement does not constitute an offer to sell
or issue or the solicitation of an offer to buy or subscribe for
securities in the United States, Canada, Australia or Japan or any
jurisdiction in which such offer or solicitation is unlawful. The
new ordinary shares referred to in this announcement have not been
and will not be registered under the U.S. Securities Act of 1933
and may not be offered or sold in the United States absent
registration nor an applicable exemption from the registration
requirements. 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, 2005. FINANCIAL CALENDAR FOR 2006/2007 2006 October 4 -
Shares quoted ex-dividend October 6 - Record date for final
dividend November 9 - Final date for DRIP elections November 29 -
Annual General Meeting November 30 - Final dividend payment date
2007 January 22 - Trading update for five months to December 31,
2006 March 19 (*) - Interim Results for six months to January 31,
2007 March 28 (*) - Shares quoted ex-dividend March 30 (*) - Record
date for final dividend May 31 (*) - Interim dividend payment date
July 16 (*) - Trading update for 11 months to June 30, 2007 July 31
- Financial year end September 24 (*) - Announcement of Preliminary
results for year to July 31, 2007 (*) expected A copy of this
release, together with all other recent public announcements can be
found on Wolseley's web site at http://www.wolseley.com/. Copies of
the presentation given to institutional investors and analysts are
also available on this site. Group Income Statement Year ended Year
ended July 31 July 31 2006 2005 mil pounds mil pounds Revenue
14,158 11,256 Operating costs: amortization of acquired intangibles
(48) (6) Operating costs: other (13,276) (10,548) Operating costs:
total (13,324) (10,554) Operating profit 834 702 Finance revenue
(note 3) 49 27 Finance costs (note 3) (114) (64) Profit before tax
769 665 Tax expense (note 4) (232) (186) Profit for the period
attributable to equity shareholders 537 479 Earnings per share
(note 6) Basic earnings per share 90.77p 81.61p Diluted earnings
per share 90.02p 80.75p Dividends per share 29.40p 26.40p Non-GAAP
measures of performance (notes 6 and 11) Trading profit 882 708
Profit before tax and the amortization of acquired intangibles 817
671 Basic earnings per share before the amortization of acquired
intangibles 98.90p 82.60p Translation rates US dollars 1.7885
1.8514 Euro 1.4577 1.4587 Group Statement of Recognized Income and
Expense Year ended Year ended July 31 July 31 2006 2005 mil pounds
mil pounds Profit for the financial year 537 479 Currency
translation differences (124) 57 Actuarial gains/(losses) 7 (4)
Cash flow hedges 13 (11) Available for sale investments (7) - Tax
(charge)/credit recognized directly in equity (13) 34 Net
(losses)/gains not recognized in the income statement (124) 76
Total recognized income and expense 413 555 Group Balance Sheet As
at As at July 31 July 31 2006 2005 mil pounds mil pounds ASSETS
Non-current assets Intangible fixed assets - goodwill 1,173 815
Intangible fixed assets - other 333 133 Property, plant and
equipment ("PPE") 1,144 883 Deferred tax assets 16 55 Trade and
other receivables 36 37 Available for sale investments 21 6 2,723
1,929 Current assets Inventories 1,954 1,706 Trade and other
receivables 2,650 2,198 Current tax receivable 1 7 Trading
investments 4 5 Derivative financial instruments 10 3 Financial
receivables - construction loans (secured) 313 262 Cash and cash
equivalents 416 381 5,348 4,562 Assets held for resale 7 8 Total
assets 8,078 6,499 LIABILITIES Current liabilities Trade and other
payables 2,294 1,943 Corporation tax payable 91 70 Borrowings -
construction loans (unsecured) 313 262 Bank loans and overdrafts
192 439 Obligations under finance leases 18 4 Derivative financial
instruments 29 14 Provisions (note 7) 29 22 Retirement benefit
obligations 29 17 2,995 2,771 Non-current liabilities Trade and
other payables 25 18 Bank loans 2,084 1,045 Obligations under
finance leases 57 58 Deferred tax liabilities 88 62 Provisions
(note 7) 77 63 Retirement benefit obligations 160 181 2,491 1,427
Total liabilities 5,486 4,198 Net assets 2,592 2,301 EQUITY Share
capital and share premium 437 389 Foreign currency translation
reserve (49) 82 Retained earnings 2,204 1,830 Equity shareholders'
funds 2,592 2,301 Translation rates US dollars 1.8673 1.7564 Euro
1.4628 1.4479 Group Cash Flow Statement Year ended Year ended July
31 July 31 2006 2005 mil pounds mil pounds Cash flows from
operating activities Cash generated from operations 850 765
Interest received 45 26 Interest paid (102) (57) Tax paid (206)
(151) Net cash generated from operating activities 587 583 Cash
flows from investing activities Acquisitions of businesses, net of
cash acquired (822) (406) Disposals of businesses, net of cash
disposed of 2 5 Purchases of property, plant and equipment (326)
(218) Proceeds from sale of property, plant and equipment 52 74
Purchases of intangible assets (20) (21) Purchases of investments
(23) - Proceeds from disposal of investments - 1 Net cash used in
investing activities (1,137) (565) Cash flows from financing
activities Proceeds from the issue of shares to shareholders 31 33
Purchases of shares by Employee Benefit Trusts (27) (19) New
borrowings 2,486 410 Repayments of borrowings and derivatives
(1,405) (234) Finance lease capital payments (17) (5) Dividends
paid to shareholders (162) (145) Net cash generated from financing
activities 906 40 Exchange losses on cash and bank overdrafts (8)
(26) Net increase in cash and bank overdrafts 348 32 Cash and bank
overdrafts at the beginning of the period (56) (88) Cash and bank
overdrafts at the end of the period (note 9) 292 (56)
Reconciliation of Profit to Net Cash Flow from Operating Activities
Year ended Year ended July 31 July 31 2006 2005 mil pounds mil
pounds Profit for the financial year 537 479 Finance costs - net 65
37 Tax expense 232 186 Depreciation of PPE and amortization of
non-acquired intangibles 140 117 Amortization of acquired
intangibles 48 6 Profit on disposal of PPE (16) (11) Increase in
inventories (171) (56) Increase in trade and other receivables
(243) (180) Increase in trade and other payables 217 168 Increase
in provisions and other liabilities 19 - Share based payments and
other non cash items 22 19 Net cash generated from operations 850
765 Notes to the preliminary results for the year ended July 31,
2006 1. Basis of preparation The preliminary results for the year
ended 31 July 2006 have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union, and those parts of the Companies Act 1985
applicable to companies reporting under IFRS. The Group is
complying with IFRS for the first time for the year ended July 31,
2006 and the accounting policies applicable to the Group from
August 1, 2004 are those that were contained in the Group's interim
report for the half year ended January 31, 2006 published on March
21, 2006. This statement can be found on http://www.wolseley.com/.
Details of the impact of the transition to IFRS are presented in
note 13. The preliminary results do not constitute the statutory
accounts of the Group within the meaning of Section 240 of the
Companies Act 1985. The statutory accounts for the year ended July
31, 2005, which were prepared under UK GAAP, have been filed with
the Registrar of Companies. The auditors have reported on those
accounts and on the statutory accounts for the year ended July 31,
2006, which will be filed with the Registrar of Companies following
the Annual General Meeting. Both the audit reports were unqualified
and did not contain any statement under sections 237(2) or (3) of
the Companies Act 1985. 2. Segmental analysis of results The Group
has a single business segment, the distribution and supply of
construction materials and services. The Group's geographical
segments are Europe, consisting of UK and Ireland, France and
Central Europe, and North America. The Group has determined that
its geographical segments are its primary segments for IFRS
reporting purposes. The revenue, operating profit and trading
profit of the Group's geographical segments are detailed in the
following three tables: Revenue by geographical segment Year ended
Year ended July 31 July 31 2006 2005 mil pounds mil pounds UK and
Ireland 2,690 2,351 France 1,725 1,644 Central Europe 735 642
Europe 5,150 4,637 North America 9,008 6,619 Total 14,158 11,256
Trading profit by geographical segment (before the amortization of
acquired intangibles) Year ended Year ended July 31 July 31 2006
2005 mil pounds mil pounds UK and Ireland 201 183 France 91 98
Central Europe 31 30 European central costs (7) (4) Europe 316 307
North America 603 426 Group central costs (37) (25) Total trading
profit (note 11) 882 708 The amortization of acquired intangibles
for the year ended July 31, 2006 attributable to the above segments
is: UK and Ireland 13 million pounds (July 31, 2005: 2 million
pounds); France 1 million pounds (July 31, 2005: 1 million pounds);
Central Europe 1 million pounds (July 31, 2005: nil pounds); North
America 33 million pounds (July 31, 2005: 3 million pounds).
Operating profit by geographical segment (after the amortization of
acquired intangibles) Year ended Year ended July 31 July 31 2006
2005 mil pounds mil pounds UK and Ireland 188 181 France 90 97
Central Europe 30 30 European central costs (7) (4) Europe 301 304
North America 570 423 Group central costs (37) (25) Total 834 702
The Group will prepare segmental disclosures in accordance with US
GAAP and include them in its Form 20-F for the full year ending 31
July 2006. The disclosure requirements under US GAAP differ from
those under IFRS, such that revenue and operating profit for North
America will be further analyzed by operating segment in the Form
20-F. In order to ensure consistency of information disclosed to
all investors, the following table is included in these preliminary
results: Year ended Year ended July 31 July 31 2006 2005 mil pounds
mil pounds Revenue US Plumbing and Heating 5,396 3,858 US Building
Materials 2,966 2,249 Canada 646 512 North America 9,008 6,619
Trading profit US Plumbing and Heating 378 260 US Building
Materials 192 131 Canada 44 36 North American central costs (11)
(1) North America 603 426 The amortization of acquired intangibles
for the year ended July 31, 2006 attributable to the above segments
is: US Plumbing and Heating 9 million pounds (July 31, 2005: 2
million pounds); US Building Materials 24 million pounds (July 31,
2005: 1 million pounds); Canada nil pounds (July 31, 2005: nil
pounds). Analysis of movement in revenue New Acquisitions
Acquisitions Increment 2005 Exchange 2006 2005 Organic Change 2006
mil mil mil mil mil mil pounds pounds pounds pounds pounds % pounds
UK and Ireland 2,351 - 277 14 48 2.1 2,690 France 1,644 1 27 17 36
2.1 1,725 Central Europe 642 (1) 28 19 47 7.4 735 Europe 4,637 -
332 50 131 2.8 5,150 US Plumbing and Heating 3,858 135 264 168 971
24.3 5,396 US Building Materials 2,249 79 262 280 96 4.1 2,966
Canada 512 60 4 9 61 10.7 646 North America 6,619 274 530 457 1,128
16.4 9,008 Total revenue 11,256 274 862 507 1,259 10.9 14,158
Organic change is the total increase or decrease in the year
adjusted for the impact of exchange, new acquisitions in 2006 and
the incremental impact of acquisitions in 2005. Analysis of
movement in trading profit New Acquisitions Acquisitions Increment
2005 Exchange 2006 2005 Organic Change 2006 mil mil mil mil mil mil
pounds pounds pounds pounds pounds % pounds UK and Ireland 183 - 19
1 (2) (1.1) 201 France 98 - 2 - (9) (9.2) 91 Central Europe 30 - 1
1 (1) (2.1) 31 European central costs (4) - - - (3) (7) Europe 307
- 22 2 (15) (4.9) 316 US Plumbing and Heating 260 9 18 10 81 30.0
378 US Building Materials 131 5 20 27 9 6.0 192 Canada 36 4 - 1 3
10.0 44 North American central costs (1) - - - (10) (11) North
America 426 18 38 38 83 18.6 603 Group central costs (25) - - -
(12) (37) Total trading profit 708 18 60 40 56 7.8 882 3. Net
finance costs Year ended Year ended July 31 July 31 2006 2005 mil
pounds mil pounds Interest receivable 49 27 Finance revenue 49 27
Interest payable on loans and overdrafts (110) (55) Interest
payable on finance leases (3) (3) Fair value (losses)/gains on
derivatives - 1 Net pension finance cost (1) (7) Finance costs
(114) (64) Net finance costs (65) (37) Net interest receivable on
construction loans included in finance revenue and finance costs
amounted to 12 million pounds (2005: 9 million pounds). 4. Taxation
Year ended Year ended July 31 July 31 2006 2005 mil pounds mil
pounds Tax on profit for the period - UK 18 38 - Overseas 205 104
223 142 Deferred tax 9 44 232 186 5. Dividends Year ended Year
ended July 31 July 31 2006 2005 mil pounds mil pounds Final paid
for the year ended July 31, 2005: 17.6 pence per share (2004: 16.00
pence per share) 104 94 Interim paid for the six months ended
January 31, 2006: 9.85 pence per share (2005: 8.80 pence per share)
58 51 Dividends charge for the period 162 145 A final dividend of
19.55 pence per share for the year ended July 31, 2006 (2005: 17.60
pence per share) has been recommended by the Board. This dividend,
which will result in a cash outflow of 128 million pounds, is
recommended for approval by shareholders at the Annual General
Meeting to be held on November 29, 2006 and as the approval will be
after the balance sheet date it has not been included as a
liability. 6. Earnings per share Earnings per share, calculated on
an average of 592 million (2005: 587 million) ordinary shares in
issue, are as follows: Year ended Year ended July 31 July 31 2006
2005 Pence per Pence per share share Before amortization of
acquired intangibles 98.90p 82.60p Amortization of acquired
intangibles (8.13)p (0.99)p Basic earnings per share 90.77p 81.61p
The impact of all potentially dilutive share options on earnings
per share would be to increase the weighted average number of
shares in issue to 597 million (2005: 593 million) and to reduce
basic earnings per share to 90.02p (2005: 80.75p). Diluted earnings
per share before amortization of acquired intangibles is 98.08p
(2005: 81.74p) 7. Provisions Year ended Year ended July 31 July 31
2006 2005 mil pounds mil pounds Environmental and Legal 39 33
Wolseley Insurance 47 35 Other 20 17 106 85 Environmental and legal
liabilities include known and potential legal claims and
environmental liabilities arising from past events where it is
probable that a payment will be made and the amount of such payment
can be reasonably estimated. Included in this provision is an
amount of 31 million pounds (2005: 32 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 IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets'. The liability has been determined as at July 31, 2006 by
independent professional actuarial advisors. The provision and the
related receivable have been stated on a discounted basis using a
long term discount rate of 5.2% (2005: 4.5%). 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. 8. Reconciliation of
movements in shareholders' funds Year ended Year ended July 31 July
31 2006 2005 mil pounds mil pounds Profit for the period 537 479
Other recognized income and expense (124) 76 Dividends paid (162)
(145) Credit to equity for share based payments 36 23 New share
capital subscribed 31 33 Purchase of own shares (27) (19) Net
addition to shareholders' funds 291 447 Opening shareholders' funds
2,301 1,854 Closing shareholders' funds 2,592 2,301 9. Analysis of
change in net debt Acquisitions At and new At July 31 finance Fair
value Exchange July 31 2005 Cashflow leases adjustments movement
2006 mil mil mil mil mil mil pounds pounds pounds pounds pounds
pounds Cash and cash equivalents 381 52 - - (17) 416 Bank
overdrafts (437) 304 - - 9 (124) (56) 356 - - (8) 292 Trading
investments 5 - - - (1) 4 Derivative financial instruments (11) 4 -
(13) 1 (19) Bank loans (1,047) (1,085) (74) 26 28 (2,152)
Obligations under finance leases (62) 17 (32) - 2 (75) Total net
debt (1,171) (708) (106) 13 22 (1,950) 10. Acquisitions The
following table summarizes the investment in acquisitions made
during the year. In certain cases the consideration is deferred or
subject to adjustment and includes net borrowings acquired.
Expected contribution to group Acquisition Consideration revenue
including in a debt full year mil pounds mil pounds UK and Ireland
356 398 France 33 67 Central Europe 28 49 Europe 417 514 US
Plumbing and Heating 174 355 US Building Materials 314 544 Canada 9
5 North America 497 904 Total Group 914 1,418 Six additional
acquisitions, for a combined consideration of 49 million pounds,
have been completed since July 31, 2006 with three in US Plumbing
and Heating, two in the UK and Ireland and one in France. They are
expected to contribute 91 million pounds to Group turnover in a
full year. Acquisition cash expenditure during the year, including
any deferred consideration in respect of prior year acquisitions
and net cash balances acquired, amounted to 822 million pounds
(2005: 406 million pounds). 11. Non-GAAP measures of performance
Trading profit is defined as operating profit before the
amortization of acquired intangibles and is a non-GAAP measure. The
current businesses within the Group have arisen through internal
organic growth and through acquisition. Operating profit includes
the amortization of acquired intangibles arising on those
businesses that have been acquired subsequent to July 31, 2004 and
as such does not reflect equally the performance of businesses
acquired prior to July 31, 2004 (where no amortization of acquired
intangibles was recognized), businesses that have developed
organically (where no intangibles are attributed) and those
businesses more recently acquired (where amortization of acquired
intangibles is charged). The Group believes that trading profit
provides valuable additional information for users of the
preliminary results in assessing the Group's performance since it
provides information on the performance of the business that local
managers are more directly able to influence and on a basis
consistent across the Group. Year ended Year ended July 31 July 31
2006 2005 mil pounds mil pounds Operating profit 834 702 Add back:
amortization of acquired intangibles 48 6 Trading profit 882 708
Profit before tax 769 665 Add back: amortization of acquired
intangibles 48 6 Profit before tax and the amortization of acquired
intangibles 817 671 12. Exchange rates The results of overseas
subsidiaries have been translated into sterling using average rates
of exchange. The period end rates of exchange have been used to
convert balance sheet amounts. The average profit and loss account
translation rate for the year was $1.7885 to the 1 pound compared
to $1.8514 for the comparable period last year, an increase of
3.5%, and 1.4577 euros to the 1 pound compared to 1.4587 euros, an
increase of 0.1%. 13. Adoption of International Reporting Financial
Standards As at As at July 31 August 1 2005 2004 mil pounds mil
pounds Net assets under UK GAAP 2,307 1,902 Adjustments (before
taxation) Intangible assets (i) 51 1 Post employment benefits (ii)
(152) (148) Share based payments (iii) (12) (14) Leases (iv) (8)
(6) Derivatives (v) (11) (1) Post balance sheet events (vi) 104 94
Other (16) (14) (44) (88) Taxation (vii) 38 40 Net assets under
IFRS 2,301 1,854 Year ended July 31 2005 mil pounds Net income
under UK GAAP 461 Adjustments (before taxation) Intangible assets
(i) 37 Post employment benefits (ii) 1 Share based payments (iii)
(21) Leases (iv) (1) Foreign exchange gains and losses (viii) 3
Other (2) 17 Taxation (vii) 1 Net income under IFRS 479 The
adjustments made in converting UK GAAP financial information into
IFRS financial information are summarized below. A more
comprehensive review of the adjustments made in respect of the year
ended July 31, 2005 can be found in the Group's IFRS Statement
dated November 22, 2005 on its website http://www.wolseley.com/ in
the "Investor Center" section. The net assets of the Group under
IFRS as at July 31, 2005, shown above, have been reduced by 13
million pounds from that shown in the statement of November 22,
2005 in order to reflect the Group's most recent interpretation of
its IFRS deferred tax position. (i) Intangible assets Under UK
GAAP, goodwill was amortized over its useful economic life, tested
for impairment and provided against as necessary. Under IFRS,
goodwill is no longer amortized but must be tested for impairment
as at August 1, 2004 (the transition date) and at least annually
thereafter. Goodwill amortization charged under UK GAAP during the
year ended July 31, 2005 has been credited back to the income
statement under IFRS. In addition IFRS requires identifiable
intangible assets to be recognized separately on the balance sheet
and consequently certain intangible assets, such as contractual
customer relationships and trade names, which were previously
recorded as part of goodwill under UK GAAP, have been separately
recognized as intangible assets under IFRS and amortized over their
expected useful lives. (ii) Post-employment benefits Under UK GAAP,
the Group accounted for post-employment benefits under SSAP 24,
"Accounting for pension costs", whereby the cost of providing
defined benefit pensions and post-retirement healthcare benefits
was charged against operating profit on a systematic basis with
surpluses and deficits arising recognized over the expected average
remaining service lives of participating employees. Actuarial gains
and losses are charged to equity and the net deficit on the Group's
defined benefit pension schemes is carried in full in the Group's
IFRS balance sheet. (iii) Share-based payments Under UK GAAP, the
cost of awards made under the Group's employee share schemes was
based on the intrinsic value of the awards, with the exception of
SAYE schemes for which no cost was recognized. Under IFRS 2,
"Share-based Payment", the cost of employee share schemes,
including SAYE schemes, is based on the fair value of the awards
that must be assessed using an option-pricing model. The Group has
principally used a binomial model for this purpose. Generally, for
an equity-settled award, the fair value of the award at the grant
date is expensed on a straight-line basis over the vesting period,
with adjustments being made to reflect expected and actual
forfeitures during the vesting period due to failure to satisfy
service conditions or achieve non-market performance conditions,
such as EPS growth targets. For a cash-settled award, the fair
value of the award at each balance sheet date is used to calculate
the probable liability of the Group; changes in this liability from
the opening to closing balance sheet are charged or credited to the
income statement. (iv) Leases IAS 17, "Leases" requires that the
land and buildings elements of property leases are considered
separately for the purposes of determining whether the lease is a
finance or operating lease. The majority of the Group's leased
buildings are on short-term leases and, consistent with UK GAAP,
are classified as operating leases under IFRS. There are, however,
a small number of leases where the building element of the lease
has been reclassified as a finance lease based on the criteria set
out in IAS 17. Under UK GAAP, committed rental increases, which
could be considered in the same way as inflationary increases and
increases due to market comparables, were generally recognized as
they arose and property lease incentives were generally recognized
over the period to the first market rent review. Under IFRS,
committed rental increases and lease incentives are required to be
spread over the entire lease term. (v) Derivatives and hedge
accounting The Group uses derivative contracts to manage economic
exposure to movements in interest rates and currency exchange
rates. Under UK GAAP, such derivative contracts were not recognized
as assets and liabilities on the balance sheet and gains or losses
arising on them were not recognized until the hedged item had
itself been recognized in the financial statements. Under IFRS all
derivative financial instruments are accounted for at fair market
value whilst other financial instruments are accounted for either
at amortized cost or at fair value depending on their
classification. Subject to stringent criteria, derivative financial
instruments, financial assets and financial liabilities may be
designated as forming hedge relationships as a result of which fair
value changes are offset in the income statement or
charged/credited to equity depending on the nature of the hedge
relationship. Hedge accounting has been applied to the Group's
interest rate swaps (which are hedging floating rate debt) and
foreign currency financial instruments (which are hedging the net
assets of the Group's foreign operations). (vi) Post balance sheet
events Under UK GAAP dividends were recognized in the period to
which they related. IAS 10, "Events after the Balance Sheet Date"
requires that dividends declared or approved after the balance
sheet date should not be recognized as a liability at that balance
sheet date as the liability does not represent a present obligation
as defined by IAS 37, "Provisions, Contingent Liabilities and
Contingent Assets". (vii) Taxation Under UK GAAP, deferred tax was
provided on timing differences between the accounting and taxable
profit (an income statement approach). Under IFRS, deferred tax is
provided on temporary differences between the book carrying value
and tax base of assets and liabilities (a balance sheet approach).
As a result, the Group's IFRS balance sheet includes an additional
deferred tax liability in respect of fair value property
revaluations on acquisitions and property roll-over gains. In
addition, deferred tax has been recognized on the adjustments
between UK GAAP and IFRS with the majority of the net deferred tax
asset relating to the adjustments for share options and
post-employment benefits (reflecting the substantially increased
defined benefit liability under IFRS). (viii) Foreign exchange
gains and losses A small number of the Group's subsidiary companies
have changed their functional currency in order to comply with the
more stringent functional currency requirements of IAS 21, "The
Effects of Changes in Foreign Exchange Rates" which requires
companies that are acting on behalf of the parent company to have
the same functional currency as the parent company. As a result,
some foreign exchange differences arising in these companies have
been recorded in the Group's income statement under IFRS rather
than in equity, under UK GAAP. DATASOURCE: Wolseley plc CONTACT:
Investors-Analysts, Guy Stainer, Head of Investor Relations, +44
(0)118 929 8744, or +44 (0)7739 778 187, or John R. English,
Director, Investor Relations, North America, +1-513-771-9000, or
+1-513-328-4900, or Press, Penny Studholme, Director of Corporate
Communications, +44 (0)118 929 8886, or +44 (0)7860 553 834, all of
Wolseley plc; or Press, Andrew Fenwick or Nina Coad of Brunswick,
+44 (0)20 7404 5959 Web site: http://www.wolseley.com/
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