TIDMWOS
RNS Number : 6785A
Wolseley PLC
28 March 2017
WOLSELEY PLC
GOOD TRADING IN THE FIRST HALF, FURTHER PROGRESS ON STRATEGY
Results for the half year ended 31 January 2017
GBPm H1 2017 H1 2016(2) Change Change Like-for-like
(at Change(3)
constant
exchange
rates)
----------------------------- -------- ----------- ------- ---------- --------------
Revenue 8,461 6,795 +24.5% +6.7% +3.2%
Trading profit
(1) 515 412 +25.0% +5.0%
Impairment and exceptional
charges (124) (1)
Profit before tax 328 367
Headline earnings per
share (1) 141.0p 111.3p +26.7%
Net debt 1,297 1,253
Interim dividend per
share 36.67p 33.28p +10.2%
Financial highlights
- Revenue 6.7% ahead of last year at constant exchange rates
with like-for-like growth of 3.2%.
- Changes in foreign exchange rates increased revenue by GBP1,131 million.
- Gross margin of 28.6%, 0.3% ahead of last year.
- Trading profit of GBP515 million, 5.0% ahead of last year at
constant exchange rates. Commodity deflation reduced trading profit
by GBP17 million in the USA.
- Net debt of GBP1,297 million.
- Interim dividend of 36.67 pence per share, an increase of 10.2%.
Operating highlights
- US revenue growth of 9.9% at constant exchange rates.
- US residential and commercial markets were good, the
industrial market improved slightly.
- UK transformation program on plan and trading held up well in the first half.
- Strong e-commerce growth with sales of GBP1.4 billion, now 17% of Group revenue.
- Completed eight bolt-on acquisitions for total consideration
of GBP271 million and two further acquisitions since the period
end.
Corporate highlights
- Decision to exit the Nordics announced today.
- Agreement to merge Tobler with Walter Meier in Switzerland as previously announced.
- Group to change name to Ferguson plc.
- Presentational currency to change to US dollars from 1 August 2017.
- Frank Roach to retire on 31 July 2017 and Kevin Murphy to
succeed him as US CEO as announced separately today.
- As previously announced Mike Powell will join the Company on 1 June 2017 as Group CFO.
1) Before exceptional items and the amortisation and impairment
of acquired intangible assets and with respect to headline earnings
per share before non-recurring tax items and non-controlling
interest.
2) Trading profit and headline earnings per share for the half
year to 31 January 2016 have been restated to exclude GBP2 million
of restructuring costs classified as exceptional.
3) The increase or decrease in revenue excluding the effect of
currency exchange, acquisitions and disposals, trading days and
branch openings and closures.
John Martin, Chief Executive, commented:
"The Group delivered a good trading performance in the first
half driven by Ferguson. In the US, residential and commercial
markets remained good and industrial markets improved but were
still negative. Commodity price deflation reduced US revenue growth
by 1.8 per cent in the first half.
"The UK transformation programme has started well and we are
making good progress clarifying our customer propositions and
simplifying our logistics network. We have concluded our review of
the Nordic operating strategy and identified a clear and executable
plan to return the business to profitable growth. However, there
are few synergies with the rest of the Group's plumbing and heating
businesses and we have initiated a process to exit our business in
the region. We have excellent opportunities to generate attractive
returns in our other businesses and we will focus resources there
in the future.
"Ferguson now accounts for 84 per cent of Group trading profit
and we have decided to align the Group's name with our most
significant brand in our largest market. Whilst the Group will be
known as Ferguson plc going forward we will continue to use the
Wolseley name in the UK and Canada where it has strong local
recognition.
"Like-for-like revenue growth since the end of the period has
been about 4.5 per cent for the Group and 5.5 per cent in the USA.
Commodity deflation has been negligible in this period. We continue
to execute our strategy of investing in profitable growth and
expansion where appropriate while keeping tight control of the cost
base. We expect the Group to make further progress in the second
half."
For further information please contact
Wolseley plc
David Keltner, Interim Group +41 (0) 41723
Chief Financial Officer Tel: 2230
Mark Fearon, Director of Corporate +44 (0) 7711
Communications and IR Mobile: 875070
Media Enquiries
Mike Ward, Head of Corporate +44 (0)7894
Communications Mobile: 417060
Michael Harrison, David Litterick +44 (0)20 7404
(Brunswick) Tel: 5959
There will be an analyst and investor presentation at 0830 (UK
time) today at the London Stock Exchange, 10 Paternoster Square,
London EC4M 7LS. A live video webcast and slide presentation of
this event will be available on www.wolseley.com. We recommend you
register at 0815 (UK time). Photographs are available at
www.newscast.co.uk.
RESULTS FOR THE HALF YEARED 31 JANUARY 2017
Group results
The Group delivered a good result in the first half. In the US,
residential and commercial markets, which account for 75% of
revenue, remained good and industrial markets improved but were
still negative. There was little growth in the UK heating market.
Nordic markets overall were weak, though there has been some
recovery in the last two months.
Revenue of GBP8,461 million (2016: GBP6,795 million) was 6.7%
ahead at constant exchange rates and 3.2% ahead on a like-for-like
basis. US commodity price deflation remained a headwind in the
first half, this has eased over the period. Gross margins of 28.6%
(2016: 28.3%) were 0.3% ahead of last year as we continue to focus
on improving our mix of customers, products and sales of higher
margin private label products. Operating expenses were 8.2% higher
at constant exchange rates including 2.1% from acquisitions.
Trading profit was GBP515 million (2016: GBP412 million), 5.0%
ahead of last year at constant exchange rates. The trading margin
was 6.1% (2016: 6.1%). In the first half there were two more
trading days than last year which increased trading profit by about
GBP12 million. There will be one fewer trading day in the second
half. Foreign exchange movements increased reported revenue by
GBP1,131 million and trading profit by GBP78 million. At exchange
rates of USD 1.25 and EUR 1.16, trading profit in the second half
last year would have been GBP60 million higher.
We invested GBP271 million in eight acquisitions with annualised
revenue of GBP214 million. We have completed two further
acquisitions since the period end with annualised revenue of GBP33
million.
The normal amortisation charge in relation to the Group's
acquired intangible assets was GBP38 million (2016: GBP24 million).
A net GBP22 million pre-tax exceptional charge (2016: GBP1 million
charge) was incurred comprising a GBP36 million charge as a result
of restructuring in the UK and Nordic regions partly offset by a
GBP14 million gain predominantly relating to a pension curtailment
gain in the UK. An impairment charge of GBP102 million was incurred
in relation to goodwill and acquired intangible assets in the
Nordics reflecting the weak performance in the region.
Net finance costs were GBP25 million (2016: GBP20 million). The
effective tax rate on trading profit less net finance costs was
27.8% (2016: 27.8%).
Profit before tax of GBP328 million (2016: GBP367 million) is
after the impairment and exceptional costs of GBP124 million.
Headline earnings per share were 141.0 pence (2016: 111.3 pence) an
increase of 26.7%, reflecting foreign exchange movements, the
growth in trading profit and the reduction in share count as a
result of the buyback last year. Basic earnings per share from
continuing operations were 83.7 pence (2016: 103.9 pence).
Operating and financial review
Further details of the financial performance and market
conditions in the Group's businesses are set out below.
First half regional analysis
GBPm Revenue Revenue Change Trading Trading Change
2017 2016 (at constant profit profit (at constant
exchange 2017 2016 exchange
rates) rates)
------------------- ------- ------- ------------- ------- ------- -------------
USA 5,761 4,381 +9.9% 450 345 +9.1%
UK 1,011 996 +1.5% 35 36 (2.8%)
Nordic 1,036 885 (0.7%) 16 23 (38.7%)
Canada and Central
Europe 653 533 +1.6% 35 30 (6.5%)
Central costs (21) (22)
------------------- ------- ------- ------------- ------- ------- -------------
Group 8,461 6,795 +6.7% 515 412 +5.0%
------------------- ------- ------- ------------- ------- ------- -------------
Quarterly like-for-like revenue growth
Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
-------------------------- ------- ------- ------- ------- -------
USA +4.0% +5.0% +3.1% +4.2% +6.7%
UK (2.9%) (0.4%) (2.1%) (2.9%) +3.6%
Nordic +2.4% (2.6%) (2.3%) (2.9%) (1.5%)
Canada and Central Europe (1.7%) - +0.3% (2.7%) +0.3%
-------------------------- ------- ------- ------- ------- -------
Group +2.3% +2.8% +1.5% +1.8% +4.8%
-------------------------- ------- ------- ------- ------- -------
USA (84% of Group trading profit)
Ferguson, our US plumbing and heating business, grew revenue by
5.4% on a like-for-like basis including price deflation of 1.8%.
Acquisitions contributed 2.5% of additional revenue growth.
Residential and commercial markets (both new build and RMI)
continued to grow well. Blended Branches continued to generate good
growth from a combination of growing markets and good market share
gains. Sales to industrial customers, which represented 10% of
Ferguson's revenues, were broadly flat. The B2C e-commerce business
grew very strongly. Fire and Fabrication, HVAC and MRO all
generated good growth with Waterworks growing more modestly in flat
markets. Gross margins improved.
Operating expense growth was 11.8% at constant exchange rates,
including 3.0% from acquisitions. We invested substantially in our
MRO capability, B2C branding and enhancing technology to support
future profitable growth. Operating expenses were slightly higher
than planned in the first half and we expect to reduce cost growth
in the remainder of the year. Trading profit of GBP450 million
(2016: GBP345 million) was 9.1% ahead of last year at constant
exchange rates and exchange rate movements increased trading profit
by GBP68 million. The trading margin was 7.8%. The impact of
commodity price deflation reduced trading profit by GBP17
million.
Six bolt-on acquisitions were completed in the period with total
annualised revenues of GBP212 million. As previously announced this
included Signature Hardware, an online private label sanitary
retailer, and Westfield Lighting, a lighting showroom in
Indianapolis. We also acquired Ramapo, a regional residential
plumbing business in New York, The Plumbing Source, a plumbing
business in Hawaii, Underground Pipe, a waterworks business in
Indiana and Michigan and Matera Paper Company Inc, a commercial MRO
business in San Antonio. We have completed two further acquisitions
since the period end with annualised revenue of GBP33 million.
These are PV Sullivan, a commercial plumbing business in Boston,
and Custom Lighting and Hardware, a showroom in Houston.
We are currently in the process of disposing a non-core business
in the USA which contributed GBP168 million of revenue and GBP14
million of trading profit in the year ended 31 July 2016.
UK (7% of Group trading profit)
Like-for-like revenue in the UK was 0.3% higher, including price
inflation of 0.8%. The repair, maintenance and improvement ("RMI")
and social housing markets, where we generate the majority of our
revenue, were weak. Good growth in the small customer segment was
offset by challenges faced by large customers. Pipe and Climate and
Infrastructure traded well and both grew by taking share in
challenging markets.
Gross margins were well managed and improved over last year.
Operating costs increased 3.5% and trading profit of GBP35 million
was GBP1 million lower than last year. The trading margin was 3.5%
(2016: 3.6%).
The UK transformation program is proceeding in line with our
plans. To date the UK has announced 51 branch closures subject to
consultation and expects to retain the majority of the revenue.
Exceptional restructuring costs of GBP15 million were partly offset
by GBP14 million of one-off credits predominantly related to a
pension curtailment gain.
Nordics (3% of Group trading profit)
In the Nordic region revenue was 2.3% behind last year on a
like-for-like basis. Market conditions were weaker in Denmark and
Sweden, whilst Finland recovered modestly. Gross margins declined,
while the cost base was in-line with last year at constant exchange
rates.
Trading profit of GBP16 million was GBP7 million behind last
year after favourable exchange rate movements added GBP4 million.
The trading margin of 1.5% was behind last year. During the period
we acquired two businesses with annualised revenue of GBP2 million
and closed 32 branches, exceptional costs relating to the
restructuring actions taken amounted to GBP21 million.
We have concluded our review of the Nordic operating strategy
and identified a clear and executable plan to return the business
to profitable growth. However, there are few synergies with the
rest of the Group's plumbing and heating businesses and we have
initiated a process to exit our business in the region. We have
excellent opportunities to generate attractive returns in our other
businesses and we will focus resources there in the future.
Canada and Central Europe (6% of Group trading profit)
In Canada and Central Europe like-for-like revenue was 1.4%
lower including price inflation of 1.7%. Acquisitions contributed
1.3% of additional growth. Canada declined due to challenging
markets in the oil producing regions in the West, Switzerland
continued to face difficult market conditions though the
Netherlands held up well.
Gross margins were weaker as a result of competitive conditions
in Switzerland. Operating expenses were tightly controlled and were
broadly consistent with last year at constant exchange rates before
acquisitions. Trading profit of GBP35 million was GBP5 million
ahead of last year, due to favourable exchange rate movements which
increased trading profit by GBP6 million. The trading margin was
5.4% (2016: 5.6%).
As announced on 21 February 2017, we have entered into an
agreement to merge our Swiss business Tobler with Walter Meier, a
competitor in Switzerland. Once the transaction is complete
Wolseley will have a minority interest of 39.2 per cent in the
combined business and accordingly it will be accounted for as an
associate. Tobler generated GBP235 million of revenue and GBP15
million of trading profit in the year ended 31 July 2016.
Corporate actions
We are announcing today that we will change the name of the
Group to Ferguson plc from 31 July 2017, subject to shareholder
approval. This will align the Group's name with our most
significant brand in our largest market where we generate 84% of
Group trading profit. The Ferguson brand has been in existence for
over 60 years in the USA and is synonymous with high quality and
great customer service. The Group will continue to maintain the
Wolseley trading name in the UK and Canada where it has strong
local recognition. The change is subject to shareholder approval
and a general meeting will be held at 1500 (UK time) on 23 May
2017. A circular will shortly be sent to shareholders.
We will also change the presentational currency of the Group to
US dollars from 1 August 2017 to remove the largest driver of
translation volatility and provide greater transparency of the
underlying performance of the Group.
Board and management changes
We have today made a separate announcement that Frank Roach will
retire as Chief Executive of Ferguson Enterprises on 31 July 2017
and will be succeeded by Kevin Murphy, who has been Ferguson's
Chief Operating Officer for the past 10 years.
As announced on 1 March 2017 Mike Powell, currently Group
Finance Director of BBA Aviation plc, will join the Company on 1
June 2017 as Group CFO. Mike has extensive international experience
having worked overseas in a variety of senior finance positions. In
his current role he oversees a business which generates more than
85% of its revenues in North America. Mike is also a non executive
director of Low & Bonar plc.
Dave Keltner, who has held the position of interim CFO since
September 2016, will retire later in the year following Mike's
induction and the orderly handover of responsibilities. Bill
Brundage, who has been Vice President of Finance at Ferguson since
2008, has been appointed US CFO.
Tax
The tax charge of GBP118 million includes an underlying charge
of GBP136 million. The charge is net of the impact of a GBP14
million tax credit on the amortisation and impairment of acquired
intangible assets, a GBP5 million tax credit on exceptional items
and a GBP1 million charge relating to tax rate changes. The
underlying tax charge of GBP136 million represents an effective tax
rate on trading profit less net finance costs of 27.8% (2016:
27.8%).
Cash flow
The Group generated EBITDA before exceptional items of GBP601
million (2016: GBP477 million). The Group experienced a normal
seasonal outflow of working capital of GBP258 million (2016: GBP307
million). Acquisitions resulted in a cash outflow of GBP230 million
and capital investment was GBP73 million (2016: GBP109 million).
Interest and tax payments amounted to GBP170 million (2016: GBP106
million) and dividends were GBP167 million (2016: GBP154
million).
Net debt
The Group's net debt at 31 January 2017 was GBP1,297 million (31
January 2016: GBP1,253 million) and the ratio of net debt to the
last twelve months EBITDA was 1.1x. The Group has a strong
liquidity position with credit facilities of GBP2.5 billion and
aims to operate with investment grade credit metrics and with a net
debt to EBITDA ratio of between 1x and 2x.
Shareholder returns
The Group aims to generate attractive and sustainable financial
returns for its shareholders. An interim dividend of 36.67 pence
per share (2016: 33.28 pence per share), an increase of 10.2%, will
be paid on 28 April 2017 to shareholders on the register on 7 April
2017. Our investment priorities remain focused on achieving good
organic growth, maintaining the ordinary dividend through the cycle
and investing in bolt-on acquisitions that meet our stringent
investment criteria. Any surplus cash after meeting these
investment needs will be returned to shareholders.
Outlook
Like-for-like revenue growth since the end of the period has
been about 4.5 per cent for the Group and 5.5 per cent in the USA.
Commodity deflation has been negligible in this period. We continue
to execute our strategy of investing in profitable growth and
expansion where appropriate while keeping tight control of the cost
base. We expect the Group to make further progress in the second
half.
Principal risks and uncertainties
The principal risks and uncertainties which affect the Group
are:
Strategic To respond to changing customer needs
change, new the Group is introducing new business
business models, including digital capabilities,
models and changing traditional ways of working.
These changes are underway in all of
our key markets and will continue for
several years. The Group's ability to
successfully execute these changes will
affect its ability to grow profitably
in the future.
Pressure Wolseley's ability to maintain attractive
on margins profit margins can be affected by a
range of factors. These include levels
of demand and competition in our markets,
the arrival of new competitors with
new business models, the flexibility
of the Group's cost base, changes in
the costs of commodities or goods purchased,
customer or supplier consolidation or
manufacturers shipping directly to customers.
There is a risk that the Company may
not identify or respond effectively
to changes in these factors. If it fails
to do so, the amount of profit generated
by the Company could be significantly
reduced.
Market conditions This risk relates to the Company's exposure
and growth to short term macro-economic conditions
and market cycles in our sector (i.e.
periodic market downturns). Some of
the factors driving market growth are
beyond the Group's control and are difficult
to forecast.
Commodity Prices of commodities such as copper,
price volatility plastic (oil) and steel have fallen
as global demand weakened. There is
a risk that further sharp falls (or
rises) in these commodities may occur
too quickly for the Company to adjust
its inventory levels, impacting revenue
and profit margins.
New competitors Wholesale and distribution businesses
and technology in other industry sectors have been
disrupted by the arrival of new competitors
with lower cost business models or new
technologies to aggregate demand away
from incumbents. There has to date been
limited competitor activity in this
area; however the nature of Wolseley's
industry is such that its markets could
be disrupted by new entrants.
Information Technology systems and data are fundamental
security to the future growth and success of
the Group. These digital assets are
threatened by increasingly sophisticated
security threats, including hacking,
viruses, "phishing" or inadvertent errors.
The Company is reliant on a number of
different legacy technology systems,
some of which have been in place for
many years or have been subject to in-house
development. Data breaches in our industry
and others indicate that such events
are highly likely and difficult to prevent.
Sensitive employee, customer or other
data may be stolen and distributed or
used illegally, leading to increased
operating costs, litigation and fines
or penalties. These technology systems,
on which our branches, distribution
centres and e-commerce businesses rely,
may be disrupted for several hours or
days. As a result, Wolseley could forego
revenue or profit margins as we are
unable to trade.
Litigation The international nature of Wolseley's
operations exposes it to the potential
for litigation from third parties and
such exposure is considered to be greater
in the USA than in Europe. Material
levels of litigation may arise from
many of the Group's facilities. Significant
levels of litigation in our industry
sector have in the past related to products,
employees or major contracts. Acquisitions
and disposals and the restructuring
of under-performing businesses may also
give rise to litigation.
Regulations The Group's operations are affected
by various statutes, regulations and
laws in the countries and markets in
which it operates. The amount of such
regulation and the penalties can vary.
While the Group is not engaged in a
highly regulated industry, it is subject
to the laws governing businesses generally,
including laws relating to competition,
product safety, timber sourcing, data
protection, labour and employment practices,
accounting and tax standards, international
trade, fraud, bribery and corruption,
land usage, the environment, health
and safety, transportation, payment
terms and other matters. Breach of any
legal or regulatory requirement could
result in significant fines and penalties,
and damage to the Company's reputation.
The Company faces many other risks which, although important and
subject to regular review, have been assessed as less significant
and are not listed here.
Statement of directors' responsibilities
The directors confirm, to the best of their knowledge, that
these condensed interim financial statements have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and that the
interim management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- Material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report and Accounts.
The directors of Wolseley plc are listed in the Wolseley plc
Annual Report and Accounts 2016. A list of current directors is
maintained on the Wolseley plc website: www.wolseley.com
By order of the Board,
John W Martin
Group Chief Executive
Notes to statement
1. About Wolseley
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, operating in North America,
the UK and Continental Europe. Revenue for the year ended 31 July
2016 was GBP14,430 million and Trading profit was GBP916 million.
Wolseley has about 39,000 employees and is listed on the London
Stock Exchange (LSE: WOS) and is in the FTSE 100 index of listed
companies. For more information, please visit www.wolseley.com or
follow us on Twitter https://twitter.com/wolseleyplc.
2. Financial calendar
General meeting 23 May 2017
Q3 IMS for the period ending
30 April 2017 20 June 2017
Full Year Results for the
year ended 31 July 2017 3 October 2017
Annual general meeting 28 November 2017
Q1 IMS for the period ending
31 October 2017 5 December 2017
3. Timetable for the interim dividend
The timetable for payment of the interim dividend of 36.67 pence
per share is as follows:
Ex dividend
date: 6 April 2017
Record date: 7 April 2017
Payment date: 28 April 2017
A dividend reinvestment plan is in operation. Those shareholders
who have not elected to participate in this plan, and who would
like to participate with respect to the 2017 interim dividend, may
do so by contacting Equiniti on 0371 384 2268 (or if outside the UK
+44 (0) 121 415 7173). The last day for election for the proposed
interim dividend is 7 April 2017 and any requests should be made in
good time ahead of that date.
4. Legal disclaimer
Certain information included in this announcement is
forward-looking and involves risks, assumptions and uncertainties
that could cause actual results to differ materially from those
expressed or implied by forward-looking statements. Forward-looking
statements cover all matters which are not historical facts and
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, expected
expenditures and divestments, risks associated with changes in
economic conditions, the strength of the plumbing and heating and
building materials markets in North America and Europe. They also
cover fluctuations in product prices and changes in exchange and
interest rates. Forward-looking statements can be identified by the
use of forward-looking terminology, including terms such as
"believes", "estimates", "anticipates", "expects", "forecasts",
"intends", "plans", "projects", "goal", "target", "aim", "may",
"will", "would", "could" or "should" or, in each case, their
negative or other variations or comparable terminology.
Forward-looking statements are not guarantees of future
performance. All forward-looking statements in this announcement
are based upon information known to the Company on the date of this
announcement. Accordingly, no assurance can be given that any
particular expectation will be met and readers are cautioned not to
place undue reliance on forward-looking statements, which speak
only at their respective dates. Additionally, forward-looking
statements regarding past trends or activities should not be taken
as a representation that such trends or activities will continue in
the future. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules, the Prospectus
Rules, the Disclosure Rules and the Transparency Rules of the
Financial Conduct Authority), the Company undertakes no obligation
to update publicly or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. Nothing
in this announcement shall exclude any liability under applicable
laws that cannot be excluded in accordance with such laws.
-ends-
Condensed consolidated income statement (unaudited)
Half year to 31 January 2017
2017 2016
------------ ----------- ------- ------------ ----------- -------
Exceptional Exceptional
Before items Before items
exceptional (note exceptional (note
items 3) Total items 3) Total
Half year to 31 January Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Continuing operations
Revenue 2 8,461 - 8,461 6,795 - 6,795
Cost of sales (6,039) (10) (6,049) (4,871) - (4,871)
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Gross profit 2,422 (10) 2,412 1,924 - 1,924
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Operating costs:
amortisation of acquired
intangible assets 9 (38) - (38) (24) - (24)
impairment of goodwill
and acquired intangible
assets 9 (102) - (102) - - -
other (1,907) (12) (1,919) (1,512) (1) (1,513)
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Operating costs (2,047) (12) (2,059) (1,536) (1) (1,537)
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Operating profit 2 375 (22) 353 388 (1) 387
Finance costs 4 (25) - (25) (20) - (20)
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Profit before tax 350 (22) 328 368 (1) 367
Tax 5 (123) 5 (118) (103) - (103)
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Profit from continuing
operations 227 (17) 210 265 (1) 264
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Discontinued operations
Profit from discontinued
operations 2 4 6 2 1 3
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Profit for the period 229 (13) 216 267 - 267
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Attributable to:
Shareholders of the Company 229 (13) 216 268 - 268
Non-controlling interest - - - (1) - (1)
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
229 (13) 216 267 - 267
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Earnings per share 8
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Continuing operations
and discontinued operations
Basic earnings per share 86.1p 105.1p
Diluted earnings per share 85.4p 104.7p
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Continuing operations
only
Basic earnings per share 83.7p 103.9p
Diluted earnings per share 83.1p 103.6p
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Non-GAAP performance measures 7,8
Trading profit 2 515 412
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
EBITDA before exceptional
items 601 477
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Profit before tax, exceptional
items and the amortisation
and impairment of acquired
intangible assets 490 392
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Headline earnings per
share 141.0p 111.3p
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
Headline diluted earnings
per share 140.0p 111.0p
------------------------------- ----- ------------ ----------- ------- ------------ ----------- -------
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Condensed consolidated statement of comprehensive income
(unaudited)
Half year to 31 January 2017
2017 2016
Half year to 31 January GBPm GBPm
------------------------------------------------------------------------ ------ -----
Profit for the period 216 267
------------------------------------------------------------------------ ------ -----
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss:
Exchange gain on translation of overseas operations(1) 139 225
Exchange loss on translation of borrowings and derivatives designated
as hedges of overseas operations(1) (34) (39)
Items that will not be reclassified to profit or loss:
Actuarial gain/(loss) on retirement benefit plans(2) 21 (16)
Income tax (charge)/credit on retirement benefit plans(2) (4) 4
------------------------------------------------------------------------ ------ -----
Other comprehensive income for the period 122 174
------------------------------------------------------------------------ ------ -----
Total comprehensive income for the period 338 441
------------------------------------------------------------------------ ------ -----
1 Impacting the translation reserve.
2 Impacting the profit and loss reserve account.
Condensed consolidated statement of changes in equity
(unaudited)
Half year to 31 January 2017
Reserves
----------- -------- ------- --------
Profit
and
For the half year Share Share Translation Treasury Own loss Non-controlling Total
to 31 January capital premium reserve shares shares account interest equity
2017 Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Profit for the
period - - - - - 216 - 216
Other comprehensive
income - - 105 - - 17 - 122
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Total comprehensive
income - - 105 - - 233 - 338
Purchase of own
shares by Employee
Benefit Trusts - - - - (6) - - (6)
Issue of own shares
by Employee Benefit
Trusts - - - - 14 (14) - -
Credit to equity
for share
based payments - - - - - 11 - 11
Tax on share based
payments - - - - - 2 - 2
Disposal of Treasury
shares - - - 20 - (8) - 12
Dividends paid 6 - - - - - (167) - (167)
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Net addition to
shareholders'
equity - - 105 20 8 57 - 190
Opening shareholders'
equity 29 42 380 (516) (57) 3,025 (2) 2,901
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Closing shareholders'
equity 29 42 485 (496) (49) 3,082 (2) 3,091
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Reserves
----------- -------- ------- --------
Profit
and
For the half year Share Share Translation Treasury Own loss Non-controlling Total
to 31 January capital premium reserve shares shares account interest equity
2016 Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Profit for the
period - - - - - 268 (1) 267
Other comprehensive
income/(expense) - - 186 - - (12) - 174
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Total comprehensive
income - - 186 - - 256 (1) 441
Purchase of own
shares by Employee
Benefit Trusts - - - - (14) - - (14)
Issue of own shares
by Employee Benefit
Trusts - - - - 16 (16) - -
Credit to equity
for share
based payments - - - - - 11 - 11
Tax on share based
payments - - - - - (7) - (7)
Purchase of Treasury
shares - - - (162) - - - (162)
Disposal of Treasury
shares - - - 2 - (1) - 1
Dividends paid 6 - - - - - (154) - (154)
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Net addition to
shareholders'
equity - - 186 (160) 2 89 (1) 116
Opening shareholders'
equity 29 42 117 (240) (63) 2,715 7 2,607
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Closing shareholders'
equity 29 42 303 (400) (61) 2,804 6 2,723
---------------------- ----- -------- -------- ----------- -------- ------- -------- --------------- -------
Condensed consolidated balance sheet (unaudited)
As at 31 January 2017
As at As at As at
31 July 31 January 31 January
2016 2017 2016
GBPm Notes GBPm GBPm
-------- ----------------------------------- ----- ----------- -----------
Assets
Non-current assets
902 Intangible assets: goodwill 9 978 904
202 Intangible assets: other 9 221 204
1,434 Property, plant and equipment 9 1,484 1,295
23 Financial assets 22 13
- Retirement benefit assets 12 - 53
127 Deferred tax assets 112 99
212 Trade and other receivables 237 187
20 Derivative financial assets 18 16 22
-------- ----------------------------------- ----- ----------- -----------
2,920 3,070 2,777
-------- ----------------------------------- ----- ----------- -----------
Current assets
2,017 Inventories 2,165 1,882
2,207 Trade and other receivables 2,230 1,927
- Current tax receivable - 5
11 Derivative financial assets 18 10 10
940 Cash and cash equivalents 14 866 1,215
-------- ----------------------------------- ----- ----------- -----------
5,175 5,271 5,039
-------- ----------------------------------- ----- ----------- -----------
56 Assets held for sale 10 155 190
-------- ----------------------------------- ----- ----------- -----------
8,151 Total assets 8,496 8,006
-------- ----------------------------------- ----- ----------- -----------
Liabilities
Current liabilities
2,634 Trade and other payables 2,536 2,068
101 Current tax payable 88 78
701 Bank loans and overdrafts 996 958
4 Obligations under finance leases 4 4
88 Provisions 11 83 82
9 Retirement benefit obligations 12 8 8
-------- ----------------------------------- ----- ----------- -----------
3,537 3,715 3,198
-------- ----------------------------------- ----- ----------- -----------
Non-current liabilities
163 Trade and other payables 191 139
1,175 Bank loans 1,163 1,513
27 Obligations under finance leases 26 25
65 Deferred tax liabilities 60 43
133 Provisions 11 138 134
138 Retirement benefit obligations 12 97 80
-------- ----------------------------------- ----- ----------- -----------
1,701 1,675 1,934
-------- ----------------------------------- ----- ----------- -----------
12 Liabilities held for sale 10 15 151
-------- ----------------------------------- ----- ----------- -----------
5,250 Total liabilities 5,405 5,283
-------- ----------------------------------- ----- ----------- -----------
2,901 Net assets 3,091 2,723
-------- ----------------------------------- ----- ----------- -----------
Equity
29 Share capital 29 29
42 Share premium account 42 42
2,832 Reserves 3,022 2,646
-------- ----------------------------------- ----- ----------- -----------
Equity attributable to shareholders
2,903 of the Company 3,093 2,717
-------- ----------------------------------- ----- ----------- -----------
(2) Non-controlling interest (2) 6
-------- ----------------------------------- ----- ----------- -----------
2,901 Total equity 3,091 2,723
-------- ----------------------------------- ----- ----------- -----------
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Condensed consolidated cash flow statement (unaudited)
Half year to 31 January 2017
2017 2016
Half year to 31 January Notes GBPm GBPm
------------------------------------------------------------ ----- ----- -----
Cash flows from operating activities
Cash generated from operations 13 324 191
Interest paid (27) (17)
Tax paid (143) (89)
------------------------------------------------------------ ----- ----- -----
Net cash generated from operating activities 154 85
------------------------------------------------------------ ----- ----- -----
Cash flows from investing activities
Acquisition of businesses (net of cash acquired) 15 (230) (62)
Disposals of businesses (net of cash disposed) - 1
Purchases of property, plant and equipment (60) (96)
Proceeds from sale of property, plant and equipment and
assets held for sale 4 34
Purchases of intangible assets (13) (13)
Disposals of financial assets - 4
------------------------------------------------------------ ----- ----- -----
Net cash used in investing activities (299) (132)
------------------------------------------------------------ ----- ----- -----
Cash flows from financing activities
Purchase of own shares by Employee Benefit Trusts (6) (14)
Purchase of Treasury shares - (162)
Proceeds from the sale of Treasury shares 12 1
Proceeds from borrowings and derivatives 352 644
Repayments of borrowings (1) (288)
Finance lease capital payments (3) (1)
Dividends paid to shareholders 6 (167) (154)
------------------------------------------------------------ ----- ----- -----
Net cash generated from financing activities 187 26
------------------------------------------------------------ ----- ----- -----
Net cash generated/(used) 42 (21)
Effects of exchange rate changes (2) 37
------------------------------------------------------------ ----- ----- -----
Net increase in cash, cash equivalents and bank overdrafts 40 16
Cash, cash equivalents and bank overdrafts at the beginning
of the period 248 256
------------------------------------------------------------ ----- ----- -----
Cash, cash equivalents and bank overdrafts at the end
of the period 288 272
------------------------------------------------------------ ----- ----- -----
2017 2016
Notes GBPm GBPm
----------------------------------------------------------- ----- ----- -----
Cash, cash equivalents and bank overdrafts at the end
of the period in the condensed consolidated balance sheet 14 288 264
Cash and bank balances in assets held for sale - 8
----------------------------------------------------------- ----- ----- -----
Cash, cash equivalents and bank overdrafts at the end
of the period 288 272
----------------------------------------------------------- ----- ----- -----
Notes to the condensed consolidated interim financial
statements
Half year to 31 January 2017
1. Basis of preparation
The Company is incorporated in Jersey under the Companies
(Jersey) Law 1991 and is headquartered in Switzerland.
The condensed consolidated interim financial statements for the
six months ended 31 January 2017 were approved by the Board of
Directors on 27 March 2017. The condensed consolidated interim
financial statements have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and International Accounting Standard 34 "Interim
Financial Reporting" (IAS 34) as adopted by the European Union.
The condensed consolidated interim financial statements have
been prepared on a going concern basis. The Directors of the
Company are confident, on the basis of current financial
projections and facilities available and after considering
sensitivities, that the Group has sufficient resources for its
operational needs and will remain in compliance with the financial
covenants in its bank facilities for at least the next 12
months.
The accounting policies applied by the Group in these condensed
consolidated interim financial statements are the same as those set
out in the Group's Annual Report and Accounts for the year ended 31
July 2016.
No material new standards, amendments to standards or
interpretations are effective in the period ending 31 July
2017.
The following standards have been published, but not yet
applied:
IFRS 9 "Financial Instruments" - applicable from year ending 31
July 2019;
IFRS 15 "Revenue from Contracts with Customers" - applicable
from year ending 31 July 2019; and
IFRS 16 "Leases" - applicable from year ending 31 July 2020.
The Directors do not expect the adoption of IFRS 9 and IFRS 15
will have a material impact on the financial statements of the
Group in future periods.
The adoption of IFRS 16 will have a significant impact on the
Group's balance sheet and reported results because of the value of
the Group's operating lease commitments, which was GBP853 million
as at 31 July 2016. The application of IFRS 16 will not reflect any
changes in the underlying economics of the business. Beyond the
information above, it is not practicable to provide a reasonable
estimate of the effect of these standards until a detailed review
has been completed. As at the date of this report, IFRS 16 has not
been endorsed by the EU.
The condensed consolidated interim financial statements are
unaudited. The financial information for the year ended 31 July
2016 does not constitute the Group's statutory financial
statements. The Group's statutory financial statements for that
year have been filed with the Jersey Registrar of Companies and
received an unqualified auditor's report.
2. Segmental analysis
The Group's reportable segments are the operating businesses
overseen by distinct divisional management teams responsible for
their performance. All reportable segments derive their revenue
from a single business activity, the distribution of plumbing and
heating products and building materials.
The Group's business is not highly seasonal. The Group's
customer base is highly diversified, with no individually
significant customer.
Canada and Central Europe do not represent a reportable segment
due to their size. They have been reported on a combined basis and
all comparatives have been restated for the purposes of consistency
and comparability. In addition, as disclosed in note 3, exceptional
items for the half year to 31 January 2016 have been restated by
GBP2 million, thereby increasing the UK's trading profit.
The change in revenue and trading profit between the periods
ended 31 January 2016 and 31 January 2017 is analysed in the
following tables into the effects of changes in exchange rates and
acquisitions, with the remainder being organic change.
When entities are disposed in the period, the difference between
the revenue and trading profit in the current period up to the date
of disposal and the revenue and trading profit in the equivalent
portion of the prior period is included in organic change.
Revenue by reportable segment for continuing operations is as
follows:
Organic
2016 Exchange Acquisitions change 2017
Analysis of change in revenue GBPm GBPm GBPm GBPm GBPm
------------------------------ ----- --------- ------------ ------- -----
USA 4,381 862 130 388 5,761
UK 996 - - 15 1,011
Nordic 885 159 1 (9) 1,036
Canada and Central Europe 533 110 8 2 653
------------------------------ ----- --------- ------------ ------- -----
Group 6,795 1,131 139 396 8,461
------------------------------ ----- --------- ------------ ------- -----
Organic
Analysis of change in trading profit 2016 Exchange Acquisitions change 2017
(note 7) GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----- --------- ------------ ------- -----
USA 345 68 16 21 450
UK 36 - - (1) 35
Nordic 23 4 - (11) 16
Canada and Central Europe 30 6 1 (2) 35
Central and other costs (22) - - 1 (21)
------------------------------------- ----- --------- ------------ ------- -----
Group 412 78 17 8 515
------------------------------------- ----- --------- ------------ ------- -----
The reconciliation between trading profit/(loss) (note 7) and
operating profit/(loss) by reportable segment for continuing
operations is as follows:
2017 2016
------------- ----------- ------------ ------------- ------------- ----------- ------------ -------------
Amortisation
and
impairment Amortisation
of acquired of acquired
Trading Exceptional intangible Operating Trading Exceptional intangible Operating
profit/(loss) items assets profit/(loss) profit/(loss) items assets profit/(loss)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- ------------- ----------- ------------ ------------- ------------- ----------- ------------ -------------
USA 450 - (35) 415 345 - (15) 330
UK 35 (1) - 34 36 (1) (6) 29
Nordic 16 (21) (104) (109) 23 - (2) 21
Canada
and
Central
Europe 35 - (1) 34 30 - (1) 29
Central
and
other
costs (21) - - (21) (22) - - (22)
-------- ------------- ----------- ------------ ------------- ------------- ----------- ------------ -------------
Group 515 (22) (140) 353 412 (1) (24) 387
Finance
costs (25) (20)
-------- ------------- ----------- ------------ ------------- ------------- ----------- ------------ -------------
Profit
before
tax 328 367
-------- ------------- ----------- ------------ ------------- ------------- ----------- ------------ -------------
Other information on assets and liabilities by segment is set
out in the table below:
31 January 2017 31 January 2016
-------------------------------------- -------------------------------------
Segment Segment
net net
Segment Segment assets/ Segment Segment assets/
assets liabilities (liabilities) assets liabilities (liabilities)
Segment assets and liabilities GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------------ -------------- ------- ------------ --------------
USA 4,780 (1,674) 3,106 3,795 (1,260) 2,535
UK 908 (540) 368 1,053 (481) 572
Nordic 1,121 (529) 592 1,078 (446) 632
Canada and Central Europe 607 (218) 389 508 (193) 315
Central and other balances 12 (83) (71) 26 (109) (83)
Discontinued 64 (24) 40 195 (173) 22
------------------------------- -------- ------------ -------------- ------- ------------ --------------
Total 7,492 (3,068) 4,424 6,655 (2,662) 3,993
Taxation assets/(liabilities) 112 (148) (36) 104 (121) (17)
Net cash/(debt) 892 (2,189) (1,297) 1,247 (2,500) (1,253)
------------------------------- -------- ------------ -------------- ------- ------------ --------------
Group assets/(liabilities) 8,496 (5,405) 3,091 8,006 (5,283) 2,723
------------------------------- -------- ------------ -------------- ------- ------------ --------------
3. Exceptional items
Exceptional items are those which are considered significant by
virtue of their nature, size or incidence and are presented
separately in the income statement to enable a full understanding
of the Group's financial performance. If provisions have been made
for exceptional items in previous years, then any reversal of those
provisions is shown as exceptional.
Exceptional items are analysed as follows:
2017 2016
Half year to 31 January GBPm GBPm
-------------------------------------- ----- -----
Continuing operations
Gain on disposal of businesses - 1
Loss on closure of branches (36) (2)
Other exceptional items 14 -
-------------------------------------- ----- -----
Exceptional items in operating profit (22) (1)
-------------------------------------- ----- -----
For the half year to 31 January 2017, the loss on closure of
branches principally relates to restructuring costs (GBP26 million)
and inventory write downs (GBP10 million in cost of sales) incurred
in respect of branch closures in the UK and Nordic regions. Other
exceptional items include an GBP11 million one-off credit relating
to the UK defined benefit pension plan which arose as a result of a
change in future earnings assumptions.
Exceptional items for the half year to 31 January 2016 have been
restated to include GBP2 million of restructuring costs incurred in
the UK during the first phase of the UK turnaround strategy. This
is consistent with the presentation for the year ended 31 July
2016.
4. Finance costs
2017 2016
Half year to 31 January GBPm GBPm
------------------------------------------------------------- ----- -----
Interest payable
- Bank loans and overdrafts (23) (19)
- Finance lease charges - (1)
Net interest expense on defined benefit obligation (note 12) (2) -
------------------------------------------------------------- ----- -----
Total finance costs (25) (20)
------------------------------------------------------------- ----- -----
5. Tax
The tax charge on ordinary activities for the half year has been
calculated by applying the expected full year rate to the half year
results with specific adjustments for items that distort the rate
(amortisation and impairment of acquired intangible assets and
exceptional items). The tax charge for the period comprises:
2017 2016
Half year to 31 January GBPm GBPm
-------------------------------------------------------------------- ----- -----
Current period tax charge (122) (100)
Deferred tax credit/(charge): origination and reversal of temporary
differences 4 (3)
-------------------------------------------------------------------- ----- -----
Total tax charge (118) (103)
-------------------------------------------------------------------- ----- -----
6. Dividends
2017 2016
---- ---------- ---- ----------
Pence Pence
Half year to 31 January GBPm per share GBPm per share
------------------------------------ ---- ---------- ---- ----------
Amounts recognised as distributions
to equity shareholders:
Final dividend for the year
ended 31 July 2015 - - 154 60.50p
Final dividend for the year
ended 31 July 2016 167 66.72p - -
------------------------------------ ---- ---------- ---- ----------
Dividends paid 167 66.72p 154 60.50p
------------------------------------ ---- ---------- ---- ----------
An interim dividend of 36.67 pence per share is proposed (2016:
33.28 pence). This is not included as a liability in the balance
sheet at 31 January 2017.
7. Non-GAAP performance measures
Trading profit is defined as operating profit before exceptional
items and the amortisation and impairment of acquired intangible
assets. It is a non-GAAP measure. The Group considers that trading
profit, and other performance measures based on it, including
EBITDA before exceptional items, presents valuable additional
information to users of the condensed consolidated interim
financial statements. Trading profit is the key performance measure
upon which the Group is managed.
2017 2016
Half year to 31 January GBPm GBPm
------------------------------------------------------------------------- ----- -----
Continuing operations
Operating profit 353 387
Add back: amortisation and impairment of acquired intangible assets 140 24
Add back: exceptional items in operating profit 22 1
------------------------------------------------------------------------- ----- -----
Trading profit 515 412
Add back: depreciation, amortisation and impairment of property,
plant and equipment
and software excluding exceptional items in operating profit 86 65
------------------------------------------------------------------------- ----- -----
EBITDA before exceptional items 601 477
------------------------------------------------------------------------- ----- -----
Profit before tax 328 367
Add back: amortisation and impairment of acquired intangible assets 140 24
Add back: exceptional items in profit before tax 22 1
------------------------------------------------------------------------- ----- -----
Profit before tax, exceptional items and the amortisation and impairment
of acquired
intangible assets 490 392
------------------------------------------------------------------------- ----- -----
Tax expense (118) (103)
Deduct: tax credit on the amortisation and impairment of acquired
intangible assets (14) (8)
Deduct: tax credit on exceptional items (5) -
Add back: non-recurring tax charge relating to changes in tax rates 1 2
------------------------------------------------------------------------- ----- -----
Adjusted tax expense (136) (109)
------------------------------------------------------------------------- ----- -----
Net profit from continuing operations 210 264
Add back: amortisation and impairment of acquired intangible assets
net of tax 126 16
Add back: exceptional items net of tax 17 1
Add back: non-recurring tax charge relating to changes in tax rates 1 2
Add back: loss attributable to non-controlling interest - 1
------------------------------------------------------------------------- ----- -----
Headline profit after tax from continuing operations 354 284
------------------------------------------------------------------------- ----- -----
Applying the adjusted tax expense of GBP136 million to the
profit before tax, exceptional items and the amortisation and
impairment of acquired intangible assets of GBP490 million gives an
effective tax rate of 27.8 per cent (2016: 27.8 per cent).
8. Earnings per share
2017 2016
-------- ---------- ---------- --------- ---------- ----------
Basic Diluted Basic Diluted
earnings earnings earnings earnings
Attributable to shareholders of the Company Earnings per share per share Earnings per share per share
Half year to 31 January GBPm Pence Pence GBPm Pence Pence
----------------------------------------------- -------- ---------- ---------- --------- ---------- ----------
Headline profit after tax from continuing
operations 354 141.0 140.0 284 111.3 111.0
Exceptional items (net of tax) (17) (6.8) (6.7) (1) (0.4) (0.4)
Amortisation and impairment of acquired
intangible assets (net of tax) (126) (50.1) (49.8) (16) (6.2) (6.2)
Non-recurring tax charge relating to prior
years (1) (0.4) (0.4) (2) (0.8) (0.8)
----------------------------------------------- -------- ---------- ---------- --------- ---------- ----------
Profit from continuing operations 210 83.7 83.1 265 103.9 103.6
----------------------------------------------- -------- ---------- ---------- --------- ---------- ----------
Profit from discontinued operations 6 2.4 2.3 3 1.2 1.1
----------------------------------------------- -------- ---------- ---------- --------- ---------- ----------
Profit from continuing and discontinued
operations 216 86.1 85.4 268 105.1 104.7
----------------------------------------------- -------- ---------- ---------- --------- ---------- ----------
The weighted average number of ordinary shares in issue during
the period, excluding those held by Employee Benefit Trusts and
those held by the Company as Treasury shares, was 251.0 million
(2016: 255.1 million).
The calculations of basic and diluted earnings per share are
based on the profit attributable to ordinary shareholders and a
weighted average number of shares outstanding during the related
period.
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 252.8 million (2016: 255.9 million).
9. Property, plant and equipment and intangible assets
Other
acquired Total Property, Total tangible
intangible intangible plant and and intangible
Goodwill assets Software assets equipment fixed assets
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ----------- -------- ----------- ---------- ---------------
Net book value at 1 August
2016 902 143 59 1,104 1,434 2,538
Additions - - 13 13 61 74
Acquisition of businesses 130 71 - 201 26 227
Disposals and transfers - - (2) (2) (2) (4)
Depreciation and amortisation - (38) (11) (49) (73) (122)
Impairment (82) (20) (1) (103) (1) (104)
Reclassified as held for sale (20) (2) - (22) (8) (30)
Exchange rate adjustment 48 8 1 57 47 104
------------------------------ -------- ----------- -------- ----------- ---------- ---------------
Net book value at 31 January
2017 978 162 59 1,199 1,484 2,683
------------------------------ -------- ----------- -------- ----------- ---------- ---------------
The Group tests goodwill and other acquired intangible assets
for impairment annually, or more frequently if there are
indications that these assets might be impaired. During the period,
the performance of our Swedish building materials business, Beijer,
deteriorated sharply with trading profit 50 per cent lower compared
with the corresponding period last year and significantly lower
than management's expectations. This generated a trigger event for
management to reassess the recoverability of its associated
goodwill and acquired intangible assets. The methodology for this
assessment is consistent with the process described in the Group's
Annual Report and Accounts for the year ended 31 July 2016. This
assessment resulted in an impairment charge, as follows:
Acquired Post-tax Pre-tax
intangible Remaining discount discount
31 January 2017 Goodwill assets Total Impairment balance rate rate
CGU GBPm GBPm GBPm GBPm GBPm % %
---------------- -------- ----------- ----- ---------- --------- --------- ---------
Beijer 82 20 102 (102) - 7.5 9.6
---------------- -------- ----------- ----- ---------- --------- --------- ---------
10. Assets and liabilities held for sale
2017 2016
As at 31 January GBPm GBPm
--------------------------------------------- ----- -----
Properties awaiting disposal 54 9
Assets of disposal groups held for sale 101 181
--------------------------------------------- ----- -----
Assets held for sale 155 190
--------------------------------------------- ----- -----
Liabilities of disposal groups held for sale 15 151
--------------------------------------------- ----- -----
As at 31 January 2017, the Group had commenced the sales process
for a non-core business in the USA and accordingly this business
has been classified as a disposal group held for sale.
There are also a number of properties awaiting disposal in the
USA, Nordic region and Central Europe.
Last year, the Group announced the decision to sell its
remaining businesses in France. The operations were sold on 7 March
2016 and the sales process for the remaining French property assets
is continuing. These assets have been reclassified as properties
awaiting disposal.
11. Provisions
Environmental Wolseley Other
and legal Insurance Restructuring provisions Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------- ---------- -------------- ----------- -----
At 1 August 2016 75 53 28 65 221
Utilised in the period (3) (7) (6) (2) (18)
Charge/(credit) for the period 3 11 14 (2) 26
Amortisation of discount (8) - - - (8)
Reclassified as held for sale - - - (8) (8)
Exchange rate adjustment 3 2 - 3 8
------------------------------- ------------- ---------- -------------- ----------- -----
At 31 January 2017 70 59 36 56 221
------------------------------- ------------- ---------- -------------- ----------- -----
Provisions have been analysed between current and non-current as
follows:
Current 15 14 22 32 83
Non-current 55 45 14 24 138
------------ ---
70 59 36 56 221
------------ ---
Environmental and legal provisions include GBP57 million (31
July 2016: GBP61 million) on a discounted basis for the estimated
liability for asbestos litigation. This amount has been actuarially
determined as at 31 January 2017 based on advice from independent
professional advisers. The Group has insurance that it currently
believes is sufficient cover for the estimated liability and
accordingly an equivalent insurance receivable has been recorded in
other receivables. Based on current estimates, the amount of
performing insurance cover significantly exceeds the expected level
of future claims and no material profit or cash flow impact is
therefore expected to arise in the foreseeable future. Due to the
nature of these provisions, the timing of any settlements is
uncertain.
Wolseley Insurance provisions represent an estimate, based on
historical experience, of the ultimate cost of settling outstanding
claims and claims incurred but not reported on certain risks
retained by the Group (principally US casualty and global property
damage).
Restructuring provisions include provisions for staff redundancy
costs and future lease rentals on closed branches primarily in the
UK and Nordic regions. Other provisions include warranty costs
relating to businesses disposed of, rental commitments on vacant
properties other than those arising from restructuring actions,
dilapidations on leased properties and warranties.
12. Retirement benefit obligations
The total (income)/expense recognised in the income statement in
respect of defined benefit obligations is as follows:
2017 2016
Half year to 31 January GBPm GBPm
--------------------------------------------------------- ----- -----
Current service costs 4 2
Exceptional past service gain (note 3) (11) -
Past service gain from settlements (2) -
--------------------------------------------------------- ----- -----
(Credited)/charged to operating costs (9) 2
--------------------------------------------------------- ----- -----
Charged to finance costs (note 4) 2 -
--------------------------------------------------------- ----- -----
Total (credit)/charge recognised in the income statement (7) 2
--------------------------------------------------------- ----- -----
The value of assets and liabilities in the balance sheet in
respect of defined benefit obligations is as follows:
31 January 31 July 31 January
2017 2016 2016
GBPm GBPm GBPm
-------------------------------------------- ---------- ------- ----------
Fair value of plan assets 1,623 1,558 1,398
Present value of defined benefit obligation (1,728) (1,705) (1,433)
-------------------------------------------- ---------- ------- ----------
Net liability (105) (147) (35)
-------------------------------------------- ---------- ------- ----------
UK pension plan discount rate 2.8% 2.4% 3.6%
-------------------------------------------- ---------- ------- ----------
Following the 30 April 2016 triennial valuation, the Company has
agreed a recovery plan with the Trustees for the UK defined benefit
pension plan, committing to pay GBP63 million of additional
employer contributions over the period ending 31 March 2019.
13. Reconciliation of profit to cash generated from
operations
Profit for the period is reconciled to cash generated from
operations as follows:
2017 2016
Half year to 31 January GBPm GBPm
-------------------------------------------------------------------- ----- -----
Profit for the period 216 267
Net finance costs - continuing operations 25 20
Net finance income - discontinued operations (net of tax) (3) -
Tax expense - continuing operations 118 103
(Profit)/loss on disposal and closure of businesses and revaluation
of disposal groups (3) 7
Depreciation and impairment of property, plant and equipment 74 58
Amortisation and impairment of non-acquired intangible assets 12 7
Amortisation and impairment of goodwill and acquired intangible
assets 140 24
Profit on disposal of property, plant and equipment and assets
held for sale - (9)
Increase in inventories (76) (49)
Decrease in trade and other receivable assets 26 112
Decrease in trade and other payables (208) (370)
(Decrease)/increase in provisions and other liabilities (8) 10
Share based payments 11 11
-------------------------------------------------------------------- ----- -----
Cash generated from operations 324 191
-------------------------------------------------------------------- ----- -----
Trading profit is reconciled to cash generated from operations
as follows:
2017 2016
Half year to 31 January GBPm GBPm
-------------------------------------------------------------------- ----- -----
Trading profit 515 412
Exceptional items in operating profit (22) (1)
(Profit)/loss on disposal and closure of businesses and revaluation
of disposal groups (3) 7
Operating profit from discontinued operations 3 3
Depreciation and impairment of property, plant and equipment 74 58
Amortisation and impairment of non-acquired intangible assets 12 7
Profit on disposal of property, plant and equipment and assets
held for sale - (9)
Increase in inventories (76) (49)
Decrease in trade and other receivable assets 26 112
Decrease in trade and other payables (208) (370)
(Decrease)/increase in provisions and other liabilities (8) 10
Share based payments 11 11
-------------------------------------------------------------------- ----- -----
Cash generated from operations 324 191
-------------------------------------------------------------------- ----- -----
14. Reconciliation of opening to closing net debt
1 August Cash Acquisitions/new Fair value Exchange 31 January
2016 flows finance leases adjustments movements 2017
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- ------ ---------------- ------------ ---------- ----------
Cash and cash equivalents 940 866
Bank overdrafts (692) (578)
--------------------------------- -------- ------ ---------------- ------------ ---------- ----------
248 34 8 - (2) 288
Derivative financial instruments 31 (5) - - - 26
Bank loans (1,184) (346) - 4 (55) (1,581)
Obligations under finance leases (31) 3 (1) - (1) (30)
--------------------------------- -------- ------ ---------------- ------------ ---------- ----------
Net debt (936) (314) 7 4 (58) (1,297)
--------------------------------- -------- ------ ---------------- ------------ ---------- ----------
Included in the cash and cash equivalents balance at 31 January
2017 is an amount of GBP517 million (31 July 2016: GBP606 million)
which is part of the Group's cash pooling arrangement where there
is an equal and opposite balance included within bank overdrafts.
The amounts are subject to a master netting arrangement.
15. Acquisitions
The Group acquired eight bolt-on businesses in the period ended
31 January 2017. All of these businesses are engaged in the
distribution of plumbing and heating products and building
materials. These transactions have been accounted for by the
purchase method of accounting.
Country of Share/asset
Date incorporation deal % acquired
--------------------------------------- -------------- --------------- ------------ ----------
Clawfoot Supply, LLC (t/a Signature
Hardware) August 2016 USA Shares 100
Westfield Lighting Co., Inc. August 2016 USA Asset 100
Mölnlycke Trä AB October 2016 Sweden Shares 100
Berners Tunga Fordon Fastighet AB October 2016 Sweden Shares 100
Ramapo Wholesalers Inc. October 2016 USA Asset 100
The Plumbing Source Co., Inc. October 2016 USA Shares 100
Underground Pipe & Valve, Incorporated November 2016 USA Asset 100
Matera Paper Company, Inc. December 2016 USA Shares 100
--------------------------------------- -------------- --------------- ------------ ----------
Provisional
Book values Fair value fair values
The assets and liabilities acquired and the consideration acquired adjustments acquired
for all acquisitions in the period are as follows: GBPm GBPm GBPm
---------------------------------------------------------- ----------- ------------ ------------
Intangible assets
- Customer relationships - 16 16
- Trade names and brands - 46 46
- Other - 9 9
Property, plant and equipment 25 1 26
Inventories 43 (9) 34
Receivables 19 - 19
Cash, cash equivalents and bank overdrafts 8 - 8
Payables (10) - (10)
Deferred tax - (7) (7)
---------------------------------------------------------- ----------- ------------ ------------
Total 85 56 141
Goodwill arising 130
---------------------------------------------------------- ----------- ------------ ------------
Consideration 271
---------------------------------------------------------- ----------- ------------ ------------
Satisfied by:
Cash 232
Deferred consideration 39
---------------------------------------------------------- ----------- ------------ ------------
Total consideration 271
---------------------------------------------------------- ----------- ------------ ------------
The fair value adjustments for the period ended 31 January 2017
are provisional figures, being the best estimates currently
available. Amendments may be made to these figures in the 12 months
following the date of acquisition when additional information is
available for some of the judgemental areas.
The goodwill arising on these acquisitions is attributable to
the anticipated profitability of the new markets and product ranges
to which the Group has gained access and to additional
profitability and operating efficiencies in respect of existing
markets.
The acquisitions contributed GBP75 million to revenue and GBP13
million to the Group's trading profit for the period between the
date of acquisition and the balance sheet date. If each acquisition
had been completed on the first day of the financial year, Group
revenue would have been GBP8,496 million and Group trading profit
would have been GBP517 million. It is not practicable to disclose
profit before or after tax, as the Group manages its borrowings as
a portfolio and cannot attribute an effective borrowing rate to an
individual acquisition. It is also not practicable to disclose
operating profit as the Group cannot estimate the amount of
intangible assets that would have been acquired at a date other
than the acquisition date.
The net outflow of cash in the half year to 31 January 2017 with
respect to the purchase of businesses is as follows:
2017
GBPm
---------------------------------------------------------------------------- -----
Purchase consideration 232
Deferred and contingent consideration in respect of prior year acquisitions 6
---------------------------------------------------------------------------- -----
Cash consideration 238
Cash and cash equivalents acquired (8)
---------------------------------------------------------------------------- -----
Net cash outflow in respect of the purchase of businesses 230
---------------------------------------------------------------------------- -----
16. Related party transactions
There are no material related party transactions requiring
disclosure under IAS 24 "Related Party Disclosures" other than
compensation of key management personnel which will be disclosed in
the Group's Annual Report for the year ending 31 July 2017.
17. Contingent liabilities
Group companies are, from time to time, subject to certain
claims and litigation arising in the normal course of business in
relation to, among other things, the products that we supply,
contractual and commercial disputes and disputes with employees.
Provision is made if, on the basis of current information and
professional advice, liabilities are considered likely to arise. In
the case of unfavourable outcomes, the Group may benefit from
applicable insurance protection.
Warranties and indemnities in relation to business disposals
Over the past few years, the Group has disposed of a number of
non-core businesses and various Group companies have provided
certain standard warranties and indemnities to acquirers and other
third parties. Provision is made where the Group considers that a
liability is likely to crystallise, though it is possible that
claims in respect of which no provision has been made could
crystallise in the future. Group companies have also made
contractual commitments for certain property and other obligations
which could be called upon in an event of default. As at the date
of these interim financial statements, there are no significant
outstanding claims in relation to business disposals.
Environmental liabilities
The operations of certain Group companies are subject to
specific environmental regulations. From time to time, the Group
conducts preliminary investigations through third parties to assess
potential risks including potential soil or groundwater
contamination of sites. Where an obligation to remediate
contamination arises then this is provided for, though future
liabilities could arise from sites for which no provision is
made.
Outcome of claims and litigation
The outcome of claims and litigation to which Group companies
are party cannot readily be foreseen as, in some cases, the facts
are unclear, further time is needed to assess properly the merits
of the case or they are part of continuing legal proceedings. Based
on information currently available, the Directors consider that the
cost to the Group of an unfavourable outcome arising from such
litigation is not expected to have a material adverse effect on the
financial position of the Group.
18. Financial risk management and financial instruments
The Group is exposed to risks arising from the international
nature of its operations and the financial instruments which fund
them, in particular to foreign currency risk, interest rate risk
and liquidity risk. Full details of the Group's policies for
managing these risks are disclosed in the Group's Annual Report and
Accounts for the financial year ended 31 July 2016. Since the date
of that report, there have been no significant changes in:
-- the nature of the financial risks to which the Group is
exposed;
-- the nature of the financial instruments which the Group
uses;
-- its contractual cash outflows and the committed facilities
available to fund them; or
-- the difference between book value and fair value of any
financial instruments.
At 31 January 2017, derivative financial assets of GBP26 million
were categorised at level 2 (2016: GBP32 million) and financial
assets of GBP22 million were categorised at level 3 (2016: GBP13
million). There have been no transfers between categories.
Bank loans and overdrafts include senior unsecured loan notes
with a book value at 31 January 2017 of GBP1,004 million (2016:
GBP894 million) and an estimated fair value of GBP1,008 million
(2016: GBP931 million). The fair value of financial instruments
traded in active markets is based on quoted market prices at the
balance sheet date. The fair value of financial instruments that
are not traded in an active market (such as over-the-counter
derivatives) is determined by using valuation techniques including
net present value calculations. The fair value of interest rate
swaps is calculated as the present value of the estimated future
cash flows based on observable yield curves. The fair value of
foreign exchange swaps has been calculated as the present value of
the estimated future cash flows based on observable future foreign
exchange rates.
The Group's other financial instruments are measured on bases
other than fair value. Other receivables include an amount of GBP56
million (2016: GBP53 million) which has been discounted at a rate
of 2.5 per cent (2016: 1.9 per cent) due to the long-term nature of
the receivable. Other current assets and liabilities are either of
short maturity or bear floating rate interest and so their fair
values approximate to book values.
19. Subsequent events
On 21 February 2017, the Group announced its intention to merge
Tobler, its Swiss plumbing and heating business, with Walter Meier
AG, a leading Swiss heating and HVAC distributor. For the year
ended 31 July 2016, Tobler reported revenues of GBP235 million and
trading profit of GBP15 million.
Subsequent to the period end, the Group has decided to exit its
businesses in the Nordic region. For the year ended 31 July 2016,
this region reported revenues of GBP1,881 million and trading
profit of GBP59 million.
Neither Tobler nor the Nordic region met the required criteria
to be classified as disposal groups held for sale or discontinued
operations in accordance with IFRS 5 "Non-current Assets Held for
Sale and Discontinued Operations" as at 31 January 2017.
Since 31 January 2017, the Group acquired two businesses in the
USA. These businesses have annual revenues of GBP33 million. As at
the date of this report, the accounting for these acquisitions has
not been finalised.
20. Exchange rates
Exchange rates (equivalent to GBP1) 2017 2016
----------------------------------------------------------------- ---- ----
US Dollar
Income statement (average rate for the six months to 31 January) 1.26 1.51
Balance sheet (rate at 31 January) 1.26 1.42
Balance sheet (rate at 31 July) 1.32
----------------------------------------------------------------- ---- ----
Euro
Income statement (average rate for the six months to 31 January) 1.16 1.37
Balance sheet (rate at 31 January) 1.16 1.31
Balance sheet (rate at 31 July) 1.18
----------------------------------------------------------------- ---- ----
Canadian Dollar
Income statement (average rate for the six months to 31 January) 1.67 2.03
Balance sheet (rate at 31 January) 1.64 1.99
Balance sheet (rate at 31 July) 1.72
----------------------------------------------------------------- ---- ----
Independent review report to Wolseley plc
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 January 2017 which comprises the Condensed
consolidated income statement, the Condensed consolidated balance
sheet, the Condensed consolidated statement of comprehensive
income, the Condensed consolidated statement of changes in equity,
the Condensed consolidated cash flow statement and related notes 1
to 20. We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
January 2017 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
27 March 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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