47%
The increase in reported
revenue of the European
division
£292bn
The estimated size of the
total market opportunity
in Europe
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Performance review
Europe revenue and market share
£bn
£bn
Operations
Europe
Market
The European Division continues to develop under four geographic areas (‘clusters’) – UK and Ireland, France, the Nordic region and Central and Eastern Europe. The latter is responsible for the division’s operations in Austria, the Benelux region, Italy, Switzerland and Eastern Europe.
The division has over 3,300 branches serving a diverse range of customers and market sectors within construction materials.
In the opinion of management, Wolseley UK’s plumbing business is the UK’s largest distributor of plumbing and heating products, Brossette is the second largest distributor of plumbing and heating equipment in France, PBM is the second largest integrated distributor of heavyside building materials in France and DT Group is the leading distributor of building materials for trade professionals and consumers in the Nordic region.
European markets each have their own economic growth rates and market participants. The diversity of the Wolseley operations and the fragmentation that exists in the European markets present significant growth opportunities for the Group. Some important trends at present include:
- An increasing rate of residential repair and maintenance across Europe, as more is spent on upgrading the ageing housing stock.
- An increasing percentage of flats/apartments in the building mix, helping plumbing and heating products.
- Infrastructure growth in recently joined EU members in the Central and Eastern Europe region.
- High levels of migrant workers creating both employment within construction and ‘hot spots’ for residential growth.
- The growth of sustainable construction products across Europe.
- Increased usage of modern methods of construction, such as offsite fabrication.
Wolseley has a well balanced product offer across Europe and is able to adopt and adapt business practices to exploit these market trends within its specific country markets.
The European division continues to seek opportunities to expand into other geographic areas such as Spain, Germany and other parts of Eastern Europe.
Market sizeManagement has estimated market sizes through evaluating the building materials suppliers’ total market if all products were channelled through the distribution network. Management’s best estimate of both Wolseley’s activity in each market and the total size of these markets are set out below:
| Total for countries with Wolseley presence |
UK and Ireland | |||||
|---|---|---|---|---|---|---|
| Revenue £bn |
Estimated marked size £bn |
Estimated marked share % |
Sales £bn |
Estimated marked size £bn |
Estimated marked Share % |
|
| Plumbing, heating & air conditioning | 2.7 | 21.7 | 12% | 1.6 | 5.2 | 30% |
| Electrical | 0.2 | 18.4 | 1% | 0.1 | 3.2 | 3% |
| Building materials | 4.0 | 126.6 | 3% | 1.1 | 30.6 | 4% |
| Civils/waterworks, industrial & commercial | 0.7 | 33.5 | 2% | 0.4 | 3.8 | 11% |
| Total | 7.6 | 200.2 | 4% | 3.2 | 42.8 | 7% |
| France | Central and Eastern Europe | Nordic | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Estimated | Estimated | Estimated | Estimated | Estimated | Estimated | ||||
| market | market | market | market | market | market | ||||
| Sales | size | share | Sales | size | share | Sales | size | share | |
| £bn | £bn | % | £bn | £bn | % | £bn | £bn | % | |
| Plumbing, heating & air conditioning | 0.5 | 5.1 | 10% | 0.6 | 9.8 | 6% | – | 1.6 | 0% |
| Electrical | – | 6.2 | 0% | – | 7.1 | 0% | 0.1 | 1.9 | 5% |
| Building materials | 1.3 | 23.2 | 6% | 0.1 | 58.8 | 0% | 1.5 | 14.0 | 11% |
| Civils/waterworks, industrial & commercial | 0.1 | 5.8 | 2% | 0.2 | 20.6 | 1% | – | 3.3 | 0% |
| Total | 1.9 | 40.3 | 5% | 0.9 | 96.3 | 1% | 1.6 | 20.8 | 8% |
Europe revenue
Revenue and trading profit
UK and Ireland £m
UK and Ireland £m
An analysis of the estimated total market opportunity in Europe, including those territories where at 31 July 2007 Wolseley had no presence, is set out below:
| Europe (Total) | Rest of Europe |
|||
|---|---|---|---|---|
| Sales £bn |
Estimated market size £bn |
Estimated market share % |
Estimated market size £bn |
|
| Plumbing, heating & air conditioning | 2.7 | 30.9 | 9% | 9.2 |
| Electrical | 0.2 | 26.1 | 1% | 7.7 |
| Building materials | 4.0 | 182.8 | 1% | 56.2 |
| Civils/waterworks, industrial & commercial | 0.7 | 51.7 | 1% | 18.2 |
| Total | 7.6 | 291.5 | 3% | 91.3 |
Demand in the European markets is driven by activity in a number of key market sectors:
- the residential market analysed between new construction and RMI;
- the non-residential market (‘the commercial and industrial market’) analysed between new construction and RMI; and
- the civil infrastructure market.
The division’s split of business by each of these key drivers is given below:
| Sales £bn |
Sales % |
|
|---|---|---|
| Residential: | ||
| New construction | 2.2 | 29% |
| Repairs, maintenance and improvements | 3.1 | 41% |
| Non-Residential: | ||
| New construction | 1.1 | 15% |
| Repairs, maintenance and improvements | 0.9 | 11% |
| Civil infrastructure | 0.3 | 4% |
| Total | 7.6 | 100% |
The division has more activity generated from residential compared to non-residential and civil infrastructure work. However, the actions under way both through acquisitions and enhancement of business diversity, continue to broaden the business base.
Significant opportunities are available to broaden the division’s reach both geographically and in terms of market segment. The acquisitions of DT Group and Woodcote represent significant steps in this regard.
Divisional performanceMost of the European operations achieved good revenue and profit improvements and the results also benefited from acquisitions which expanded the geographic diversity of the Group.
Reported revenue, in sterling, for this division increased by 46.8 per cent to £7,559 million (2006: £5,150 million), of which 8.8 per cent was from organic growth. Recent acquisitions accounted for £2,010 million (39.0 per cent) of revenue growth, including DT Group in the Nordic region in September 2006. Trading profit, in sterling, increased by 36.9 per cent to £433 million (2006: £316 million). Currency translation reduced divisional revenue by £50 million (1.0 per cent) and trading profit by £2 million (0.6 per cent). Excluding DT Group, European revenues and trading profit, in sterling, were up by 15.4 per cent and 5.5 per cent respectively.
The overall divisional trading margin, after the allocation of central costs, declined from 6.1 per cent to 5.7 per cent of revenue, primarily due to lower trading margins in Wolseley UK and in Italy. Underlying margin improvements were achieved in France and most of the Central and Eastern European operations.
During the year, a further eight countries and net 450 branches were added to the European network, giving a total of 3,311 locations (2006: 2,861), including 363 added through acquisitions.
Revenue and trading profit
France €m
France €m
Revenue and trading profit
Central & Eastern Europe £m
Central & Eastern Europe £m
UK and IrelandWolseley UK grew strongly in a market which showed a gradually improving trend over the year, despite rising interest rates. Government spending on schools, hospitals and social housing RMI underpinned the construction market. In Ireland, the market saw continued rapid decline in housing starts, with some of the shortfall taken up by strong RMI activity.
Against this background, Wolseley UK recorded a 17.9 per cent increase in revenue to £3,171 million (2006: £2,690 million). Organic growth of 9.9 per cent was a significant outperformance compared to the market generally, which is estimated to have risen by around 3 per cent.
Trading profit increased by 5.0 per cent compared to the prior year, including the benefit from acquisitions. Whilst gross margin improved slightly, the trading margin fell from 7.5 per cent to 6.7 per cent. The trading margin was lower due to the effect of £13 million of one-off restructuring costs relating to 40 branch closures and the rationalisation of central offices, the initial dilutive impact of opening 125 new branches and the integration of the head offices of Brooks and Heatmerchants in Ireland.
During the year, 59 net new locations were added in the UK and Ireland, including 12 branches added as a result of acquisitions, taking the total number of branches for Wolseley UK to 1,917 (2006: 1,858).
FranceIn France, housing starts slowed significantly in the second half but remained at positive levels, whilst RMI, which represents approximately two-thirds of revenue for both Brossette and PBM, continues to show only marginal growth.
Against this background, Wolseley’s French operations showed good growth with revenue up 10.3 per cent to €2,774 million (2006: €2,515 million), including organic growth of 5.9 per cent. Trading profit was up 13.1 per cent to €150 million (2006: €132 million) and trading margin improved to 5.4 per cent (2006: 5.3 per cent). The Wolseley France management structure is now fully in place with a number of central functions supporting the three business divisions, each of which performed well in the period. At the end of June 2007, a 210,000 square foot national DC was opened at Orléans initially supplying complementary building products to more than 300 PBM locations.
The two PBM businesses (Heavyside and Import and Wood Solutions) together achieved a double-digit increase in revenue and underlying improvement in trading margin.
In the Brossette plumbing and heating business, revenue rose 7.6 per cent to total more than €1 billion for the first time, with 5.2 per cent organic revenue growth. The improved trading margin benefited from the recent reorganisation including the centralisation of a number of functions such as purchasing and logistics.
The number of branches in France increased by 40 to 825 (2006: 785).
NordicDT Group achieved a very strong performance, ahead of expectations at the time of acquisition by Wolseley on 25 September 2006. For the ten months of Wolseley ownership to 31 July 2007, revenue was DKK17,858 million (£1,617 million) and trading profit was DKK1,097 million (£99 million). The trading margin was 6.1 per cent. This performance was achieved in markets that remained good, although there were signs of the new residential market in Denmark softening a little towards the end of the year.
DT Group’s integration was completed ahead of schedule and it has already made a valuable contribution to Group initiatives. During the period, eight bolt-on acquisitions were completed, including expansion into the plumbing and heating business in Norway and the purchase of the remaining 40 per cent of a builders’ merchant in Greenland. DT Group has also started to source and procure private label products with other Group companies and assisted the UK and Irish businesses to introduce its Craftsman concept into some branches, for clothing, personal protection equipment and tools. The range of plumbing products in existing DT locations continues to be expanded.
For the 12 months to 31 July 2007, DT Group’s management accounts show an underlying increase in revenue over the prior year of 14.6 per cent, including double-digit organic growth, and in trading profit, of 26.5 per cent.
DT Group had 275 branches as at 31 July 2007.
Central and Eastern EuropeThe Group’s other Continental European operations enjoyed generally good results with growth significantly ahead of generally flat markets. Revenue, in sterling, in Central and Eastern Europe was up by 22.4 per cent to £899 million (2006: £735 million), reflecting organic growth of 11.7 per cent and the benefit of acquisitions. Trading profit, in sterling, was up 9.6 per cent to £35 million (2006: £31 million). The trading margin declined to 3.8 per cent (2006: 4.3 per cent) due to the previously announced £3 million restructuring charge in Italy following the opening of the new distribution centre and a lower trading margin in Belgium.
In the other Benelux countries, both Wasco in the Netherlands and CFM in Luxembourg made excellent progress with double-digit revenue and trading profit growth.
Tobler, in Switzerland, had another strong year with double-digit organic growth whilst increasing its trading margin.
ÖAG, in Austria, reported double-digit organic revenue growth and an improvement in trading margin, despite significant preparation work ahead of the implementation of its new IT platform which went live in August 2007.
+14.8% The increase in local
currency revenue
of Ferguson
-3.8%
The decrease in reported
sterling revenues of the
North America division
North America revenue
In Italy, revenue increased although profits were down, as expected, due to the initial costs of the new €20 million (£14 million) DC that commenced branch deliveries at the end of 2006 and the €4 million (£3 million) one-off restructuring charge, primarily relating to the closure of warehouses no longer required. The number of branches fed from the new DC will be further expanded over the next six months.
In Eastern Europe, the Woodcote acquisition in October 2006, which took Wolseley into Croatia, Slovakia, Poland and Romania for the first time, is performing strongly across all regions.
During the year, 76 net new locations were added in Central and Eastern Europe, including 45 branches through acquisitions, taking the total number to 294 (2006: 218).