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Plumbing the depths of profitability

‘Tis we, who lost in stormy visions, keep with phantoms an unprofitable strife.

So, cheers all round at yesterday at Wolseley, the world’s biggest plumbers merchant. Having been the subject of some very mixed reviews over the past two or so years thanks to the collapse of the housebuilding markets here and in the States, the news for the group is very definitely better.

Well, who can argue with a 64% increase in trading profits? I can think of plenty of businesses who would be pretty pleased with a quarter of that improvement. (It’s less than Grafton’s headline results, of 90% increase, but still, worth celebrating).

And much of the improvement is being put down to the fact that the US market is improving nicely. But then, we do have to remember that Wolseley suffered possibly more than other merchants, precisely because of its exposure to that very market.

Still, the results are good enough that Wolseley is confident about reinstating the dividend to shareholders. And there was a teeny, tiny hint yesterday that the move to Switzerland for tax reasons may not be set in stone thanks to tax regime changes announced in last week’s Budget.

But it’s not all good news. Build Center “underperformed the market” because it was more focussed on maintaining gross margins, though that is probably a longer-term sensible action.

And while Plumb and Pipe Center are doing well, there will be a bit of a gap in the next set of results thanks to the chain missing out on a national contract for the supply of boilers and parts. A gap that’s worth around £70m in turnover and £5m in profit. All this means – and it’s there in back and white in the report – that the branches will be turning their attention to smaller customers to make up the shortfall.

There has been nothing official released about the sale or non-sale of Bathstore, despite rumours of an imminent sale. However, if I were on the verge of buying a business that turned out at the last minute to be 9% down in sales, I’d be pretty quick about demanding a discount.

It’s still good news, though, and the share price is reflecting that, although the caution expressed about the impact of the public spending cuts and the VAT rise means most analysts are equally cautious.

And rightly so. Bellway maybe ploughing ahead with building on their landbank but public confidence and housing transaction levels are by no means steady enough to lead us out of the woods just yet.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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