Plumbers and builders merchant chain Wolseley has posted first-half profits for the first time since the height of the recession.
Group revenue was up 5% at £6.6bn, from £6.3bn, with trading profits up 64% from £167m to £275m. Pre-tax profits were £195m, compared with the loss posted this time last year of £261m.
Even gross margins have improved, up 0.2% at 27.7%. Wolseley has focussed on cost-cutting and overhead trimming since the banking crisis and housebuilding slump of 2008, divesting branches, non-core businesses and over 20,000 employees.
Revenue of £1,221 million in the UK was slightly lower as a result of disposals. Like-for-like revenue was 6% ahead in the period as markets improved, aided by 3% price inflation, principally in commodities. The RMI sector has been gradually picking up and the businesses are benefitting from this.
The company described the market conditions as “encouraging” and “stronger than expected”, although there is still a degree of caution regarding the prospective cuts in public sector spending, which represents about 25% of UK revenues, and the VAT increase. Trading profit of £51m was £18m ahead of the prior year, of which £6m came from the disposal of underperforming businesses. Trading profit for ongoing businesses increased by £12m as a result of revenue growth, a slight reduction in gross margin and a 2% increase in operating costs.
The group reports that Plumb and Parts Center performed well, gaining market share and gross margins. Build Center continued to improve its trading performance in the first half with further reductions in the cost base. The Pipe and Climate business also performed well, generating strong growth in the period as a result of improved management focus and some benefits from commodity price inflation.
Trading conditions in Bathstore – the sale of which is understood to be in jeopardy – were particularly challenging with revenue down 9% in the period.
The trading margin for the UK was higher at 4.1% (2010: 2.7%).
Ian Meakins, Chief Executive said: “This was a good first half performance, driven principally by resilient RMI markets and the considerable attention that we have paid to improving customer service, protecting gross margins and controlling costs. Construction markets have now broadly stabilised in most of our geographies, particularly the new residential and RMI segments in the USA.
“The overall macro-economic environment in several regions continues to be fragile and pricing competition remains intense. The impact of recent VAT increases and government spending cuts leaves the outlook in the UK more uncertain.
“We continue to maintain our emphasis on protecting market share and gross margins while keeping a tight control on the cost base to maximise operating leverage. The Group expects to continue to grow in the second half of the year, though the comparatives will now be much more demanding. The reinstatement of the dividend reflects the strength of our balance sheet and our confidence in the future trading prospects of the Group.”