The 2020 Mid-Year Economic Update_long

‘Hardly Scratching the Surface’

to $1.6 billion. Hornsby says Wolseley wants to do the same in other segments in all geographies it serves.


Wolseley made 53 acquisitions last year and plan to continue at that pace. The company estimates at least $400 million in acquisitions to made in the coming year, but would not comment on potential larger targets. The company made its largest acquisition ever last year with the purchase of Nordic building products distributor DT Group for $2.48 billion, equivalent to seven years of Wolseley’s normal acquisition spend.


About 65 percent of acquisitions made last year were in commercial, industrial and RMI.


In announcing the annual results at the end of September, Hornsby said: “The fragmented nature of the construction materials market in Europe and North America gives us confidence that we can look forward to many more years of substantial growth.  Although the slowing U.S. housing market may bring us challenges next year, we will continue to pursue our double-digit growth targets through a combination of organic and acquisitive growth, utilizing our competitive advantages of our scale, people, supply chain and reaping the rewards of our commitment to delivering customer solutions.”


Group revenues increased more than 25 percent to $25.32 billion and profit rose by 24.7 percent to $1.57 billion. U.S. operations accounted for 59 percent of the revenue and 60.8 percent of the profit. – Lindsay Young

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In a recent presentation to analysts on preliminary year-end results, Wolseley plc, parent to Ferguson and Stock Building Supply, says its diversified portfolio should protect it against the downturn in U.S. housing and allow for further growth. Still, Stock may suffer in the coming year due to its dependency on new residential housing and commodity lumber.


UK-based global distributor Wolseley plc expects strength in U.S. industrial, commercial and RMI (Repair, Maintenance and Improvement) sectors to offset the slowing housing markets in the coming year, enabling its U.S. business to stay on track.


Plumbing and heating distributor Ferguson sales jumped 35.1 percent to $9.65 billion in the fiscal 2006, and profit was up 40.4 percent to $676 million. Organic growth was 24.3 percent. Stock Building Supply had sales growth of 27.9 percent to $5.3 billion, and profit increase of 40.6 percent to $343 million.


But Stock, Wolseley’s U.S. building materials arm, will suffer from continued deflation of commodity lumber and lower housing starts. (Last year) it had a good first nine months and a slower fourth quarter,” said Steve Webster, Wolseley CFO, in a presentation to analysts.


Stock had organic volume growth of 8 percent, which was partially offset by lower lumber and panel prices that lowered revenue by 4 percent.


To attack the downturn, Wolseley is reducing its headcount and examining costs in the regions most affected. Wolseley is also seeking opportunities to reduce Stock’s dependency on new residential housing and commodity lumber.


In North America overall, value-added sales are up by 31 percent, construction services and installation business is up 140 percent, and sales to commercial and RMI are up 47 percent and 20 percent, respectively, Webster said.



Supporting Growth
To support expansion at Ferguson, more than 4,300 people joined that company, including 1,000 college graduates. Ferguson had “strong organic growth” from its focus on select markets, new branch openings and further commercial advantages from the upgraded DC network.


Wolseley has added 700,000 square feet of distribution center space, including the expansion of four existing facilities. Two more DCs are planned in the next 12 months: in Florida and California.


“DC infrastructure is essential to our branch growth program,” Webster said, lowering Wolseley’s cost to serve its growing network.


Canada saw double-digit organic growth in fiscal 2006, with “buoyant” sales in the energy sector to boost industrial and commercial business. In addition, housing and other manufacturing remained “mostly strong.” The organic growth was ahead of the market, Webster said.


Branches in Canada went from 238 to 246 locations in 2006. Wolseley also opened a regional supply center in Quebec.



Acquisitions
Group CEO Chip Hornsby highlighted the market opportunities in Europe and North America. By Wolseley’s calculations, there is an overall 700 billion pound, or US$1.3 trillion, opportunity in markets the distributor services.


“We’re hardly scratching the surface,” Hornsby said. The company will focus on organic growth but continue to make acquisitions in select markets.


Wolseley estimates that in North America, it has 8 percent of the plumbing and HVAC market, 1 percent of building materials/construction services, 0.4 percent of electrical, and 2 percent of civils/waterworks, industrial commercial PVF.


In the UK, Wolseley’s most established markets, it has grown significantly in electrical distribution. “Over the past 12 months, we have gone from being almost a nonplayer in electrical to almost having a national footprint,” Hornsby said. Wolseley says it is the fifth largest electrical distributor in the UK.


Wolseley’s waterworks segment is three times larger than it was five years ago it has grown

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