European sales growth drying up at Wolseley

Like-for-like sales growth at plumbers' merchant Wolseley has tapered off in the last couple of months, despite a continued strong showing from the group's US operations.

In the six months to the end of January the group saw like-for-like (LFL) sales run 5% ahead of the corresponding period a year earlier, maintaining the rate seen in the first quarter.

"Like-for-like growth trends for the group since the end of the [reporting] period have been slightly lower than the first half overall with the US a little better and Europe a little weaker," revealed Ian Meakins, Wolseley's Chief Executive. The group faces tougher comparative figures as it enters the second half of the year, so the slowdown in LFL growth is not entirely a surprise.

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Group revenue at the half-way stage rose 3% to £6,841m from £6,629m the year before. Underlying trading profit rose 16% to £310m from £274m the year before and profit before tax jumped 28% to £250m from £195m a year earlier. Broker Charles Stanley had forecast profit before tax of £255m.

LFL revenue growth in the US, the group's most profitable region, eased off in the second quarter from the 10% annual growth seen in the first quarter, but was still a creditable 7%. Canada's LFL growth rate increased to 5% in the second quarter from 2% in the first, while the decline in LFL sales in the UK slowed to 2% from 3% in the first quarter.

The Nordic countries LFL growth rate kicked on to 7% from 2% in the first quarter; France's rate improved to 5% from 3%, while Central Europe's LFL growth rate of 1% in the first quarter doubled to 2% in the second.

Underlying operating expenses for the ongoing business were 5% greater than last year, of which 1% arose from increases in pensions and share-based payments. The underlying trading margin for the ongoing business increased to 5.0% (2011: 4.6%). There was an additional trading day in the period which contributed around £6m of additional trading profit, while movements in foreign exchange, most notably the Swiss Franc, contributed a further £2m.

Headline earnings per share climbed 30% to 78p from 60p the year before.

The days of the group fretting over its debt mountain appear to be behind it, with the board recommending a 33% increase in the interim dividend to 20p from 15p the year before. The board expects that the final dividend in any given year will be around double the level of the interim dividend, so it looks as if investment analysts following the company will have to revise upwards their full year dividend forecasts; at present, the consensus forecast for the full year dividend is 54.62p, whereas if the board sticks to its one-third/two-thirds distribution policy, the full year dividend should be 60p.

Adjusted net debt came tumbling down to £529m at the end of January from £933m a year earlier, and is set to reduce some more with the sale of Wolseley's Brossette unit imminent. Net finance costs reduced to £15m from £31m the year before, reflecting the lower level of net debt and the benefits of the refinancing completed in 2011.

"We will continue to pursue operating efficiencies and remain focused on improving customer service, gaining market share and protecting our gross margins," Meakins said. "We will continue to invest selectively in the business where we can exploit growth opportunities and generate good returns," he added.

The market was disappointed at reports of the slowing growth rate and marked the shares down. Coming up to 10:00am, the shares were down 6p to 2,513p.

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