Wolseley is built to last

The giddy rise of the construction materials group has come to a halt, but it will soon be back on course

Veteran followers of Wolseley plc, the heating, plumbing and building materials group, mourned the passing of an institution a few weeks ago: Jeremy Lancaster, the Wolseley chairman and renowned doom-and-gloom merchant, who retired to take over the reins at packaging firm Rexam.

Wolseley results always came with Eeyore-like pronouncements, reminiscent of AA Milne's depressive donkey, from Lancaster about the parlous state of the building materials market, the trading difficulties caused by economic downturns abroad, currencies and the like. Yet there was rarely, if ever, a blip in the group's own impressive financials. In his 20-year reign as chairman, profits exploded 60-fold from pounds 4.5m in 1976 to pounds 245m in 1995. Wolseley was, in the eyes of investors, the Rolls-Royce share of the building trade.

Finally, this year, there was some substance to Lancaster's doomsaying. Wolseley announced half-year profits down by 5 per cent to pounds 111m, with underlying trading profits hit by 12 per cent, and issued a profits warning for the full-year results, due out in October. Lancaster said that the UK housing market would not recover in time to pull profits up to last year's level.

The shares were subsequently depressed further by a pounds 68m placing to raise funds for acquisitions; then, in May, the company entertained then pulled out of a pounds 400m offer to buy up Meyer, owners of Jewson, a rival chain.

Having always dismissed Lancaster's depressive statements in the past, investors started taking them seriously again, and looked with Eeyore's eyes at the 40 per cent of sales Wolseley derives from its US operations.

They even began to question the company's insistence on maintaining its electrical and photographic supplies manufacturing arms, which were cash- generative but hardly growing.

From inheriting the Rolls-Royce when their appointments were announced last October, Lancaster's successors, Richard Ireland and John Young, non-executive chairman and chief executive respectively, would now appear to be looking instead at a rusting Rover.

However, the truth may turn out rather differently. Despite the bad press, Lancaster has left behind a company in very strong shape. It is the world leader in heating and plumbing supply, and has a market-leading 8 per cent of the UK building merchants' market through its Plumb Center bathroom supplies subsidiary. Its balance sheet has the kind of cast iron qualities that have drawn praise even from arch-sceptic analyst Terry Smith, who praised Wolseley's refusal to use deferred tax to manipulate its profit and loss account in the updated version of his book Accounting For Growth.

While its rivals were coughing and spluttering through the worst construction downturn since the war, Wolseley powered ahead, recording profit increases in 1992, 1993 and 1994 of 14 per cent, 33 per cent, and 67 per cent respectively. With another hike of 21 per cent in 1995, and only a small portion of this coming from acquisitions, it is little wonder that the profits engine finally ran out of fuel this year.

The blot on Wolseley's profit record also gives the new management team of Ireland and Young, both internal appointments, something to work on.

Lancaster's refusal to partici-pate in the usual round of media interviews, and to give but the bare minimum of financial information at results time, has resulted in a very low profile for the company, and one that Ireland and Young could easily fix. A well-conceived, profile-raising campaign alone would put some life into the shares.

In the medium term, they will be expected to splash out on a big acquisition - one which will require much more cash than the pounds 68m raised through the placing in April.

They could either look for another acquisition in the US to go with its Carolina builders or Familian Northwest distribution units, or bite the bullet in the UK and buy out one of its rivals.

This last plan would cheer the market up even more, since they see the sector as badly in need of consolidation, and the management team at Wolseley as by far the best of the bunch. Quite why the Meyer deal was not consummated, after initial talks had taken place, is a mystery: the sticking point was probably just price.

For now, the new guard at Wolseley will have to live with an unfamiliar situation: a predicted fall in profits for the full year, forecast to be around 2 per cent off the 1995 figure, or pounds 240m. It is unlikely to last. When the housing boom filters through to the building trade, Wolseley will once again be well placed. Lancaster's Eeyore impression will not be missed for long, but his legacy will serve his successors well.

PROMOTED VIDEO
Extras
indybest
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
Arts and Entertainment
tv
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
News
Ronahi Serhat, a PKK fighter, in the Qandil Mountains in Iraqi Kurdistan
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Poet’s corner: Philip Larkin at the venetian window of his home in 1958
booksOr caring, playful man who lived for others? A new book has the answer
Arts and Entertainment
Exhibition at the Centre Pompidou in Metz - 23 May 2012
art
News
Matthew McConaughey and his son Levi at the game between the Boston Red Sox and the Houston Astros at Fenway Park on August 17, 2014 in Boston, Massachusetts.
advertisingOscar-winner’s Lincoln deal is latest in a lucrative ad production line
Life and Style
Pick of the bunch: Sudi Pigott puts together roasted tomatoes with peppers, aubergines and Labneh cheese for a tomato-inspired vegetarian main dish
food + drink
Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Quant Analyst - C++, Boost, Data Mining

£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Service Desk Analyst- (Desktop Support, Help desk)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Junior Quant Analyst (Machine Learning, SQL, Brokerage)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

UNIX Application Support Analyst- Support, UNIX, London

£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape