Wolseley Annual Report 2009
UK and Ireland
Scale advantages
Wolseley UK uses its distribution network to create value for customers by improving the service provided to them through quicker, more reliable delivery of products. For example, the company supplies the spare parts and building materials required for response, repair and maintenance work for Tesco’s 2,000-plus UK retailing stores. The supplies are predominantly distributed via a dedicated Parts Center branch set up inside Wolseley’s National Distribution Centre at Leamington Spa and supported through the company’s nationwide branch network.
Using Wolseley UK’s distribution network in this way is cost-effective for the company, efficient for the customer and demonstrates the company’s ability to deliver bespoke services tailored for its biggest customers.
Business profile
Wolseley UK trades through a number of brands, each of which targets a particular sector and many of which have leading positions in their sectors:
Number One
- Plumb Center
- Parts Center
- Drain Center (above ground)
- Climate Center (in refrigeration)
- William Wilson (Scottish independents)
Number Two
- Pipe Center
- Encon Insulation
Number Three
- Brandon Hire
Number Four
- Build Center
In Ireland, Heat Merchants and Tubs and Tiles are both number one in their sectors, while Brooks is the leading timber merchant and the second largest builders’ merchant.
Wolseley UK operates a national distribution centre, servicing Plumb, Parts and Climate Centers from Leamington Spa. Wolseley operates three regional distribution centres, in Melmerby, Worcester and Marston Gate, and DHL operates a distribution centre in Crick. The business has a fleet of 2,200 commercial vehicles and trades from 1,544 branches in the UK and 99 in Ireland.
Market opportunities
The total construction market in the UK and Ireland was estimated by Euroconstruct to be worth about €215 billion in calendar year 2008. Both markets have contracted in calendar year 2009, reflecting the overall contraction of credit and reduction in consumer demand, and more specifically the collapse in property prices, with the Irish market suffering much more severely than that of the UK. Some support for demand will be provided by government projects to invest in affordable homes and in large infrastructure programmes. In the medium term customers will continue to renovate their homes, and in the longer term there is likely to be fundamental demand for additional housing as family units fragment and single-person occupancy grows.
Strengths and strategy
Wolseley companies, which have been distributing building materials in the UK and Ireland for more than 30 years, have an established business model, a number of strong brands with specialist sales teams and leading positions in their markets and an experienced management team.
The product range is diverse – more than 400,000 product lines, including a significant percentage of own brand private label products – supported by strong supplier relationships. The supply chain, based on the distribution centres and fleet of delivery trucks, provides same day or next day delivery throughout the UK.
The business will continue to focus on the fundamentals of customer service and on building on its stronger market positions. The complexity of its portfolio of brands and the branch network has been rationalised in light of market opportunities. There are further efficiencies to be extracted from the DC network and, as the market recovers, there will be opportunities to invest in both organic growth and industry consolidation.
Performance
Wolseley UK recorded a 15.8 per cent decrease in revenue to £2,699 million during the year (2008: £3,203 million). The overall gross margin was lower due to competitive pressure partially offset by price management and sourcing benefits. Trading profit declined by 69 per cent compared to the prior year, from £176 million to £55 million, due to lower organic trading volumes and a loss of £30 million in Ireland.
As a result, the trading margin fell from 5.5 per cent to 2.0 per cent. Cash flow performance was strong, with another significant reduction in cash-to-cash days achieved in the period.
Significant action has been taken throughout the year to reduce the cost base in the UK and Ireland, resulting in annualised savings of £160 million. In addition to a headcount reduction in the year of 3,083 and net branch closures of 284 branches, action to rationalise the supply chain was also taken through the closure of the Didcot, Chorley, Henfield and Ripon distribution centres.
As at 31 July 2009 the total number of branches for Wolseley UK and Ireland was 1,643 (31 July 2008: 1,927).
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Performance
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Business strengths
Strong brand and market position
- Wolseley ”Centres” are strong, well-known brands targeted to specific customer groups
- Performing at or above the market in plumbing and heating
Established business model
- Extensive branch network
- Advanced supply chain providing next day delivery
- Operating cash flow of £390 million over the last 12 months
Scale
1,643
Number of branches
11,673
Number of employees
Key brands
Plumb Center is a market leading specialist supplier of domestic lightside products including central heating equipment, plumbing, drainage, bathrooms and showers.
Build Center is a national builders’ merchant supplying building materials and services to the trade. The extensive product range includes bricks and blocks, aggregates and cement, insulation and plasterboard, timber, tools, landscaping and drainage, as well as ironmongery and personal protective equipment. Build Center also provides additional products through specialist branches, including timber, landscaping materials, general ironmongery and hardwood, Dryad architectural ironmongery and glass.
Pipe Center is a supplier to mechanical services and plant engineers, offering expertise in tube valves and fittings in steel, plastic, copper, stainless steel as well as commercial and industrial heating and air conditioning equipment.
Bathstore is a leading bathroom specialist. The retailer’s product range includes baths, basins, showers and shower cubicles, whirlpools, bathroom furniture, toilets and taps.
Encon and Nevill Long are specialist distributors of insulation, drywall, ceilings, partitioning, fire protection and related products to all sectors of the construction industry.