Our business

Wolseley plc is the parent company of the Group and its business falls into two geographic divisions - Europe and North America. Throughout the year ended 31 July 2009, Europe has been managed through four business segments: the UK and Ireland, France, the Nordic region and Central and Eastern Europe. North America has been managed as a single business.

The business model is essentially simple. Products are sourced directly from suppliers or through agents and delivered to distribution centres and branches. Sales to customers can be made over the counter at our branches, through orders dealt with by branches, through call centres or over the internet, or through supply contracts which are managed centrally. Products are either delivered direct to our customers or collected from our branches.

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The Group has over 100,000 trade suppliers in total and its larger key suppliers are manufacturers with market-leading brands, usually international in operations but focused on the needs of local markets, and delivering quality products, which we strive to ensure are ethically and environmentally sound. The Group continues to work with low-cost, high-quality manufacturers to supply our private label (own brand) product ranges.

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The Group has a wide range of customers operating in different industry sectors that range from the individual plumber or builder through to national contractor chains and house builders and include large industrial and commercial organisations, including prominent Fortune 500 companies. Wolseley’s primary customer focus is on professional contractors. These contractors work with households, governments, property developers and industrial companies in the construction of new homes, offices and industrial buildings or in the repair and maintenance of existing premises.

Customer mix %

A Building contractors 27%
B Plumbing and heating engineers 23%
C Industrial 13%
D End users 12%
E Mechanical contractors 9%
F Utilities 8%
G Heating, ventilation and air conditioning 6%
H Electrical contractors 2%

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During the 2007/8 financial year, the North American markets experienced a reduction in demand, due to restrictions on credit availability, falling house prices and low consumer confidence, in combination with a relatively high supply of newly built or repossessed housing stock. During 2008/9, these markets have continued to decline and European markets also started to contract rapidly.

Following the global financial crisis which commenced in September 2008, commercial credit as well as consumer credit was restricted. Most countries in which the Group has a presence fell into recession and rising unemployment eroded consumer confidence. The governments of most advanced economies have responded to the liquidity shortage and economic recession with a variety of programmes to support commercial lending, reduce interest rates and stimulate demand, in some cases with investments in infrastructure and low-cost or social housing that increase demand for the Group’s products. Some statistics indicate that GDP may now have stopped shrinking in a number of those countries that have experienced a macro-economic recession, but there are few indications that the construction markets are yet returning to growth.

In the longer term, the changing demographics of the European and North American markets, with a generally ageing population and increasing immigration, should support demand for new housing at relatively high levels. As the housing stock ages, it will increase demand in the repair and remodelling sector. Activity in the commercial and industrial sector varies according to the level of business investment, government spending, commercial property yields and finance available to fund large projects.

While the Group does not operate in a regulated industry, the performance of the Group can be affected by government legislation. The key regulatory influences centre on environmental legislation and stipulations imposed when building or remodelling buildings. Such changes in legislation present an opportunity for growth, in response to increasing demand as customers or end-users respond by changing their buying habits. For example, the UK business has a Sustainable Building Center to demonstrate energy efficient products increasingly required by regulation and in response to increased environmental awareness of customers.

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The Group aims to be a leading distributor in each of the markets in which it operates, the majority of which are fragmented.

The Group competes on the basis of availability of materials and supplies, breadth of product range, pricing of products, customer service, provision of credit, technical product and local market knowledge with respect to application and usage, and also offers advisory and other service capabilities.

The Group’s competition varies by product line, type of customer and geographic market; competing with many local, regional, and, in some markets and product categories, other national distributors including specialist subsidiaries of large home centre chains and product manufacturers. To a much more limited extent, it also competes with the large home centre chains, such as The Home Depot and Lowe’s in the US and B&Q in the UK, for business from professional contractors as well as with product manufacturers.

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The Group plans, monitors and reviews the activities of its businesses principally through the financial reporting process. A strategic plan is produced annually by all businesses which sets out business plans and resource requirements for the next three years. On this basis a detailed budget is prepared for the following financial year, which is central to the target setting process. The form and components of the budget are, in general, cascaded down to branch level within the businesses. Each month, the businesses submit their results, which also include a forecast for the remainder of the financial year. Performance against both budget and prior month forecast is reviewed with the businesses by continental and Group management. With the benefit of such information, corrective actions or additional resource deployments are discussed.