The British plumbing and heating company’s Q3 2016 like-for-like revenue growth was mixed across the primary markets it operates in but remained acutely sluggish in the UK and Central Europe, declining by 0.4% and 0.2%, respectively.
The distributor said it intends to combat the “challenging” market conditions in the UK and Central Europe through further restructuring efforts.
Wolseley’s UK operation, in particular, is poised for change with the impending retirement of CEO Ian Meakins who will be replaced by current CFO, John Martin. Though Martin’s promotion seems a “sensible decision” to Simon McGarry, senior equity analyst at Canaccord Genuity Wealth Management, he said he is less sure about Martin’s replacement, current Cobham CFO, Simon Nichols.
“Nichols has had a horrible last 12 months at the firm with 2 profit warnings and a much criticized rights issue of £500m just days before paying out £126m in dividends,” noted McGarry. “Some of these issues were outside Nichols’ control, i.e. drop off in commercial revenue. However, Wolseley investors should be cognisant that some of the problems, for example excessive stock build up and accounting irregularities at their wireless communications divisions, occurred directly under his nose. They will be hoping that he doesn’t repeat the feat at Wolseley,” McGarry added.
However, McGarry remained fairly optimistic about Wolseley’s future prospects. “Their end markets remain fragmented providing ample opportunity for M&A. They rank in the top two in 81% of their markets which is useful considering the inherent scale benefits in distribution. Staff turnover being consistently below industry averages is constructive for what is fundamentally a relationship based business. Sustainable homes are also a nascent market.”
Meakins stated he was pleased by the company’s generation of “decent revenue growth in the third quarter in mixed market conditions and against continued deflationary headwinds.” “Recent revenue growth trends have been weaker and we have continued to manage costs and productivity very carefully while driving better customer service and strong cash conversion," he asserted.