UK

• Business unit portfolio and profile

  During the year ended 31 July 2011, Brandon Hire and Electric Center were disposed of in line with the Group’s strategy of focusing on businesses with significant scale and leading market positions. In July, the Group announced an agreement, subject to competition authority clearance, to dispose of Build Center, its building materials distribution business. The UK management team is now in a strong position to focus on its core, strong businesses with market leading positions.

  The majority of the UK’s revenue is generated from the RMI market. The business has particularly high exposure to public sector work, which accounts for around 25 per cent of revenue.

  Plumb and Parts Center is a leading distributor of plumbing and heating products. The business operates through a national branch network and can deliver superior fill rates and a wide range of products through its distribution centres. The business also supplies a wide range of spares and replacements. Efficiencies arise from purchasing volumes, from opportunities to cross-sell and from shared sites. The business has continued to deliver strong financial performance in a tough trading environment and continues to look for opportunities to improve customer service and grow sales.

  Pipe Center and Climate Center distribute pipes, valves, fittings, air conditioning and refrigeration products. The business has a sound track record of profitability, and volumes are particularly dependent on non-residential new build projects.

  The smaller UK business units include:

  • Drain Center, a specialist in above and below ground drainage;
  • William Wilson, which distributes plumbing and heating products in Scotland;
  • Integrated services, outsourced inventory management and procurement services for maintenance activities on a long-term contract basis, mainly to public institutions for example housing associations;
  • Bathstore, a retail bathroom specialist, whose product range includes baths, basins, showers, toilets, taps and bathroom furniture;
  • Encon, a specialist distributor of insulation, drywall, ceilings, partitioning and fire protection products (held for disposal at 31 July 2011); and
  • BCG, which supplies kitchens, bathrooms and associated fittings to other builders merchants and to retailers.

• Market position and competitive environment

  The market positions of the main business units are estimated as follows:

  	Market position
  Plumb and Parts Center	2
  Pipe and Climate Center	2

  The UK market is more consolidated than many of the other markets in which the Group operates with a few large national players leading the market, although significant competition is provided by numerous small local businesses.

  Plumb and Parts Center have historically been the market leader in the UK plumbing and heating distribution market. However, the recent merger of two businesses has created a competitor of a similar size.

  Build Center holds the number four position in the UK market. The planned disposal is in line with Wolseley’s strategy of focusing resources on its market leading businesses.

• Operating performance

  Revenue in the UK was 3 per cent lower in the year due to the impact of disposals and the contract loss referred to at the half year, although the ongoing businesses were 2 per cent ahead due principally to commodity price inflation. Public sector activity, which represents around 25 per cent of UK revenue, weakened in the second half. The more resilient RMI sector, which represents about 65 per cent of revenue held up reasonably well.

  Trading profit of £109 million was £18 million ahead of last year, of which £7 million arose within the ongoing businesses with higher revenue and gross margins partly offset by a £5 million one-off bad debt charge.

  Despite strong competition, Plumb and Parts Center was able to improve gross margins and gained market share in the fourth quarter. Pipe and Climate and Drain Center performed well, generating strong growth in the period as a result of improved management focus and some benefits from commodity price inflation. Both businesses gained market share. Trading conditions in Bathstore were particularly challenging with revenue down 15 per cent in the year, though the business continued to generate profits.

  The trading margin for the UK in the ongoing business was 5.2 per cent (2010: 4.9 per cent).