The Times
Builder's merchant with a firm foundation
Monday January 05, 2004
Jenny Davey
Selling power showers, bathroom tiles and bags of sand may not sound like an exciting business formula, but it has propelled Wolseley into the FTSE 100 and made the company one of the biggest success stories of the past decade.
Wolseley started life as a sheep shearing business in Australia in 1887, but over the past 117 years has transformed itself into the world's biggest distributor of heating and plumbing products. It is a major supplier of builders' products to trade professionals.
The business is far from glamorous, but Wolseley has pounced on a fragmented market dominated by small-scale local suppliers and set about achieving worldwide domination.
At the end of last year the company had about 3,500 branches in 12 countries stretching from Luxembourg and the Czech Republic to the United States.
Despite its size and place on the list of Britain's 50 biggest companies, few people have heard of Wolseley. There are two main reasons for this. First, the company focuses on professional tradesmen rather than the householders themselves.
Clients range from individual plumbers or heating installers through to organisations such as British Gas, Boeing and General Electric.
Second, it rarely uses the Wolseley brand, instead selling its products internationally through about 40 local brands, the best known of which are the Builder Center, Hire Center, Plumb Center and Timber Center in the UK, Brossette in France and Ferguson in the US.
Wolseley has considered switching to a single global brand but ruled out such a move because it believed that many of the brands had built up a strong local following. Instead, the company decided to continue using the local brand names on vans and signs but has added the strapline "a Wolseley company".
Professionals turn to a distributor such as Wolseley because it is often time consuming and tricky to source materials and parts directly from suppliers, many of which are scattered around the world and refuse to deal directly with tradesmen.
Wolseley says that builders often do not know which products they need until the last minute. Having a distributor with a convenient local branch means they can pick up products quickly, or alternatively builders can think ahead and arrange for products to be delivered directly to their work site. Wolseley has also set up an online service where parts can be ordered over the internet.
At present Wolseley sources its products from thousands of different suppliers, located across the globe from the UK to Eastern Europe and the Far East. Over time it hopes to reduce the number of suppliers that it works with to make its operation more efficient.
The company supplies about 40,000 different product lines ranging from shower and bathroom equipment to sand, bricks, tiles and vacuum cleaner spares.
Despite its size and scale, Wolseley has plenty more growing to do. It plans to open 70 to 100 new sites in the UK each year and a further 30 to 40 branches in continental Europe in an attempt to sustain annual sales growth of at least 10 per cent.
Over the past two decades the company has doubled in size every six to seven years, expanding from less than 5,000 employees in 1982 to 47,000 in 2003.
Group sales have mushroomed from Pounds 222 million in 1982 to Pounds 8.2 billion in 2003, and profits have soared from Pounds 12 million to Pounds 455.9 million over the same period.
As well as planning to expand in the UK and Europe, the company has earmarked Spain, Scandinavia, Poland, South America, Germany and parts of Asia as possible areas for growth in the medium to long term.
In Europe the company has already set about consolidating ten accounting centres into one, in an attempt to create a single European business structure. It also believes there may be scope for some European-wide branding.
Steve Webster, the finance director, says that creating a single European platform will help the company to create a more efficient supply chain and secure greater purchasing power.
The company also hopes to attract a more international investor base. In the past five years Wolseley has grown its overseas investor base from virtually nothing to 29 per cent.
US institutions currently account for about 20 per cent of the shareholder register. The company has ambitions to increase this to 30 per cent.
Institutions from continental Europe make up the remaining 9 per cent of overseas shareholders. The company recently carried out investor roadshows in other European countries, including in Scandinavia, to further expand its appeal.
Mr Webster says that a more international investor base will help to ensure greater liquidity and maintain a high share price.
Wolseley is confident that it can achieve further growth in the year ahead. The company expects that half its growth will come from organic developments, with the other half from acquisitions.
About Pounds 200 million is earmarked for acquisitions each year, but the company frequently spends much more. Last year it spent Pounds 513 million, after completing its biggest acquisition to date -the purchase of Pinault Bois et Materiaux, a French building materials company, for Euro 565 million (Pounds 397 million). The purchase added Pounds 1 billion to group sales.
The Pinault acquisition may have grabbed the headlines, but it is not typical of Wolseley deals.
Typically the company carries out 20 to 30 small acquisitions each year, with an average price tag of just Pounds 10 million.
So ambitious are its growth plans that Wolseley hopes to continue its feat of doubling its size every six or seven years.
THE TIMES VERDICT
Social responsibility........3/10
Fat-cat quotient.............8/10
Financial record.............8/10
Share performance...........10/10
Attitude to employees........6/10
Strength of brand............7/10
Innovation...................6/10
Annual report................7/10
City star rating.............9/10
Future prospects.............8/10
Total .....................72/100
Social responsibility is evaluated by Pirc. The fat-cat quotient, in which best boardroom pay practice scores highest, is provided by CEBR.
HOW WE REACHED OUR DECISION
Richard Greenwood, an economist at the Centre for Business and Economics Research, said: "Wolseley's policy on executive remuneration aims to 'fairly reward executives for the contribution they make to the business, having regard to the size and complexity of the group's operations and the need to attract, retain and motivate executives of the highest quality'. There is an average-sized board of 11 members, although executives outnumber non-execs by six to five. Charles Banks, chief executive, is the highest paid director and we have compared his compensation package to the suggested pay of the fat-cat model. He was paid much in line with what might be expected for the chief executive of a company of Wolseley's size and performance. Nearly half the value of his remuneration is accounted for in performance-related components."
Peter Southwood, acting policy director at Pirc, the corporate governance consultancy, said: "General principles on community and environment provide a framework for group companies because of the decentralised nature of Wolseley. The company has not disclosed a group-wide employment policy, though it has published a code of business ethics. However, human rights have not been addressed.
Board-level responsibility has been disclosed for employment issues only. A European Works Council operates and the company is involved with a number of charities. The company publishes little quantifiable data on CSR issues.
Wolseley's timber is accredited by various sustainability agencies. However, the company is one of only 12 FTSE 100 companies that do not report against any Department of Environment, Food and Rural Affairs guidelines and have made no commitment to do so."
WHO'S WHO IN THE BOARDROOM
The board is chaired by John Whybrow, a non-executive director of Dixons Group and a former president and chief executive officer of Philips Lighting in the Netherlands and former executive vice-president of Philips Electronics from 1998 until 2002. The chief executive is 63-year-old Charles Banks, an ebullient American, who spent 34 years at Ferguson Enterprises in the US, where he became chief executive. His other positions include a non-executive directorship of Bunzl and Harbor Bank, which is based in Virginia. Steve Webster, 51, is the finance director. A former partner of Price Waterhouse, the accountant, he is also a non-executive director of Bradford & Bingley. John Allan, the chief executive of Exel, the logistics company, has been a non-executive board director since June 1999. The other non-executive directors include Gareth Davis, the 53-year-old chief executive of Imperial Tobacco Group, and Robert Walker, group chief executive of Severn Trent. Mr Walker is chairman of the remuneration committee.
James Murray, is chairman of the audit committee. Mr Murray is a non-executive director of UK Coal. He was finance director of Land Securities, the FTSE 100 property company, from 1991 until he retired in 2001. The company's remaining executive directors head each of the group's operations divisions. Fenton Hord, is chief executive of the US building materials arm. Jacques-Regis Descours is chief executive of Wolseley's growing French operation and oversaw the company's acquisition of Pinault Bois et Materiaux in July. Claude "Chip" Hornsby is chief executive of the US plumbing and heating division. Gerard Legtmann, a former chairman of Brambles North America and senior executive of General Electric, is chief executive of Wolseley Europe.
THE COMPANY IN DETAIL
Wolseley is the world's biggest distributor of heating and plumbing products and is a major supplier of building products to the professional market. The company operates about 3,500 branches in 12 countries in Europe and North America, employing 47,000 people. Total group sales are more than Pounds 8 billion, two thirds of which are in the United States.
The company is listed on the London Stock Exchange and the New York Stock Exchange, with a market capitalisation of more than Pounds 4.5 billion. The group supplies 40,000 types of goods including heating products, sanitary systems, air- conditioning, shower and bathroom fittings, roofing, tiles and builder's sand.
More than a third of the company's customers are plumbing installers, a third are building contractors and the rest are made up of utilities, industrial and mechanical contracting workers.
In the year to July 31, 2003, the company reported a 4.2 per cent rise in underlying pre-tax profits to Pounds 455.9 million on sales up 3.2 per cent to Pounds 8.2 billion.
HISTORY
Wolseley was started in 1887 when Frederick York Wolseley founded the company in Sydney, Australia, pioneering mechanical sheep shearing machines. In 1889 Wolseley moved to Birmingham, England, to develop his shearing patents and agricultural equipment.
Herbert Austin became his works manager and they started to experiment with manufacturing motor cars, eventually producing the first Wolseley vehicle in 1896.
In 1901, after making nearly 100 cars, Wolseley sold the motor car and machine tool business to Vickers Son & Maxim, which eventually became Rover Group. After the sale Wolseley concentrated on the shearing and agricultural equipment business.
During the 1950s Wolseley expanded into manufacturing electric fencing and motor cultivators. In 1958 it merged with Geo H Hughes, a Birmingham pram and industrial wheel manufacturer, and the group was renamed Wolseley-Hughes.
In the 1960s it expanded into heating products with the purchase of Nu-Way Heating, a Droitwich Spa company, in 1960. By 1973, after further acquisitions, the company began Wolseley-Hughes Merchants, distributing spare parts for oil burners and domestic radiators and boilers. That business is known today as Wolseley Centers.
In 1976 Jeremy Lancaster replaced his father as group chairman and began a rapid expansion programme. The company expanded overseas in 1982, buying Ferguson Enterprises, a plumbing supplies distributor in the United States.
In 1984 the company sold its engineering divisions to focus on distribution and a year later Wolseley Centers was established to distribute building products.
Throughout the 1990s the company rapidly expanded in Europe and Britain.