New housing starts have continued to decline and the RMI market has slowed in response to weaker consumer sentiment. This relates to the sub-prime problems and concerns associated with the impact of the deteriorating housing market on the U.S. economy. The commercial and industrial sectors continued to hold up.
Ferguson produced another strong performance and outperformed the market. Local currency revenue in the U.S. plumbing and heating operations rose by 3.2% to $5,554 million (2007: $5,384 million) due to acquisitions, with organic revenue being down 2.7%, meaning the growth was mainly attributed to acquisitions, including the absorption of Wolseley Canada. Trading profit was up by 4.9% to $350 million (2007: $333 million). Gross margin was up, reflecting internal process improvement, changes of business mix towards higher margin business generated from showrooms, counter sales and private label products, and improved sourcing programs. The trading margin was also slightly higher at 6.3% (2007: 6.2%), benefiting from the margin enhancing acquisitions completed recently. In response to the slowing residential markets in the first half, Ferguson reduced its headcount by 1,575. These reductions equate to around 6% of its total employees and will give rise to annualized savings of $75 million and brings the cumulative headcount reduction in Ferguson to around 12% of its employees.
The on-going priorities for Ferguson include focusing on more profitable same-store sales growth, gross margin enhancement, cost control, supply chain efficiency and the further integration of Wolseley Canada.
Ferguson’s total branch numbers increased by 36 to 1,453 locations (July 31, 2007: 1,417), which will provide additional opportunities for market share gains.
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