WOLSELEY, the world's largest distributor of heating and plumbing equipment which has the US as its biggest single market, has suffered from the strength of sterling and poor conditions in Continental Europe.

But the company managed a 12% rise in first-half profits to #124.3m before tax along with an increase in the interim dividend from 3.10p to 3.30p.

However, it is cautious about the outlook for the second half and said the upturn in the UK housing market ''remains fragile'' and is unlikely to deliver much benefit until later in the year. The share price showed little reaction at 495p, little changed from its level at the time of the full-year results last October.

Business conditions in the first half to end-January were generally strong in the US, while those of France and Austria remained weak. The trading climate in the group's UK distribution business continued to show a ''modest'' improvement. Manufacturing bore the brunt of the the pound's buoyancy and also the poor business environments in Continental Europe, particularly in France and Austria.

Sterling's recent strength will also hit the second half after slicing #79.1m from turnover in the first six months and #4.2m from profits. Finance director Steven Webster said that in the second half, the impact could be even greater if exchange rates remain at these levels.

Chairman Richard Ireland said Wolseley had yet to see a consistent pattern of improvement across all regions in the UK in its lightside and heavyside activities. He also suggested that consumers may be reluctant to increase expenditure to any great extent until after the election. While the margin trends are improving, compared with the second half of last year, there are still substantial pressures throughout the supply chain.

To add to the downbeat tone of the message, the economic picture in France and Austria is not expected to change significantly during the remainder of the financial year.

Moreover, the rate of organic growth in the US has been pleasing - like-for-like sales in distribution before acquisitions were up 10.3% and profits 16.1% - housing starts have recently slowed and a note of caution is once again sounded as to the effect of any interest rate rises on business and consumer confidence. A slowdown in the rate of growth in the US is therefore expected since there was an upturn in the equivalent period last year.

However, most of the companies in manufacturing and other activities should make steady progress despite the weakness of some of the European markets and the strength of sterling.

Wolseley intends to continue to make bolt-on acquisitions to expand its US and European distribution networks. In the first six months, #70.7m was spent on acquisitions, including #43.2m on deals in the US. With net borrowings at the end of January standing at #109.6m - up #49.8m on a year ago - gearing is still a modest 13.3% so there is ample scope for further acquisitions of the bolt-on variety.

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