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Risk Warning
28/09/2009
HEATING and plumbing giant Wolseley today plunged to annual losses of £766 million as the group felt the "harsh impact" of the construction slump.
Wolseley's huge pre-tax loss for the year to July 31 came after more than £1 billion in write-downs and restructuring costs as the group desperately stripped out costs to weather the storm.
The company, which reported profits of £399 million a year earlier, has cut more than 10,000 jobs over the year - including almost 3,100 in the UK and Ireland - and signalled more to come. It trades as Build Center and Plumb Center in the UK.
Chief executive Ian Meakins said further actions to lower costs would be taken "according to anticipated local market conditions".
Short-term trading will remain challenging, although profits should begin to recover in the second half of this financial year thanks to the cost-cutting drive. "Our final results reflect the harsh impact of the economic downturn on the construction industry," he added.
Stripping out the one-off costs, Wolseley's pre-tax profits of £293 million were ahead of expectations despite being 54% below the £631 million seen previously - sending the firm's shares higher.
In the UK - where the firm closed depots in Didcot, Chorley, Henfield and Ripon - trading profits fell by 69% to £55 million despite a stronger performance from its Plumb and Parts Center arms. Wolseley, which now has around 50,000 staff, hopes its cost-cutting drive will save an annual £160 million in the UK. In Ireland, jobs have been cut by almost half since the market peak in early 2007.
Underlying sales in the UK and Ireland, which account for almost a fifth of group revenues, were down 17% to £2.7 billion amid fierce competition. Adjusting for the impact of a stronger dollar, US revenues also slumped more than 17%. The firm is seeing "signs of stabilisation" in the new housing market, although housing starts remain at historic lows.
Wolseley warned of the lingering impact of rising unemployment and repossessions and tight credit conditions on the business. "We think the road to recovery will be long and slow," Mr Meakins added.
The company took firm action to slash its debts with a £1 billion fundraising earlier this year. Net debt at the end of July stood at £959 million compared to £2.47 billion a year earlier, giving it more than £1 billion in headroom on its banking covenants.
Analyst Richard Curr at Prime CFDs said: "Although the Wolseley first-half performance contains the legacy of the credit crunch, the well timed rights issue and subsequent falling debt levels have resulted in greater financial stability, although the group are still continuing to cut costs where possible."
"Improving markets and the fact that Wolseley are highly geared to recovery are major plus points for the stock, and the recent rumours of stake-building by an Abu Dhabi-based investment firm will have done the shares no harm at all."
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