Wolseley warns of cost cuts as slump hits hard

The group, which describes itself as the world's largest trade supplier of plumbing and heating products, said trading profit in the six months to the end of January dived 33.5 per cent to 167m.

On a pre-tax basis, Wolseley saw a shallower loss of 261m, compared to last year's 464m deficit, as cost cuts fed through.

Wolseley, which moved its UK head office from Ripon to Warwickshire in 2005, said it is reviewing 19 of its 41 business units. It hopes to either improve their performance or sell them.

"We won't dally too long if we see a business that can't perform for us in the long term," said chief executive Ian Meakins, who declined to name the units under review.

Wolseley has been battered by the downturn in construction on both sides of the Atlantic, forcing it to downsize by cutting thousands of jobs and selling off weaker businesses.

Last year it closed a small distribution centre in Ripon, although still has a larger distribution centre in Melmerby, near Ripon.

In January, it revealed plans to offload its entire branch network in Ireland and some in Northern Ireland for 23.8m.

In total, cost cutting in the half-year claimed more than 1,900 jobs – including 745 in the UK – on top of the 10,000 shed the previous year.

"Over time, the group's intention is to operate fewer, larger, related businesses in core geographies," said the group.

Wolseley has completed a group-wide review of where it allocates resources, which Mr Meakins said "shows us clearly where to prioritise investment in our leading businesses where we have a strong competitive advantage and can generate the best returns".

While total revenue was down 15 per cent at 6.3bn, the group said like-for-like sales trends have continued to improve.

The firm is also seeing improvements in its markets, which last month led it to increase guidance for full-year trading profits.

It also confirmed it is seeing "stabilisation in many of our markets".

The UK arm – which makes up 19 per cent of revenue – recorded a like-for-like sales fall of four per cent compared with 13.1 per cent at the end of the last financial year. Trading profit increased by 68 per cent to 33m thanks to last year's cost reductions.

The repair, maintenance and improvement (RMI) improved "slightly" and the new residential sector continued to stabilise, but still remains 41 per cent below its 2007 peak. However, work in commercial and industrial continued to fall as lack of funds stifle construction.

Wolseley added Government spending on social housing, health and education has remained positive, but the sector is shrouded in uncertainty as the General Election approaches.

The group's US division – accounting for 43 per cent of revenues – saw declines in the Ferguson plumbing and heating chain improve to 18 per cent from 22.6 per cent in the previous six months.

Wolseley's US business has taken the brunt of job losses after the recession and housing market slump hit the group hard, with Ferguson's workforce being slashed by nearly 7,000 or 30 per cent over the past two-and-a-half years.

Mr Meakins said: "The results for the first half reflect

good progress on cost reductions which were delivered ahead of schedule.

"Market conditions remain challenging, though we are now seeing stabilisation in many of our markets."

Wolseley added it cut debt by 49m over the six months to 910m. It has banking facilities of 2.3bn.

Firm's U-turn

Analyst Keith Bowman at stockbrokers Hargreaves Lansdown said Wolseley's decision to review 19 of its 41 business units marks a U-turn.

"The strategy appears to mark an exact reverse on previous direction, with a policy of ongoing acquisitions abandoned and existing businesses now to receive constant nurturing," he said. Analysts at Deutsche Bank said there was no single fix for the underperforming businesses but said a thorough assessment by the management of branch by branch profitability and local market positions should yield significant improvements.