Fears of rights issue at Wolseley as plumber cuts another 2,300 jobs

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The Independent Online

Wolseley, the troubled plumbing and building materials group, yesterday refused to rule out the need for a rights issue next year as the company struggles against what it described as "unprecedented circumstances".

The group, which owns the Plumb Center and Build Center chains and supplies the construction industry, also announced 2,300 job cuts, mostly in Britain, as well as the closure of 200 branches as it battles against the continuing economic crisis. The redundancies come on top of 5,000 jobs that have been axed since August.

The chief executive, Chip Hornsby, said he did not expect to see any signs of recovery in the market until the end of next year at the earliest, adding that he could not dismiss the idea of issuing new equity if the situation continued to deteriorate.

In an interim statement yesterday, Wolseley said its pre-tax profits were down by about 45 per cent on the same period last year, adding that the group's debt, now at £2.7bn, meant that gearing had grown to 74 per cent – above the 50 to 70 per cent level Mr Hornsby has said he is comfortable with.

Wolseley has actually increased the cost of financing its debt by moving it all into sterling. This will avoid costly foreign exchange costs, however. Mr Hornsby is hoping that the group will save as much as £80m a year after the restructuring.

Andy Brown, an industry analyst at Panmure Gordon, said the group should be praised for the efforts but added: "The Wolseley AGM statement is a horrible read in terms of weak markets, falling profits and the need to reduce costs, but is no worse than expected. While there are some positive areas, the tone of the statement remains very cautious; we retain our cautious stance."

In yesterday's announcement the company said its revenues in the UK and Ireland fell by 10 per cent in the three months to the end of October, compared with the same quarter a year ago. Trading profits fell by 65 per cent.

The construction industry has been one of the hardest hit since the onset of the credit crunch. The unwillingness of banks to lend to property buyers has resulted in a lack of demand for new homes, which has also hit companies like Wolseley. The group's shares were up 8 per cent in trading yesterday, after falling by more than 60 per cent over the last 12 months.