Wolseley rejects talk of revival as losses jump

More job losses likely despite better than expected trading profits
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The Independent Online

Wolseley posted woeful preliminary results yesterday, blaming difficult trading conditions for an after-tax loss of £1.17bn, including writedowns and impairments. The building materials group said that while a number of its markets have stabilised, it is yet to see signs of a recovery.

However, stronger than expected trading profits and confirmation that the company intends to reduce costs further – including cutting more jobs – was welcomed by investors, sending the shares up 11.2 per cent to 1,455p.

The chief executive, Ian Meakins, who joined Wolseley in April, said that while a £1bn rights issue in April and the loss of nearly 10,000 jobs over the past year have helped the company repair its balance sheet and cut net debt to £959m, it was still planning for a tough 2010. "The market is still difficult and there has been no change in trajectory for Wolseley. We are expecting the next financial year to be equally as tough as the last 12 months," he said.

The group, which owns the Bathstore retail chain, did surprise the market with a trading profit of £447m that, although 52 per cent down on the company's 2008 numbers, was ahead of most analysts' predictions. "Wolseley's preliminary results represent a watershed," Tony Shepard, an analyst at Charles Stanley, said. "We take some solace from some of the more positive trends such as that of improving cashflow in spite of the lower profitability. Net debt has fallen much more than expected and potential efficiencies ... are also better than expected."

While some of its markets are expected to improve, or see a slowing of sales decline, analysts expressed concern after Wolseley said that some of its stronger sectors may come under increased pressure this year.

According to Mr Shepard, the group's US plumbing and heating business, Ferguson, which contributed 78 per cent of the group's total profit last year, is a particular concern. Two-thirds of Ferguson's business is related to commercial construction, an area that Wolseley expects to decline at a faster rate than other areas over the next 12 months. Mr Meakins said that Ferguson was likely to be hit with bigger average job losses.

"We will look at each business branch by branch and if we can identify savings, we will do it. There are always more costs you can cut of the business, but, of course, future cuts will not be on the scale of those we have made over the last few months," he said.

A number of industry analysts were much more upbeat than even the group. Tobias Woemer, an analyst at MF Global, said the results were "so much better than expected that we thought we were looking at a different company".

Wolseley was hit at the start of the recession as contractors cancelled or mothballed projects and consumers cut discretionary spending.