Wolseley to axe dividend to keep debt in check

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The Independent Online

Wolseley posted plummeting full-year profits yesterday, but its shares soared after the plumbing and building materials company vowed to remain within its banking covenants and take a further axe to costs.

The group unveiled a fresh series of measures to combat dire trading in the US, UK and Irish housing markets, including scrapping its dividend and a "fundamental review" that could lead to a sale of its troubled US building supply arm, Stock.

For the year ended 31 July, Wolseley delivered group pre-tax profits down by 77 per cent to £145m on revenues up 2 per cent to £16.5bn, aided by currency fluctuations. After stripping out exceptionals, the company's pre-tax profits were down by 30.5 per cent to £527m.

The Wolseley chief executive, Chip Hornsby, said: "We have taken the action to remain within our banking covenants."

Mr Hornsby also said that it had "no plans" to raise equity, such as through a rights issue, although he declined to categorically rule it out. Wolseley's shares rose by 56p to 470p.

Wolseley said that it would save £150m of cash by not paying a final dividend for 2008, although investors will receive an interim dividend of 11.25p a share.

It has also closed 270 branches globally, reduced its headcount by 7,700 and generated £46m from a series of property and business disposals. In addition, Wolseley has slashed its 2009 capital expenditure budget to an estimated £180m from £317m in 2008.

Mr Hornsby said that there will be further job cuts, as it seeks to "right-size" its businesses, such as Stock, in line with expected revenues.

The Kaupthing analyst Kevin Cammack said: "They are pulling out all the stops to ensure they do not fall foul of [their banking] covenants." Mr Cammack welcomed the organisational and operational review of Stock, but warned Wolseley may find it difficult to find a buyer because "it is losing so much money".

Stock posted a trading loss of $246m (£133m) for the year to 31 July, excluding exceptional restructuring costs of $13m relating to 36 branch closures and headcount reductions.

Mr Hornsby said: "It [the US housing market] is as tough as I have ever seen it in the last 30 years."

However, he said that while levels of affordability had returned for creditworthy US house hunters recently, the UK and Irish housing market was still suffering from a significant reduction in the availability of mortgages. Wolseley UK and Ireland posted a 1 per cent increase in revenues to £3.2bn, but trading profit fell by 16.6 per cent, excluding £12m of exceptional restructuring costs, largely from 13 branch closures and 150 redundancies, in Ireland.

Mr Hornsby said: "The Irish business is very difficult. That market is significantly down from where it was two years ago."

Wolseley said that its net debt remained "virtually unchanged" at £2.5bn, with the group operating at 2.7 times net debt to Ebitda, which is "well within its banking covenants".

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