Wolseley warning over economy as profits dip

HOUSE buildings supplier Wolseley warned that the economic environment remained volatile, as it posted a sharp drop in half-yearly trading profit.

The FTSE 100 group's trading profit slipped 33.5 per cent to £167m in the six months ended 31 January 2010, compared with £251m in the same period of the previous year.

First-half revenue was also down by 15.1 per cent to £6.3bn from the previous year's £7.4bn, with the group's US Ferguson business posting a 21 per cent decline to $3.88bn.

In a statement on Monday, Wolseley warned that the economic environment continued to provide "limited visibility", and it remained cautious due to credit conditions, levels of foreclosures and the unemployment rate.

The sombre outlook came despite the group slashing its pre-tax losses by almost half thanks to an aggressive cost-reduction programme.

Wolseley, the world's largest builders merchant distributor, reported pre-tax losses of £261 million in the six months to 31 January 2010, compared with £464 million the previous year and enjoyed improved trading in the UK, Nordic, Central and Eastern European markets.

However, weak conditions persisted across France, while commercial and industrial markets in the US continue to decline, the group added.

Chief executive Ian Meakins said: "Market conditions remain challenging, though we are now seeing stabilisation in many of our markets.

"Against this backdrop, the group will continue to focus on an improved service to customers, maintaining market shares and gross margins."

Analyst James Cooke at Panmure Gordon said: "Our cautious stance on Wolseley is driven largely by concerns about the speed of the US commercial & industrial recovery plus its high relative valuation. Sentiment surrounding recovery across the US construction sector will, however, be the key driver.

"An earlier trading update indicated that FY numbers would be ahead of expectations, so upgrades duly followed. The shares have performed well since then so we believe for now all the good news is in the price."