Change is happening.

Wolseley poised to shed non-core operations

Published:  22 March, 2010

LEAMINGTON SPA: Wolseley is getting ready to offload 19 of its 41 operating businesses after deciding that they are non-core.

Ian Meakins, the new chief executive, setting out his strategic vision today, said that the individual businesses were either underperforming, were too small or posed insufficient synergies with core parts of the group to be retained. They include Build Center, the UK builders' merchants' chain, and Brossette, the plumbers' merchant in France.

"The aim is to improve these businesses in the short term and then either reclassify them as core or sell them," he stated.

"We won't dally too long if we see a business that can't perform for us in the long term," Mr Meakins said.

The targeted underperformers account for 27% of capital employed and 19% of sales, but only 5% of trading profit.

Wolseley has already quit Ireland, Belgium, the Czech Republic, and Slovakia.

Mr Meakins is a former Diageo and Travelex executive, who took over in last July to turn around Wolseley after two years of losses, management upheaval, and cash calls.

He regards the other 22 businesses in the group as core classifying them as either 'growth engines' or 'synergy drivers'.

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

He declined to name the non-core businesses but said that they had been identified and informed internally.

Wolseley reported a £207m operating losses for the six months to January 31, but said that market conditions were beginning to stabilise.

Like-for-like revenue declines continued to slow and Wolseley managed to maintain gross margins.

Planned cost reductions were achieved ahead of plan. Net debt was brought down by £49m to £910 m.

However, the group has written off £164m after mothballing a mammoth project to streamline its supply chain management in North America.

A further £71m of goodwill has been written off its UK Brandon Hire and Encon businesses.

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.

Shares in the group, which have been steadily improving after losing 80% of their value from mid July 2007 to the start of 2009, were down 1.7% this morning, underperforming a slightly weaker FTSE 100. The shares fell 22p to £15.98. There was no dividend.

Wolseley last made a payout in May 2008.

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