Update: Wolseley saves £150m as dividend to shareholders gets scrapped

Wolseley is big-time news this morning as a result of yesterday’s decision to lay off 6000 employees.

The builders’ merchant with a global presence has more than 5000 branches in 28 countries - that means 6000 job losses are by no means 6000 UK job losses, so there’s some element of relief on that score.

The unprecedented deterioration in its most important markets has also forced Wolseley to scrap its plan to pay out a final dividend to shareholders.

The Financial Times says that amounts to a saving of £150m.

Andrew Hill, in his F/T commentary today says: “Thanks to its exposure to the US housing market, Wolseley was one of the first to anticipate the economic maelstrom and to scale back costs, starting two years ago.

“Having relied on its robust cashflows to underpin an aggressive debt-fuelled acquisition strategy, it now depends on them to make it through this downturn.

“The focus is on trading for cash, taking costs out at every level, and paying down debt that is uncomfortably close to breaching banking covenants.”

At the end of June, Wolseley had a net debt of £2.7bn, and committed undrawn borrowing facilities of £1bn, with £700m of this being available to the group until August 2011.

The Guardian also puts Wolseley under the microscope in today’s issue, with financial editor Nils Pratley saying that sympathy for the group runs dry as soon as the balance sheet is brought to the front.

“Wolseley finds itself carrying debts of £2.7bn, a legacy of buying too many businesses at the wrong price at the wrong time.

“£2.7bn? Did the directors think they were running a water company?"

Pratley says that Wolseley’s £2.6bn spend during 2006 and 2007 was the critical element in today’s pip-squeezing scenario as purchases in the five previous years ran to a much more modest £1.5bn in all.

After a prolonged period of spend, spend, spend, the group’s share price has tumbled badly, with the result that Wolseley itself is today only worth £1.9bn. Hence the struggle with the issue of banking covenants.

Could it all have been different?

Well, as Pratley points out in the old days when Wolseley was run by “an old warhorse called Jeremy Lancaster” profits always came in ahead of expectations as Lancaster was ever-cautious and his expectations were always beatable.

However he notes the new breed who have taken over at the top table have been trying to shoot for the moon by turbocharging the business with debt.

The Guardian columnist comments: “In a cyclical business like building materials, it is asking for trouble”

For the first 100 or so years, life for Wolseley was different from today.