Not out of the woods yet

Dawn and resurrection are synonymous. The reappearance of the light is the same as the survival of the soul.

What a difference a couple of years makes.

In March 2009 Wolseley made headlines as it slipped from the FTSE index, having been the largest faller in share prices on one weekend.

As the global financial turmoil began to hit the housing markets – here and in the US- those businesses most connected to the UK and US housing markets suffered far worse than rivals. Wolseley got in the neck on two fronts, as the US markets even now account for nearly a third of its market.

And so to the year of the long knives. The group began the process of off-loading much of its non-performing assets – eventually hiving off US heavyside builders merchant Stock Building Supply into a joint venture company, although keeping the much more profitable plumbers merchant Ferguson. Branches closed, so did the distribution centres and the job losses rose as the company continued to exit various markets.

Chief executive Chip Hornsby left the group and his successor Ian Meakins got on with the task of sorting out what the group needed to keep and what it needed to jettison – Brandon Hire, Electric Center and, of course, Build Center being the headline disposals.

Last week, the year end results showed that the emphasis on cost-cutting, focusing on strength and passing on weaker elements to others who could make better use of them has, by and large, worked.

Sales are up, profits are back and even gross margins have held up, something Meakins is particularly pleased with; he says it shows the road they are travelling is the right one. Not a bad turnaround, all things considered.

In the UK, it’s really only Bathstore which has, as John Martin put it “gone backwards”. This reluctance of householders to spend out on big ticket items cost Wolseley dear – £29m in write-downs – but what is of probably more significance to other merchants is this line of Meakins’: “Strategically the group is in good shape with the business increasingly centered on the less volatile RMI market”.

Bearing in mind the turmoil of the last few years, Meakins is cautious about prospects. The company is by no means safe from any further downturn. So, rather sensibly, to my mind, the group is looking at the areas where the financial bloodbath hasn’t really hit as hard. The repair, maintenance and improvement market is still bubbling along – better in some areas than in others, but still not as potentially dicey as the new build market.

The only caveat is that, of course, it is this less volatile market that is more usually the domain of the independent builders and plumbers merchants. And many of them will take none too kindly to merchanting behemoths (for markets that are attractive to Wolseley are just as likely to prove so to other nationals) muscling in on what they see as their territory.

Will we see a scrap or will it just be business as usual, with the independents focusing on their customer service and flexibility to see them through?

We’ll see. Although one fairly high up independent executive did say to me: “bring it on!”.