Stock taking

The time to save is now. When a dog gets a bone, he doesn’t go out and make a down payment on a bigger bone. He buries the one he’s got.

So Wolseley are to do what commentators have said they should have done a long time ago and are restructuring their loss-making US building arm, Stock Building Supply. Of course there are others who felt that the whole business should have been off-loaded or closed and, indeed, their share price rose considerably on rumours a month or two ago that that was going to happen.

But it hasn’t. The restructuring notice issued this week stated that closing the business altogether would be to deprive shareholders of the opportunity to benefit from any market recovery and as such was not seen as an “appropriate strategy”. This would leave them with the options of disposal, finding a joint-venture partner or restructuring.

Hmm. With a US housing market that is 64% down and a division that made a trading loss of $236m (£123m or so) they would have needed to find a very brave investor indeed, with extremely deep pockets and a long-term view of bionic proportions to either purchase outright or even come on board a joint venture.

Not surprisingly, they couldn’t, given the current unprecedented conditions in the global financial markets.

So they’ve done the only thing possible and are getting out of the business in those states where they e weakest and will be concentrating on the areas where Stock does still retain some strength. Losing 3,000 people and 86 branches along the way for a start since: “The Board will keep an open mind on any future options it may choose to maximise long term value creation.”

This whole sorry global mess may have started in the US but it affects everywhere else sooner or later, in our case usually sooner. So the further restructuring the Board hinted at may well continue over here again too. The restructuring of the UK business back into lightside and heavyside has already seen the demise of the cross-brand operation selling to developers and contractors.

Of course this isn’t just about Wolseley, it’s affecting everyone, everywhere to a greater or lesser extent. I saw a quote from TP’s Geoff Cooper the other day which basically said ‘It’s awful and we expect it to get worse’, which is why they are trying to take £65m out of the business – and a lot of that will be jobs.

Still, at least, we’re allowed to call it a recession now that that nice Mr Eddie George at the Bank of England has used the R word.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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