Wolseley reported continued signs of stabilisation during its first half 2010 results, narrowing its loss from the prior-year period. Revenue declined 15.1% from the first half of 2009, driven primarily by a 21.9% drop at Ferguson, the firm's US plumbing and heating operations. Although the new residential market and repair and remodel markets are stabilising, continued declines in the commercial construction market (60% of Ferguson revenues) are pressuring performance.
The company narrowed its operating loss to EUR 207 million, down from EUR 381 million during the first half of 2009, due to lower levels of goodwill impairments (EUR 71 million versus EUR 459 million). Wolseley's restructuring costs of EUR 42 million were around one third of prior-year levels. The firm has reduced headcount by nearly 15,700 (around 30% of its workforce) since August of 2007 to adjust its cost structure to lower demand. We are maintaining our 1,245p fair value estimate. (Read our full analysis here.)
While the demand environment isn't likely to show significant improvement in the near term, we think Wolseley's financial situation has improved from last year. Net debt of EUR 910 million is down about 64% from year-ago levels--this reduction resulted from the firm's EUR 1 billion equity issuance and rights offering in April 2009. Net debt/EBITDA stands at 1.5 times, well under the company's credit agreement covenant of a maximum 3.5. As announced in January, CFO Steve Webster will be leaving at the end of the month--the company hired John Martin to take over the CFO role. Martin comes from private equity firm Alchemy Partners, and previously worked with CEO Ian Meakins at foreign-exchange company Travelex.
