(Reuters) - Heating and plumbing products supplier Wolseley WOS.L plans to close just over 10 percent of its UK branches in response to tough competition and weak trading, it said on Tuesday, a move that could lead to up to 800 job losses and create a more U.S.-focused firm.
Wolseley, which makes about 80 percent of its profit in the United States, said the 80 branch closures would take two or three years, resulting in restructuring charges of about 100 million pounds. They are expected to deliver annualised cost savings of 25-30 million pounds.
Its shares traded some 4 percent lower at 4,127 pence by 1220 GMT after it posted slightly lower-than-expected profit for the year ended July and did not return excess cash to shareholders for the first time in four years after spending more on acquisitions.
“Failure to return excess cash ... [is] likely the real culprit for investor displeasure,” Accendo Markets’ head of research Mike van Dulken said. “It only makes matters worse for shareholders struggling in an environment of low returns”.
Wolseley, which started life in 1887 manufacturing machine tools and early motor cars before moving into distribution in 1979, has faced tough competition and a weak market for its core repair, maintenance and property improvement services in the UK and Europe.
Analysts said oversupply in plumbing and heating had been an industry-wide problem, forcing peers Travis Perkins (TPK.L) and Grafton GRF_u.L to restructure as well.
“The difficulty with all these companies is that boilers now last a lot longer,” said Liberum analyst Charlie Campbell.
Wolseley said it was also considering closing a distribution centre in Worcester and had started a strategy review in the Nordic region to restore profitable growth.
Analysts said the closure of its smaller branches could see Wolseley lose some clients to rivals, including distribution brands owned by Saint Gobain (SGOB.PA).
Chief Executive John Martin told Reuters that Wolseley had no plans to shift its UK listing to the United States, where it owns U.S. wholesale plumbing supplies distributor Ferguson, adding that it had traded ADRs on the U.S. market. Half its shareholders are UK investors.
Like-for-like revenue has risen 4.5 percent in its U.S. business since the beginning of its new financial year in August, outpacing growth of 1.5 percent across the group as end markets remained mixed given an uncertain economic outlook.
It added it did not think the UK’s weak summer performance was a result of the vote to leave the European Union.
“Whilst our sales have been weak in the UK over the last quarter, we haven’t been able to directly attribute that to Brexit,” Martin told journalists.
Wolseley posted a 7 percent rise in full-year trading profit to 917 million pounds, a touch below analysts’ estimate of 921 million pounds.
Reporting by Esha Vaish in Bengaluru; Editing by Mark Potter and Alexandra Hudson