The chief executive of Wolseley, the world’s largest plumbing and building materials supplier, gave warning of a “fragile” market ahead in Britain and continental Europe as he announced a 72.5 per cent fall in first-half profits.

Hundreds of jobs at Wolseley are on the line in the next few months as Chip Hornsby and his finance director Steve Webster look to trim the group’s cost base in the face of falling revenues on both sides of the Atlantic.

Group pre-tax profits for Wolseley’s first six months’ trading to January 31 slumped to £79 million from £285 million a year ago, dragged down by losses and writedowns from Stock, the company’s American building materials supply division whose fortunes are tied to the US housing market.

Mr Hornsby said of the group’s US prospects: “It is going to get worse before it gets better.” The near collapse of Bear Stearns only added to his pessimism.

He said: “The shock of Bear Stearns is six months behind Northern Rock. Nothing like this has happened in a century. Consumer sentiment is considerably different since Christmas. We have had negative jobs growth in the US for two months in a row — that hasn’t happened since September 11.”

Mr Hornsby added that his managers were also preparing for “worse-case scenarios” in all parts of Wolseley’s business. “There will be a softening in Europe. It is fragile and there will be a gradual slowing,” he said.

Wolseley has already cut about 10,000 jobs worldwide over the past 18 months, a headcount trim of 10 per cent. Most of those losses have come in the US where the company’s revenues have been hardest hit by the collapse in new home building starts.

Last June the FTSE 100 company cut about 1,000 jobs from its European business, with most of those going from the UK operation, which employs about 14,000 staff out of 37,000 in total across Europe.

Mr Hornsby was cautious about the year ahead. He said: “Management’s immediate focus will remain on achieveing a cost base appropriate to market conditions, with further significant cost reductions in the second half, and on maximising cashflow.”

Wages account for about 60 per cent of the group’s costs. Mr Webster dismissed recent analyst reports suggesting that the company needs a rights issue to help with funding. He said: “A rights issue is not on the radar — it would not make sense.”

Wolseley has £1 billion of committed but undrawn borrowing facilities but has put a brake on its strategy of bolt-on acquisitions. While the company has ample headroom from earnings to pay interest on its borrowings, the company admitted it is close to its covenants on about £270 million of loans, 10 per cent of its borrowings. “We can repay or refinance those,” Mr Webster said.

European revenues, which account for about half of the group’s total, rose 15.8 per cent over the first half to just over £4 billion. However, when acquisitions were stripped out, the figure for organic growth was only 0.5 per cent. Mr Webster said: “We expect a slowdown with consumers feeling the squeeze — but we are a long way from what is going on in the US.”

Revenues from North America fell 9 per cent to £3.98 billion but trading profit slid 38.1 per cent to £142 million. Worst affected was Wolseley’s Stock building materials division, which racked up an $89 million trading loss as revenues fell by a quarter to $1.8 billion and the company was forced to write down the value of the division by £89 million.

The commercial building industry accounts for about 62 per cent of Wolseley’s US revenue and, while demand from both the public and private sector remains strong, Mr Hornsby gave warning of a likely slowdown in demand from private sector towards the end of 2008.

Wolseley shares lost more than 9 per cent, or 49p, to 483p, leaving it worth £3.2 billion. The shares have fallen from a high of £14.07 a year ago.

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