Discontinued operations
On 6 May 2009 the Group announced that it had entered into a joint arrangement with the Gores Group LLC (“Gores”) which acquired Stock. Gores controls the joint venture, with Wolseley retaining, as at 31 July 2009, a 44 per cent equity interest and two out of seven seats on the Board. Wolseley ceased to consolidate Stock from the date of the transaction, and as Stock had previously been reported as a separate major line of business it has been treated as a discontinued operation in the financial statements. Wolseley recognised an after tax loss on disposal of £81 million (£159 million before tax) as a result of the transaction. For the nine month period of Wolseley ownership, Stock had revenue of $1.8 billion (£1.1 billion) and a trading loss of $182 million (£117 million). Wolseley’s equity interest in the joint arrangement is accounted for as an investment in an associate and its share of the post-tax profits or losses of the associate are shown as a single item in the income statement.
At the date of disposal, Stock entered into a pre-packaged Chapter 11 reorganisation, which allowed it to reject a net $225 million of lease commitments, while ensuring that trade creditors were paid in full.
Wolseley provided a $100 million debtor-in-possession facility during the reorganisation, but Stock’s cash flow was sufficiently strong that no drawdowns were required under this facility. Stock emerged from Chapter 11 reorganisation on 30 June 2009, at which date it received $75 million of preferred equity from Gores and entered into a $150 million banking facility. Wolseley has no remaining financing commitments in relation to the joint arrangement. Further restructuring has been undertaken, leaving the business focused on 19 high-potential residential markets.
Stock’s markets have continued to be weak, with housing starts appearing to stabilise at levels far below historic averages. Competitors are retrenching and in some cases also undertaking Chapter 11 restructuring, but so far few have gone out of business. Wolseley has recorded £15 million as its share of the joint arrangement's losses for the three months to 31 July 2009 (including £6 million of exceptional restructuring costs). Its investment in the associate was stated at £53 million at 31 July 2009.