Wolseley, the world's largest building and plumbing supplies company, today reported a 30 per cent drop in trading profits as the slowdown in the UK housing market hit demand for repairs and materials.

The group's net debt is currently running at £2.8 billion which has sparked fears among analysts that it may have to resort to a rights issue because it in danger of breaching its banking agreements.

Wolseley has cut about 10,000 jobs worldwide over the past 18 months, trimming headcount by about 10 per cent. Most of those losses have taken place in the US where the company’s revenues have been hardest hit by the collapse in new home 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 a total 37,000 in Europe.

Shares in the company, which makes half of its profits in the US, opened up 2p at 538p. Wolseley shares have more than halved in the last year, after hitting a high of £13.06 a year ago.

The company, which has also seen a softening in the US due to its faltering housing and repairs market, said in an interim management statement that, for the year to the end of April, trading profit in the UK was 6 per cent lower, despite a 3 per cent increase in revenues.

"Wolseley UK experienced a more challenging April as the market slowed significantly," the company said.

In continental Europe, the softening was also noticeable with Wolseley France experiencing an 18 per cent fall in trading profit.

Chip Hornsby, the group chief executive, said: "Given the continuing tough market conditions, our response has been to take further action to lower the cost base and improve cash flow, while continuing our longer term strategic aims. The cost reduction actions outlined today will enable us to restructure the business further, so that we are better positioned for the challenges ahead."

Wolseley forecast that the challenging conditions would continue, although the US commercial and industrial market was likely to remain stable in the next financial year.

Wolseley said it had taken further steps since April 30 to cut costs, which will result in a one-off charge of about £50 million, which will be incurred in the fourth quarter. It has closed 75 branches of Ferguson, the US's largest supplier of plumbing supplies, based in Virginia, and cut staff there by 200. It has closed a further 15 locations in Canada.

Further redundancies and closures in North America and Europe will be announced before July 31, the company said.

The company has also put capital expenditure on hold and has concentrated on reducing costs and improving cash flow.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said that Wolseley was making progress in trying to mitigate the problems which had spread to Europe from the US. However, he added that there remained concerns over the group's finances.

"Given the group's rapid expansion over recent boom years via acquisitions, concerns now linger as to the overall strength of group finances going forward. Overall, despite the near 60 per cent drop in the share price over the last 12 months, with the group's markets increasingly in retreat, market consensus remains negative in tone."

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