TIDMFERG
RNS Number : 6942M
Ferguson PLC
13 May 2020
13 May 2020
FERGUSON PLC
Q3 2020 Trading update
WELL POSITIONED TO SUPPORT OUR ASSOCIATES AND CUSTOMERS THROUGH
THE COVID-19 PANDEMIC.
CONTINUED STRONG FINANCIAL POSITION .
At the time of the half year results on 17 March 2020 we were
trading in line with expectations. As outlined in our trading
update on 15 April 2020 since the middle of March we rapidly
changed our operating procedures to protect the safety and
wellbeing of our associates and our customers. This is against a
background of the unprecedented action taken by governments to
contain the COVID-19 virus and the societal impact which has
resulted in adverse trading conditions within the Group's end
markets. The Group is today outlining quarterly results for the 3
months to 30 April 2020.
Summary of revenue trends
Revenue growth / (decline) % H1 2020 2 months April 2020 Q3 2020(1)
to 31 March(1)
----------------------------- ------- --------------- ---------- ----------
USA +5.0% +8.2% (9.3%) +1.9%
Canada (6.5%) (7.7%) (33.6%) (16.4%)
----------------------------- ------- --------------- ---------- ----------
Ongoing operations +4.3% +7.3% (10.5%) +0.9%
----------------------------- ------- --------------- ---------- ----------
UK (non-ongoing) (4.7%) (10.3%) (60.2%) (26.5%)
----------------------------- ------- --------------- ---------- ----------
Continuing operations +1.1% +5.1% (15.3%) (2.2%)
----------------------------- ------- --------------- ---------- ----------
1) One additional trading day in the current year added 2.5% to
both ongoing operations and US revenue growth in the 2 months to 31
March 2020 and 1.6% to both ongoing operations and US revenue
growth in Q3 2020.
Commenting on the results Kevin Murphy, Group Chief Executive, said:
"Our strong revenue momentum in February and March was adversely
impacted in April as federal, state and local COVID-19 restrictions
and safety measures brought about a reduction in demand. We have
rapidly implemented responsible working practices to protect the
health and wellbeing of our associates and with few exceptions our
traditional branch network remains open. During these challenging
times we remain immensely thankful and very proud of the dedication
of our 35,000 associates as they continue to support our customers
in serving our critical industries.
"We have taken steps to manage our cost base and protect cash
flow given the uncertain outlook both in the short-term during the
crisis phase but also to ensure the business is appropriately sized
for the post COVID-19 environment. We are confident these actions
coupled with the strength of our balance sheet will serve us well
in the coming months and years. As a value-added distributor
Ferguson remains well positioned to support our customers, vendors
and communities during this challenging time while continuing to
build our capabilities for the long-term."
Current trading
In recent weeks the Group has remained focused on three key
areas:
1. Protecting the health and wellbeing of our associates
2. Continuing to serve our customers during the crisis phase of
the virus - a critical time of need
3. Protecting and preserving the strength of our businesses for the long-term
To safeguard the wellbeing of our associates and support our
customers we are operating our business in adherence with the
recommended Center for Disease Control (CDC) guidelines. Cleaning
protocols at all sites are in operation alongside appropriate
social distancing measures. Our branches are operating pick-up and
delivery only with customers encouraged to order ahead with pick up
in store at the curbside and touchless signature at the point of
delivery or pick-up location. Associates who can work re motely
continue to do so. Our showroom networks have remained closed
through April and we have served customers using virtual
consultations. In select markets we are starting to book
face-to-face consultations with the necessary social distancing
measures in place in line with local governmental guidance.
Trading volumes were lower in April as a result of the impact of
the COVID-19 virus pandemic. In the US the revenue decline in April
was 9.3%. The major impact on volume continues to be highly
correlated to the degree of disruption locally which has been
variable across US states and localities. Blended Branches revenue
was down 15.3% in April and in the major hotspots, where infection
rates have been highest, such as New England, New York, Michigan,
the Pacific North West and Northern California revenue was down
significantly. However, Waterworks grew revenue by 8.5% in April
benefiting from fewer restrictions. Standalone eBusiness also grew
well with revenue 14.6% ahead in the month as a result of strong
consumer demand for home improvement products.
In Canada revenue was down 33.6% in April with widespread
lockdowns in place although we expect some improvement in sales per
day as some markets including Quebec reopen to construction
activity in May. The UK remained very challenging due to the
national lockdown severely impacting activity levels with revenue
down 60.2% during the month.
Cost actions, cash optimization and liquidity
Ferguson has an agile business model and as we have started to
see short-term revenue pressure our approach has been to protect
our skilled workforce which is critical to the long-term success of
the business. We have already taken a number of prudent cost saving
measures to minimize impact on short-term profitability. This has
included a hiring freeze, reduced overtime and restricting the use
of temporary labor. Currently in markets where there has been a
decline in revenue we are implementing a combination of reduced
associate hours and temporary lay-offs based on business and market
needs. That said, we are in the process of taking action across the
Group to ensure the business is appropriately sized for the post
COVID-19 operating environment.
The Company has also introduced a number of measures to protect
its cash position including suspending the $500 million share buy
back, pausing current M&A activity, withdrawing the interim
dividend and reducing capital expenditure in 2019/20 to around
$280-300 million. Ferguson remains in a strong financial position
with long-term committed facilities. The Company's net debt, which
excluded lease liabilities, at 30 April 2020 was $1.8 billion and
the ratio of net debt to the last 12 months adjusted EBITDA was 1.0
times. As at 30 April 2020 the Group had $3.1 billion of available
liquidity comprising readily available cash of $1.3 billion and
$1.8 billion of undrawn facilities.
Q3 Trading summary
Ongoing operations(1) Q3 2020 Q3 2019 Change
US$ millions
------------------------------------- -------- -------- -------
Revenue 4,750 4,707 +0.9%
Trading profit(2) 351 339
Less impact of IFRS16 (17) -
-------- --------
Underlying trading profit 334 339 (1.5%)
Trading days 64 63
Net debt to Adjusted
EBITDA(3) 1.0x 0.9x
-------------------------------- --- -------- -------- -------
1) 'Ongoing operations' excludes businesses that have been
closed, disposed of or are classified as held for sale. The UK has
been moved to 'Non-ongoing operations'.
2) Before exceptional items and amortization of acquired
intangible assets.
3) Ratio of net debt, which excludes lease liabilities, to
pre-IFRS16 last twelve months EBITDA. Net debt excluding leases as
at 30 April 2020 was $1,823 million and last twelve months adjusted
EBITDA was $1,790 million.
Group results
The Group generated revenue in the ongoing businesses of $4,750
million in the third quarter, 0.9% ahead of last year or 1.7%
behind on an organic basis. Gross margins were 40 basis points
lower at 29.8% in the quarter with underlying trading profit of
$334 million, $5 million behind last year. The impact of IFRS16
contributed a further $17 million to trading profit. There was one
additional trading day in Q3 2020 compared to Q3 2019.
Regional analysis
US$ millions Revenue Revenue Change Trading Less Underlying Trading Change
Q3 2020 Q3 2019 profit impact trading profit
Q3 2020 of IFRS16 profit Q3 2019
Q3 2020 Q3 2020
------------------- -------- -------- ------- -------- ---------- ---------- -------- ------
USA 4,541 4,457 +1.9% 360 (17) 343 346 (0.9%)
Canada 209 250 (16.4%) (1) - (1) 4 (125%)
Central costs - - (8) - (8) (11)
------------------- -------- -------- ------- -------- ---------- ---------- -------- ------
Ongoing operations 4,750 4,707 +0.9% 351 (17) 334 339 (1.5%)
------------------- -------- -------- ------- -------- ---------- ---------- -------- ------
UK (non-ongoing) 417 567 (26.5%) (12) - (12) 20 (160%)
=================== ======== ======== ======= ======== ========== ========== ======== ======
Quarterly organic revenue growth
Ongoing operations Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020
------------------- ------- ------- ------- ------- -------
USA +3.3% +3.0% +3.1% +2.1% (1.0%)
Canada (2.9%) (5.2%) (6.4%) (6.7%) (14.9%)
===================== ======= ======= ======= ======= =======
Group +3.0% +2.5% +2.5% +1.6% (1.7%)
===================== ======= ======= ======= ======= =======
USA
Our US business grew well in February and March but revenue was
lower in April due to the impact from COVID-19 related restrictions
and safety measures. Total growth of 1.9% comprised of a 1.0%
organic decline offset by 1.3% of growth from acquisitions and a
further 1.6% from the additional trading day. Price inflation
during the quarter was broadly flat.
Gross margins were slightly lower due to the mix of business
with no discernible pricing changes in the marketplace. Underlying
trading profit of $343 million was 0.9% behind last year.
Before pausing M&A activity, we completed three acquisitions
in the quarter including Columbia Pipe & Supply, which
specializes in PVF, commercial mechanical, commercial plumbing,
industrial, valve automation, engineered products and hydronics;
Rencor Controls, an automated valve distributor in the North East;
and MFP Design, a custom designer of fire sprinkler systems. These
three businesses generated a combined $229 million of annualized
revenue on a pre COVID-19 basis.
Canada
Revenue in Canada was 16.4% lower with markets remaining
challenging in February and March prior to lockdowns in the balance
of the quarter. Gross margins were slightly lower, contributing
towards an u nderlying trading loss
of $1 million, $5 million below last year.
Non-ongoing operations (Wolseley UK)
In the UK, revenue declined 26.5% in the quarter as the national
lockdown severely impacted demand. An underlying trading loss of
$12 million was $32 million lower than last year. We continue to
actively manage the cost base given the challenging market
environment.
The Board's strategic intent to demerge the UK business is
unchanged and we continue to progress the demerger process,
although timing will depend upon the stabilization of market
conditions.
Nine months trading performance
US$ millions Revenue Revenue Change Trading Less Underlying Trading Change
profit Trading profit
profit
2020 2019 2020 impact 2020 2019
of IFRS16
9 months to 30 2020
April 2020
------------------- ------- ------- ------- ------- ----------- ---------- ------- -------
USA 13,859 13,330 +4.0% 1,134 (51) 1,083 1,046 +3.5%
Canada 784 865 (9.4%) 29 (1) 28 42 (33.3%)
Central costs - - (30) - (30) (36)
------------------- ------- ------- ------- ------- ----------- ---------- ------- -------
Ongoing operations 14,643 14,195 +3.2% 1,133 (52) 1,081 1,052 +2.8%
------------------- ------- ------- ------- ------- ----------- ---------- ------- -------
UK (non-ongoing) 1,490 1,694 (12.0%) 18 - 18 53 (66.0%)
=================== ======= ======= ======= ======= =========== ========== ======= =======
Other matters
During the quarter there were cash outflows of $202 million
relating to acquisitions, $74 million relating to capital
expenditure and $101 million of share buy backs. The IFRS 16 lease
liability recognized on the balance sheet as at 30 April 2020 was
$1,405 million. There have been no significant changes to the
financial position of the Group since 30 April 2020.
An exceptional charge of $8 million in the quarter (2019:
exceptional charge of $18 million) included $5 million of demerger
costs relating to the UK business and $2 million of costs relating
to the Group's listing assessment and shareholder consultation.
In May the Group completed the sale of its investment in Meier
Tobler for $31 million completing the exit of all trading
operations in Continental Europe. This is in line with our strategy
to focus the Group's activities on North American markets.
Outlook
Due to the dynamic situation unfolding with COVID-19 the Company
has withdrawn formal guidance. We continue to operate as an
essential business with the majority of our branches open and
serving customers as much as possible. Ferguson remains well
positioned for long-term success operating in attractive and
fragmented markets with a robust business model and backed by a
strong balance sheet and liquidity position.
For further information please contact Ferguson plc
Mike Powell, Group Chief Financial Officer Tel: +44 (0) 1189 273800
Mark Fearon, Director of Corporate Communications
and IR Mobile: +44 (0) 7711 875070
Media enquiries
Mike Ward, Head of Corporate Communications Mobile: +44 (0) 7894 417060
+44 (0) 20 7404
Nina Coad / David Litterick (Brunswick) Tel: 5959
Investor conference call and webcast
A call with Kevin Murphy, Group Chief Executive and Mike Powell,
Chief Financial Officer will commence at 10.00 UK time (05.00
Eastern) today. The call will be recorded and available on our
website after the event www.fergusonplc.com .
Dial in number UK: +44 (0)330 336 9105
US: +1 323 794 2093
Please join the event conference 5-10 minutes prior to the start
time and ask for the Ferguson call quoting 3171991.
To access the call via your laptop, tablet or mobile device
please click here . If you have technical difficulties, please
click the "Listen by Phone" button on the webcast player and dial
the number provided.
About Ferguson
Ferguson plc is a value-added distributor of plumbing and
heating products to professional contractors principally operating
in North America and the UK. Ongoing revenue for the year ended 31
July 2019 was $21.8 billion and ongoing trading profit was $1.6
billion. Ferguson plc is listed on the London Stock Exchange (LSE:
FERG) and is in the FTSE 100 index of listed companies. For more
information, please visit www.fergusonplc.com or follow us on
Twitter https://twitter.com/Ferguson_plc.
Legal disclaimer
Certain information included in this announcement is
forward-looking and involves risks, assumptions and uncertainties
that could cause actual results to differ materially from those
expressed or implied by forward-looking statements. Forward-looking
statements cover all matters which are not historical facts and
include, without limitation, projections relating to results of
operations and financial conditions and the Company's plans and
objectives for future operations, including, without limitation,
discussions of expected future revenues, financing plans, expected
expenditures and divestments, risks associated with changes in
economic conditions, the strength of the plumbing and heating
markets in North America and Europe, fluctuations in product prices
and changes in exchange and interest rates. Forward-looking
statements can be identified by the use of forward-looking
terminology, including terms such as "believes", "estimates",
"anticipates", "expects", "forecasts", "intends", "plans",
"projects", "goal", "target", "aim", "may", "will", "would",
"could" or "should" or, in each case, their negative or other
variations or comparable terminology. Forward-looking statements
are not guarantees of future performance. All forward-looking
statements in this announcement are based upon information known to
the Company on the date of this announcement. Accordingly, no
assurance can be given that any particular expectation will be met
and readers are cautioned not to place undue reliance on
forward-looking statements, which speak only at their respective
dates. Additionally, forward-looking statements regarding past
trends or activities should not be taken as a representation that
such trends or activities will continue in the future. Other than
in accordance with its legal or regulatory obligations (including
under the UK Listing Rules, the Prospectus Rules, the Disclosure
Guidance and the Transparency Rules of the Financial Conduct
Authority), the Company undertakes no obligation to update publicly
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Nothing in this
announcement shall exclude any liability under applicable laws that
cannot be excluded in accordance with such laws.
-ends-
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END
TSTDLLFFBELFBBD
(END) Dow Jones Newswires
May 13, 2020 02:00 ET (06:00 GMT)
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