At the time of the half year results on March 17, Ferguson gave a brief update on the impact of the COVID-19 outbreak on its operations. The company is announcing a further update on the impact of the virus and a trading update for the period to March 31. 

Protecting Ferguson’s associates and supporting customers

Ferguson provides a critical function in the supply of essential products and services which has been widely recognized by the relevant authorities in the company's trading geographies. Its trade customers maintain heating, ventilation and air conditioning (HVAC), clean and wastewater services to millions of homes and businesses. Ferguson keeps key residential, commercial, industrial and public sector facilities running and Ferguson also supports the major public utilities with the products they need for repair and maintenance of their networks.

During these challenging times, Ferguson's immediate priority is safeguarding the health and wellbeing of its associates and customers. The company has implemented new precautions across Ferguson's business in adherence with the recommended Center for Disease Control (CDC) guidelines. Cleaning protocols at all sites have been enhanced and Ferguson is practicing social distancing at all locations. Ferguson's branches have moved to pick up and delivery only with customers encouraged to order ahead with pick-up in store / at the curb side. Associates who can work remotely are doing so, including over 14,000 U.S. colleagues, with new processes and protocols implemented to keep Ferguson's drivers safe. All of Ferguson's brick-and-mortar showroom sites are closed though virtual consultations are continuing and Ferguson is driving strong adoption of e-commerce tools.

Current trading

Group trading to March 31 was not materially impacted by COVID-19, though revenue growth weakened towards the end of the period. Further details of the financial performance and market conditions in the group’s businesses are set out below:

One additional trading day in the current year added 2.5 percent to both U.S. revenue growth and ongoing operations, respectively.

In the United States since the half year, revenue growth accelerated in the two month period to March 31 and was broadly based across the regions and major business units with the order book at record levels. Within the last 10 days the impact of COVID-19 has significantly increased mainly as a result of government actions and societal reactions as individual cities and states in the United States have been increasingly impacted by the virus.

As a result the overall trading situation on the ground is therefore mixed across the United States. For example, in recent weeks revenue has deteriorated in New York which has experienced severe outbreaks of the virus and have implemented widespread lockdowns. In contrast, revenue trends have continued to hold up well in many other regions and cities which are currently less affected by the virus.

To date, the majority of Ferguson's U.S. branch network has remained open. However, Ferguson is preparing carefully for lower activity levels given the likelihood of further regions experiencing disruption due to the spread of the virus. In light of recent CISA guidelines Ferguson has been working with the relevant authorities across each state and local jurisdiction to ensure Ferguson can continue to support its customers.

In Canada most of the markets are in lockdown and the current situation in the United Kingdom is extremely challenging with a widespread lockdown currently in place. In both regions Ferguson's branch networks remain open where essential services are being provided.

As indicated at the time of the Half Year results given the unprecedented uncertainty around the impact of COVID-19 it is not possible to assess with certainty the impact it will have on the Group’s financial performance for the year. The company is therefore not providing guidance for the year to July 31.

Cost reduction actions

In light of the evolving COVID-19 situation, the company has moved quickly to protect liquidity and cashflow while ensuring it is well positioned to benefit when the recovery takes place. Ferguson benefits from an agile business model and, as Ferguson prepares for short-term revenue pressure Ferguson's approach has been to protect Ferguson's skilled workforce which is critical to the long-term success of the company's business. Ferguson has already taken a number of prudent cost saving measures to protect short-term profitability and cash generation of the business. This has included a hiring freeze, a reduction in associate hours, overtime and the use of temporary staff, and temporary lay-offs being implemented in the worst hit regions. Ferguson has taken decisive action in the worst hit regions whilst ensuring the business is appropriately sized for the post COVID-19 operating environment.

U.K. demerger

The board’s strategic intent to demerge the U.K. business is unchanged. The demerger of Wolseley UK remains on track to be completed this calendar year as previously announced. This will of course require market conditions to normalize by the latter part of the year.

Robust financial position

Ferguson has a proven cash generative business model and enters the current period with a strong balance sheet and significant liquidity headroom. The company’s net debt excluding leases at March 31 was $1,929 million and the ratio of net debt to the last 12 months adjusted EBITDA was approximately 1.0 times. As at March 31 the Group had c.$2.5 billion of available liquidity comprising readily available cash of approximately $0.7 billion and $1.8 billion of undrawn facilities. Since March 31 the company has been approved and has issued commercial paper under the Bank of England’s Covid Corporate Financing Facility (CCFF).

The company has also introduced the following measures to protect its cash position:

• Ferguson has suspended the $500 million share buy back announced on Feb. 4. At March 31 the group had completed about $100 million of the program.
• The company has paused current M&A activity due to current market uncertainty. In the current financial year to date Ferguson has invested c. $340 million in six businesses which are in the process of being rapidly integrated. Selective bolt-on and capability M&A remains an important part of the company’s strategy.
• After careful consideration the board has decided to withdraw the interim dividend due for payment on April 30. While the balance sheet remains strong, the board believes this is currently in the company's immediate best interests, balancing all Ferguson stakeholders’ interests against a background of significant uncertainty as to the impact and duration of the current COVID-19 disruption. Ferguson recognizes the importance of the dividend to Ferguson's shareholders and the board will review this decision later in the financial year as trading conditions become clearer.
• Following a careful review of existing capital expenditure plans Ferguson now expects it to be in the region of $280-300 million for 2019/20. Given Ferguson's strong liquidity position the board’s intention remains to scale future capital investment to ensure Ferguson continues to invest in and develop the business and execute Ferguson's strategy for the long-term.

Beyond the near-term challenges of COVID-19 the group remains well positioned to deliver consistent outperformance.

Kevin Murphy, group chief executive, stated the following: 

“Given the significant challenges of COVID-19 we have adjusted our operations rapidly to both safeguard the health and wellbeing of our associates but also to support essential services in our local markets. We would like to thank our associates for their commitment and dedication to our business and we are incredibly proud of their efforts in recent weeks as we support key industries.

“Ferguson is a strong and resilient business and our business model remains attractive and cash generative. We are taking appropriate actions on cost and cashflow given the uncertain near-term trading outlook. We have good liquidity which positions us well to navigate this period of uncertainty and to support the recovery when the effects of COVID-19 subside.”