15th Apr 2020 09:02
(Alliance News) - Ferguson PLC on Wednesday said it is planning an additional listing of its shares in the US and has taken steps to conserve cash, including suspending its buyback and withdrawing its interim dividend.
The plumbing and heating products distributor said its "key residential, commercial, industrial and public sector facilities" are still running and it is supporting "major public utilities" during the Covid-19 pandemic.
Ferguson said its trading to March 31 from January 31, the end of its first half, was not hurt significantly by the virus, though Ferguson suffered weakened revenue growth toward the end of the period.
For the two months to March 31, revenue growth accelerated, up 8.2% in the US, but in the last ten days Ferguson noted "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 US have been increasingly impacted by the virus."
As such, overall trading was mixed across the US, with revenue deteriorating in New York, while revenue trends held up in less affected cities. So far, most of the company's US branch network is still open. The US represented 85% of revenue in the period.
In Canada, representing 5% of revenue, revenue was down 10% for the two month period as "most of the markets are in lockdown". In the UK, representing 10% of revenue, revenue shrank 10% in the midst of a "widespread lockdown". For both the UK and Canada, Ferguson's branch networks are still "open where essential services are being provided".
Cash saving measures have been introduced during the pandemic. These include suspension of its USD500 million share buyback, of which around USD100 million had completed by March 31. Ferguson also has pressed pause on its mergers and acquisitions activity and withdrawn its interim dividend, which was due to be paid April 30.
"While the balance sheet remains strong, the board believes this is currently in the company's immediate best interests, balancing all our stakeholders' interests against a background of significant uncertainty as to the impact and duration of the current Covid-19 disruption. We recognise the importance of the dividend to our shareholders and the board will review this decision later in the financial year as trading conditions become clearer," Ferguson said.
At the end of March, Ferguson has around USD2.5 billion of available liquidity and its net debt was USD1.93 billion. It has, since then, "been approved and has issued commercial paper under the Bank of England's Covid Corporate Financing Facility".
Over its financial 2020 year, capital expenditure is expected to be around USD280 million to USD300 million.
Chief Executive Kevin Murphy said: "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."
Ferguson said plans for the demerger of its UK business, Wolseley UK, are on track, and the work on this is still set to complete in calendar year 2020. Though Ferguson noted that "this will of course require market conditions to normalise by the latter part of the year."
Having spoken with shareholders, Ferguson is seeking an additional listing of its shares in the US and will hold a general meeting to approve this "once the general uncertainty arising from the Covid-19 pandemic has lessened".
The firm said it expects the additional listing in the US "will facilitate increased ownership by domestic US funds". Ferguson plans to start "extensive additional investor marketing in the US" as part of this effort.
Should there be a meaningful ownership change in the 12 months following the additional listing, the firm intends to seek shareholder support to relocate its primary listing to the US. This move as present does not have the needed 75% majority to pass a vote, though Ferguson sees the US as its "natural long-term listing location".
"The board believes that this two-step process to transition to a full US primary listing would provide an appropriate period during which some shareholders that have mandates which may restrict their long-term ownership of the company could sell their holdings in an orderly manner," Ferguson explained.
Chair Geoff Drabble said: "We believe that ultimately achieving a US primary listing remains the right outcome for our business as a domestic US value added distributor. Consequently, after a period of transition, the board intends to hold a further shareholder vote to change the primary listing to the US. We believe this process presents the most orderly and equitable path to achieving this aim."
Shares in Ferguson were down 0.6% at 5,158.00 pence in London in morning trading, having started initially higher.
By Anna Farley; [email protected]
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