Q3 2020 Ferguson PLC Interim Management Statement Call

good day and welcome the Ferguson PLC FY to today's conference is being recorded. And at this time I'd like to turn the conference over to Kevin Murphy, please go ahead.

Thank you Emma. Good morning. And welcome to this third quarter results conference call. You've got Mike and I presenting this morning. And naturally we originally planned to be together doing the call today, but clearly at the moment. This is impossible and we're certainly living in some interesting times.

We did bring forward the Q3 update a little earlier than planned in May to ensure that we provide you with a rapid assessment of how we're steering the business through the volume declines in our markets as a result of the covid-19 pandemic today's call will give you a sense of how we traded through the third quarter this of course includes the First full month of trading since the business was truly impacted by the outbreak.

The first Michael covered the Q3 numbers, you'll also give you some more color on the actions. We're taking and to protect the p&l and to ensure that we maximize liquidity.

Oh, then give you an overview of April trading across the group and what we've been seeing on the ground in our various businesses since the start of the outbreak in mid-march. I'll also cover how we're addressing the challenges that covid-19 is brought and that was supporting our Associates to keep them safe will also share with you how we're keeping our customers running as they support the critical industries that they serve and of course will allow plenty of time for your questions and thoughts. And the first let me hand over to Mike who's going to take you through the Q3 results Mike.

Kevin thank you and good morning to everybody for myself. I'll take you through the numbers briefly all of the numbers that are I'm going to talk about in the income statement for the ongoing operations handle a pre I for a 16 basis that aids for better compatibility to both our peer group and put also Supply your numbers and you can see that it's time for a 16 at about 17 million dollars to the Q3 trading profit.

I will quick reading and grew by nearly 1% We highlighted in the recent trading statement about a month ago now revenues were strong in February and into March, but clearly weekend in April due to the wider I break of covid-19.

and you are

Usually Revenue was up to 92% with with growth of 8.2% in February and March followed by 9.3% decline in April. We had Acquisitions that contributed 1.3% of the quarter and another trading day that was about the same about 1.6% to add on there. There's a wide range across the states and across within our businesses in terms of those growth rates. We've clearly seen positive strong growth in Waterworks off somebody business and yet offer additional Network sites that have remained physically closed for the showrooms though clearly operating virtual consultations terminal off into that detail and give you much more color once I've got through the numbers.

Chris margins were slightly lower principally due to the mix of business. There's really been no discernible change to pricing at all and inflation is pretty close to Thursday. We continue to implement cost actions across the The Wider group that we were utilizing hiring freeze reduction in Associates hours worked and temporary layoffs in the wage affected regions, but as we set out in the uh trading update of a month ago, you know online set now is to stay very close to the cost base and ensuring that we preserve as many as the highly skilled and committed Workforce that we have so that we can continue to position the company well for the future I talk about Acquisitions. They took two million dollars to trading profit in the quarter and we were clearly pleased to complete the acquisition of Columbia Pipe & Supply.

Together that means group trading profit came in. It's 334 million dollars that's five million behind the last year. So, of course we did have an extra trading day trading profit wage in the US was $343 billion dollars. That's three million dollars behind last year and frankly in the circumstances a good number.

None of the trading losses of a million dollars, that's fine behind last year down to the lower revenues of some 30% and with UK revenues down 60% in April that I'm trading loss of the quarter of twelve million dollars Our intention to demerge the UK business is unchanged and we continue to progress that although clearly the timing will ultimately money into it and got the need for the market to stabilize.

Testament quiddity group remains in a strong financial position with a bout three point 1 billion of liquidity available to the business. This is made up of life in elements the cash on hand that 30th of April one point three billion and a further 1.8 billion of undrawn facilities.

Excluding leases at the 30th of April with one point eight billion and the ratio of net debt to the last 12 months with dark was 1 times.

I think given the uncertain current markets we're going to continue to protect the cash position having previously announced the suspension of the five hundred million share buyback pausing the current Eminem. Let's say I'm withdrawing the interim dividend and we have reduced growth capital expenditure in The Current financial Year. And that means we'll probably spend somewhere in the region of two thousand to three hundred million dollars. That's the same number I gave you about a month ago. So while we're certainly not complacent here the group has got a strong balance sheet with built-in additional liquidity so that we can both protected the business in the short-term as well as ensuring. We continue to build our capabilities out for the long term of the business and final was mentioned last week. We sold our investment in Manitoba in Switzerland 431 million dollars this really completes our exit from all trading operations in Continental Europe.

Inline that'll strategy to focus on North American markets.

Having back to you. Hopefully, you've got another cup of coffee in front of you and over just literally thank you Mike. And I really like to start by recognizing our 35,000 extraordinary Associates who continue to support our customers often in very difficult circumstances and during challenging times or incredibly thankful and proud of what they continue to accomplish every day. It's also gratifying to know that in recent weeks. We've seen some of the highest ever net promoter scores across all of our businesses, which is a true Testament to how much our customers appreciate the efforts of those Associates.

is the covid-19 outbreak continues we've remained firmly focused as a company on three key areas protecting the health and well-being of our Associates continuing to serve our customers during the crisis phase of the virus the time of critical need

and protecting and preserving the strength of our business for the long run.

The ZIP code the well-being of our Associates and to support our customers. We implemented a series of actions following the guidance from governmental health agencies. We put in place clear guidelines to ensure that colleagues own customers follow specific Health protection protocols, and we implemented social distancing at all of our facilities. We provided touchless signature at point of delivery and pickup we put in place curbside pickup to serve our non delivered customer transactions.

We put an emphasis on our online channels to minimize any unnecessary physical contact and to support our customers to be more efficient. We temporarily closed our bricks-and-mortar showrooms off and move them to Virtual consultations and thanks to our it teams. We were able to quickly put in place remote working practices and today in the US for example over half our Workforce 14,000 Associates or based at home and supporting our customers.

We're also playing.

Part to directly support the health impact of the crisis and so far participated in more than fifty temporary Hospital projects across the u.s. And we're working on similar projects in the UK and Canada date. These projects have created more than 12,000 additional patient beds in the US and often challenging environments parking lots in parks and Convention centers in New York where I am most of the cases are the us we created a 24/7 emergency will call one hour pick-up counter that was focused on servicing local hospitals across the New York metro area.

In addition is hospitals and health departments responded to the surgeon covid-19 patients Ferguson donated approximately $70,000.95 face masks to healthcare organizations birth date the delivery. The mass have gone to hospitals across the u.s. From California through Virginia.

And really phenomenal efforts so far and we're really proud of how our people have risen to the challenges.

Let me turn the current trading and give you a little bit more color about what we're seeing on the ground.

I'm pleased to say that pretty few exceptions the group's traditional locations in the US Canada and the UK have remained open and quite active as we told you in our recent trading update. We closed room Network in mid-march, and we've been operating virtual consultations with customers now, we're starting to roll out face-to-face consultations with customers in some markets as restringing start to be lifted. These are by appointment only and with the appropriate safeguards being put in place.

In Canada, and the UK the impact of the virus has been more widespread with more Nationwide lockdowns in place. And as a result, we've seen some pretty steep Revenue declines in April in the case of cash. We have seen some improvement in the volume declines in recent days as markets like Quebec start to reopen to construction activity.

As you've seen the statement or revenues declined in the US in April by 9.3% fair to say that in terms of trading performance. It is a very mixed picture across the u.s. And this is absolutely a function of the degree of governmental and societal restrictions that we're experiencing in each of these local markets. For example, you know are Blended branches, which is our largest business unit. The revenue office was about 15% driven by significant declines in areas like New England, New York, New Jersey, Michigan the Pacific Northwest and Northern California and outside these regions revenues held up significantly better.

Despite the revenue challenges there have been some real bright spots in water works. For example. Our Q3 Revenue was ahead by 11.4% with April being another strong month with Revenue ahead by 8.5% We certainly benefited from our contractors having a bit fewer operating restrictions given the nature of those Water Works projects.

It also generated strong growth in our Standalone e business which grew Revenue by 14.6% in April as well as strong consumer demand for Home Improvement products wage.

on the trade side

The business we've also been really encouraged by the overall adoption rate of our e-commerce tools during the crisis since it started. We had an additional twenty two thousand customers sign on to use our digital tools. It's often times the normal run rate we have now over 90,000 customers registered and active on Ferguson.

User activity is up nearly 50% signaling that our customers are really embracing our site and they appreciate the digital experience. We've continued to see accelerated growth in that mobile except for these trade professionals.

The mobile experience is going to be critical and creating a frictionless experience that allows our customers to be more efficient and allows our Associates to be significantly more productive.

When the early Innings of rolling out new releases with additional functionality and customers can now seamlessly buy online pickup in-store buy online pick up outside store off. They can use the Ferguson SKU app which allows their mobile phone to scan barcodes from our counter and seamlessly create a shopping cart and begin to check out.

We've embedded our truck delivery tracking software into the platform allows our customers to track their delivery truck in real time, which is a real game-changer for us.

We launched our shop by job feature. It allows customers to search for products by a job versus by individual product this cuts down on their time navigating the app and allows them to select right products for that project. We added a text to Branch service for those customers that need to add instructions for their orders their pickups and their deliveries.

and we continue to add content digital content for thousands of different products across all of our businesses that we serve giving us the widest and deepest breath of product inventory and product visibility wage in our industry as we think about the longer-term strategy technology remains a key differentiator and we will continue to develop and invest in any business digital solutions that will break apart and set us up well for the future

finally just a word about the cost side of the business as we think about the challenges of covid-19. Naturally. We are focusing our resources in a very targeted way at the local level to provide the best support for our customers are skilled Workforce is Mike mentioned is critical to the group's long-term success. So we are using a combination of temporary layoffs reduction and hours in order to right-size the cost back in the short-term. This is however balanced would taking the necessary cost actions to make sure that we right-size the business for our markets as the economy reopens.

So in summary at all levels of the organization, we quickly adapted our operations to continue to service our customers while keeping our core value of safety at the Forefront of everything that we do. I'm looking forward. We're certain that the actions we've taken in these unprecedented times will serve us well as we go into the future.

It's worth much.

That companies withdraw informal guidance because the near-term revenue Outlook remains quite uncertain, but we're confident that we're well-positioned to support our customers or vendors and Arkham. Yep. Well continuing to build out the capabilities for the long run.

Thank you. Ladies and gentlemen, Mike, and I will be happy to take any of your questions. So Emma. Let me hand it back to you. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow the signal to reach our equipment. If you would like to ask a question via the web interface simply type your question in the ask a question box and click Send again, press * 1 to ask a question will pause for just need to allow everyone an opportunity to signal for a question.

We will now take our first question.

From James Rose Barclays, please. Go ahead and the line is open. Good morning and thanks website for me personally. Do you think the April is the truck organic growth rate for the business in the US and if not, could you talk about why perhaps give us some color and how glad it branches versus the stand-alone operation might evolve in the coming months. And then secondly, when could you talk a bit more broadly about how how you think the longer-term impact of of covid-19 could be on the way you operate yourself the way you distribution network setup and how customers use your services?

Certainly James. Thank you for the question. Mike one light off. And and then you can jump in in terms of April being the trough. I would not look at April call it down nine 3 in the u s is as being the trough we're really pleased with the way that Q3 played out for the organization were really pleased with the way April worked through in some pretty challenging circumstances. Our people put forth some incredible effort to get at this again going back to our conversation earlier around the changes in our operating procedures and and going through some challenging ways to serve as customers to get at that result as we look at going to to May June July and we start to reopen across the different markets that we serve. It's worth mentioning that today, you know thinking from a US perspective and and a phone number.

Focusing on that Blended Bryce note Network that you talked about really only about 40% of our counter locations are open for internal traffic today only about 60% of our system locations are open for that appointment only in-person consultation and we're still going through social distancing measures to make sure that we keep our Associates in a customer say so it's far from normal and as we start to look forward, there's really a great degree of uncertainty in terms of what's going to happen from a project cancellation standpoint. How long commercial residential new construction product projects going to continue to move on we certainly are keeping a strong eye on what consumer sentiment looks like and how it affects our overall remodel business office.

when you start

To think about the RMI side and the break-fix side of the business are consumers ready to have trade Professionals in large-scale back into their homes and quite frankly worrying about what the next phase of the virus could be. And and how opening is going to affect further spread and so for me $900.00 was a very proud performance and a good performance by our Associates, but I think it would be irresponsible for me or inappropriate for me to think that that's the bottom to Thursday in terms of the stand-alone business as we talked about the the Waterworks business for for example, very strong growth across a very Diversified portfolio new residential construction new commercial construction Municipal sales Public Works infrastructure water and wastewater treatment plants and and metering systems. And so they did

Trading if we seen any infection following the 10.8% decline in organic sales in April, and if you could quantify out of that back in April, how much was driven by the closed the showrooms you mentioned 60% now have you opened? So it would be helpful to understand how much of the decline in in a life even by that and thank second. Could you speak a bit about the competitive landscape how this is evolving if you seeing any any additional pricing pressure following the slot inflation print in Q3. Thank you.

Certainly l d and and thank you for the question in terms of sense of current trading as I indicated before there's still a great deal of uncertainty out there. But in terms of May what we're experiencing across are different geographies. It's fair to say that in all three countries were seeing better sales growth results than we saw in April and so that provides us with a bit of spring in our step a bit of optimism, but we really balance that again that it's early in a month, uh-uh that we're just now beginning to reopen and we're certainly not back to normal by any stretch of the imagination in terms of in terms of this counter locations of showroom location as I think about Canada, there's still a tremendous amount of restriction in terms of what construction activity looks like based on what is existing from a permit perspective as opposed to New Birth.

Permitting and and the UK in terms of how that transitions to the trade professionals ability to go in and work on on homes. And so there's still a tremendous amount of uncertainty but we are were emboldened a bit by some some better trading in the early days of May in terms of what that showroom encounter impact was a big impact. They're a big part of our business and although we saw good buy online pick up outside store the bulk of the the vast majority of the decline that we saw inside of that Blended Branch network was driven by counter pick-up business as customers really gravitated towards delivery. And so the mix of em, every versus pick up inside of our blender Branch business shifted quite dramatically good solid performance inside that Blended Branch Network around Project work dead.

Both new construction single-family new construction multifamily, and so that project work help to drive as well. We're starting to see some real good movement in terms of that counter, but it's still still very early days on the showroom side of the business. We've been really appreciative of the way that our customers have have gravitated wanted to to make sure that they could get in a safe manner in into those showrooms. And so we're we're feel pretty good about those initial openings that we we've had the appointment count that we had. I think 518 appointment set up in day one from a Naples perspective that we needed to spread out across Naples, Florida to spread it out across the upcoming months and months from a competition standpoint in terms of pricing. We haven't seen any dramatic movements from a pricing standpoint. And if you look at the gross margin side of the business name

In Q3 and specifically in April. It really is more a mix issue from a business perspective as well as from a channel perspective than anything else as we saw Waterworks grow substantially more than what we saw inside the plumbing mechanical business. It carries the lower gross margin profile, even if net margins are our page similar and and so from a gross margin perspective that Mix Change had an impact as well inside of the channels and not having numbers being able to go in and utilize our showrooms walk-in utilize the counter for impulse buy items and and other necessary products to fill out their job did have an impact. So we're not anything more broadly today inside the competitive landscape in the markets.

Great. Thanks very much.

Thank you. We will now take our next question from from UBS, please go ahead your line is open.

All right. Give me well.

Yes. Yeah good. Good morning. And thanks for getting up so early to speak to us. So the question is just maybe a bit of a game show up on the Outlook. I think you kind of flagged it. But you're I think you were suggesting that obviously you're concerned about project business being canceled particularly in commercial. If I if I heard you correctly correct me if I'm wrong and I guess the question is from your experience and if it affects for a very long time, how long does that kind of take? Because obviously we're still seeing current projects finished out I guess and therefore, you know the sort of declined the late cycle decline where you take some time. So if you could give us some color from your experience how long that usually takes and then in that context, I think you kind of talked about that in your statement about the cost of production on a more permanent basis. You just flush out the thinking around how you

Right size the business under What scenario and when do you actually pull the trigger? Because it's actually quite difficult to know I guess now where you'll land maybe twelve eighteen months out in terms of the revenue run rates once per month of that, you know light cycle business on online. So that's that's kind of two questions. I suppose there and then secondly just just following up on the gross margin wage. Is it an element of the e-commerce business as well taking sort of a bigger pie of the bigger share of the pie and and should we expect that kind of drag if you want it next month to continue for the foreseeable future. Thank you.

Thank you for the question. And yeah a little bit of an early morning, but we're doing pretty well in terms of project cancellation. It's more of a watchful eye and I think we are in some very different circumstances, even then previous recessions the that that we've we've worked through we have not seen any discernible cancellations that that would cause us great concern but we are keeping our eyes open both on the commercial side, but also on residential new construction side what I will say is uh in and what we're starting to notice we believe that the construction itself is going to take a bit longer as we think about the impact of the virus going forward how commercial construction sites have to be staffed spreading out the different trades working different shifts and making sure that proper PPE and entirely wage.

From Protocols are taken into consideration. So we may see elongated Project work as we go through the near-term one of the biggest request that we have from our contractor base off today is on the PPE side of the business. The number of masks that commercial Mechanical Contractors need to go through as they get onto job sites. What we're doing in terms of face masks and shields what we're doing with gloves and overall PPE. It is become a big part of what we do in a big service offering that we have to our customer base. So we haven't seen a tremendous amount or a discernible amount of cancellations. We are keeping our eye open. We're keeping an eye open on that pause. We think there's going to be some elongation of that construction process in terms of the costs pay off Mike you want to jump in and take the first stab at that and then I'll follow back.

Yeah, absolutely. I think it's a little bit back to James's question as well earlier.

Which is you know Gregory, we don't know what sort of the next two or three months or 18 months or 30 and I'll come back to that. I think the the good thing is we serve all I'm I'm flexible business. I think we've proven that both last year and clearly through April cuz you've seen the numbers being delivered. And also we've got a balance sheet. I mean carrying talked about, you know, even if the long-term does change, you know, we can change and I'm celebrate we have the capability the management team and the balance sheet to do that. So I think we may need flexible image is important. I think it's also get a little more sort of short-term and you know, we've described the various measures we've taken in the short-term will continue to flash light is out of the top line moves around over the next one to three months and I think the longer-term I think we should expect the the current month.

Check the business to be a little bit smaller and there's been quite a big economic shock and for you know, we will have to look at the balance of Labor versus Thursday afternoons in the channels. And is that means we need to get after you know, being a smaller top-line business that's driven by labor productivity, then we'll absolutely get out of that. But that's the last place we generally go is our associate base cuz that's where we have the skill set. The reality is if that skill-set is a different skill set needed, you know, at least in part of going forward and we need to continue the the the acceleration into digital and other channels then we'll absolutely do that carrying. You might just want to build on.

Yeah, and so to Mike's point we know with the the amount of our cost base that is labeled that we need to make sure we right-size that for the markets that we will come into we will we are in Palm just a evaluating that and and looking at what our needs are and we do believe that there's going to be a changing skill set as a indicated earlier one of the big changes that will see out of covid-19 pass a very strong move to omni-channel a very strong adoption of digital tools. And so making sure that we have the appropriate skills for the customer experience changes that are off to happen in the market is is going to be quite important as we think about the value that we're providing and consultation that will start to change as we need to be more digitally engaged with that human relationship to drive a consultative approach to engineering projects to understanding what the best product for a particular application is dead.

Engaging in things like building information modeling and making sure that our product set is appropriately placed for commercial and utility contractors and so forth. So the skills will change and we'll need to change adapt and we are adapting to that as we speak to get it to the next question that you had out there around gross margin and the e-commerce business. I would not think of pressure or degradation on the margin profile of the business as the B2B side or the national side starts to migrate to those digital tools. It is a good productivity played Associates, but it's also a good efficiency play for our customers and they are really it is the adoption rate has been quite impressive and it is not going to go away on the gross margin side for shift of mix to pure-play e-commerce. I also don't think that's a pressure point. That should be dead.

needs to be focused on from a gross margin perspective the

Gross margin profile that business is in good shape and and competes quite well with the rest of the Core Business. We're pretty pleased with what we're seeing in terms of that. J e Commerce business as we look at conversion rates as we look at what that marketing spend looks like which has been a historical pressure point on that side of the business and when we look at growth and the way that we're partnering with some of our really strong branded suppliers and branded vendors and how we bring a better digital experience with the deepest thoughts and brought us range of inventory to customers inside of our industry. So I don't believe you should you should focus on margin degradation inside of any business shift home right now.

Excellent. Thank you very much. Helpful. Thanks. Thank you. We will now take our next question.

From Catherine Thomason from Thompson research group, please. Go ahead your line is open.

Hi, thank you for taking my questions today. The first question is around water works with some of the work that we do on the policy side that goes more on infrastructure. We've seen a State Department of Transportation and Public Works accelerating construction work given there's less traffic on the road and just fewer people out about how much are the Waterworks growth driven by this trend versus destruction war on the residential or the private side of the work. And what is your expectation going for?

Yeah, thank you Catherine. Great to hear from you this morning in terms of that Waterworks business is as I started to say earlier in the call really pleased with the divorce vacation of that group is is we think about their End Market profile, you know about fifty percent of what they do is private work residential commercial about 50% of that workers is public with a good mix of Municipal sales Public Works infrastructure Project work both Line work as well as plant work. And so it's a very bad profile the as I've said on a previous call at the half-year the customers inside that business will migrate from private to public in most cases. And and so it's a bit difficult to get some granularity around projects that have have seen significant amounts of growth and what is played back there has been good job.

New residential construction momentum inside that business from an infrastructure perspective and Road and Highway we participate in a it's not a big part of the overall business. It's growing as we are developing good capabilities in the geosynthetic side of the business for soil stabilization for road construction. And so we're getting better every day. There's certainly drainage and water products that go along with that as we look forward what Our intention would be. It's it's funny. We we joked about infrastructure bills and and large-scale water and sewer infrastructure and they can wide as being Sasquatch because it's something you hear about but never actually see dead. And so we're looking very forward to seeing some momentum around Water and Sewer infrastructure Across the Nation. We're in desperate need as a country to get after that in the United States wage.

so if you think about public water and sewer infrastructure should

We get after a good infrastructure package that will be very impactful for our business as we go forward. We are seeing uh, good momentum in palm trees around Water Works and and and overall infrastructure work. Ugh, but we we do stay cautious from that perspective as pressures on local finances is State finances wage manifest themselves during during this covid-19.

And your business and then as you think about just overall population movement supposed to covid-19 from cities to outside of City. What are your thoughts wage for residential in a postcode World given structural changes with how consumers think about where they live?

And thank you Catherine in terms of that spec construction Market. We actually we were a bit surprised by how big the impact was from a spec construction perspective. We haven't seen that bounce back, yet. We are looking for it. As you indicated. The majority of our work has been on that more traditional side, but as I indicated earlier even inside the Blended branches. Yes Waterworks had some good movement with new subdivision work.

Projects that were proceeding on good bidding activity for new projects new sections new phases of subdivisions being let and then injected the Blended Brands Network both multi-family and single-family new work construction was a real bright spot during the quarter and during the month of April but that spec construction side that we haven't seen Em start to bounce back as much yet. Uh, but we we are we are certainly hopeful we were surprised by it in the in the beginning in terms of movements and and population movements and from Thursday from City centers. Certainly. We we are charging our business Group Leaders with what do they believe we're going to see in terms of market dynamics and shifts in the type of concoction that we're going to see because there are a lot of questions out there as you think about the lockdown that we've been through our in our going through. Uh, what does that next Generation start to value in terms of a single-family detached home with the dog?

As opposed to multi-family living in in urban environments. How does it change as we start to think about multi-generational living and construction relative to a agent care facilities and the like I think there will be a lot of reflection on what we've been through and and changes in terms of the way in which we're approaching that we take part very actively and both multi-family what we would call Reggie Marshall hyra is in the urban environment as well as a strong presence from a single-family new construction standpoint. So I'm just being prepared as that change or that shift starts to happen, but we're pretty engaged with our contractor base to make sure that we're prepared as that change begins to happen.

And just quick final cleanup question.

A lot of focus on how the top line is impacted in a post covid-19.

Yeah, thank you Catherine Mike. Do you want to hit on the cost side? And then I'll get into some of the areas that we're investing from Commerce perspective. Yeah. Well, actually why don't we focus on that getting cuz I think the Investments the important part as as we can sort of look forward and remain agile. I think everybody on the call knows, you know, we tried our labor rate very highly I've touched on that but if we need to, you know, right size our business if it's going to be smaller and needs less labor, you know up touched on that. So I think we swing on Thursday. So to some of the opportunities in the Investments that that we can just think we can get

Yeah, and and so Catherine is we come out of covet the we have really even accelerated our Focus made our Focus even more money, you know diligent around having the best digitally enabled human relationship in our industry. We have prided ourselves on being in a relationship and making sure that our customers could count on us as people and as a company that we had the best capabilities we had a nationwide network of over 1,500 locations. We had the broadest and deepest inventory and the best supply chain across across the the the countries that we operate as we go forward that investment in digital tools and making sure that that digital relationship is every bit as long you can contact Jim at the local branch that you know that you trust that will take care of you or you can get on the Ferguson mobile experience and take care of that spell.

Patient sheet take care of that installation instruction search for the product that best fits your application. Make sure that you understand where your delivery is in transit real time watching it come down the street and that digital relationship being strong to get things done as that human relationship and that will be our primary focus as we come out of this because we believe that that will be the strongest value for our customer and it is the best way for us to unlock productivity inside of our space and to make sure that our Associates can make sure that they are driving the proper products for a job as it gets constructed. And so that is a very strong Focus area for us as we come through. Thursday will be a source of investment in terms of digital tools and Technology overall. And so we'll have that right balance between labor productivity as we come out.

And making sure that our associate base.

Is the right size for the markets that we compete in but also that we can offset that with continued investment in the technology side of our world.

Thank you very much.

Thank you. We will now take our next question.

Thank you. Trying to take my question. I've got three actually if I could please the first was just coming back to gross margins and you're pretty clear in Q3. That was a mix related issue in terms of the decline. But I guess if we move forward and sales are to be under pressure over the next twelve to eighteen months. How do you think the group's strategy will evolve in terms of the interplay of of gross margin protection vs. Market share gains was all they needed to achieve on the way down. They were on the way up in terms of that outperformance. The second one is whether you can just update us on how you thinking about the lower commodity environment in the impact on the business. I guess you'll effect be around volume down price. So how much of your demand is is going into oil and gas sales and how much of your product component I guess again a sales are commodity related. I know you've found somebody in the past perhaps we can have an update of of the current position there, please and then the last one was just working on working capital whether you're noticing any changes in working capital Trends across the business, I guess the wage.

Give me think about receivables receipts. Thank you.

Yeah, let me maybe start with the last one first if I could will and then and then Kevin can and take the the others or we can share them just in terms of working capital loan. No discernible change at the moment. Let me just give you the sort of the main headlines across the the categories inventory. We have deliberately held our inventory up very good levels off. We're not a business that needs to go sell through inventory to protect either liquidity or covenants. And therefore we very early on my cellphone not very early on with the the operational leaders in the US, uh wanted to make sure that we've got the right inventory, you know include levels in the right places for whenever we open up and Thursday. We're now sort of six weeks later talking about net opening that's good. I can tell you six weeks ago, you know, nobody quite talked about opening very much, but we consciously have left our inventory in a good space.

So that we can serve our customers when they open up that isn't sort of starting to happen. Now as Kevin has described. So that's a good place to be creditors. We are paying every time you would expect that a company such as Ferguson and debt collection actually have been very good as I see I'm always going to be nervous that the next month you name is going to be slightly worse and that was the case a month ago and it's probably the case today, but I would say it's certainly at the moment. We're not seeing significant pressure on that. We're working with the system has I think you've got to expect you know, depending on how this pans out that there will be more pressure on that. But again, even in the big Dan Turner 2008, which went on with you know for a long period of time, you know, the number was around fifty million about debt write-off that was you know, a very long so then turn off.

We be expecting those levels looking at.

Books today and we've got a great team managing yet. You know, I'll team are part of the customer's experience and they're pretty close to the customer. So I think as of today well no discernible change, you know, but always a little bit of nervousness. Um as this economic shock Works through

Sure, and will thank you for the questions just a pile on what Mike said from the team's perspective. We couldn't be more proud of the group that we have across the the company. They are as much of a sales relationship part of our company as our outside sales teams. And so making sure that they work together with those customers during their time in terms of their working capital is really important making sure that we protect things like lien rights to make sure that they are getting paid as well on projects in a timely fashion is incredibly important and so although it is always an area of concern and area of good solid Focus. We feel very good about the talent that we've allocated to that to that side of the business office in terms of the commodity environment and what we're seeing. Yes commodity pressures are out there. It's about 10% of the overall business mix of what we have and we have seen some good Some solid deflate wage.

Not good some deflation inside of the that commodity Market specifically the areas of copper and steel more so copper than anything else is actually held up real early. Well all things considered but but copper and steel have had some impact. The good news is we don't keep a tremendous amount from a days of inventory perspective inside that kamado Rena. And so we work very diligently to make sure that we sell through inventory as we are moving in a deflationary environment and stay more current wage what that overall cost position is as markets are softening our oil and gas position inside of industrial again industrial roughly 10% of what we have in inside the business with our oil and gas exposure inside that business is more limited than many of our competitors in that environment. It's a much more broad-based industrial business across

Geographies in areas like Pulp and Paper General manufacturing chemical power-gen and the like and so it's a bit more broad-based and from a revenue perspective in the birth-order actually performed decently well against the overall market and we think we outperform the market by several percentage points in in the quarter in terms of that gross margin and continued pressure as we go through this crisis and and and come out. There's always going to be pressure on John price as the market softens and as there is less demand out there what we really rely on from a gross margin perspective is viewing it as it's a direct reflection of the values that we provide everyday from our Associates and our company to our customers and making sure that we hold it as such and that's easy to say but really that value needs to manifest itself in dog.

selling the products

That are most appropriate for a customer's job to make their job more successful. And then to also make sure that the products that we are from a consultative effective driving in that project are those excuse that benefit Ferguson from a gross margin perspective better than their alternative products. And so we first make sure it's a project is better. These are long-term relationships that we have with these paid professionals. These are long-term relationships that we want to build with the consumer side of our business. And so having the right product on the job is most important but then curating that experience being the most impactful for us from a gross margin perspective is the most important and so that product strategy that we Implement is the truck driver of that gross margin over both the short and the long term

Thank you much operate it up. I think we've got time for one more question, please. Perfect. We will now take our final question from please go ahead Line is now open.

Thank you guys. Just a couple of questions for me. My first question was really on supply chain. I mean, do you anticipate any big disruptions on the material supply side and Thursday as you as you move, the mixed-motive was delivered product. Should we be expecting any bottlenecks in terms of your ability or any capacity limitation in terms of your ability to deliver off. My second question is really on competition. You've talked a lot about engaging with your customers digitally and investing in that area. I'm wondering if you could talk about what your competition is doing in this song Skip and should we be expecting your your ability to take share in this market accelerates as we go into this process and last one just on numbers in terms of government benefits what sort of support would you get in the near-term given the disruption. Thank you.

Yes again, let me just start with the last question there any so in terms of government support. I mean, there are many strands of government support jobs that are available to us the uh, we're working through obviously depending on how people are dead meat right in the different countries. We have to work within the country rules. I think your question is probably related to what is known in the Eucharist furlough and we're we're not taking government support in the UK as a company moment, you know, we're very much in North American Business. And therefore we're working through sort of the labor issues in North America and clearly there's a very different way to those rules are set out in the UK.

Heading over to yes.

I'll jump back up to the top of the questions on the supply chain disruption side. I think when we were together on March 17th during the half ones. It was much more of a supply chain concern as we thought about what was happening and specifically from an Asian sourcing perspective and making sure that there was product availability and how it was getting Stateside and into the wage in Canada that has largely dissipated and we feel pretty good about the supply chains and a lack of bottlenecks, uh with one very key exception and that is the edge of the world which I spoke to earlier. It's a very large concern for all of our customers. We think we've appropriately setup firstly all of our Branch Associates to make sure that proper PPE is in place and secure as we begin to open up for customer activity and we make sure that we're abiding by all of those local restrictions and regulations.

And in terms of PPE and how we're opening, but the supply chain seems to be in pretty good shape and it's not the the largest concern on the domestic side as long seen some degree of manufacturing impact specifically in the area of their employees and Associates being able to get to work. There are some pressure points that are out there but it hasn't really manifested itself. And we don't anticipate having a real issue. It's more of a demand-side concern that's top of mind right now in terms of the competition and that's what we are seeing from a digital perspective. I would probably look at that in two different ways. Our traditional wholesale competition are independent wholesalers from will work to adopt a digital Technologies, but that is not the leader in the space as we look at the future. We look at all competition and we respect a great deal those that have invested in, New Jersey.

Tools and the retail side of our competitive base then non-incumbent competitors in our traditional world are doing great work in terms of investing in a little tools many of them come from a digital background in or digital Natives and are coming into the space that that we currently plan and and that's great. We welcome that, it makes us better and it really sharpens the focus that we have on our digital tools. And so I think that will become more of our competitive landscape edging forward and so we need to make sure that we're constantly raising our game for those retail and digital native competitors that will be selling product in our space-time and engaging with our customers. And so it's it's a it's a welcome competitive landscape and and we're going to fight through

And the last one just one on the on the delivered side of things. Is there any capacity concerns we should have as most of your products move on a delivered basis.

In terms of the last mile delivery to our customers from our teams. We we don't have any real pressure points off. Our Associates have been fantastic in terms of making sure that we are fighting through difficult circumstances in many cases to get product to our customers. And as I indicated earlier, it's actually been a bigger share of our overall Revenue, especially in the United States versus pick up material. And and so those Associates that are delivering material Last Mile in the vast vast vast majority of the cases are our Associates that are as much sales representatives to the customer as our outside and inside sales associates are we certainly took a broad mix of delivery services, whether it be parcel, which is obviously growing as our e-commerce business grows LTL crowdsourcing local deliveries Courier Services and the like making sure

That we maintain flexibility as demand shifts and and we can take care of our customers but no real concerns as we're sat here today.

Thank you.

Thank you. That would conclude the Q&A for today. I will now turn the call back to your host for any additional or closing remarks.

Well, thank you very much for your time today very much appreciate that in the support of our organization. We as I said at the beginning of the call are very pleased with the performance and some challenging circumstances as we work through Q3. And April. We again need to really end the call as we began with. Thank you to our over 35,000 Associates across our group who have worked incredibly hard in very new ways to make sure that we take care of the customer. And the first thing that we will always focus on is the safety of those Associates as they engage in our branches and our distribution centres and the safety of our customers as they begin to re-enter our bricks-and-mortar home and make sure that we take the appropriate social distancing measures. We are going to get through this we're going to come through this.

Stronger as an industry and as a team, we're just going to conduct business in a bit different way and we're bullish about what the future holds even as we walk through some on certain time. So thank you very much for your time today very much appreciated ladies and gentlemen, that will conclude today's conference and you may now or disconnect

Thursday