Ferguson pulls dividend and shelves buyback in crisis

Ferguson withdrew its interim dividend and suspended its $500m (£397m) share buyback to conserve cash during the Covid-19 crisis.

The plumbing and heating company said trading to the end of March was not materially impacted by the pandemic but that the effect increased significantly in the past 10 days.

Ferguson also set out plans for a secondary listing of its shares in the US followed by a primary listing within 12 months of that action.

Trading strengthened in the US in the two months to the end of March as revenue rose 8.2% but in Canada performance weakened as revenue fell 7.7%. At the the UK business, which is being demerged, revenue dropped 10.3%.

In the past 10 days business has got worse in the US, which makes up 85% of revenue, though some markets have held up well while trading in New York has deteriorated. In Canada most markets are in lockdown and in the UK the situation is "extremely challenging" with most building put on hold.

In March the FTSE 100 company declared a dividend for the half year to the end of January of 67.5 cents a share to be paid at the end of April. In a trading update on Wednesday Ferguson withdrew the payout and said it would review the decision when trading conditions were clearer.

Ferguson also suspended a $500m share buyback announced in early February after repurchasing about $100m of its own shares. The company put merger and acquisition activity on hold after spending $340m on six businesses during the financial year. Capital spending for the year will be about $280m-$300m.

Ferguson said: "After careful consideration the board has decided to withdraw the interim dividend. 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."

Ferguson said it still expected to demerge its Wolseley UK business by the end of 2020 depending on market conditions returning to normal.

After the demerger Ferguson's business will be entirely in North America with the US dominating and management based there. The company has consulted shareholders about listing its shares in the US to tap capital from investors familiar with its markets.

Ferguson said it would seek shareholder approval when markets are calmer for a secondary listing in the US to attract US investors and give UK shareholders time to sell their shares if required. Within 12 months of the secondary US listing it will seek approval to shift its primary listing to the US.

Geoff Drabble, Ferguson's chairman said: "This is a complex topic for our shareholders and during the consultation process we have engaged widely and listened carefully to their views. 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."