Good day and welcome to the Ferguson TLC FY20 Q3 webcast. Call. 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'd 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 spearing the business through the volume declines in our markets as a result of the COVID-nineteen pandemic.
So on today's call, we'll give you the sense of how we traded through the third quarter. This of course includes the 1st full month of trading since the business was truly impacted by the outbreak. So first, Mike will cover the Q3 numbers. He'll also give you some more color on the actions we're taking and to protect the P and L, to ensure that we maximize liquidity. I'll 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-nineteen has brought and how we're supporting our associates to keep them safe. We'll also share with you how we're keeping our customers running as they support the critical industries that they serve. And of course, we'll allow plenty of time for your questions at the end. So 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 from myself. I'll take you through the numbers briefly. All of the numbers that I'm I'm going to talk about in the income statement are for the ongoing operations, and on a pre IFRS 16 basis.
That aids for better comparability to both our peer group and, but also, to prior year numbers. And you can see that IFRS 16 at about $17,000,000 to the Q3 trading profit. Overall, group revenue 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 weakened in April, due to the wide outbreak of COVID-nineteen. In the U S, Q3 revenue was up nearly 2% with growth of 8.2% in February March, followed by 9.3% decline in April.
We had acquisitions that contributed 1.3% for the quarter and another trading day, that was about the same, about 1.6% to add on there. There's clearly 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, standalone business, and yet our traditional network sites have remained, physically closed for the showrooms. Though clearly operating virtual consultations. Kevin will get into that detail and give you much more color once I've got through the numbers. Gross 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 0. We continue to implement cost back across the US and the wider group. We're we're utilizing hiring freeze reduction in associate hours worked. And temporary layoffs in the worst affected regions. But as we set out in the, trading updates of a month ago, you know, our mindset now is to stay very close to the cost base and ensuring that we preserve as many of the highly skilled and committed workforce that we have, so that we can continue to position the company well for the future.
I talked about acquisitions. They contributed $2,000,000 to trading profit in the quarter, and we were clearly pleased to complete the acquisition of Columbia, pipe and supply. Overall, put all that together, that means group trading profit came in at 330 $4,000,000. That's $5,000,000 behind last year. Though, of course, we did have an extra trading day.
Trading profit in the US was 340 $3,000,000, that's $3,000,000 behind last year, and frankly, in the circumstances, a good number. Canada had trading losses of $1,000,000. That's 5% behind last year, down to the lower revenues of some of 30% And with UK revenues down 60% in April, that had a trading loss for the quarter of $12,000,000. Our intention to demerge the UK business is unchanged, and we continue to progress that, although clearly the timing will ultimately be driven by the need for the market to stabilize. With regard to cash and liquidity, group remains in a strong financial position with about GBP 3,100,000,000 of liquidity available to the business.
This is made up of two main elements. The cash on hand at 30th April, 1,300,000,000 and a further 1,800,000,000 of undrawn facilities. Net debt excluding leases at the 30th April was 1,800,000,000 and the ratio of net debt to the last 12 months EBITDA was one 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 500,000,000 share buyback pausing the current M and A activity, and 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 $280,000,000 to $300,000,000. That's the same number I gave you about a month ago.
So whilst we're certainly not complacent here, the group has got a strong balance sheet. We've built in additional liquidity so that we can both protect the business in the short term, as well as ensuring we continue to build our capability down for the long term of the business. And finally, it's worth noting that last week, we sold our investments in Myotober in Switzerland, for $31,000,000. This really completes our exit from all trading operations in Continental Europe, in line with our strategy to focus on North American markets. So with that, Kevin, back to you.
Hopefully, you've got another cup of coffee in front of you and over to you.
A bit early. Thank you, Mike. And I'd really like to start by recognizing our 35 1000 extraordinary associates who continue to support our customers, often in very difficult circumstances. And during these challenging times, we're incredibly thankful and proud of what they continue to accomplish every day. 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.
As the COVID 19 outbreak continues, we've remained firmly focused as a company on 3 key areas protecting the health and well-being of our associates. Continuing to serve our customers during the crisis phase of the virus, a time of critical need, and protecting and preserving the strength of our business for the long run. To safeguard 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 and customers follow specific health protection protocols we implemented social distancing at all of our facilities. We provided touchless signatures at point of delivery and at 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, 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 U.
S, for example, Over half our workforce, some 14,000 associates are based at home and supporting our customers. We're also playing a part to directly support the health impact of the crisis and so far have participated more than 50 temporary hospital projects across the U. S. And we're working on similar projects in the UK and Canada. To date, these projects have created more than 12,000 additional patient beds in the U.
S, in often challenging environments, parking lots, in parks, and in convention centers. In New York, we're where most of the cases are in the U. S, we created a 20 fourseven emergency will call 1 hour pickup counter that was focused on servicing local hospitals across the New York Metro Area. In addition, as hospitals and health departments responded to the surge in COVID-nineteen patients Ferguson donated approximately 70,095 face mask to healthcare organizations. To date, the deliveries of mass have gone to hospitals across the U.
S. California through Virginia. It's been really phenomenal efforts so far, and we're really proud of how our people have risen to the challenges. Let me turn to current trading and give you a little bit more color about what we're seeing on the ground. I'm pleased to say that with pretty few exceptions, the group's traditional locations in the U.
S, Canada and the UK have remained open and quite active. As we told you in our recent trading update, we closed the showroom 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 restrictions 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 Canada, we have seen some improvement in the volume declines in recent days as markets like Quebec start to reopen As you've seen in the statement, our revenues declined in the U S. In April by 9.3%. It's 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, in our blended branches, which is our largest business unit, the revenue decline in April 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 Waterworks, for example, our Q3 revenue was ahead by 11.4% with April being another strong month with revenue ahead by 8.5%. We've certainly benefited from our contractors having a bit fewer operating restrictions given the nature of those waterworks projects.
We also generated strong growth in our stand alone e business, which grew revenue by 14.6% in April, as a result of some strong consumer demand for home improvement products. On the trade side of 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 22,000 customers sign on to use our digital tools is five times the normal run rate, and we have now over 90,000 customers registered and active on ferguson.com. Our 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 experience for these trade professionals.
The mobile experience is going to be critical in creating experience that allows our customers to be more efficient and allows our associates to be significantly more productive. We're in the early innings of rolling out new releases with additional functionality and customers can now seamlessly. Buy online pickup in store, buy online pickup outside store. They can use the Ferguson Ku 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 We launched our Shop by Job feature. It allows customers to search for products by a job, job versus by individual product. This cuts down on their time navigating the app and allows them to select the right products for that project. We added a tech 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 breadth of product inventory and product visibility in our industry.
As we think about the longer term strategy, technology remains a key differentiator, and we will continue to develop and invest And finally, just a word about the cost side of the business. As we think about the challenges of COVID-nineteen, naturally are focusing Our skilled workforce, as Mike mentioned, is critical to the group's long term success. So we are using a combination of temporary layoffs, reduction in 10 hours in order to right size the cost base in the short term. This is, however, balanced with 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.
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 mentioning that the company has withdrawn formal guidance because the near term revenue outlook remains quite uncertain. But we're confident that we're well positioned to support our customers, our vendors and our communities, while continuing to build out the capabilities for the long run. So 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. Questions. We will now take our first question from James Rose, Barclays. Please go ahead. The line is open.
Hi, good morning and thanks for the update. 2 for me. Firstly, do you think that April is the trough organic growth rate for the business in the U. S? And if not, could you talk about why?
I mean, perhaps give us some color in how Glendon branches versus the standalone operations might evolve in the coming months. And then secondly, I mean, could you talk a bit more broadly about how you think the longer term impacts of COVID-nineteen could be on the way you operate yourself, the way your distribution network set up and how customers use your services.
Certainly, James. Thank you for the question. Mike, why don't I start off and then you can jump in. In terms of April being the trough. I would not look at April call it down 93 in the U.
S. As being the trough. Were really pleased with the way that Q3 played out for the organization. We're 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 going through some challenging ways to service customers to get at that result. As we look at going into to May, June, July, and we start to reopen across the different markets that we serve. It's worth mentioning that today, thinking from a U. S. Perspective, and again, focusing on that blended branch network that you talked about, really only about 40% of our counter locations are open for internal traffic today.
Only about 60% of our showroom 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 and our customers 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 our 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. 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 how opening is going to affect further spread. And so for me, 93 and the April performance 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 today. In terms of the standalone business, as we talked about the Waterworks business, 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 metering systems.
And so they did a great job of making sure that that diverse business mix continue to drive forward in terms of revenue gains. Project work looks to be, fairly solid as we go forward. But we're still in some pretty uncertain times. Similarly, fire and fab business tracks along with that commercial, pressure that you have out there. And as we start to see markets like Michigan, like Northern California, New York, New Jersey, start to open up more construction activity, we'll start to get a better gauge as to what's going to happen with overall commercial construction activity.
Terms of, longer term impacts and how we operate, I think the world's changed. And so I was pretty amazed. I think we all were pretty amazed as to our ability to transition a branch based, dispersed workforce and bring it to a remote working environment. Our the tools that our IT teams put into place well over a year ago really made that a much more seamless process than what we had ever, dreamed possible. And to think about 50% of our blended branch inside sales teams working remotely and still being able to take care of customers, real testament to what they do.
I think it'll change a tremendous amount about how our customers want to interact. I referenced earlier that our e commerce tools, we're seeing great adoption I think it'll change the way our customers transact going forward, that buy online pick up outside store, the text to branch features the digital tracking of their delivery trucks have made it so that it accelerates a need for omnichannel a demand for omnichannel more so than ever before, whether or not a trade professional has been in the business for decades, or whether they're new to the business, I think it'll change and accelerate the way in which they adopt these digital tools. And so from an investment perspective, we will continue, to make that a priority to make sure that we're set up extremely well for the future. And then, as I think about the end market, clearly, this is going to have some changes in terms of what commercial construction activity looks like the types of projects that we're engaged in, how we think about residential single family detached new construction continues to play out. There are some changes that we're going to see coming out of this, but we feel pretty good about the capabilities that we're building to make sure that we remain relevant.
Okay. Thank you. Thank you. We will now take our next question from Elodie Rail, JP Morgan. Please go ahead.
Hi, it's Elodie Roll from JP Morgan. Hi, thanks for taking my questions. I have 2 if I may say, first of all, if we could get a sense of current trading, if we've seen any inflection following the 10.8 and decline in organic sales in April. And if you could quantify out of that decline in April, how much was driven by the closed showrooms. You mentioned 60% now have reopened.
So it would be helpful to understand how much of the decline in April was driven by that? And second, could you speak a bit about the competitive landscape how this is evolving, if you're seeing any additional pricing pressure following the flat inflation print in Q3? Thank you.
Certainly. And thank you for the question. In terms of a 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 to our different geographies. It's fair to say that in all three countries, we're 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 the month.
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 those counter locations, those showroom locations. 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 permitting and the UK in terms of how that transitions to the trade professionals ability, to go in and work on homes. And so there's still a tremendous amount of uncertainty, but we are, we're emboldened a bit by some better trading in the early days of May. In terms of what that showroom encounter impact was, it had a big impact.
They're a big part of our business. And although we saw good buy online pickup outside store, the bulk of the vast majority of the decline that we saw inside of that blended branch network was driven by, that counter pickup business as customers really gravitated towards delivery. And so the mix of delivery versus pickup inside of our Blender Branch business shifted quite dramatically. Good solid performance inside that blended branch network around project work, both new construction single family, new construction, multifamily. And so that project work, helped to drive as well.
We're starting to see some real good movement in terms of that counter, but it's still very early days. On the showroom side of the business, we've been really appreciative of the way that our customers have gravitated and wanted to make sure that they could get in in a safe manner into those showrooms. And so we'll feel pretty good about those initial openings that we've had. The appointment count that we had, I think we had 118 appointment set up in day 1, from a Naples perspective that we needed to spread out across Naples, Florida, to spread out across the upcoming weeks 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, 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 very similar. And, and so from a gross margin perspective, that mix change had an impact as well inside of the channels and not having customers being able to go in and utilize our showrooms walk in, utilize the counter for impulse buy items and other necessary products to fill out their job, did have an impact. So we're not seeing anything more broadly, today inside the competitive landscape in the markets.
Great. Thanks very much.
We will now take our next question from Greg from UBS. Please go ahead. Your line is open.
Hi. Can you hear me well?
Yes. We can. Great.
Excellent. Good morning. And thanks for getting up so early. To speak to us. So the question is just maybe a bit of a follow-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 heard you correctly or correct me if I'm wrong. So I guess the question is, from your experience and you've been at Flex for a very long time, how long does that kind of take? Because obviously, we're still seeing current projects being finished out, I guess. And therefore, the sort of decline, the late cycle decline really takes some time. So if you could give us some color from 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 cost reduction on a more permanent basis. Could you just flesh 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 land maybe 12, 18 months out terms of the revenue run rates once perhaps some of that late cycle business online. So that's that's kind of two questions, I suppose, there. And then secondly, just following up on the gross margin, 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 should we expect that kind of drag, if you want, be it mix related to continue for the foreseeable future?
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 is more of a wash July. And I think we are in some very different circumstances, even than previous recessions, that we've worked through. We have not seen any discernible cancellations 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, in 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 different protocols are taken into consideration. So we may see elongated project work as we go through the near term. One of the biggest requests that we have from our contractor base today is on the PPE side of the business.
The number of masks that commercial mechanical contractors need to go through as they get on to job sites. What we're doing in terms of face masks and shields, what we're doing with gloves and overall PPE it has become a big part of what we do and a big service offering that we have, to our customer base. 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 cost base, Mike, you want to jump in and take the first stab at that and then I'll follow back.
Yes, absolutely. I think it's a little bit back to James question as well earlier, which is, you know, Gregory, we don't know what sort of the next 2 or 3 months or 18 months will be. And I'll come back to that. I think the good thing is we are agile and flexible as a business. I think we've proven that both last year and clearly through April, because you've seen the numbers being delivered.
And also we've got a balance sheet. I mean, Kevin talked about, you know, even if the long term does change, we can change and accelerate. We have the capability, the management team and the balance sheet to do that. So I think remaining flexible in this environment is important. I think this also gets a little more sort of short term, you know, we've described the various measures we've taken in the short term.
We'll continue to flex those as the, top line moves around over the next 1, 2, 3 months. I think longer term, I think we should expect the the current sort of shape of the business to be a little bit smaller, there's been quite a big economic shock And therefore, you know, we will have to look at the balance of labor versus investments in other channels. And if that means we need to get after being a smaller top line business that's driven by labor productivity, then we'll absolutely get after that. But you know that that's the last place we generally go is our associate base because that's where we have the skill set. The reality is if that skill set is a different skill set needed at least in part going forward, and we need to continue the acceleration into digital and other channels, then we'll absolutely do that.
Kevin, you might just want to build a month.
Yeah. And, so to Mike's point, we know with the amount of our cost base that is labor that we need to make sure we right size that for the markets that we will come into. We will we are in process of evaluating that and looking at what our needs are. And we do believe that there's going to be a changing skill set indicated earlier, one of the big changes that we'll see out of COVID is a very strong move to omnichannel, a very strong adoption of digital tools. And so making sure that we have the appropriate skills for the customer experience changes that are going to happen, in the market is going to be quite important.
As we think about the value that we're providing in 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, 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 adapt and we are adapting to that, as we speak. To get at the next question that you had out there around gross margin and the e commerce business, I would not think of professional side starts to migrate to those digital tools. It is a good productivity play for our 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 or needs to be focused on, from a gross margin perspective. The gross margin profile of that business is in good shape, and competes quite well with the rest of the core business. We're pretty pleased with what we're seeing in terms of that pure play 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 in 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 and broadest range of inventory customers inside of our industry. So I don't believe you should focus on margin degradation inside of any business shift, right now.
Excellent. Thank you very much. It's helpful.
Thank you.
We will now take our next question from Catherine Thomas from Thompson Research Group. Please go ahead. Your line is open.
Hi, thank you for taking my questions today. The first question is around Waterworks. With some of the work that we do on the policy side, but it gets more on infrastructure. We've seen state departments of transportation and certain public growth accelerating construction work, given there's less traffic on the road and just fewer people out about how much of the waterworks growth was driven by this trend versus construction more on the residential or the private side of work? And what is your expectation going forward?
Yes. Thank you, Catherine. Great to hear from you this morning. In terms of that Waterworks business, as I started to say earlier in the call, really pleased with the diversification of that group, as we think about their end market profile, about 50% of what they do is private work, call it residential commercial, about 50% of that work is public with a good mix of sales, public works infrastructure project work, both line work as well as plant work. And so it's a very balanced profile.
The as I've said on the previous call at the half year, the customers inside that business will migrate from private to public in many cases. And so it's a bit difficult to get some granularity around what projects that have seen significant amounts of growth and what has played back. There has been good new residential construction momentum inside that business. From an infrastructure perspective and road and highway, we participate 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. They're certainly drainage and water products that go along with that. As we look forward, what our intention would be, and it's funny. We've joked about infrastructure bills and large scale water and sewer infrastructure nationwide as being Saskwatch because it's something you hear about, but never actually see. 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. And so if you think about public water and sewer infrastructure, should we get after a good infrastructure package that'll be very impactful for our business as we go forward. We are seeing a good momentum in localities, around Waterworks and overall infrastructure work, but we do stay cautious from that perspective as pressures on local finances is state finances manifest themselves during this COVID environment.
Okay, helpful. Shifting to the residential end market, in the early stages, a lot of our industry contacts in the field and same with homebuilders, we're pausing more on spec construction in the early days, but we're certainly continuing existing homes that were started or accounted for. What we have seen over the past 2 weeks going on 3 weeks, so certain markets opening up that spec construction, but very slowly. Are you seeing a similar trend in your business? And then as you think about just overall population movement post COVID, really from cities to outside of cities, what are your thoughts for residential in a post COVID world given structural changes with how consumers think about where they live?
Thank you, Catherine. In terms of that spec construction market, we actually we were a bit surprised by how big the impact was from the spec construction perspective. We haven't seen that bounce back quite 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, so 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 inside the Blended Branch 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, we haven't seen that start to bounce back as much yet, but we are certainly hopeful we're surprised by it in the beginning. In terms of movements and population movements from city centers, certainly, 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 construction 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 or are going through, what does that next generation start to value in terms of a single family detached home with the yard as opposed to multi family living and urban environment?
How does it change as we start to think about multi generational living and construction, relative to Agent Care Facilities and the like. I think there will be a lot of reflection on what we've been through and changes in terms of the way in which we're approaching that We take part, very actively in both multi family, what we would call resi commercial hire, is in the urban environments as well as a strong presence from a single family new construction standpoint. So 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.
Great. And just a quick final cleanup question, a lot of focus on how the top line is impacted in a post COVID world. How does this cost structure change many companies are making big changes now, but are there any efficiencies that may be more semi permanent to consider going forward? What may those be for Fergus Thank you again for taking my questions today.
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 an e commerce perspective?
Yes. Well, well, actually why don't we focus on that, Kevin? Because I think the investments, the important part is as we can sort of look forward and remain agile. I think everybody on the call knows we pride our labor base 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 leave less labor, you know, I've touched on that. So why don't we swing on to sort of some of the opportunities and the investments that, that we can
Yes. And so Catherine, as we come out of COVID, we have really even accelerated our focus, made our focus even more, diligent around having the best digitally enabled human relationship in our industry. And relationship business and making sure that our customers could count on us as people and as a company that we have the best capabilities. We had a nationwide network of over fifteen hundred locations We had the broadest and deepest inventory and the best supply chain, across 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 strong.
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 take care of that specification 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 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. It'll 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 from Will Jones Redburn Please go ahead. The line is open.
Thank you. Thanks for taking my question. I've got 3, actually, if I could please first was just coming back to gross margins and you're pretty clear that in Q3, that was a mix related issue in terms of the decline. But I guess if we look forward and sales after the under pressure over the next, say, 12 to 18 months. How do you think the group strategy will evolve in terms of the interplay of of gross margin protection versus market share gains?
Are they easy 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're thinking about the lower commodity environment and the impacts on the business. I guess there's a dual effect there around volumes and price. So how much of your demand is going into oil and gas sales and how much of your product component, I guess, again, if sales are commodity related? I know you've touched on those in the past, perhaps we can have an update of the current positions there, please.
And then the last one was just touching on working capital, whether that you're noting any changes in working capital trends across the business? I guess particularly when we think about receivables receipts? Thank you. Yes, let me maybe start with the last one first, if I could, Will. And then Kevin can take the others or we can share them.
And just in terms of working capital, No, there's no discernible change at the moment. Let me just give you the sort of the main headlines across the categories, inventory we have deliberately held our inventory, at very good levels. We're not a business that needs to, sell through inventory to protect either liquidity or covenants. And therefore, we very early on myself and chatting very early on with the, the operational leaders, in the U. S, wanted to make sure that we've got the right inventory in Google levels in the right places for whenever we open up.
And of course, we're now sort of 6 weeks later talking about net opening. That's good. I can tell you 6 weeks ago, nobody 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 is sort of starting to happen now. As Kevin has described.
So that's a good place to be. And creditors, we are paying everybody on time, you would expect that the company such as Ferguson. And debt collection actually have been very good. And as a CFO, I'm always going to be nervous that the next month it's going to be slightly worse. That was the case a month ago.
It's probably the case today, but I would say certainly at the moment, we're not seeing significant pressure on that. We're working with the customers. 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 downturn of 2008, which went on a lot for a long period of time, the number was around a GBP 50,000,000 bad debt write off. That was a very long severe downturn I don't think we'd be expecting those levels looking at the books today, and we've got a great team managing it.
Our team are part of the customer experience. And they're pretty close to the customer. So I think as of today, well, no discernible change, but always a little bit of nervousness as this economic shock work story. Kevin, thank you.
Sure. And Will, thank you for the question. Just to pile on what Mike said from an AR team's perspective, we couldn't be more proud of the group that we have. Across 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 pressure times in terms of their working capital is really important, making sure that we protect things like lean 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 an area of good solid focus, we feel very good about the talent that we've allocated to that side of the business. 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 deflation, not good, some deflation inside of that commodity market, specifically in the areas of copper and steel, more so copper than anything else. PVC has actually held up reasonably well all things considered, 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 commodity arena. 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 on 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 inside the business and 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 our 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 quarter, actually performed decently well, against the overall market. And we think we outperformed the market by several percentage points in the quarter. In terms of that gross margin mix and continued pressure, as we go through this crisis and come out, there's always going to be, pressure on job pricing 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 value that we provide every day 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 us selling the products that are most appropriate for a customer's job to make their job more And then to also make sure that the products that we are from a consultative perspective driving in that project are those SKUs that benefit Ferguson from a gross margin perspective better than their alternative products. And so we first make sure that the project is better. These are long term relationships that we have with these great 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 biggest driver of that gross margin over both the short and the long term. Thanks
so much. I think we've got time for one more question, please.
Perfect. We will now take our final question from Amigala from Citigroup. Please go ahead. Your line is now open.
Thank you guys. Just a couple of questions from me. My first question was really on supply chain. I mean, do you anticipate any big disruptions on the material supply side? And second, as you as you move the mix more towards delivered product, should we be expecting any bottlenecks in terms of your ability or any capacity limitations in terms of your ability to deliver?
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 landscape. And should we be expecting your your ability to take share in this market accelerate 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 sort of start with the last question there, Amy. So, in terms of government support, I mean, there are many strands of government support. That are available to us. The, we're working through, obviously, depending on, how people are, remunerated 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 UK furlough, we're not taking government support in the UK, as a company at the moment. You know, we're very much a North American business. And therefore, we're working through sort of the labor issues in North America. And clearly, there's a very different to those rules to set out in the UK.
Yes. So 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 1s, it was much more of a supply chain concern as we thought about what was happening things specifically from an Asian sourcing perspective and making sure that there was product availability and how it was, getting stateside and into the UK and Canada. That has largely dissipated and we feel pretty good about those supply chains and a lack of bottlenecks. With one very key exception.
And that is the PPE side of the world, which I spoke to earlier, it's a very large concern for all of our customers. We think we've appropriately set up 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 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 largest concern. On the domestic side, as we've 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 what we are seeing from a digital perspective, I would probably look at that in two different ways. Our traditional wholesale competition, our independent wholesalers, will work to adopt digital technologies, but that is not the leader in the space. As we look at and the retail side of our competitive base, the non incumbent competitors in our traditional world are doing great work in terms of investing in digital tools, many of them, come from a digital background or digital natives. And are coming into, the space that we currently plan. And that's great.
We welcome that competition. 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 as we go 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 and engaging with our customers.
And so 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 don't have any, real pressure points. 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 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 use 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 we can take care of our customers, but no real concerns as we're sat here today.
Thank you. That will conclude the Q And A for today. I will now now, I'll 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 in some challenging circumstances, as we work through Q3 and April, we again need to really end the call as we began with a 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, in our distribution centers and the safety of our customers as they begin to reenter our bricks and mortar 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 uncertain times. So thank you very much for your time today. Very much.
Appreciate it.
Ladies and gentlemen, that will conclude today's conference and you may now all disconnect.