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Reliance share price climbs higher after reducing UK workforce

In an announcement to the ASX earlier today, Reliance Worldwide Corporation Ltd (ASX: RWC) provided an update on the company’s UK manufacturing operations.

Here’s what Reliance announced and an outlook on the company’s future performance.

What did Reliance announce?

This morning, Reliance notified investors that some UK distributors have closed whilst others have modified their purchasing activity. Given the uncertain nature of the coronavirus, the company expects further volatility in the coming weeks.

As a result, Reliance made the move to place more than 40% of its UK workforce on a leave of absence last Friday. The company believes that staff who have been furloughed will be entitled to receive salary support from the UK government.

In today’s update, Reliance assured investors that the company’s Australian and US manufacturing facilities continue to operate as normal at the moment. However, the company did caution that variability in demand over the next few months could result in Reliance adjusting production and staffing levels as necessary.

What is the outlook for Reliance?

The Reliance share price has plunged nearly 50% since mid-February on the back of the COVID-19 pandemic. Despite the volatility, Reliance assured shareholders that the company has significant funding lines available to assist cash flow requirements. The company cited its $750 million syndicated facility agreement which it can draw from.

Reliance announced late last month that the company will defer payment of its interim dividend until later in the year, which was scheduled to be paid on 9 April. Given the uncertainty of the pandemic, Reliance also withdrew its formal earnings guidance for FY20.

Earlier this year, Reliance had forecasted net profit after tax in the range of $140 million and $150 million for the full year.

Foolish takeaway

Reliance is a plumbing supplies company and is the world’s largest manufacturer of push-to-connect (PTC) plumbing fittings. The company’s flagship product ‘SharkBite’ has been embraced by plumbers who prefer the PTC technology over soldering traditional brass fittings.

Earlier this year, Reliance reported that the sales in the UK for the half-year were 3% higher on the back of growth in plumbing and heating sales. Sales in the UK grew despite the uncertain impact of Brexit and general weakness in residential construction.  

In a trading update on 25 March, Reliance informed the market that government restrictions in the UK will limit and restrict sales to essential repair and maintenance works. As a result, today’s news could already be priced into the Reliance share price.

At the time of writing, the Reliance share price is trading more than 5% higher, while the S&P/ASX 200 Index (ASX: XJO) is up by 2.5%.

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Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.