Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — H1 2013 Earnings Presentation
66 slides from Ferguson Enterprises's earnings presentation, Mar 26, 2013
Slide 1: FY13 Half Year Results
FY13 Half Year Results
Slide 2: Welcome and highlights
Welcome and highlights Ian Meakins , Chief Executive
Slide 3: Performance Highlights
Performance Highlights Lik f lik growth Like-for-like h in i H1 - market k share h performance f Pricing remains very competitive Group gross margins - improving Cost reduction initiatives - executed and more planned Regional performances decent in widely different market conditions − USA
Slide 4: Operating and financial review
Operating and financial review John Martin, Chief Financial Officer
Slide 5: Financial Highlights
Financial Highlights H1 2013 H1 2012 H1 2012 Change Like-for-like £m Reported Ongoing Ongoing Change Revenue 6 276 6,276 6 841 6,841 6 269 6,269 +0 1% +0.1% 2 2% 2.2% Trading profit* 324 310 301 +7.6% Trading margin 5 2% 5.2% 4 5% 4.5% 4 8% 4.8% +0 4% +0.4% Profit before tax 199 250 Headline EPS* EP
Slide 6: Quarterly Performance
Quarterly Performance Q1 Q2 Q3 Q4 Q1 Q2 Like-for-like growth last year last year last year last year this year this year USA +10 2% +10.2% +7 4% +7.4% +9 4% +9.4% +6 7% +6.7% +7 1% +7.1% +9 7% +9.7% Canada +1.7% +4.9% +7.9% +4.5% +3.1% +1.2% UK (3 3%) (3.3%) (2 4%) (2.4%) (0 4%) (0.4%) +3 5% +3.5% (
Slide 7: Foreign Exchange and Trading Days
Foreign Exchange and Trading Days 1.7 GBP V USD H1 13: 1.60 1.6 H1 12: 1.58 15 1.5 Spot 25/3/13: 1.52 1.4 1.3 GBP V EUR H1 13: 1.24 1.2 H1 12: 1.16 Spot 25/3/13: 1.17 1.1 1 FX cost £6 million and one less trading day cost £5 million in H1 There is also one less trading day in H2 7
Slide 8: USA
USA Like-for-like £m H1 2013 H1 2012 Change Change Revenue* 3,189 , 2,966 , +7.5% % +8.3% % Trading profit 223 173 +28.9% Trading margin 7.0% 5.8% +1.2% Branches 1,309 1,276 +33 Headcount 18,336 17,807 +3.0% * Change in Integrated Services accounting - £41 million less revenue in this period, no imp
Slide 9: Canada
Canada Like-for-like £m H1 2013 H1 2012 Change Change Revenue e e ue 440 0 426 6 +3.3% 3 3% +2.3% 3% Trading profit 28 25 +12.0% Trading margin 6.4% 5.9% +0.5% Branches 220 220 - Headcount 2,506 2,559 (2.1%) 9
Slide 10: UK ongoing
UK ongoing* Like-for-like £m H1 2013 H1 2012 Change Change Revenue 853 850 +0.4% - Trading profit 45 44 +2.3% Trading margin 5.3% 5.2% +0.1% Branches 935 939 (4) Headcount 6,238 6,031 +3.4% * Excludes Build Center, Encon, Bathstore and Unifix Expect Burdens sites will generate about £60m of sales an
Slide 11: Nordic ongoing
Nordic ongoing* f Like-for-like £m H1 2013 H1 2012 Change Change Revenue 934 1,044 (10.5%) (6.2%) Trading profit 39 46 (15.2%) Trading margin 4.2% 4.4% (0.2%) B Branches h 259 256 +3 3 Headcount 5,643 5,937 (5.0%) * Excludes Woodcote and HT Bendix 6.0% 4.0% 3.0% Finland ‐ GDP 2.0% Denmark ‐ GDP 4.0%
Slide 12: France ongoing
France ongoing* Like-for-like Lik f lik £m H1 2013 H1 2012 Change Change Revenue 506 606 (16.5%) (10.4%) Trading (loss)/profit (7) 8 n/a Trading margin (1.4%) 1.3% (2.7%) Branches 312 316 (4) Headcount 5,060 5,411 (6.5%) * E Excludes l d B Brossette tt 2.0% France ‐ GDP 1.5% 1.0% 1 0% 0.5% ‐ Q211 Q3
Slide 13: France Strategic Review
France Strategic Review Wood Solutions to be retained and management responsibility transferred to Central Europe Strong strategic position and market leader in Softwood Softwood, Panels and Trusses Good positions in building products and timber frames Year ended 31 July 2012; revenue of £230
Slide 14: France Strategic Review
France Strategic Review Advanced negotiations to sell 88 Building Materials branches in south of France to Chausson Year ended 31 July 2012; revenue of £241 million, million trading profit of £2 million million, 929 employees Consideration: £36 million bond, convertible into 11.6% equity stake i
Slide 15: France Strategic Review
France Strategic Review C t strong Create t distributor di t ib t off building b ildi materials t i l iin north th off F France Year ended 31 July 2012; revenue £653 million million, trading profit £17 million Rationalisation: − Proposal p to exit 24 loss making g branches ((£72 million revenue,
Slide 16: Central Europe
Central Europe Like-for-like £m H1 2013 H1 2012 Growth Change Revenue 354 377 (6.1%) +1.2% Trading profit 18 20 (10.0%) Trading margin 5.1% 5.3% (0.2%) Branches 143 146 (3) Headcount 1,963 2,019 (2.8%) 3.0% 4.0% 3.5% 2.5% Switzerland ‐ GDP Netherlands ‐ GDP Austria ‐ GDP 2.0% 3.0% 2.5% 1.5% 2 0% 2.0
Slide 17: Central Costs
Central Costs £m H1 2013 H1 2012 p costs Group 17 15 Non-recurring items: - Insurance 3 - - M&A 2 - 22 15 17
Slide 18: Exceptional Items
Exceptional Items £m Charge / (credit) H1 2013 Redundancy costs 10 Asset write downs downs, disposals and other related costs 83 93 U Unauthorised th i d payments t iin F France 10 Business disposals (16) 87 Current and future cash impact of exceptional items – outflow of £39 million. H2 expected ex
Slide 19: Revenue and Gross Profit in the Ongoing Business
Revenue and Gross Profit in the Ongoing Business (£41m) £78m £7m (£136m) £136m (£37m) Revenue £6,269m £6,276m £2m £11m £6m (£37m) £20m (£9m) £36m £1,742m Gross profit £1,713m H1 2012 Like-for-like Acquisitions Gross margin Other New Exchange Sales days H1 2013 Ongoing growth improvement branches Ong
Slide 20: Operating Expenses of the Ongoing Business
Operating Expenses of the Ongoing Business (£1m) £21m (£31m) £6m £17m (£4m) (£21 ) (£21m) £19m £1,412m £1,418m H1 2012 Acquisitions / Variable costs B2C Pay rises and Depreciation Exchange Sales days Efficiency H1 2013 ongoing net new from cost savings ongoing branches additional increases volume On
Slide 21: Financing and Tax
Financing and Tax £m H1 2013 H1 2012 Financing Net interest charges 7 9 Pensions and provisions 2 4 Facility charges 2 2 11 15 Tax Income statement charge 71 70 Exceptionals, intangibles and other adjustments 15 5 Underlying income statement charge 86 75 Trading profit less financing charges 313 295
Slide 22: Cash Flow from Operating Activities
Cash Flow from Operating Activities H1 H1 £m 2013 2012 Trading profit 324 310 Depreciation and amortisation 60 64 EBITDA 384 374 Working capital - Timing of year end payments runs (145) (114) - Other working capital movements (197) (92) One off pension contribution One-off (125) (60) Provisions, oth
Slide 23: Other Cash Flow
Other Cash Flow £m H1 2013 H1 2012 Cash flow from operating activities (116) 110 Net interest (12) (8) Tax paid (100) (28) Acquisitions and disposals including asset disposals (75) 160 Capex (50) (64) Dividends (including £348m special dividend) (462) (85) Purchase of shares by Employee Benefit Trus
Slide 24: Acquisitions
Acquisitions Annual Acquisition Business unit Date revenue US B2C Sep 2012 £53m US Blended Oct 2012 £72m Branches UK Nov 2012 £120m H1 acquisition investment £101 million cash + £19 million deferred consideration 24
Slide 25: Significant Organic Investments
Significant Organic Investments Infrastructure and property − Ohio DC − Texas hub Technology − Master data management − Finance simplification − Telecoms infrastructure Development − Build.com Full year capex investment expected to be approximately £120m 25
Slide 26: Net Debt and Pensions
Net Debt and Pensions 31 Jan 31 Jul 31 Jan £m 2013 2012 2012 Net debt as reported (871) 45 (470) Receivables factoring - - (59) Impact of timing of payment runs - (145) - Adjusted net debt (871) (100) (529) Net pension liabilities (318) (358) (351) Committed facilities of £1.6bn 26
Slide 27: Capital Employed
Capital Employed £3.6bn 29% 30% £3.0bn 25% 24% £2.5bn £2.4bn £2.4bn £2.1bn Adjusted Net Working Capital Fixed Assets 16% 14% Return on Capital Employed excluding gggoodwill 2008 2009 2010 2011 2012 H1 2013 Note EU Pa Note: Payment ment Directi Directive e still to be implemented in parts of E Europe
Slide 28: Dividend Policy
Dividend Policy Interim dividend of 22p per share, increased by 10% Interim payment expected to be one third of total dividend for the year Dividend cover of 2.8x based on current consensus expectations Di id d growth Dividend h will ill reflect fl a prudent d view i off llong term earnings
Slide 29: Business Review and Strategy Update
Business Review and Strategy Update Ian Meakins, Chief Executive
Slide 30: Wolseley Strategy
Wolseley Strategy 1 Develop 1. D l our greatt portfolio tf li off strong t businesses b i 2. Drive performance systematically across Group 3. Accelerate profitable growth − organic g / bolt-ons / adjacent j businesses 4. Drive evolution of business models 5 Deliver Group synergies 5. 6. Underpin str
Slide 31: Wolseley Strategy
Wolseley Strategy 1 Develop 1. D l our greatt portfolio tf li off strong t businesses b i 2. Drive performance systematically across Group 3. Accelerate profitable growth − organic g / bolt-ons / adjacent j businesses 4. Drive evolution of business models 5 Deliver Group synergies 5. 6. Underpin str
Slide 32: Drive Performance
Drive Performance H1 Trading Margin – Ongoing Businesses Group Return on Capital Employed 5.2% 4.7% 4.8% 4.3% 29% 30% 25% 3 4% 3.4% 16% 14% 2009 H1 2010 H1 2011 H1 2012 H1 2013 H1 2009 2010 2011 2012 2013 H1 H1 Trading Margin – By Geography 7.0% 6.4% 5.3% 5.1% 4.2% -1.4% USA Canada UK Nordic France
Slide 33: Wolseley Strategy
Wolseley Strategy 1 Develop our great portfolio of strong businesses 1. 2. Drive performance systematically across Group 3. Accelerate profitable growth − organic / bolt-ons / adjacent businesses 4. Drive evolution of business models 5 Deliver Group synergies 5. 6. Underpin strategy with strong bala
Slide 34: USA - Market Dynamics
USA - Market Dynamics Consumer Confidence Single family home sales Months supply of inventory 80 6,000 14 (000s SAAR) 70 5,500 12 5,000 10 60 4,500 8 50 4,000 6 40 3,500 4 30 3,000 2 20 2,500 ,500 0 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Jan-10 Apr
Slide 35: USA - Market Dynamics
USA - Market Dynamics JCHS LIRA AIA Billings Index Non residential 150 25% 60 (4Q moving i total) t t l) 600 construction t ti (SAAR $bn) $b ) 140 20% 580 55 130 15% 560 120 10% 540 50 110 5% 520 100 0% 500 45 90 -5% Commercial / Industrial 480 Institutional 80 -10% 10% 40 460 Jan-10 Apr-10 Jul-10 O
Slide 36: Ferguson Outstanding Orders
Ferguson Outstanding Orders Current rolling total outstanding orders Weighted Customer Sentiment, 12 month forecast of growth 120 6% 5% Indexed to 1 Jan 12 110 4% 3% 100 2% 1% 90 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 12 12 12 12 12 12 12 12 12 12 12 12 13 36
Slide 37: Accelerate Profitable Growth
Accelerate Profitable Growth P fit Levers Profit L Market Share Gross Margin – Customer service – Pricing matrix – New branches / channels / segments – Customer C terms – Bolt-on acquisitions – Category management – Sourcing Profitable Growth Improve Productivity Improve Returns – Cost reduction – I
Slide 38: USA - Blended Branches
USA - Blended Branches Market Share Gross Margin – Improve customer service – Pricing matrix compliance – Customer loyalty programme – Category C management – New customer segments – Showroom sales – B2C growth – Bolt-on acquisitions Profitable Growth Improve Productivity Improve Returns – B2B e-com
Slide 39: USA - Blended Branches Revenue Growth by State
USA - Blended Branches Revenue Growth by State WA ME MT ND MN MA VT OR NH RI ID SD WI NY MI WY CT IA PA NV NE OH NJ IN UT IL CA CO WV DE KS VA MO KY MD NC TN AZ OK NM DC AR SC GA MS AL <5% TX LA 5-10% 10-15%% AK FL >15% HI 39
Slide 40: Customer Service Dashboard
Customer Service Dashboard 40
Slide 41: Employee Engagement
Employee Engagement As an associate of Ferguson, I feel confident about Ferguson is a good company to work for recommending Ferguson to potential customers Strongly Disagree 0.5% S Strongly l Disagree i 0 5% 0.5% Disagree 1.1% Disagree 2.2% Neutral 5.1% Neutral 8.9% Agree 37.6% Agree 37 6% 37.6% Str
Slide 42: USA – Blended Branches
USA – Blended Branches Market Share Gross Margin – Improve customer service – Pricing matrix compliance – Customer loyalty programme – Category C management – New customer segments – Showroom sales – B2C growth – Bolt-on acquisitions Profitable Growth Improve Productivity Improve Returns – B2B e-com
Slide 43: USA – Gross Margin Levers
USA – Gross Margin Levers Matrix utilisation DC compliance Catego Category y management a age e t − Own label 8% of total − Counters 26% of total − Showroom 16% of total Facility Maintenance − 13% growth Sales compensation 43
Slide 44: USA – Blended Branches Productivity
USA – Blended Branches Productivity Tight control of headcount expansion National Sales Centre − 39,000 39 000 customer contacts during January Branch of the Future − Fort Myers test – revenue / day 20%+ 20% E-commerce acceleration B2B − 10% of business, g growth of 30%+ − Circa 8 million se
Slide 45: USA – Blended Branches Performance
USA – Blended Branches Performance Labour cost as % of gross profit Other costs as % of gross profit 49.5% 30.9% 47.8% 24.2% H1 2010 H1 2013 H1 2010 H1 2013 Revenue operating expenses and trading profit growth H1 2013 Revenue, 33.0% 9.6% 5.8% Revenue Operating Trading profit exenses 45
Slide 46: Nordics
Nordics Market Share Gross Margin – Maintain service / share – Customer segmentation – Bolt-on acquisitions – selective – Compliance C with customer terms structure – DIY customers Profitable Growth Improve Productivity Improve Returns – Cost reduction / centralisation – Maintain working capital – N
Slide 47: Nordics
Nordics Denmark (44%*) Sweden (24%*) Finland (24%*) Stark Silvan Beijer Starkki 20% 20% 20% 20% 16% 15% 11% 15% 15% 15% 15% Market share 10% 10% 10% 8% 10% 5% 5% 5% 5% 0% 0% 0% 0% Relative market No. 1 No No. 2 No No. 1 No No. 2 No share (RMS) 1.7 RMS 0.9 RMS 2.1 RMS 0.4 RMS Market share Small share
Slide 48: Nordics - Actions
Nordics - Actions Customer service − Maintain historic high levels ≥ competition Gross margin protection − Pricing compliance − Customer terms matrix compliance − Individual salesman performance − Sourcing improvements − DIY customer focus – basket size / items per ticket − Less focus on direct
Slide 49: Nordics - Actions
Nordics - Actions Cost reduction − Headcount reduction of 697 out of 6,500 − 145 temporary lay-offs − Salary increases at statutory minimum − Marketing spend restricted Business model development − Process improvement centralisation − Distribution centre (hub in Stockholm) − Lower cost / segment
Slide 50: Wolseley Strategy
Wolseley Strategy 1. Develop our great portfolio of strong businesses 2. Drive performance systematically across Group 3. Accelerate profitable growth − organic / bolt-ons / adjacent businesses 4. Drive evolution of business models 5. Deliver Group synergies 6. p strategy Underpin gy with strong g b
Slide 51: Business Model Development
Business Model Development Implications − Customer segmentation − Multi-channel approach − From ‘loose confederation’ to ‘systematically / centrally managed’ − Competitive propositions versus ‘non traditional’ competitors − Develop D l andd ttestt diff differentt business b i models d l Leading pl
Slide 52: Customer Segmentation
Customer Segmentation 40% 80% Hi h d b High-end branded d d Medium M di / smallll Large T L Trade d Bestt – Good margin trade Customers – Credit – Projects Price – Good margin – Credit 60% – Acceptable Quality / P margin Better Branded / Own Label – Acceptable margin 30% 20% Small trade – Cash Good
Slide 53: Customer Segmentation
Customer Segmentation Full Service Full Service Offering Offering – Showrooms – Branch network Bestt – Full SKU range – Full SKU range – Consultation service – Multi channel Price – Multi channel order / fulfilment • Sales people • Telesales Quality / P Medium Service • DC / branch Offering Better –
Slide 54: Multi Channel Approach – Customer Behaviour in UK
Multi Channel Approach – Customer Behaviour in UK Where do you access Why don’t you purchase from internet for your business? the internet for your business? 2009 2012 2009 2012 Can't find items / Prefer to see / 42% Home 49% Home 65% 65% too long touch Better prices in 37% branch H Home & work k 39
Slide 55: Multi Channel Approach – Customer Behaviour in UK
Multi Channel Approach – Customer Behaviour in UK Customer use of branch currently 9% Hardly ever 9% 16% Monthly y 12% 35% Weekly 40% 40% Most days 39% Visit the branch Phone the branch 55
Slide 56: Multi Channel Response
Multi Channel Response Marketing 2nd : Multi-channel Customer Access Feedback 24/7 Build the Mobile brand Access on Access the move 1st : Core The Plumb Center Branch estate as the No.1 service fulfilment priority The best website Service Apps The best Product Protect our call Information reputation
Slide 57: Business Model Evolution
Business Model Evolution O Operating ti model d l Loose confederation Systematically / Centrally managed network Evolution of process management above branch − Compliance with customer terms / pricing matrix / core range of SKUs / DC programmes − Contact centres versus branch contact – telesales o
Slide 58: Business Model Evolution
Business Model Evolution Customers’ needs evolving − End-customer influence − Brands / range / price points – choice − Order capture / delivery channel – flexibility − Availability / technical specs / order execution – real time data Business models evolution − Branch presence key – local access
Slide 59: Summary
Summary Continued decent progress Well placed for good growth in USA Taking actions to protect profitability in Europe Continued progress on developing more efficient businesses − Investing in infrastructure and future growth − Benefits of scale 59
Slide 60: Q&A
Q&A
Slide 61: Appendices
Appendices
Slide 62: Regional Analysis
Regional Analysis Revenue Revenue Trading profit Trading profit £m H1 2013 H1 2012 H1 2013 H1 2012 Ongoing USA 3,189 2,966 223 173 Canada 440 426 28 25 UK 853 850 45 44 Nordic 934 1,044 , 39 46 France 506 606 (7) 8 Central Europe 354 377 18 20 Central and other costs - - (22) (15) 6,276 6,269 324 30
Slide 63: Branch Numbers
Branch Numbers Other Oth Ongoing O i att 31 July 2012 Acquisitions movement 31 Jan 2013 USA 1,274 12 23 1,309 Canada 220 - - 220 UK 919 22 (6) 935 Nordic 264 - (5) 259 France 313 - (1) 312 Central Europe 142 - 1 143 Ongoing 3,132 34 12 3,178 63
Slide 64: Headcount Numbers
Headcount Numbers Other Oth 31 July 2012 Acquisitions movement 31 Jan 2013 USA 18,245 282 (191) 18,336 Canada 2,607 - (101) 2,506 UK 5,913 559 (234) 6,238 Nordic 6,340 , - ((697)) 5,643 , France 5,293 - (233) 5,060 Central Europe 2,023 - (60) 1,963 Other 120 - (17) 103 Ongoing 40,541 841 (1,533) 39,
Slide 65: Currency
Currency H1 2013 H1 2012 St li Sterling Trading T di 31 J Jan 31 JJan average average strengthening profit 2013 2012 / (weakening) impact spot spot H1 £m US$ 1.60 1.58 1.3% (2) 1.59 1.58 CAN$ 1.58 1.60 (1.2%) - 1.58 1.58 DKK 9.23 8.67 6.5% (1) 8.71 8.96 Euro 1.24 1.16 6.9% (2) 1.17 1.20 CHF 1.50 1.4
Slide 66: Summary Income Statement
Summary Income Statement £m H1 2013 H1 2012 Trading profit 324 310 Exceptional items (87) (13) Amortisation (27) (32) Financing charges (11) (15) Profit before tax 199 250 Tax (71) (70) Profit from continuing operations 128 180 Discontinued operations 9 (2) P fit Profit 137 178 66