Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — H1 2018 Earnings Presentation
49 slides from Ferguson Enterprises's earnings presentation, Mar 27, 2018
Slide 1: 2017/18 Half Year Results presentation
2017/18 Half Year Results presentation 6 months to 31 January 2018
Slide 2: Half Year 2017/2018 Highlights
Half Year 2017/2018 Highlights John Martin, Chief Executive 2
Slide 3: Operating and strategy highlights
Operating and strategy highlights Strong operating performance − 7.4% organic revenue growth, 8.7% organic revenue growth in the US − Gross margins 0.4% ahead of last year − Trading profit growth of 14.4% at constant exchange rates − Good cash generation and strong balance sheet Good progress on str
Slide 4: Operating and financial review
Operating and financial review Mike Powell, Group CFO
Slide 5: Financial highlights
Financial highlights Change (at constant Organic H1 2018 H1 2017 Change exchange rates) change² Ongoing revenue $10,027m $9,090m +10.3% +9.0% +7.4% Ongoing gross margin % 29.4% 29.0% +0.4% Ongoing trading profit ¹ $698m $607m +15.0% +14.4% Ongoing trading margin % ¹ 7.0% 6.7% +0.3% Headline earnings
Slide 6: Organic revenue growth
Organic revenue growth Q1 Q2 Q3 Q4 Q1 Q2 H1 2017 2017 2017 2017 2018 2018 2018 USA +4.8% +6.9% +8.8% +8.7% +8.3% +9.1% +8.7% UK (3.4%) +3.1% (1.4%) +3.4% +3.2% (2.1%) + 0.5% Canada & Central Europe (1.7%) +1.2% +7.3% +7.7% +7.7% +7.8% +7.8% +3.1% +5.9% +7.1% +8.0% +7.6% +7.3% +7.4% Good revenue mome
Slide 7: Revenue and trading profit growth
Revenue and trading profit growth Ongoing revenue +7.4% - +1.6% Ongoing trading profit ($m) ($m) - 145 - 6 684 82 108 3 10,027 698 9,090 9,198 607 610 H1 2017 Exchange 2017 inc. Organic Trading days Acquisitions H1 2018 H1 2017 Exchange 2017 inc. Organic Trading days Acquisitions H1 2018 exchange gr
Slide 8: USA ongoing
USA ongoing (89% of Group trading profit) $m H1 2018 H1 2017 Change Revenue 7,912 7,156 +10.6% Organic revenue growth +8.7% +5.8% Trading profit 647 559 +15.7% Trading margin 8.2% 7.8% +0.4% Good revenue and profit growth 8
Slide 9: USA organic revenue growth
USA organic revenue growth Revenue Organic Business unit $m growth North AK Central WA +9.6% ME Blended Branches MT ND VT 4,622 +7.6% West OR MN (see regional analysis on the right) +10.6% ID WY SD WI MI NY NH NE IA PA NV OH UT IL IN CO WV K KY VA CA M Waterworks standalone 1,265 +12.0% S O TN NC AZ
Slide 10: USA end-market revenue growth
USA end-market revenue growth % of US revenue Market growth US organic revenue H1 2018 H1 2018 growth H1 2018 Residential ~ 50% 7% +10 - 11% Commercial ~ 35% 4% +5 - 6% Civil / Infrastructure ~ 7.5% 4% +11 - 12% Industrial ~ 7.5% 7% +10 - 11% 5% - 6% +8.7% Continued outperformance in supportive mark
Slide 11: UK
UK (5% of Group trading profit) Change (at constant $m H1 2018 H1 2017 Change exchange rates) Revenue 1,354 1,277 +6.0% +0.5% Organic revenue growth +0.5% (0.2%) Trading profit 38 44 (13.6%) (18.6%) Trading margin 2.8% 3.5% (0.7%) Restructuring accelerated in challenging markets 11
Slide 12: Canada & Central Europe ongoing
Canada & Central Europe ongoing (6% of Group trading profit) Change (at constant $m H1 2018 H1 2017 Change exchange rates) Revenue 761 657 +15.8% +9.3% Organic revenue growth +7.8% (0.3%) Trading profit 41 30 +36.7% +27.2% Trading margin 5.4% 4.6% +0.8% Improved Canadian performance 12
Slide 13: Exceptional items
Exceptional items $m Cash Non-cash P&L total UK restructuring costs 23 14 37 Other 9 - 9 Total exceptional costs in first half 32 14 46 Exceptional costs as expected 13
Slide 14: Financing & tax
Financing & tax $m H1 2018 H1 2017 Financing Reported P&L charge 27 29 Tax Ongoing P&L charge 169 160 Ongoing effective tax rate 25.1% 27.7% FY19 onwards effective tax rate expected to be 21% - 22% 14
Slide 15: Cash
Cash $m H1 2018 H1 2017 Reported trading profit 698 630 Depreciation & amortisation 84 91 Reported EBITDA 782 721 Working capital (398) (328) Exceptional items, discontinued and other 6 17 Cash flow from operating activities 390 410 Interest & tax (129) (215) Acquisitions (120) (296) Capex (175) (91
Slide 16: Acquisitions
Acquisitions Annualised revenue of $162m and trading profit of $10m 16
Slide 17: Technical guidance for the full year to July 2018
Technical guidance for the full year to 31 July 2018 Trading days and estimated impact on trading profit Same number of days in each quarter Trading profit impact from completed acquisitions $11 million Exceptional costs in the UK $65 million (including $50m of cash) Effective tax rate approx. 25% C
Slide 18: Capital allocation
Capital allocation Cash generation − Ferguson is highly cash generative through the cycle − Remain committed to target net debt : EBITDA range of 1x – 2x and priorities for cash usage 1) Invest in organic growth 2) Progressive dividend policy, aim to grow the dividend in line with the long-term unde
Slide 19: Business review and outlook
Business review and outlook John Martin, Chief Executive
Slide 20: Key priorities
Key priorities 1. Generate the best profitable growth in the USA 2. Execute UK restructuring and repositioning plan 3. Capitalise on the significant growth opportunity in Canada 4. Accelerate innovation 5. Complete Nordics exit 20
Slide 21: Drivers of profitable growth
Drivers of profitable growth Fulfilling customer wants Attractive growth opportunities Excellent execution Operating model and Engaged associates Organic expansion e-commerce development Excellent service ethic Bolt on acquisitions Pricing discipline Strong sales culture Adjacent opportunities Own b
Slide 22: Fulfilling customer wants
Fulfilling customer wants 24/7 secure access Own brand Credit Scheduled forward delivery dates Warranty support No hassle Pick-up options Exclusive distribution returns 1 hour Will Call Sourcing of Project- non-stock items Sourcing based billing After sales Call off options (order book) Inside sales
Slide 23: Getting the basics right / Sustaining competitive advantage
Getting the Sustaining competitive basics right advantage Specification Price and advice Availability Product Service Customisation Delivering Range solutions Speed Consultation Simplicity Transaction Project Bid support Efficiency Project Management Multi- channel Lifetime Commission Selling Relati
Slide 24: Providing sales channels that customers value
Providing sales channels that customers value 20% 15% 10% 5% 10% 10% Revenue ($) 30% 5% 25% 90% 80% 75% 50% 30% 50% 50% 20% 5% 15% 5% 25% 10% 45% 50% 45% 70% 55% Residential Residential Commercial Waterworks HVAC Industrial Fire & Fabrication Facilities Supply B2C Trade Showroom Sales associate or c
Slide 25: Drivers of profitable growth
Drivers of profitable growth Fulfilling customer wants Attractive growth opportunities Excellent execution Operating model and Engaged associates Organic expansion e-commerce development Excellent service ethic Bolt on acquisitions Pricing discipline Strong sales culture Adjacent opportunities Own b
Slide 26: Adjacent opportunities: Waterworks
Adjacent opportunities: Waterworks $3.0 bn $2.5 bn $2.0 bn $1.5 bn $1.0 bn $0.5 bn $0.0 bn 2001 2005 2009 2013 2017 Excellent growth trend Very large market opportunity (including 1/3 from acquisitions) 26
Slide 27: Waterworks growth opportunities
Waterworks growth opportunities Meter and Rural / municipal Support automation group water market design/build treatment plants • Recruit and train • Recruit and train • Invest resources to dedicated product and dedicated area municipal support emerging trend technology specialists, sales managers o
Slide 28: Meter and automation group
Meter and automation group − We now have ~ 10% of $1.2bn market − Municipal needs − Lower cost − Increase accuracy − Improved data management − Stand-alone business model with dedicated focus − Longer sales cycle − Multi-level selling − Technology solutions drive sales − Exclusive vendor relationshi
Slide 29: Rural / municipal water
Rural / municipal water − We now have ~12% of $2.6bn municipal market − 52,000+ water systems in the US, with some consolidation − Major investment is needed as infrastructure is ageing − Key skills required − Well-trained associates with industry knowledge − Vendor relationships Water utilities in
Slide 30: Treatment plant business
Treatment plant business − We now have ~25% of a $0.9bn market − Dedicated expert team to assist throughout design-build process. − Estimating, quotation, research and review − Scope and budget development − Value engineering − CAD drafting − Project management and tracking − Help our customers to b
Slide 31: Drivers of profitable growth
Drivers of profitable growth Fulfilling customer wants Attractive growth opportunities Excellent execution Operating model and Engaged associates Organic expansion e-commerce development Excellent service ethic Bolt on acquisitions Pricing discipline Strong sales culture Adjacent opportunities Own b
Slide 32: Own brand development: eg Signature Hardware
Own brand development: eg Signature Hardware − Online retailer of bathroom and kitchen hardware − $150m revenue pa − 100% own brand products − Customisation capability − 60k product range shipped across North America − Products also now being sold through showrooms Own brand penetration: 5.4% to 6.8
Slide 33: E-commerce development
E-commerce development B2B − Successful customer migration to the new Ferguson.com platform − Personalising site experience by line of business to increase loyalty − Promoting omni-channel services to drive efficiency − Investing and expanding solutions for mobile B2C − Building a new e-commerce sup
Slide 34: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK restructuring and repositioning plan 3. Capitalise on the significant growth opportunity in Canada 4. Accelerate innovation 5. Complete Nordics exit 34
Slide 35: Progress on UK strategy
Progress on UK strategy – Category management – Completed definition of new 27,000 SKU range – Cleansing “out-of-range” stock – Continued development of own brand capability – Introduced fixed pricing on a range of every day items – Invested in technology platform – Sign-on-glass technology roll out
Slide 36: Acceleration of UK restructuring
Acceleration of UK restructuring – Exited $280m of unsustainable, low margin business – Closed BCG wholesale business and exited unprofitable accounts – Consolidated e-commerce platforms – Announced further 60 branch closures in December – Cost base reduced by $30m pa from February – Reducing supply
Slide 37: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK restructuring and repositioning plan 3. Capitalise on the significant growth opportunity in Canada 4. Accelerate innovation 5. Complete Nordics exit 37
Slide 38: Capitalise on the significant growth opportunity in Canada
Capitalise on the significant growth opportunity in Canada – Strengthened key leadership – Market share gains across all business units – Key growth initiatives – Grow HVAC business – Private label expansion – E-commerce penetration now up to 12% of revenue – Excellent progress on strategic objectiv
Slide 39: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK restructuring and repositioning plan 3. Capitalise on the significant growth opportunity in Canada 4. Accelerate innovation 5. Complete Nordics exit 39
Slide 40: Accelerate innovation
Accelerate innovation – Dedicated team and allocated resources – Identify and test new technologies and business models – Investment fund to partner with interesting start ups – Innovation lab to explore emerging technologies – Three areas of focus – Connected ecosystem e.g. platforms linking home o
Slide 41: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK restructuring and repositioning plan 3. Capitalise on the significant growth opportunity in Canada 4. Accelerate innovation 5. Complete Nordics exit 41
Slide 42: Complete Nordics exit
Complete Nordics exit – Strong recovery in financial performance underpinned favourable transaction – H1 revenue growth of 6.3% – H1 trading profit up 48.2% – Disposal summary – Net proceeds approx. $1.2 billion after transaction costs – Competition approval received on 14 March – Completion expecte
Slide 43: Market update and outlook
Market update and outlook Markets Outlook – US residential markets growing well, – Order books remain strong commercial growth is good and industrial markets have recovered – Group organic revenue growth since the end of January has continued in line with growth – Canadian markets are healthy achiev
Slide 44: Appendix
Appendix
Slide 45: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit $m H1 2018 H1 2017 H1 2018 H1 2017 USA 7,912 7,156 647 559 UK 1,354 1,277 38 44 Canada & Central Europe 761 657 41 30 Central costs - - (28) (26) Group ongoing 10,027 9,090 698 607 Non-ongoing - 292 - 23 Group reported 10,027 9,382 698
Slide 46: Quarterly analysis
Quarterly analysis Revenue $m Q1 2018 Q2 2018 H1 2018 USA 4,112 3,800 7,912 UK 679 675 1,354 Canada & Central Europe 400 361 761 Group ongoing 5,191 4,836 10,027 Trading profit $m Q1 2018 Q2 2018 H1 2018 USA 363 284 647 UK 21 17 38 Canada & Central Europe 24 17 41 Central costs (14) (14) (28) Group
Slide 47: Branch numbers
Branch numbers Brought forward Carried forward Acquired Disposals Net Opened / Closed 31 July 2017 31 January 2018 USA 1,423 7 - 7 1,437 UK 642 - - (52) 590 Canada & Central Europe 245 7 - - 252 2,310 14 - (45) 2,279 47
Slide 48: Headcount
Headcount Brought forward Carried forward Acquired Disposals Net joiners / (leavers) 31 July 2017 31 January 2018 USA 23,986 235 - 804 25,025 UK 5,900 - - (85) 5,815 Canada & Central Europe 2,862 80 - 36 2,978 Other 103 - - (9) 94 32,851 315 - 746 33,912 48
Slide 49: Q&A
Q&A