Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — FY2010 Earnings Presentation
59 slides from Ferguson Enterprises's earnings presentation, Sep 27, 2010
Slide 1: 2010 Full Year Results
2010 Full Year Results WOLSELEY
Slide 2: Welcome and Highlights
Welcome and Highlights Ian Meakins Chief Executive 2
Slide 3: Presentation Structure
Presentation Structure Ian Meakins, CEO Welcome and Highlights John Martin, CFO Operating and Financial Review Ian Meakins Business Review, Strategy Update Q&A 3
Slide 4: Performance Highlights
Performance Highlights Like for like growth in Q4 • Market share – gaining or stable Customer service – gaining traction Group gross margin stable • Trading margin expansion Operating performance improving • Review process beginning to deliver • Operating costs lower and strong cash performa
Slide 5: Operating and Financial Review
Operating and Financial Review John Martin Chief Financial Officer 5
Slide 6: Financial Highlights
Financial Highlights Constant Continuing Operations £m 2010 2009 Change Currency Revenue 13,203 14,441 (9%) (10%) Gross profit 3,655 4,005 Gross margin 27.7% 27.7% Trading profit* 450 447 - (1%) Trading margin 3.4% 3.1% Exceptional items (excluding associates) (332) (458) Impairment of acquired inta
Slide 7: Quarterly Performance
Quarterly Performance Year ended 31 July 2010 Q4 Q3 Q2 Q1 Like for like revenue growth + 4% (2%) (10%) (14%) Gross margin % 27.9% 27.8% 28.1% 27.0% Average monthly operating costs £276m £268m £258m £267m Headcount 47,400 47,000 47,200 49,100 Trading profit growth + £34m + £53m £(22)m £(62)m 7
Slide 8: Quarterly Like for Like Revenue Growth
Quarterly Like for Like Revenue Growth Year ended 31 July 2010 Q4 Q3 Q2 Q1 USA +5% (4%) (14%) (21%) Canada +12% +6% (1%) (10%) UK +5% +4% (4%) (5%) Nordic +3% (5%) (9%) (15%) France (2%) (8%) (11%) (13%) Central and Eastern Europe (6%) (3%) (4%) (4%) +4% (2%) (10%) (14%) 8
Slide 9: Product Destination Analysis
Product Destination Analysis Civil Infrastructure Non - Residential New Construction Residential New Construction Non - Residential RMI Residential RMI Group: RMI 57%, New Residential 20% 9
Slide 10: Geographical Analysis
Geographical Analysis Trading Trading £m Revenue Revenue profit profit 2010 2009 2010 2009 USA 5,174 5,820 239 309 Canada 765 700 41 32 UK 2,466 2,699 91 55 Nordic 2,001 2,113 100 96 France 1,937 2,144 30 32 Central & Eastern Europe 860 965 10 - Construction Loans (4) (24) Central and other costs (5
Slide 11: USA
USA Constant £m 2010 2009 Change Currency Revenue 5,174 5,820 (11%) (11%) Trading profit 239 309 (23%) (23%) Trading margin 4.6% 5.3% Branches 1,241 1,228 Headcount 16,914 17,402 11
Slide 12: Canada
Canada Constant £m 2010 2009 Change currency Revenue 765 700 +9% (3%) Trading profit 41 32 +29% +15% Trading margin 5.4% 4.6% Branches 220 225 Headcount 2,573 2,487 12
Slide 13: UK
UK Constant £m 2010 2009 Change currency Revenue UK 2,399 2,495 (4%) (4%) Ireland 67 204 2,466 2,699 Trading Profit UK 96 83 +16% +16% Ireland (5) (28) 91 55 UK only trading margin 4.0% 3.3% Branches 1,486 1,643* Headcount 10,118 11,673* Brandon Hire 2010 revenue of £70m and trading profit of £5m *
Slide 14: Nordic
Nordic Constant £m 2010 2009 Change currency Revenue 2,001 2,113 (5%) (8%) Trading profit 100 96 +4% +2% Trading margin 5.0% 4.6% Branches 285 296 Headcount 6,551 6,749 14
Slide 15: France
France Constant £m 2010 2009 Change currency Revenue 1,937 2,144 (10%) (11%) Trading profit 30 32 (9%) (10%) Trading margin 1.5% 1.5% Branches 697 776 Headcount 8,306 9,053 15
Slide 16: Central and Eastern Europe
Central and Eastern Europe Constant £m 2010 2009 Change currency Revenue 860 965 (11%) (13%) Trading profit 10 - Trading margin 1.1% - Branches 189 226 Headcount 2,443 2,936 16
Slide 17: Construction Loans
Construction Loans £m 2010 2009 Trading loss (4) (24) Balance sheet position Net construction loans receivable £80m (2009 : £163m) Net assets held for resale £37m (2009 : £43m) 17
Slide 18: Performance Builder Update
Performance Builder Update Number As at 31 January 2010 19 Being integrated with other Business Units (4) Exited (Brandon Hire/France Public Works) (2) Being exited (3) Balance at 31 July 2010 10 Balance of 10 includes Build Center (UK) and Brossette (France). Italy is being restructured. 18
Slide 19: Central Costs
Central Costs £m 2010 2009 Group costs 39 41 Unallocated IT costs 12 8 Non-recurring costs 6 4 57 53 19
Slide 20: Income Statement
Income Statement £m 2010 2009 Trading profit 450 447 Associate (54) (15) Exceptional items (332) (458) Amortisation and impairment (315) (595) Interest (77) (145) Profit/(loss) before tax (328) (766) Tax (38) 34 Discontinued operations 26 (441) Profit/(loss) for the year (340) (1,173) 20
Slide 21: Associate and Discontinued Operations
Associate and Discontinued Operations £m 2010 2009 Share of after tax loss of associate (13) (15) Impairment (41) - (54) (15) Discontinued operations 26 (441) Balance sheet position: Investment in associate £nil (2009 : £53m) 21
Slide 22: Exceptional Items
Exceptional Items 2010 2010 2010 2009 £m H1 H2 Restructuring costs (42) (39) (81) (346) Loss on disposal of businesses (49) (8) (57) (40) BCP impairment and associated provisions (164) (6) (170) (41) Construction loans - (24) (24) (31) (255) (77) (332) (458) 22
Slide 23: Amortisation and Impairment
Amortisation and Impairment 2010 2010 2010 2009 £m H1 H2 Amortisation of acquired intangibles 48 44 92 105 Impairment of goodwill and acquired intangibles 71 152 223 490 119 196 315 595 23
Slide 24: Interest and Tax
Interest and Tax £m 2010 2009 Net interest payable and financing charges 77 145 2010 Tax 2010 Rate £m charge P&L (%) Total tax charge in P&L 38 Tax on exceptionals & intangibles 102 Effective tax* 140 373 38% Adjustments (11) 8 Underlying 129 381 34% * On profit before exceptional items, amortisatio
Slide 25: Operating Cash Flow
Operating Cash Flow £m 2010 2009 Trading profit 450 447 Depreciation and amortisation 185 241 EBITDA 635 688 Exceptionals, losses on sale, share options (119) (330) Discontinued operations - (242) Working capital and provision movements 189 1,084 Capex (84) (157) Proceeds of asset disposals 96 172 O
Slide 26: Other Cash Flow and Movement in Net Debt
Other Cash Flow and Movement in Net Debt £m 2010 2009 Operating cash flow less net capex 717 1,215 Net interest (51) (165) Tax received / (paid) 90 (27) Acquisitions and disposals (21) (33) FX and other items (126) (474) Capital raising 4 994 Decrease in net debt 613 1,510 Opening net debt (959) (2,
Slide 27: Net Debt
Net Debt £m 2010 2009 Change Net debt as reported 346 959 613 495 400 June – August average net debt 841 1,359 518 Factoring 274 168 Construction loan debt 80 163 1,195 1,690 495 Committed credit facilities - more than 1 year £3.2bn Committed credit facilities - more than 2 years £1.7bn 27
Slide 28: Other Commitments
Other Commitments £m 2010 2009 Total operating lease commitments 1,292 1,329 Pension liabilities 432 341 28
Slide 29: Capital Structure
Capital Structure The Board intends to resume dividends at 2011 interim Balance sheet • ongoing net debt target range 1x – 2x EBITDA • consistent with investment grade financial profile 29
Slide 30: Business Review and Strategy
Business Review and Strategy Ian Meakins Group Chief Executive 30
Slide 31: Agenda
Agenda Delivery over last six months Strategy – recap and progress Operating performance – specific examples • US - Ferguson • UK - Plumb • Nordic - Stark Summary Outlook 31
Slide 32: Delivery Over Last 6 Months
Delivery Over Last 6 Months Assessment – March 2010 Actions Taken Inefficient capital allocation Resource allocation • Rolled into business unit strategies/budgets • Capital to Growth Engines / Synergy Drivers • Performance Builders being resolved Lack of focus on performance Performance rev
Slide 33: Delivery Over Last 6 Months contd.
Delivery Over Last 6 Months contd. Assessment – March 2010 Actions Taken Right leadership team Continued strengthening Focus on global model Local customers / competitors Best practice – roll-out IT support local businesses – long-term converge Balance sheet exposed at De-leveraging
Slide 34: Recap of Strategy Framework
Recap of Strategy Framework Operational Strategy Performance Within Cross Resource Business Unit Business Business Allocation Strategies Unit Unit Profitable Growth 34
Slide 35: Driving Operational Performance
Driving Operational Performance Operational Strategy Performance Within Cross Resource Business Unit Business Business Allocation Strategies Unit Unit Profitable Growth 35
Slide 36: Recap - Business Unit Strategy Framework
Recap - Business Unit Strategy Framework Driving Profitable Growth Nordic – Stark Gain share from “serious” self builders Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Best Branch Staff US – Ferguson Most efficient operating model Improve
Slide 37: Ferguson - Best Customer Service: Customer Needs
Ferguson - Best Customer Service Customer Needs Service Improvement Areas 21% 19% 15% 9% Availability of Product Knowledge of Pricing Rate / Speed of Associates Service Performance on availability - not regularly measured; equal to best local competitor 37
Slide 38: Ferguson - Actions Taken – Top 2,000 SKUs
Ferguson - Best Customer Service Actions Taken – Top 2,000 SKUs Launched top 2,000 SKU initiative in November 2009 • Provide 100% fill rate • Within branch and from DC Holistic approach • Supplier safety stock and service level improvement • Distribution centers – increase inventory and visibili
Slide 39: Ferguson - Customer Feedback
Ferguson - Best Customer Service Customer Feedback Rank Ferguson Ratings MAR MAY AUG 1 Availability of Products 7.4 7.3 8.0 2 Relationship with Associates 8.9 9.1 9.2 3 Competitive Pricing 7.7 7.7 7.9 4 Rate / Speed of Service 7.8 8.1 8.7 5 Range of Products 8.0 8.3 8.8 Overall Customer Service 8.6
Slide 40: Ferguson - Customer Feedback and Results
Ferguson - Best Customer Service Customer Feedback and Results Customer MAR AUG MAR AUG Net Promoter Score Share of Wallet Plumber 38 43 Ferguson 53% 59% Mechanical Contractor 49 47 Homebuilder 38 53 Market Share FY09 FY10 HVAC Contractor 33 35 Performance Commercial Builder 25 36 Ferguson performan
Slide 41: Recap - Business Unit Strategy Framework
Recap - Business Unit Strategy Framework Driving Profitable Growth Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Best Branch Staff Most efficient operating model UK - Plumb Turn around gross margin performance 41
Slide 42: Plumb – Gross Margin Improvements
Plumb – Efficient Operating Model Gross Margin Improvements Gross Margin (%) Run Rate Delivery Product Review New Contract Customer Customer Feb-09 Charges Group – “No Price Private Claims Terms Mix Terms Change” Label Review Review Products Radiator 42
Slide 43: Plumb – Branch Scorecard
Plumb – Efficient Operating Model Branch Scorecard Sales Area L42 Branch Customer Customer National Cash Sales Team Branch Account 1 2 Account Account A (1.8%) (0.7%) 1.2% (0.4%) 11.5% B 7.5% 12.7% 6.3% 7.6% 8.1% C 3.7% 0.9% 7.1% 15.5% 36.2% D 9.1% 5.1% 2.5% (6.4%) 1.1% (11.5%) E (2.6%) (9.4%) (1.4%
Slide 44: Plumb – Trading Margins with Key Suppliers
Plumb – Efficient Operating Model Trading Margins with Key Suppliers Heating Suppliers Plumbing Suppliers Sales Margin Sales Margin Supplier Supplier Mix Variance Mix Variance A 9% 1.2% A 14% 2.4% B 7% (2.3%) B 6% 2.6% C 6% 2.4% C 3% 3.0% D 6% (2.6%) D 3% 2.4% E 6% (3.2%) E 2% 2.1% F 4% (0.3%) F 2%
Slide 45: Plumb – Customer Service Performance
Plumb – Efficient Operating Model Customer Service Performance 500 450 52 400 350 300 Number of 250 Excellent - very good Branches 339 Good 200 Poor 150 100 50 70 0 September 10 Gross margin improvement delivered whilst still improving customer service 45
Slide 46: Plumb – Gross Margin Performance
Plumb – Efficient Operating Model Gross Margin Performance Gross Margin (%) No v Feb Oct Jul Jan Jun Mar May Apr Dec Aug Sep FY09 FY10 FY11 46
Slide 47: Business Unit Strategy Framework
Business Unit Strategy Framework Driving Profitable Growth Nordic – Stark Gain share from “serious” self builders Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Best Branch Staff Most efficient operating model 47
Slide 48: STARK - Gaining Share of Existing and New Customers
STARK - Gaining Share of Existing and New Customers Stark strategically strong • Market share 16% - relative market share >2x • ROIC >50% Build on market leadership of Stark • Gain wallet share of tradesmen • Trade terms • Customer survey actions • New branch openings • New product / services
Slide 49: STARK - Customer Survey
STARK - Gaining Share of Existing and New Customers Customer Survey Do you have plans to launch a construction project? How likely is it that you will choose STARK Selvbyg for your construction project? Overall, how do you feel treated as a customer at STARK? / Overall, how competitive is STARK in y
Slide 50: STARK - Self Build Concept 'SELVBYG'
STARK - Gaining Share of Existing and New Customers Self Build Concept ‘SELVBYG’ Market Segmentation Professional services SELVBYG a sub–brand Targeting “serious” self builders Private Focus Business Focus Existing branch infrastructure • Dedicated staff Sales channel for tradesmen • Not com
Slide 51: STARK - SELVBYG Results to Date
STARK - Gaining Share of Existing and New Customers SELVBYG Results to Date Sales lead time longer than forecast Basket size for SELVBYG customers Basket Size APR – AUG 2009 APR – AUG 2010 % Change SELVBYG customers 850 999 17.5% Other 953 981 2.9% Number of visits per customer stable • Need t
Slide 52: Operational Performance - Conclusions
Operational Performance - Driving Profitable Growth Conclusions Performance review process with Business Units working • Decent progress BUT long way to go Many opportunities for profitable organic growth • Detailed execution Customer service improvements • Key to gain wallet and market share
Slide 53: Summary
Summary Future direction of Group clear • Build on strategically strong Business Units • Organic growth in Growth Engines and Synergy Drivers • Over time bolt-on acquisitions • Performance Builders being resolved: – Improve, reclassify, exit Business beginning to perform better • Business Unit p
Slide 54: Q&A
Q&A The name the world builds on
Slide 55: Appendices
Appendices a WOLSELEY
Slide 56: Currency
Currency 2010 2009 @ 31 July @ 31 July Average Average Movement 2010 2009 US$ 1.57 1.57 - 1.57 1.67 CAN$ 1.64 1.85 (11%) 1.61 1.80 DKK 8.48 8.64 +2% 8.96 8.73 Euro 1.14 1.16 (2%) 1.20 1.17 CHF 1.66 1.77 (6%) 1.63 1.79 56
Slide 57: Headcount/Branch Analysis
Headcount/Branch Analysis FY10 FY09 BRANCHES US Canada UK Nordic CEE France Other Actual Actual At start of period 1,228 225 1,643 296 226 776 - 4,394 5,025 Net Movement 13 (5) (157) (11) (37) (79) - (276) (631) At end of Period 1,241 220 1,486 285 189 697 - 4,118 4,394 FY10 FY09 HEADCOUNT US Canada
Slide 58: Market Overview
Market Overview YoY Trend Improving Key Indicators Flat (+ / - 5%) Declining USA Consumer Single-Family Billings Index: GDP (2011F)1 3.1% Confidence Index3 Home Sales (000s)4 Commercial5 Annual Unemployment Rate 2010 Q3 v Jul 10 v 2010 Q3 v 8.2% -5.98 -2,098 +0.3 (2011F)2 Q2 Apr 10 Q2 UK Property Co
Slide 59: Market Overview – Sources and Definitions
Market Overview Key Indicators – Sources and Definitions Ref Name Source General 1 GDP - Gross Domestic Product Global Insight 2 Annual Unemployment Rate Global Insight USA 3 Consumer Confidence Index The Conference Board 4 New and Existing Single-Family Home Sales National Association of Realtors 5