Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — H1 2019 Earnings Presentation
47 slides from Ferguson Enterprises's earnings presentation, Mar 26, 2019
Slide 1: Half Year Results presentation
2018/19 Half Year Results presentation 6 months to 31 January 2019
Slide 2: Agenda
Agenda Highlights John Martin Operating and financial review Mike Powell Business review and outlook John Martin Questions 2
Slide 3: First half highlights
First half highlights • +8.1% revenue growth, organic +6.5% • Good cash generation and strong balance sheet • Organic US blended branches growth: • Sale of Wasco and surplus assets for $255m • East +8.4% • Proposal to move tax domicile to UK • West +10.1% • Interim dividend +10% • Central +9.2% • Or
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 2019 H1 2018 Change exchange rates) change² Ongoing revenue $10,666m $9,865m +8.1% +8.9% +6.5% Ongoing gross margin % 29.6% 29.5% +0.1% Ongoing trading profit ¹ $744m $691m +7.7% +8.0% Ongoing trading margin % ¹ 7.0% 7.0% - Headline earnings per sh
Slide 6: Revenue and trading profit growth
Revenue and trading profit growth Ongoing revenue Ongoing trading profit ($m) +6.5% (0.6%) +3.0% ($m) (12) 16 641 (59) 289 51 (70) (2) 10,666 744 9,865 9,795 691 689 H1 2018 Exchange H1 2018 inc. Organic Trading days Acquisitions H1 2019 H1 2018 Exchange H1 2018 inc. Organic Trading days Acquisition
Slide 7: Organic revenue growth
Organic revenue growth Q1 Q2 Q3 Q4 Q1 Q2 2018 2018 2018 2018 2019 2019 USA +8.3% +9.1% +10.6% +11.4% +9.6% +9.7% UK1 +3.9% (1.7%) +0.7% (0.1%) +1.5% (1.0%) Canada +7.2% +9.9% +4.7% +6.3% +3.3% +0.5% Ongoing businesses +7.5% +7.4% +7.1% +8.1% +6.7% +6.3% ¹ The UK revenue growth rate is presented on a
Slide 8: USA ongoing
USA ongoing $m H1 2019 H1 2018 Change Revenue 8,874 7,912 +12.2% Organic revenue growth +9.7% +8.7% Trading profit 700 647 +8.2% Trading margin 7.9% 8.2% (0.3%) Continued good revenue growth, $53 million increase in trading profit 8
Slide 9: USA organic revenue growth
USA organic revenue growth Revenue Organic Business unit $m growth AK Central Blended Branches WA +9.2% 5,113 +9.2% ME (see regional analysis on the right) West OR MT ND VT MN ID SD WI NY NH +10.1% WY MI Waterworks standalone 1,366 +7.8% NV NE IA PA OH UT IL IN CO WV VA eBusiness standalone 757 +1.0
Slide 10: USA end-market revenue growth in the first half
USA end-market revenue growth in the first half % of US revenue Market growth US organic revenue H1 2019 H1 2019 growth H1 2019 Residential ~50% ~6% +8% Commercial ~35% ~5% +9% Civil / Infrastructure ~7% ~5% +7% Industrial ~8% ~13% +23% ~6% +9.7% End market growth remained strong in H1 but moderated
Slide 11: UK
UK Change (at constant $m H1 2019 H1 2018 Change exchange rates) Revenue 1,177 1,354 (13.1%) (10.3%) Like-for-like revenue growth +0.3% +1.9% Trading profit 30 38 (21.1%) (16.7%) Trading margin 2.5% 2.8% (0.3%) In March we exited a non-core business, Soak, which contributed $51m towards revenue (H1
Slide 12: Canada
Canada Change (at constant $m H1 2019 H1 2018 Change exchange rates) Revenue 615 599 +2.7% +7.9% Organic revenue growth +2.1% +8.4% Trading profit 39 34 +14.7% +18.1% Trading margin 6.3% 5.7% +0.6% Strong trading profit growth achieved despite slowing residential markets 12
Slide 13: Exceptional items
Exceptional items $m Cash Non-cash H1 2019 P&L total Disposal of Dutch business 105 (67) 38 UK restructuring costs (25) (6) (31) Other exceptional costs (2) (5) (7) Total included in operating profit 78 (78) - Disposal of interests in Swiss associate 18 (15) 3 Total included in profit before tax 96
Slide 14: Financing & tax
Financing & tax $m H1 2019 H1 2018 Financing Reported P&L charge 35 27 Tax Ongoing P&L charge 161 167 Ongoing effective tax rate 22.7% 25.2% 14
Slide 15: Cash flow
Cash flow $m H1 2019 H1 2018 Adjusted EBITDA from continuing operations 842 782 Cash flow from operating activities 287 390 Interest & tax (166) (129) Capex (244) (175) Dividends & buybacks (300) (583) Acquisitions of businesses (589) (120) Disposals of businesses, associates and assets held for sal
Slide 16: Capital structure
Capital structure H1 2019 H1 2018 Net debt as reported $1,885m $1,401m Net debt : EBITDA 1.1x 0.8x Net pension asset $154m $48m Operating lease commitments $1.1bn $1.1bn Strong balance sheet maintained 16
Slide 17: Change of tax domicile
Change of tax domicile Intention to move Ferguson’s tax domicile to UK • Requires scheme of arrangement • Subject to shareholder approval • Effective date 10 May 2019 • Anticipated Group effective tax rate at 25-26% for FY20, no change to previous guidance Benefits of moving to the UK • Simplifies t
Slide 18: IFRS16 impact
IFRS16 impact • Applies to year ending 31 July 2020 for Ferguson • First financial statements published under IFRS 16 will be 2019/20 half year in March 2020 • No impact on the economics of lease transactions, the cash payments made, business plans or capital allocation • We will use the modified re
Slide 19: Technical guidance for the full year to 31 July 2019
Technical guidance for the full year to 31 July 2019 Estimated impact of one fewer trading day on trading profit (first half) $12 million FY19 impact from completed acquisitions Revenue $750m, Trading profit $60m Less transaction / integration costs $15 million Net additional trading profit $45 mill
Slide 20: Business review and outlook
Business review and outlook John Martin, Chief Executive 20
Slide 21: Agenda
Agenda Business review and outlook • Attractions of our business model • Update on current initiatives • Markets and outlook 21
Slide 22: Attractions of our business model
Attractions of our business model Attractive market structure Differentiated service offering • Fragmented customer, supplier and • Best associates in our industry competitor base • Highly valued service proposition supporting • Repeat customers for RMI and new build customer projects markets • Sign
Slide 23: Attractive market structure: Fragmented competitor base
Attractive market structure: Fragmented competitor base 30 #3 #4 #5 $50bn $89bn 25 #1 #2 20 Market size ($bn) 15 #1 #1 10 3 #2 5 5 3 3 Home Depot 5 7 5 4 MRC #1 Amazon Watsco HD Supply 16% 11% 19% 22% 5% 5% 4 16% 0 21% 1% Residential Residential Commercial Waterworks HVAC Industrial Fire & Facilitie
Slide 24: Attractive market structure: Focus on RMI market
Attractive market structure: Focus on RMI market 11% 7% 31% 60% 58% 33% FY08 FY18 New construction RMI Civil infrastructure Repairs, Maintenance and Improvement (RMI) market now 60% of US revenue 24
Slide 25: Differentiated service offering
Differentiated service offering 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
Slide 26: Great growth opportunities
Great growth opportunities Good demographics Low cost organic growth opportunities and low-risk bolt-on acquisitions 80% 42 years No. of the c. 128m US homes Median age of the US homes2 with 2 or more bathrooms1 No.1 +6% US has highest levels of Forecast US population growth disposable income in OEC
Slide 27: Great growth opportunities: Consistent revenue, gross margin and profit growth
Great growth opportunities: Consistent revenue, gross margin and profit growth $20.4bn 29.4% $1.5bn $15.9bn 27.7% $0.9bn ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 Group ongoing revenue Gross margin Group ongoing trading profit 27
Slide 28: Strong returns: Returns on capital
Strong returns: Returns on capital 22.7% 12.5% '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 (%) Return on gross capital employed = Group trading profit Average (Shareholders’ equity + adjusted net debt + accumulated amortisation and impairment of goodwill and acquired intangible assets) 28
Slide 29: Simpler, stronger, more profitable business
Simpler, stronger, more profitable business 2008 2018 Business units 45 15 Simpler Number of countries 27 3 Presentational currency £ $ Net debt: EBITDA 2.7x 0.6x Stronger Operating leases ($3.0bn) ($1.1bn) Pensions ($0.5bn) $0.2bn Return On Capital Employed 12.5% 22.7% More profitable Gross margin*
Slide 30: Agenda
Agenda Business review and outlook • Attractions of our business model • Update on current initiatives • Markets and outlook 30
Slide 31: Improving service, lowering cost and driving growth
Improving service, lowering cost and driving growth • Denver is a $1.5bn residential and commercial • Opportunity to fill a gap in our supply chain (currently served from 1,200 miles away) market • 11% revenue growth CAGR between 2015-2018 • 450k ft2 new facility in Aurora, Colorado ‐ Replaces 4 exi
Slide 32: Providing innovative solutions for customers
Providing innovative solutions for customers • Residential, commercial and HVAC supplier from a single distribution centre in Atlanta • Focused on professional contractors, designers, builders, architects and plumbers • Combines e-commerce platform with personalised full service account management f
Slide 33: Expanding customer choice with own-brand ranges
Expanding customer choice and generating more value with expansion of own-brand ranges • Fredrick York brand launched in Canada in September 2018 • Range of kitchen and bathroom fixtures and fittings ‐ bespoke range for Canadian market ‐ available in showrooms and branches nationwide ‐ dedicated tra
Slide 34: Building market share with bolt-on acquisitions
Building market share with bolt-on acquisitions Coxsackie 12.3% 11.6% Market share 8.7% 8.4% 7.7% 6.4% Distribution centre Ferguson Davis & Warshow Karl’s appliance Ramapo Blackman Wallwork New York and New Jersey, an $11bn market in Blended, Waterworks, HVAC 34
Slide 35: Building a better quality, more consistent business in the UK
Building a better quality, more consistent business in the UK • Focused on customer service and inventory availability, including in-night replenishment • Completed range definition with 3,000 to 11,000 SKUs in branches and 17,000 in RDCs • Closed National Distribution Centre reducing double handlin
Slide 36: Agenda
Agenda Business review and outlook • Attractions of our business model • Update on current initiatives • Markets and outlook 36
Slide 37: Market backdrop
FERGUSON Market backdrop Exhibit 9: Price/Mix Gains Decelerating as Volume Backdrop Weakens in 1Q19 10.0% 9.0% 8.0% 7.0% 6.0% Estimated Change in Total Building Products Revenue BA% Volume 8.1% @ Price/Mix 7.3% 6.9% 68% 6.6% 65% 5.9% 5.8% 5.1% 1016 2Q16 3Q16 4016 1017 2Q17 3017 4Q17 1018 2018 3018 S
Slide 38: Business focus
Business focus • Maintain high service standards and great inventory availability to continue to grow and gain market share • Protect our gross margins and actively manage our cost base • Complete acquisitions and add new capacity only where financials are compelling • Continue to generate strong ca
Slide 39: Maintain strong balance sheet
Maintain strong balance sheet 6.0 3.0 5.0 2.5 Net Debt : EBITDA ratio 4.0 2.0 Net Debt $bn 3.0 MAXIMUM NET DEBT RANGE 1X TO 2X EBITDA 1.5 2.0 1.0 1.0 0.5 - - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan 2019 (1.0) (0.5) Net Debt Net debt: EBITDA ratio $3.0bn Operating lease liabilities
Slide 40: Outlook
Outlook • After strong revenue performance in first half, our growth rate has moderated recently in line with market conditions • Estimate of Group organic revenue growth in range 3% to 5% in second half • Expect full year trading profit towards lower end of range of current analysts’ expectations 4
Slide 41: Appendix
Appendix
Slide 42: Impact of tariffs
Impact of tariffs Total headline US value Value of Ferguson direct Tariff Effective date Products impacted impacted Rate import effected $m S 232 Feb 2018 Steel S 301 List 1 Jul 2018 818 lines $34bn 25% $1m S 301 List 2 Aug 2018 279 lines $16bn 25% $1m S 301 List 3 round 1 Sep 2018 5,745 lines $200b
Slide 43: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit $m H1 2019 H1 2018 H1 2019 H1 2018 USA 8,874 7,912 700 647 UK 1,177 1,354 30 38 Canada 615 599 39 34 Central costs - - (25) (28) Group ongoing 10,666 9,865 744 691 Non-ongoing – Wasco 181 162 9 7 Group reported 10,847 10,027 753 698 43
Slide 44: Quarterly analysis
Quarterly analysis Revenue $m Q1 2019 Q2 2019 H1 2019 USA 4,607 4,267 8,874 UK 607 570 1,177 Canada 340 275 615 Group ongoing 5,554 5,112 10,666 Trading profit $m Q1 2019 Q2 2019 H1 2019 USA 400 300 700 UK 19 11 30 Canada 27 12 39 Central costs (14) (11) (25) Group ongoing 432 312 744 44
Slide 45: Branch numbers
Branch numbers Brought forward Carried forward Acquired Net Closed 31 July 2018 31 January 2019 USA 1,448 62 (31) 1,479 UK 567 - (10) 557 Canada 230 1 - 231 2,245 63 (41) 2,267 45
Slide 46: Headcount
Headcount Brought forward Carried forward Acquired Net joiners / (leavers) 31 July 2018 31 January 2019 USA 26,501 959 357 27,817 UK 5,617 - (133) 5,484* Canada 2,742 60 (38) 2,764 Other 85 - (7) 78 34,945 1,019 179 36,143 * Includes 265 for Soak 46
Slide 47: FERGUSON sap; Ritchen'e Ligh
FERGUSON sap; Ritchen'e Ligh