Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — FY2015 Earnings Presentation
50 slides from Ferguson Enterprises's earnings presentation, Sep 29, 2015
Slide 1: 2015 Full Year Results
2015 Full Year Results
Slide 2: Welcome and highlights
Welcome and highlights Ian Meakins, Chief Executive
Slide 3: Highlights
Highlights Group performance − Market share gains − Improvements in customer service − Revenue and gross profit growth − Flow through / margin improvements Excellent USA results UK was challenging − Pricing / gross margins Nordics H2 improved − Like-for-like revenue growth, share gain and tr
Slide 4: Operating and Financial Review
Operating and Financial Review John Martin, Chief Financial Officer
Slide 5: Financial highlights
Financial highlights 2014 Change Like-for-like (at constant 2015 Restated** Change exchange rates) Change Ongoing revenue £13,300m £11,952m +11.3% +10.1% +7.1% Ongoing gross margin % 28.0% 27.9% +0.1% Ongoing trading profit* £857m £752m +14.0% +11.4% Foreign exchange impact (ongoing) +£17m Ongoing t
Slide 6: Like-for-like growth
Like-for-like growth Q4 Q1 Q2 Q3 Q4 last year this year this year this year this year USA 11.1% 12.4% 11.1% 8.3% 7.1% UK (2.6%) 0.5% 3.4% 7.6% 3.1% Nordics (2.3%) 1.9% 5.4% 8.8% 6.4% Canada 3.7% 3.6% 3.1% (1.9%) (5.8%) Central Europe 0.1% (7.0%) 4.6% 1.0% (3.4%) Ongoing businesses 5.9% 7.5% 8.4% 7.5
Slide 7: Historical trading profit growth
Historical trading profit growth* +88 +77 +79 857 +83 769 692 613 530 2011 2012 2013 2014 2015 * Ongoing businesses, at 2015 exchange rates 7
Slide 8: USA ongoing (76% of Group trading profit)
USA ongoing (76% of Group trading profit) Change (at constant £m 2015 2014 Change exchange rates) Revenue 8,337 7,045 +18.3% +12.4% Like-for-like growth +9.6% +8.2% Trading profit 683 542 +26.0% +19.8% Foreign exchange impact 29 Trading margin 8.2% 7.7% +0.5% Branches 1,418 1,377 +41 8
Slide 9: USA ongoing
USA ongoing Revenue Like-for-like Business unit £m Change % Blended Branches (see regional analysis below) 5,164 +8.9% Waterworks 1,320 +8.1% HVAC, Industrial, Fire & Fabrication, B2C, MRO 1,853 +10.2% 8,337 +9.6% Central AK 35% WA ME MT ND MN OR V MA ID WI T NH SD NY RI MI West WY CT NV IA PA NE NJ
Slide 10: USA ongoing revenue growth
USA ongoing revenue growth 10 .9% 12.4% 9.5% 8.2% 8.5% 2011 2012 2013 2014 2015 Acquisitions growth % Organic growth % Organic growth driven by excellence in customer service, product availability and staff engagement Focus on sales force efficiency, CRM processes and National Sales Centre Bro
Slide 11: USA ongoing profitability
USA ongoing profitability 8.2% 7.3% 7.7% 5.7% 6.3% £683m £542m £490m £389m £314m 2011 2012 2013 2014 2015 Trading profit Trading margin Gross margin driven by service, mix, pricing discipline, vendor partnering Leverage DC / hub / branch fulfilment model Driving e-commerce (B2B and B2C) to 18%
Slide 12: UK ongoing (10% of Group trading profit)
UK ongoing (10% of Group trading profit) £m 2015 2014 Change Revenue 1,987 1,853 +7.2% Like-for-like growth +3.6% (0.1%) Trading profit 90 96 (6.3%) Trading margin 4.5% 5.2% (0.7%) Branches 758 768 (10) 2015 charged £2m of restructuring costs 12
Slide 13: Nordic ongoing (8% of Group trading profit)
Nordic ongoing (8% of Group trading profit) Change (at constant £m 2015 2014 Change exchange rates) Revenue 1,863 1,892 (1.5)% +9.6% Like-for-like growth +5.5% +0.4% Trading profit 72 80 (10.0%) 0.2% Foreign exchange impact (9) Trading margin 3.9% 4.2% (0.3%) Branches 259 267 (8) 13
Slide 14: Canada ongoing (4% of Group trading profit)
Canada ongoing (4% of Group trading profit) Change (at constant £m 2015 2014 Change exchange rates) Revenue 708 736 (3.8%) +1.5% Like-for-like growth (0.3%) 1.0% Trading profit 34 43 (20.9%) (13.3%) Foreign exchange impact (2) Trading margin 4.8% 5.8% (1.0%) Branches 226 222 4 2015 charged £5m of re
Slide 15: Central Europe ongoing
Central Europe ongoing (2% of Group trading profit) Change (at constant £m 2015 2014 Change exchange rates) Revenue 405 426 (4.9%) (1.4%) Like-for-like growth (1.4%) (1.9%) Trading profit 21 26 (19.2%) (19.9%) Foreign exchange impact (1) Trading margin 5.2% 6.1% (0.9%) Branches 78 75 3 2015 charged
Slide 16: Revenue and trading profit in the ongoing business
Revenue and trading profit in the ongoing business 127 378 843 13,300 Revenue 11,952 12 17 15 17 (30) (11) 85 857 Trading profit 752 2014 Organic Acquisitions Exchange Gross margin Cost increases Business Restructuring 2015 growth improvement less efficiency model savings investment Trading profit /
Slide 17: Impairments, exceptionals & discontinued operations
Impairments, exceptionals & discontinued operations £m H1 H2 FY Nordic impairment (245) 11 (234) France discontinued - operating (loss)/profit (11) 9 (2) - loss on disposal and impairment (59) (67) (126) Foreign exchange recycling (5) (17) (22) Gains on disposal / other items 8 5 13 Pre-tax total (3
Slide 18: Central costs, financing and tax
Central costs, financing and tax £m 2015 2014* Central costs 43 35 Financing Net interest charges 24 20 Facility charges 5 6 Pensions and provisions (3) 3 26 29 Tax P&L charge 187 194 Exceptionals, intangibles & non-recurring items 45 11 Underlying P&L charge 232 205 Effective tax rate 27.9% 28.4% *
Slide 19: Cash
Cash £m 2015 2014* Trading profit (reported) 854 752 Depreciation & amortisation 117 95 EBITDA 971 847 Working capital - Year end timing 40 (70) - Net investment (48) (63) Provisions, other movements & exceptionals (26) (36) Cashflow from operating activities 937 678 Net interest and tax paid (253)
Slide 20: Net debt, pensions and commitments
Net debt, pensions and commitments £m 2015 2014 Net debt as reported 805 711 Impact of timing of payment runs 130 90 935 801 Net pension liabilities/(assets) 15 (7) Operating lease commitments 861 788 Facilities £bn 2015 2014 Committed facilities - New 5 year RCF 0.8 - New 7-12 year private placemen
Slide 21: Organic investment
Organic investment 2015 2014 £m Capex Capex Technology, processes, systems 69 59 Freehold DCs and hubs 70 62 Branch expansion, showrooms and refurbishment 92 80 231 201 Significant investments Technology DCs and hubs Branch refurbishment Ferguson eCommerce Houston, NY Metro hub, Ferguson ‘Showrooms
Slide 22: Acquisitions
Acquisitions Financial impact £m Revenue Trading profit 1 August 2014 until the date of acquisition 117 6 Date of acquisition until 31 July 2015 103 2 220 8 22
Slide 23: Dividends and capital structure
Dividends and capital structure Final dividend – Recommended 60.5p per share (full year of 90.75p per share; +10.0%) – Covered 2.5x by headline EPS Balance sheet – Net debt / EBITDA 0.8x – £300m share buyback 23
Slide 24: Guidance for year to July 2016
Guidance for year to 31 July 2016 Expected like-for-like revenue growth over the next 6 months 4% Trading days and estimated impact on trading profit One less day / (£6m) Impact of restating last years trading profit at current FX rates Negligible Restructuring costs to be charged to operating profi
Slide 25: Business Review and Strategy Update
Business Review and Strategy Update Ian Meakins, Chief Executive
Slide 26: Agenda
Agenda 1. US Performance – Excellent 2015 – potential for further progress 2. Strategy – Customer Service − Customer needs − Service metrics − Customer segmentation − Proposition development 26
Slide 27: USA Ongoing Performance
USA Ongoing Performance LFL revenue growth vs market growth % Net promoter score % 18 16 14 Best district – 82.8% 12 64.7 10 8 Worst district – 52.7% 6 4 2 0 Blended Waterworks Industrial Fire & Fab HVAC B2C 2015 FY15 Market growth FY15 LFL revenue growth Employee engagement % Top 3,000 SKU availabi
Slide 28: USA Ongoing Performance
USA Ongoing Performance Revenue £m LFL revenue growth % Trading profit as a % gross profit +18.3% +1.4% 1.5% pts improvement 9.6 27.8 26.3 8,337 8.2 7,045 2015 2014 2015 2014 2015 2014 Flow through* % Trading profit £m Cash to Cash Days +26.0% 0.8 days decline 59.5 683 12.2 542 58.7 2015 2015 2014 2
Slide 29: Revenue growth vs market – Top states
Revenue growth vs market – Top 5 states Blended Branches AK WA Total Blended Branches ME MT ND MN OR 15 VT 10.9 NH ID 10SD T WI NY WY 5.2 MI 10 8.3 5 15 IA PA 0 NV NE 10.7 5 3.7 OH 10 7% IN 7.5 14% UT IL CA CO WV 5 KS 0 MO VA KY 0 NC AZ OK TN NM AR SC 4% GA MS AL 20 14.4 TX LA 15 8.5 HI 10 5 15 8% 7
Slide 30: Agenda
Agenda 1. US Performance 2. Strategy – Customer Service − Customer needs − Service metrics − Customer segmentation − Proposition development Better execution and performance – but still a long way to go 30
Slide 31: Accelerating profitable growth Re-cap
Accelerating profitable growth Re-cap Customer service Employee engagement Network expansion >99% product availability Best employees in industry Geographic expansion Speed of service Branch and sales staff Supply chain and logistics Range Experienced and knowledgeable Leverage cos
Slide 32: Customer service
Customer service Profitable share gains driven by improvements in service: − Customers and Wolseley benefit − Customers complete work on time and get paid − Increased share of wallet/ better customer retention − Lower cost value chain for customers and Wolseley Opportunity to improve our perform
Slide 33: Customer understanding/analysis
Customer understanding/analysis Group approach FY 15 Execution: Quantitative 16,873 customers surveyed - up 36% − secret shopping 1,110 secret shop events − existing and new − drivers of service 750+ customers interviewed in person Qualitative 700+ associates surveyed − emphasis on needs
Slide 34: Customer service performance across Group
Customer service performance across Group US NPS By Business Unit and Sales Order Channel 100 75.6 75.0 70.6 74.0 70.4 75 67.2 63.8 64.7 50 25 0 Blended Waterworks Industrial Fire & Fab HVAC B2C eComm B2B eComm Overall Other Business Units NPS 100 75 69.8 56.1 49.6 50 40.5 43.8 41.6 25 0 UK Denmark
Slide 35: Drivers of NPS – What drives the US score?
Drivers of NPS – What drives the US score? 39% 30% 28% 26% Corre 9% Overall quality of customer Availability and range of Relationship with associates Competitive pricing Accuracy of billing service products Correlation to US NPS Score 35
Slide 36: NPS - variability across businesses
NPS - variability across businesses Major US Districts 90 80 70 Range 30 NPS points 60 50 40 NPS % 30 20 10 0 A B C D E Stark NPS Variability UK Canada Tobler Denmark Best 60 62 48 81 Worst 35 49 30 67 Range 25 points 13 points 18 points 14 points Consistent performance across networks is an enormou
Slide 37: Agenda
Agenda 1. US Performance 2. Strategy – Customer Service − Customer needs − Service metrics − Customer segmentation − Proposition development Better execution and performance – but still a long way to go 37
Slide 38: Customer segmentation - Ferguson
Customer segmentation - Ferguson Customer Segment Price Sensitivity % of Revenue Sales Opportunity Deal Lower margin on commodities 25% Bundle opportunities Low High Place orders immediately Reliability 15% 100% fill rate Consignment inventory Low High Optimize delivery costs / frequency
Slide 39: Customer segmentation - Group
Customer segmentation - Group % revenue Deal Reliability Price Partnership Inventory US 25% 15% 10% 30% 20% UK 30% 15% 20% 15% 20% Denmark 30% 15% 15% 25% 15% Switzerland 40% 15% 20% 25% Segments similar across Group, and price focused segment relatively small 39
Slide 40: Customer propositions
Customer propositions Ferguson Ferguson Accurate, Search responsive, optimised to efficient meet segment needs Reliability Inventory segment segment Ferguson Canada Loyalty Accurate self Programme scanning for large customers Partnership Partnership segment segment 40
Slide 41: Customer propositions continued
Customer propositions continued UK, UK, Parts Plumbing Center and Heating ‘Parts arena’ EDI interface for small Image to follow plumbers with large customers Price Inventory segment segment Finland, Netherlands Stark Customer Service promises guarantees on availability, Image to follow accessibility
Slide 42: Actions across Group to drive Customer Service
Actions across Group to drive Customer Service Customer service improvements drive profitable growth Action plans by business unit, branch, sales team - Benchmark vs our best branches / best competitors - Range, availability, pricing, training, sales resources, delivery options Develop specifi
Slide 43: Outlook
Outlook Expect like-for-like revenue growth of about 4% in first half US – continued good growth, except Industrial Continued recovery in Nordics UK market remains competitive with little growth Expect to make continued progress in 2016 43
Slide 44: Appendices
eS \ of Wee RY Appendices
Slide 45: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m 2015 2014 2015 2014 Ongoing USA 8,337 7,045 683 542 UK 1,987 1,853 90 96 Nordic 1,863 1,892 72 80 Canada 708 736 34 43 Central Europe 405 426 21 26 Central costs - - (43) (35) 13,300 11,952 857 752 USA 6 25 (2) 4 Sold or held for Nor
Slide 46: FX impact
FX impact 2014 2015 2014 2015 2015 10-Sept 2015 2016 average average Trading impact average 2015 spot Trading impact* rate rate profit gain/(loss) rate rate profit gain/(loss) £m £m £m £m USD 1.64 1.56 542 29 USD 1.56 1.55 683 4 CAD 1.76 1.86 43 (2) CAD 1.86 2.04 34 (3) EUR 1.21 1.33 19 (2) EUR 1.33
Slide 47: Branch numbers
Branch numbers Closed, Reported at disposed Ongoing at Acquired Opened 31 July 2014 of or held 31 July 2015 for sale USA 1,377 27 44 (30) 1,418 UK 768 5 5 (20) 758 Nordic 267 1 2 (11) 259 Canada 222 4 16 (16) 226 Central Europe* 244 - 3 (169) 78 Group 2,878 37 70 (246) 2,739 * In 2014 Central Europe
Slide 48: Headcount numbers
Headcount numbers Reported at Disposed of Ongoing at Net joiners / Acquired or held for 31 July 2014 (leavers) 31 July 2015 sale USA 20,307 407 - 1,457 22,171 UK 5,978 236 - 117 6,331 Nordic 6,250 31 (4) 16 6,293 Canada 2,503 35 (93) 45 2,490 Central Europe* 4,410 - (3,326) (12) 1,072 Other 109 - -
Slide 49: Product destination analysis
Product destination analysis 4% 11% 7% 12% 16% 9% 24% Civil Infrastructure 15% 21% 14% 15% 19% 8% Non-Residential 21% 11% 15% 15% 15% New Construction 14% 22% Residential New 24% 26% Construction 60% 52% 54% Non-Residential 37% RMI 32% 36% 29% Residential RMI US UK Nordic Canada Central Europe Group
Slide 50: Commodities
Commodities WTI Crude Oil Price ($) Copper $ Per Tonne 120 10,000 110 9,500 9,000 100 8,500 90 8,000 80 7,500 70 7,000 6,500 60 6,000 50 5,500 40 5,000 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 WTI Crude Oil Price ($) Copper $ Per Tonne Our business is resil