Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — FY2019 Earnings Presentation
46 slides from Ferguson Enterprises's earnings presentation, Oct 1, 2019
Slide 1: 2018/19 Full Year Results presentation
2018/19 Full Year Results presentation 12 months to 31 July 2019
Slide 2: Gareth Davis, Chairman
Gareth Davis, Chairman 2
Slide 3: Agenda
Agenda Highlights John Martin Operating and financial review Mike Powell Business review and outlook John Martin Questions 3
Slide 4: Highlights
Highlights John Martin, Chief Executive 4
Slide 5: Highlights – financial performance
Highlights – financial performance 2019 9th consecutive year of - Revenue growth1 +7.9% - Gross margin expansion +10 bps - Trading profit growth1 +7.5% - Headline EPS growth +16.4% $21.8bn 29.4% $1.6bn $12.6bn $0.5bn 27.2% '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Ongoing Revenue Ongoing Trading P
Slide 6: Highlights – operations and strategy
Highlights – operations and strategy • Continued market share gains • Strong control of operating expenses in weaker market • Completion of 15 great acquisitions for $657m • Own brand grown to 8.6% of group ongoing sales in H2 • Concluded on strategic future of UK: demerger in process 6
Slide 7: Highlights – capital and returns
Highlights – capital and returns • Excellent cash conversions with $1.6bn of cash from operations • c.$600m from dividends and buy back • Dividends up 10% Return on gross capital employed 30.0% 26.2% 25.0% 20.0% 15.0% 10.0% 6.9% 5.0% - '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 7
Slide 8: Operating and financial review
Operating and financial review Mike Powell, Chief Financial Officer 8
Slide 9: Financial highlights
Financial highlights Change (at constant 2019 2018 Change exchange rates) Ongoing revenue $21,771m $20,334m +7.1% +7.9% Ongoing gross margin 29.4% 29.3% +0.1% Ongoing trading profit $1,601m $1,493m +7.2% +7.5% Ongoing trading margin 7.4% 7.3% +0.1% Headline earnings per share 517.4c 444.4c +16.4% Or
Slide 10: Revenue and trading profit growth
Revenue and trading profit growth Revenue Trading Profit Organic growth +4.4% +5.3% Acquisition growth +3.8% +3.0% FX and trading day impact (1.1%) (1.1%) +7.1% +7.2% Robust organic profit progression 10
Slide 11: Organic revenue growth
Organic revenue growth Q4 Q1 Q2 Q3 Q4 FY 2018 2019 2019 2019 2019 2019 USA +11.4% +9.6% +9.7% +3.3% +3.0% +6.2% UK1 (0.6%) +0.8% (1.0%) +2.8% (0.3%) +0.6% Canada +6.3% +3.3% +0.5% (2.9%) (5.2%) (1.1%) Ongoing businesses +8.1% +6.7% +6.4% +2.7% +2.1% +4.4% ¹ The UK revenue growth rate is presented on
Slide 12: USA
USA 2019 2018 $m $m Change Revenue 18,358 16,670 +10.1% Organic revenue growth +6.2% +9.9% Trading profit 1,508 1,406 +7.3% Trading margin 8.2% 8.4% (0.2%) 2019 2019 Revenue Trading Profit growth growth Organic +6.2% +5.3% Acquisition +4.2% +2.8% Trading day impact (0.3%) (0.8%) Total growth +10.1%
Slide 13: USA organic revenue growth
USA organic revenue growth Revenue Organic Business unit $m growth AK Central Blended Branches +5.8% 10,463 +5.9% WA ME (see regional analysis on the right) West OR MT ND VT MN ID NY NH +6.0% SD WI Waterworks standalone 2,899 +6.7% NV WY NE IA MI PA OH UT IL IN CO WV eBusiness standalone 1,541 (2.4%
Slide 14: UK (local currency)
UK (local currency) 2019 2018 £m £m Change Like for like Revenue - Underlying 1,725 1,712 +0.8% +0.6% - Exited business - 123 1,725 1,835 (6.0%) Trading profit - Underlying 54 51 +5.0% - Exited business - 2 Trading profit was ahead despite challenging RMI markets 14
Slide 15: Canada (local currency)
Canada (local currency) 2019 2018 $CADm $CADm Change Revenue 1,576 1,517 +3.9% Organic revenue growth (1.1%) +7.0% - Underlying trading profit 89 81 +9.9% - One-off gain - 8 Trading profit 89 89 Underlying trading margin 5.6% 5.3% +0.3% 2019 2019 Revenue Trading Profit growth growth Organic (1.1%) +
Slide 16: Exceptional items
Exceptional items $m 2019 P&L total US restructuring and early retirement programme 62 UK restructuring costs 29 Other 3 Total included in operating profit 94 16
Slide 17: Financing & tax
Financing & tax $m 2019 2018 Financing Reported P&L charge 74 53 Tax Ongoing P&L charge 344 363 Ongoing effective tax rate 22.5% 25.1% Interest and tax costs as expected 17
Slide 18: Cash
Cash $m 2019 2018 Continuing adjusted EBITDA 1,788 1,687 Working capital (77) (245) Pension, exceptional cash and other (102) (119) Cash generated from operations 1,609 1,323 Interest & tax (319) (287) Capex (418) (299) Acquisitions of businesses (657) (416) Disposals of businesses, associates and a
Slide 19: Capital structure
Capital structure 2019 2018 Net debt as reported $1,195m $1,080m Net debt : adjusted EBITDA 0.7x 0.6x Buy back announced 10 June 2019: - completed as at 31 July 2019 $150m - to complete in FY20 $350m Net pension asset $153m $174m Minimum operating lease commitments $1.1bn $1.1bn Strong balance sheet
Slide 20: Technical guidance for the full year to 31 July 2020
Technical guidance for the full year to 31 July 2020 One additional trading day impact on trading profit $12 million 2019/20 impact from completed acquisitions Revenue $230m, trading profit $15m Interest charge1 $85 million Effective tax rate 25% - 26% Capital investment $300 – $350 million 1 Pre-IF
Slide 21: Capital allocation
Capital allocation Capital priorities • Ferguson is highly cash generative through the cycle • Remain committed to target net debt : adjusted EBITDA range of 1x – 2x and priorities for cash usage 1) Re-invest in organic growth 2) Progressive dividend policy, aim to grow the dividend in line with the
Slide 22: Markets, strategy and outlook
Markets, strategy and outlook John Martin, Chief Executive 22
Slide 23: Markets – growth of US end-markets in 2019
Markets – growth of US end-markets in 2019 Estimated market growth in 2019 Organic % of US revenue revenue growth 2019 H1 2019 H2 2019 2019 2019 Residential ~50% 6% 1% 3% +5% Commercial ~35% 5% 2% 3% +7% Civil / Infrastructure ~7% 5% 2% 3% +6% Industrial ~8% 13% - 6% +9% 6% 1% 3% +6.2% • Markets slo
Slide 24: Markets – US total building products revenue (Zelman)
Markets – US total building products revenue (Zelman) Source: Zelman & Associates Building Products Review 24
Slide 25: Key initiatives – efficient operating model
Key initiatives – efficient operating model Organic revenue growth v organic headcount growth in the US 12 10 8 6 4 2 0 Q1 Q2 Q3 Q4 -2 Organic revenue growth Organic FTE growth • Strong discipline on headcount growth throughout the year • Enables us to invest in our strategic initiatives 25
Slide 26: Key initiatives - own brand
Key initiatives - own brand US own brand penetration 5.4% to 8.6% over last 4 years 26
Slide 27: Key initiatives – reconfiguration of distribution centres
Key initiatives – reconfiguration of distribution centres • Perris, Southern California DC opened in July 2019 • Servicing all business units across Southern California, Arizona, Utah and Nevada • 1 million square foot distribution centre built on 47 acres • Brought into full operation with no distu
Slide 28: Key initiatives - acquisitions
Key initiatives - acquisitions • Acquired Blackman Plumbing Supply in December 2018 • $240m revenue in plumbing , heating, HVAC and waterworks categories • Based in Long Island – population 8m • Market leader in residential and commercial plumbing • 23 branches Up to 100 Ferguson associates worked o
Slide 29: Key initiatives – reaffirmation of our values
Key initiatives – reaffirmation of our values 29
Slide 30: Ferguson – attractive market structure
Ferguson – attractive market structure #3 #4 #6 30 $50bn $90bn 25 #1 #2 20 #4 Market size ($bn) #1 15 #1 5 10 5 5 3 4 Home Depot 8 6 4 5 #1 Amazon Watsco MRC HD Supply 17% 20% 23% 11% 6 4% 5% 10% 22% 1% - Residential Residential Commercial Waterworks HVAC Industrial Fire & Facilities Supply Standalo
Slide 31: Ferguson – shared infrastructure
Ferguson – shared infrastructure 31
Slide 32: Wolseley UK - operations today
Wolseley UK - operations today • Clear branding under the Wolseley banner • Focused on trade and contract customers • Principally serving the lower volatility RMI market • Good market positions in residential plumbing and heating, commercial building services and infrastructure. • Largest network wi
Slide 33: Wolseley UK - opportunities
Wolseley UK - opportunities • Grown own brand capability (currently 8.4% of sales) to drive gross margin expansion (50% +) • Effective online functionality (currently 9% of sales) • Leverage overnight fulfilment of 30,000 products • Opportunity to drive pricing discipline • Incremental bolt-on acqui
Slide 34: Wolseley UK – financials
Wolseley UK – financials 2019 2018 £m £m Change Revenue Underlying 1,725 1,712 +0.8% Exited business - 123 1,725 1,835 Trading profit Underlying 54 51 +5.0% Exited business - 2 54 53 • Improved performance in a challenging market • Net assets (excl. pension, debt and tax) : £339m 34
Slide 35: Listing - assessment of listing structure
Listing - assessment of listing structure • Board has kept listing under review over several years • After demerger of Wolseley UK, 100% of Ferguson’s revenue will be generated in North America • Approximately 40% of shareholders are US based • A number of shareholders have requested that we review
Slide 36: Listing – some considerations
Listing – some considerations Internal controls and governance Structural considerations • Tax, pensions • Sarbanes Oxley • Registration • Corporate governance • Settlement mechanism Market considerations Reporting • Index inclusion • US GAAP, IFRS • Sell side analyst coverage and peer group • SEC r
Slide 37: Markets - outlook
Markets - outlook • US markets are broadly flat – we continue to outperform • Order books support modest growth in the months ahead • Expect to make further progress in the year ahead 37
Slide 38: Questions
Questions 38
Slide 39: Appendix
Appendix
Slide 40: Impact of tariffs
Impact of tariffs Total headline US value Value of Ferguson direct Tariff Effective date Products impacted impacted Rate imports affected $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 21 May 2019 5,745 lines $20
Slide 41: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit $m 2019 2018 2019 2018 USA 18,358 16,670 1,508 1,406 UK 2,222 2,472 69 72 Canada 1,191 1,192 67 70 Central costs - - (43) (55) Group ongoing 21,771 20,334 1,601 1,493 Non-ongoing 239 418 5 14 Group reported 22,010 20,752 1,606 1,507 41
Slide 42: Quarterly analysis
Quarterly analysis Revenue $m Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 USA 4,607 4,267 4,457 5,027 18,358 UK 580 546 567 529 2,222 Canada 340 275 250 326 1,191 Group ongoing 5,527 5,088 5,274 5,882 21,771 Trading profit $m Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 USA 400 300 346 462 1,508 UK 19 13 20
Slide 43: Revenue and trading profit growth
Revenue and trading profit growth Ongoing revenue Ongoing trading profit ($m) ($m) 760 45 79 (12) 884 (52) (155) (4) 21,771 1,601 20,334 20,179 1,493 1,489 2018 Exchange 2018 inc. Organic Trading days Acquisitions 2019 2018 Exchange 2018 inc. Organic Trading days Acquisitions* 2019 exchange growth e
Slide 44: Branch numbers
Branch numbers Brought forward Carried forward Acquired Net Closed 31 July 2018 31 July 2019 USA 1,448 72 (29) 1,491 UK 567 - (16) 551 Canada 230 1 (14) 217 2,245 73 (59) 2,259 44
Slide 45: Headcount
Headcount1 Brought forward Carried forward Acquired Disposals Net joiners / (leavers) 31 July 2018 31 July 2019 USA 26,501 1,120 - (145) 27,476 UK 5,617 - (236) (272) 5,109 Canada 2,742 60 - (172) 2,630 Other 85 - - (7) 78 34,945 1,180 (236) (596) 35,293 1 Permanent full time equivalents 45
Slide 46: 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 economics of lease transactions, cash payments made or capital allocation • Impact on opening financial statements (i.e. balanc