Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — FY2017 Earnings Presentation
53 slides from Ferguson Enterprises's earnings presentation, Oct 3, 2017
Slide 1: Full Year Results
im yr.) « ” : § J 2017 Full Year Results —" ~~
Slide 2: Highlights
2017 Highlights 2
Slide 3: Operating and strategy highlights
Operating and strategy highlights Strong operating performance − Like-for-like revenue up +6.0%, +8.1% in Q4 − Gross margin 0.4% ahead of last year − Trading profit up +8.7% in constant currency − Continued excellent cash flow conversion Good progress on strategy − Good execution of growth strategie
Slide 4: Operating and financial review
Operating and financial review Mike Powell, Group CFO
Slide 5: Total Group results
Total Group results Revenue Change (at constant Trading profit Change (at constant £m 2017 exchange rates) 2017 exchange rates) Group ongoing 14,878 +8.6% 1,032 +8.7% Non-ongoing 346 27 Group reported - continuing 15,224 1,059 Discontinued 2,100 63 Total Group 17,324 1,122 5
Slide 6: Changes to Group reporting structure
Changes to Group reporting structure Now Previously Continuing Discontinued Ongoing Non-ongoing USA (inc Endries) USA (exc Endries) Endries Nordics UK UK − Included for 10 months − Profit after tax Nordics CCE (exc Tobler) to disposal − Balance sheet CCE (inc Tobler) Central costs collapsed into two
Slide 7: Financial highlights
Financial highlights Change (at constant Like-for-like 2017 2016 Change exchange rates) change² Ongoing revenue £14,878m £12,146m +22.5% +8.6% +6.0% Ongoing gross margin % 28.9% 28.5% +0.4% Ongoing trading profit ¹ £1,032m £827m +24.8% +8.7% Ongoing trading margin % ¹ 6.9% 6.8% +0.1% Headline earnin
Slide 8: Like-for-like revenue growth
Like-for-like revenue growth Q4 Q1 Q2 Q3 Q4 FY 2016 2017 2017 2017 2017 2017 USA +3.2% +4.3% +6.7% +8.6% +8.8% +7.1% UK (2.1%) (2.9%) +3.6% (0.4%) +4.2% +1.0 % Canada & Central Europe +1.4% (1.5%) +1.2% +7.3% +7.9% +3.6% +2.3% +2.8% +5.8% +7.1% +8.1% +6.0% • Growth accelerated through the year • US
Slide 9: Revenue and trading profit growth
Revenue and trading profit growth Revenue +6.1% +0.4% +2.1% Trading profit (£m) (£m) 60 294 828 33 41 9 1,550 122 14,878 1,032 13,696 949 12,146 827 2016 Exchange 2016 Organic Trading days Acquisitions & 2017 2016 Exchange 2016 inc. Organic Trading days Acquisitions & 2017 inc.exchange growth divest
Slide 10: USA ongoing
USA ongoing (89% of Group trading profit) Change (at constant £m 2017 2016 Change exchange rates) Revenue 11,824 9,288 +27.3% +10.4% Like-for-like growth +7.1% +4.2% Trading profit 950 761 +24.8% +8.2% Foreign exchange impact +116 Trading margin 8.0% 8.2% (0.2%) • Strong top line and gross margin •
Slide 11: USA like-for-like revenue growth
USA like-for-like revenue growth Revenue Like-for-like Business unit £m change North AK Central Blended Branches 7,030 +6.6% WA +3.8% ME (see regional analysis on the right) OR MT ND VT West MN ID SD WI NY NH Waterworks standalone 1,895 +6.6% +6.9% NV WY NE IA MI PA OH UT IL IN CO WV B2C e-commerce
Slide 12: USA end-market revenue growth
USA end-market revenue growth % of US revenue Market growth 2017 organic revenue 2017 ¹ 2017 growth ² Residential ~ 50% 5% - 6% +9 - 10% Commercial ~ 35% 5% - 6% +7 - 8% Civil / Infrastructure ~ 7.5% (1%) +4 - 5% Industrial ~ 7.5% (1%) Flat ¹ Previously reported Municipal has now been more accuratel
Slide 13: UK
UK (7% of Group trading profit) £m 2017 2016 Change Revenue 2,012 1,996 +0.8% Like-for-like growth +1.0% (1.6%) Trading profit 76 74 +2.7% Trading margin 3.8% 3.7% +0.1% • Trading profit stable in difficult markets • Plumbing and heating remains challenging, Pipe & Climate and Infrastructure grew we
Slide 14: Canada & Central Europe ongoing
Canada & Central Europe ongoing (4% of Group trading profit) Change (at constant £m 2017 2016 Change exchange rates) Revenue 1,042 862 +20.9% +5.0% Like-for-like growth +3.6% +0.5% Trading profit 45 37 +21.6% +3.1% Foreign exchange impact +6 Trading margin 4.3% 4.3% - • Canada recovery continues wit
Slide 15: Non-ongoing and discontinued
Non-ongoing and discontinued Revenue Revenue Trading profit Trading profit £m 2017 2016 2017 2016 Non-ongoing Endries (10 months results in 2017) 170 168 16 14 Tobler (8 months results in 2017) 176 235 11 16 346 403 27 30 Discontinued Nordics 2,100 1,881 58 58 Other - 255 5 1 2,100 2,136 63 59 • Two
Slide 16: Exceptional items
Exceptional items £m Cash Non-cash P&L total Gain on disposal of businesses 232 34 266 UK restructuring costs (20) (20) (40) Other - 3 3 212 17 229 • Gain on disposal of Endries and Tobler • UK restructuring costs on target 16
Slide 17: Financing & tax
Financing & tax £m 2017 2016 Financing Reported P&L charge 43 36 Tax Ongoing P&L charge 277 217 Ongoing effective tax rate 28.0% 27.4% 17
Slide 18: Cash
Cash £m 2017 2016 Reported trading profit 1,059 857 Depreciation & amortisation 140 114 Reported EBITDA 1,199 971 Working capital (77) (44) Share based payments, provisions and other (7) 92 Cash flow from operating activities 1,115 1,019 Interest & tax (363) (232) Acquisitions (256) (113) Disposals
Slide 19: Capital structure
Capital structure 2017 2016 Net debt as reported £534m £936m Net pension liability £21m £147m Operating lease commitments £854m £853m Net debt / EBITDA1 0. 5x 0.9x Ordinary dividend per share 110.0p 100.0p ¹ Covenant net debt to / EBITDA includes discontinued businesses. 19
Slide 20: Capital allocation
Capital allocation Cash generation − Ferguson is a highly cash generative business − Cash generation is robust through the cycle Use of capital 1) Invest in organic growth 2) Progressive dividend policy, aim to grow the dividend in line with the long-term underlying growth in earnings 3) Invest in b
Slide 21: Acquisitions
Acquisitions FY17 acquisitions FY18 acquisitions Financial impact £m Revenue Trading profit FY17 acquisitions – contribution in FY17 214 29 – incremental contribution in FY18 53 3 FY18 acquisitions – contribution in FY18 109 5 21
Slide 22: Technical guidance for the year to July 2018
Technical guidance for the year to 31 July 2018 USD reporting FY18 Organic revenue growth replacing like-for-like FY18 Trading days and estimated impact on trading profit Same number of days in each quarter Trading profit impact from completed acquisitions $10 million Exceptional costs in the UK – c
Slide 23: Business review and outlook
Business review and outlook John Martin, Chief Executive 23
Slide 24: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK transformation 3. Review Nordics operational strategy 24
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 l
Slide 26: 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 27: Fulfilling customer wants: e.g. bidding and tendering
Fulfilling customer wants: e.g. bidding and tendering − Project specific / volumetric pricing − Value engineering using our technical expertise − Bundling products to customers’ requirements − Take-off software to reduce manual activities − Value of bid and tendered work $7.2bn 27
Slide 28: Fulfilling customer wants: e.g. customised solutions
Fulfilling customer wants: e.g. customised solutions − Pre-assembled units − Fabrication for fire suppression and waterworks systems: − Weld, cut and thread piping − Label parts for easy assembly on site − Kits for installation e.g. boilers − Removal of old equipment − Valve actuation services 28
Slide 29: Fulfilling customer wants: e.g. showroom consultancy
Fulfilling customer wants: e.g. showroom consultancy − Consultation, design, sourcing and project management − Two-person delivery − “White-glove” installation − Revenue $1.7 billion 29
Slide 30: Fulfilling customer wants: e.g. competitive pricing
Fulfilling customer wants: e.g. competitive pricing − Aim to always deliver competitive pricing − Leverage buying power − Keep costs lowest in the industry 30
Slide 31: Fulfilling customer wants: e.g. delivery/ pick up options
Fulfilling customer wants: e.g. delivery/ pick up options − $3.4bn counter sales − $500m 1-Hour-Will-Call − 1,550 specialist trucks e.g. crane trucks , FLT trucks − $5.9bn of same-day and next-day delivery − Tag and hold service 31
Slide 32: 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 l
Slide 33: Attractive growth opportunities: e.g. New England
Attractive growth opportunities: e.g. New England Blended Branches in 2017: − 22 locations, including 11 showrooms ME Canada − 320 associates − 42 delivery trucks − 8% ecommerce penetration VT NH − Market share 9% Ferguson Blended NY Redlon & Johnson MA PV Sullivan Supply Coxsackie RI DC CT Region h
Slide 34: 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 l
Slide 35: Excellent execution: e.g. e-commerce and customer facing technology
Excellent execution: e.g. e-commerce and customer facing technology Ferguson.com System to system Punch out Mobile and SKU app B2C e-commerce Inventory management 35
Slide 36: Excellent execution: e.g. own label penetration
Excellent execution: e.g. own label penetration 36
Slide 37: US like-for-like growth rate
US like-for-like growth rate 14.0% 12.0% 12.5% 11.1% 11.1% 10.0% 10.2% 9.4% 9.3% 9.0% 8.6% 8.8% Average 8.0% 8.3% 8.0% growth rate 7.4% 7.4% 7.4% 7.2% 7.6% 6.7% 6.8% 6.7% 6.0% Market 5.1% growth of 5.0% 4.0% 4.7% around 4.3% 4.1% 4 – 5% 3.1% 2.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Slide 38: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK transformation 3. Review Nordics operational strategy 38
Slide 39: UK transformation
UK transformation − Performance improvement − Like-for-like growth of +0.8% − Gross margin ahead by 40 basis points − Trading profit ahead − Excellent performances from Pipe and Climate, Infrastructure, soak.com − Plumbing and heating remains competitive 39
Slide 40: UK transformation: Branch network reconfiguration
UK transformation: Branch network reconfiguration Destination branch layout New completed local branch counter 33 site exits completed in FY17 with no loss of revenue with a further 32 planned in FY18 40
Slide 41: UK transformation: Logistics and supply chain simplification
UK transformation: Logistics and supply chain simplification − Outsourced DC to branch replenishment − Moved to in-night branch replenishment allowing customer collection and delivery from 7am − Consolidate outbound deliveries from destination branches 100% of UK branches now replenished in-night 41
Slide 42: UK transformation: e-commerce penetration
UK transformation: e-commerce penetration Total UK e-commerce revenue up to 11%, self service events up 60% 42
Slide 43: Key priorities
Key priorities 1. Generate best profitable growth in the USA 2. Execute UK transformation 3. Review Nordics operational strategy 43
Slide 44: Nordics progress
Nordics progress − Successful turnaround of Finland − Branch rationalisation completed, 30 branches closed − Good momentum in H2 with LFL revenue up 6.8% and trading profit up 18.2% − Silvan DIY business sold in August 2017 − Auction of building materials business underway 44
Slide 45: Market update and outlook
Market update and outlook Market − US residential and commercial markets remain good − Deflation and industrial headwinds have receded − Canadian market continues to recover − UK market growth remains weak Outlook − Organic revenue growth since the end of the period has been about 6% − Order books c
Slide 46: Appendix
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Slide 47: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m 2017 2016 2017 2016 USA 11,824 9,288 950 761 UK 2,012 1,996 76 74 Canada & Central Europe 1,042 862 45 37 Central costs - - (39) (45) Group ongoing 14,878 12,146 1,032 827 Non-ongoing 346 403 27 30 Group reported 15,224 12,549 1,059
Slide 48: Branch numbers
Branch numbers Brought forward Carried forward Acquired Disposals Net Opened / Closed 31 July 20161 31 July 2017 USA 1,465 25 (77) 10 1,423 UK 690 - - (48) 642 Canada & Central Europe 296 - (46) (5) 245 2,451 25 (123) (43) 2,310 ¹ UK branch numbers have been restated at 31 July 2016 to reflect previ
Slide 49: Headcount
Headcount Brought forward Carried forward Acquired Disposals Net joiners / (leavers) 31 July 2016 31 July 2017 USA 23,000 636 (640) 990 23,986 UK 6,071 - - (171) 5,900 Canada & Central Europe 3,506 - (678) 34 2,862 Other 107 - - (4) 103 32,684 636 (1,318) 849 32,851 49
Slide 50: Financial highlights in USD
Financial highlights in USD Change (at constant 2017 2016 Change exchange rates) Organic change Ongoing revenue $18,845m $17,736m +6.3% +8.6% +6.1% Ongoing gross margin % 28.9% 28.5% +0.4% Ongoing trading profit* $1,307m $1,208m +8.2% +8.7% Ongoing trading margin %* 6.9% 6.8% +0.1% Headline earnings
Slide 51: Regional analysis in USD
Regional analysis in USD Revenue Revenue Trading profit Trading profit $m 2017 2016 2017 2016 USA 14,977 13,562 1,204 1,111 UK 2,548 2,915 96 108 Canada & Central Europe 1,320 1,259 57 55 Central costs - - (50) (66) Group ongoing 18,845 17,736 1,307 1,208 Non-ongoing 439 589 34 43 Group reported 19,
Slide 52: American Depositary Receipts (ADRs) programme
American Depositary Receipts (ADRs) programme Ferguson has a Level 1 ADR program trading on OTCQX, the premier tier of the US over-the-counter market Ticker: FERGY ADR key benefits Exchange: OTCQX - Convenient means of trading/holding foreign shares CUSIP: 977868306 - USD-denominated security – redu
Slide 53: FERGUSON
FERGUSON