Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — FY2011 Earnings Presentation
62 slides from Ferguson Enterprises's earnings presentation, Oct 4, 2011
Slide 1: 2011 Full Year Results
2011Full Year Results
Slide 2: Welcome and highlights
Welcome and highlights Ian Meakins Chief Executive
Slide 3: Presentation Structure
Presentation Structure Ian Meakins Meakins, CEO Welcome and Highlights John Martin,, CFO Operating p g and Financial Review Ian Meakins Business Review, Strategy Update Q&A 3
Slide 4: Performance Highlights
Performance Highlights Like-for-like Like for like growth – market share gains Customer service and employee engagement - improving Gross margins – incremental improvement Organic operating performance improving – Performance review process – Costs under control – Better cash control Impro
Slide 5: Business environment
Business environment Key indicators deteriorating – Consumer confidence – Construction market forecasts – Housingg transactions/ pprice/ p permits – Industrial construction activity – Unemployment Our markets may slow down – Commodities – futures fallen Response to any slowdown: – Tight cost c
Slide 6: Operating and Financial Review
Operating and Fi Financial i lRReview i John Martin Chief Financial Officer
Slide 7: Financial Highlights
Financial Highlights Like for Like 2011 2010 Change Change Revenue £13,558m £13,203m +3% +5% Gross margin 27.9% 27.7% +20bps EBITDA £775m £635m +22% Trading profit* £622m £450m +38% Trading margin 4.6% 3.4% +1.2% Profit / (loss) before tax £391m £(328)m Headline EPS* 143p 74p +93% Dividend per share
Slide 8: Trading Profit Growth
Trading Profit Growth ongoing businesses 21 (4) 17 20 23 29 66 622 450 2010 Sales growth Gross margin Reduction in Cost Exit of loss Improvement Other 2011 improvement depreciation reductions makers of disposals Performance Builders 8
Slide 9: Four Years of Deleveraging
Four Years of Deleveraging £2,938m £2 938m Year end working capital measures Construction loans £1,690m Factoring £1,195m £705m Reported net debt £395m 2008 2009 2010 2011 2011 after disposals Committed credit facilities of £1.6 billion 9
Slide 10: Quarterly Performance
Quarterly Performance Q4 Q1 Q2 Q3 Q4 Like-for-like growth last year this year this year this year this year USA +5% +6% +11% +10% +7% Canada +12% +7% +4% - (2%) UK +5% +5% +8% +1% (2%) N di Nordic +3% +4% +4% +6% +2% France (2%) +2% +2% +8% +4% Central Europe (6%) (3%) (4%) - 1% +4% +4% +7% +6% +3%
Slide 11: Majority of Sales to RMI Markets
Majority of Sales to RMI Markets 27% 23% Civils and other 20% 34% New residential Repairs maintenance 57% 36 and improvement % 39% (RMI) 2007 2011 11
Slide 12: USA
USA Like-for-like Lik f lik £m 2011 2010 Change Change Revenue 5,500 5,174 +6% +9% Trading profit 314 239 +31% Trading margin 5.7% 4.6% Branches 1,261 1,241 Headcount 17,481 17,241 12
Slide 13: Canada
Canada Like-for-like £m 2011 2010 Change Change Revenue 811 765 +6% +2% Trading profit 39 41 (5%) Trading margin 4.8% 5.4% Branches 221 220 Headcount 2,693 2,573 13
Slide 14: UK (ongoing)
UK (ongoing) Like-for-like £m 2011 2010 Change Change Revenue 1 749 1,749 1 712 1,712 +2% +2% 2% Trading profit 91 84 +8% Trading margin 5.2% 4.9% Branches 1,059 1,052 Headcount 6,673 6,523 Excludes Ireland Ireland, Brandon Hire Hire, Electric Center, Center Build Center and Encon 14
Slide 15: Nordic
Nordic Like-for-like £m 2011 2010 Change Change Revenue 2,128 2,012 +6% +4% Trading profit 113 101 +12% Trading margin 5.3% 5.0% Branches 288 288 Headcount 6,754 6,575 15
Slide 16: France (ongoing)
France (ongoing) Like for like Like-for-like £m 2011 2010 Change Change Revenue 1,317 1,294 +2% +5% Trading profit 46 38 +25% Trading margin 3.5% 2.9% Branches 322 323 Headcount 5,421 5,619 Excludes Public Works and Brossette 16
Slide 17: Central Europe (ongoing)
Central Europe (ongoing) Like-for-Like Like for Like £m 2011 2010 Change Change Revenue 718 717 - (2%) Trading profit 31 18 +69% Trading margin 4.3% 2.5% Branches 144 142 Headcount 1,965 1,978 Excludes Italy 17
Slide 18: Central and Other Costs
Central and Other Costs £ £m 2011 2010 Group costs 31 39 Unallocated IT costs - 12 Non-recurring costs - 6 Construction loans 5 4 36 61 18
Slide 19: Performance Builders
Performance Builders Number Revenue Trading profit Net tangible Consideration £m* £m* assets £m* (debt free)£m I t Integrated t d 3 372 25 60 - Sold 5 381 (2) 101 116 Sale agreed 4 953 15 286 310 Being exited/closed 3 183 - 78 60 Remaining 4 232 3 39 - 19 2,121 41 564 486 * For disposals, revenue an
Slide 20: Disposals and Long Term Incentives
Disposals and Long Term Incentives Revenue of disposals planned and / or completed in 2011: £1,335m Trading profit of disposals planned and / or completed in 2011: £24m Expected residual costs in 2012 after completion of disposals: Up to £10m Expected restructuring charges in 2012: Up to £15
Slide 21: Income Statement
Income Statement £ £m 2011 2010 Trading profit 622 450 Associate - (54) Exceptional items Disposals (59) (57) Other 8 (275) A Amortisation ti ti (75) (92) Impairment (39) (223) Financing charges (66) (77) Profit/(loss) before tax 391 (328) Tax (110) (38) Discontinued operations (10) 26 Profit/(loss)
Slide 22: Interest and Financing Charges
Interest and Financing Charges £ £m 2011 2010 Interest payable 42 61 Net pension and provision impact 18 16 Write off of residual arrangement fees 6 - 66 77 Refinancing impact in 2012: £12m £12m. Rate fixing impact in 2012: (£5m) (£5m). 22
Slide 23: Tax
Tax £ £m 2011 2010 P&L charge 110 38 Exceptionals & intangibles 22 102 Adjustments 20 (11) Underlying P&L charge 152 129 Trading profit less interest 556 373 Effective rate 27.3% 34.6% Adjustments of £20m principally arise from settlements in the year 23
Slide 24: Growth in Headline Earnings Per Share
Growth in Headline Earnings Per Share (1) 20 8 4 38 143 74 2010 Trading profit Financing Associate Tax New shares 2011 24
Slide 25: Cash Flow
Cash Flow 60 110 102 67 50 disposals tax 93 52 investment 121 42 58 775 490 EBITDA Asset M&A Tax - Tax - other Interest Capex Working Provisions Dividends fx/other Reduction disposals settlement capital and in adjusted pensions net debt 25
Slide 26: Cash Flow Reconciliation
Cash Flow Reconciliation £m 2011 2010 Decrease in adjusted net debt 490 495 (Reduction) / increase in factoring (206) 106 (Reduction) in construction loan debt (80) (83) Movement in year-end working capital position (381) 95 (Increase) / decrease in reported net debt (177) 613 26
Slide 27: Net Debt and Other Commitments
Net Debt and Other Commitments £ £m 2011 2010 M Movement t Net debt as reported (523) (346) (177) Receivables factoring (all Brossette in 2011) (68) (274) 206 Construction loan debt - (80) 80 Period end working capital adjustment (114) (495) 381 Adjusted net debt (705) (1,195) 490 Operating lease co
Slide 28: Capital Structure Priorities
Capital Structure Priorities 1 Organic growth 1. Working capital investment expected to be 12-13% of incremental sales Investment in branch refurbishment and 90 new branches up to £160m 2. Dividends Proposed final dividend of 30p per share; £85m (full year 45p; £127m) 3. Acquisitions Hard sy
Slide 29: Business Review and Strategy Update
Business Review and d St Strategy t Update U d t Ian Meakins Chief Executive
Slide 30: Agenda
Agenda Value Creation Strategy – recap − Resource allocation − Portfolio going forward − Returns − Market opportunity pp y Business Unit Performance − Gain G i market k t share h − Expand gross margin Specific examples − Improve productivity − Improve returns and cash 30
Slide 31: Wolseley Overview
Wolseley Overview Split by Geography Market Position End Market Central Europe 6% Other 8% Civils 7% Canada 7% Number 3 6% Non-Res. New France 11% 16% UK 14% Residential New Number 2 41% 20% Nordic 17% Non- Res. RMI 21% US 45% 4 % Number 1 45% Residential RMI 36% Ongoing revenue £12.2bn Ongoing reve
Slide 32: Value Creation Framework
Value Creation Framework Operational Strategy Performance Within Cross Resource Business Unit Business Business Allocation Strategies Unit Unit Profitable Growth 32
Slide 33: Value Creation
Value Creation St Strong and d improving i i portfolio tf li off b business i units it Market leaders £m Sales Growth engine Synergy driver Performance B ilder Builder 10% T di Trading 5% Margin High performers % 0% ‐5% 0.0 0.5 1.0 1.5 2.0 2.5 Relative Market Share 33
Slide 34: Value Creation: Attractive returns
Value Creation Att ti returns Attractive t Trading Margin 6.0% % 5.3% 4.6% 3.1% 3.4% 2007 2008 2009 2010 2011 26.9% Return on Capital Employed* 24.3% 25.4% 16.4% 14.4% 2007 2008 2009 2010 2011 * Return on Capital Employed = Ratio of trading profit to the average year end aggregate of shareholders fu
Slide 35: Value Creation: Significant market opportunity remains
Value Creation Si ifi Significant t market k t opportunity t it remains i USA Canada UK 100% 100% 100% 80% 80% 80% 2.1x 0.9x 0.9x 60% 60% 60% RMS RMS RMS 40% 40% 40% 20% 20% 20% 16% 12% 19% 0% 0% 0% Blended Branches Blended Branches Plumb & Parts Center Nordic France Central Europe 100% 100% 100% 80
Slide 36: Summary
Summary Attractive markets long-term long term Resilient business models – gross margin and cash flow Strong market positions More dependent on less volatile segments – RMI versus New Residential Wolseley is very focused Strong organic and acquisition growth opportunities Short-term ve
Slide 37: Agenda
Agenda Value Creation Strategy – recap − Resource allocation − Portfolio going forward − Returns − Market opportunity pp y Business Unit Performance − Gain G i market k t share h − Expand gross margin − Improve productivity Specific examples − Improve returns and cash 37
Slide 38: Business Unit Strategies and Results Expected
Business Unit Strategies and Results Expected St t Strategy ffor P Profitable fit bl Growth G th B i Business Unit U it Results R lt EExpected t d Gain Market Share Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Expand Profitable Improve g
Slide 39: Gain Market Share
Gain Market Share Bolt-on Acquisitions New Expand Branches Range New Renewable Channels Products Customer C t Gain Market Wallet W ll t Service Share Share Expand gross Profitable Improve Growth productivity margin Improve returns and cash 39
Slide 40: Gain Market Share - Customer Service
Gain Market Gain Market Share - Customer Service Share Expand Profitable Improve G Gross Bl d d B Blended Branches h USA Margin Growth Productivity Improve returns & cash 6.4% FY11 July average ‘11 Net Promoter Score 53.1 59.4 Overall quality of service 8.8 9.0 Speed of service 8.5 8.4 Range of prod
Slide 41: Gain Market Share – New Channels
Gain Market Gain Market Share – New Channels Share Expand Profitable Improve G Gross B ild Build.com - US B Business i tto C Consumer Margin Growth Productivity Improve returns & cash 36 9% 36.9% 14.3% Market Growth Build.com Growth Number 2 site in Building Materials Usage – 240k Facebook fans
Slide 42: Gain Market Share – New Branches
Gain Market Gain Market Share – New Branches Share Expand Profitable Improve G Gross St kki branch Starkki b hTTurku k - Finland Fi l d Margin Growth Productivity Improve returns & cash Starkki – Number 2 in market – Industry leading financials – Average branch c.£20m – Highly productive business
Slide 43: Gain Market Share – Bolt-on Acquisitions
Gain Market Gain Market Share – Bolt-on Acquisitions Share Expand Profitable Improve G Gross I d t i l PVF - USA Industrial Margin Growth Productivity Improve returns & cash Louisiana Chemical Pipe Acquired August 2011 Revenue $22 million 2 Sites in Baton Rouge and Sulphur Operating Synergies
Slide 44: Expand Gross Margins
Expand Gross Margins Cross Country DC Utilisation Sourcing Pricing Matrix Customer mix Vendor / Product Private Label Mix Expand gross margin Gain market Profitable Improve share Growth productivity Improve returns and cash 44
Slide 45: Expand Gross Margin – Private Label
Gain Market Expand Gross Margin – Private Label Share Expand Profitable Improve G Gross F Ferguson - USA Margin Growth Productivity Improve returns & cash Private label revenue USA £350m Category strategy approach with branded vendors 102.9 Private label 6.5% of total revenue – complimentary to
Slide 46: Expand Gross Margin – Pricing Matrix
Gain Market Expand Gross Margin – Pricing Matrix Share Expand Profitable Improve G Gross B ij - Sweden Beijer S d Margin Growth Productivity Improve returns & cash Profitability analysed 102.8 – Customer group – Products – Vendors 100.0 Trade terms renegotiated – New metrics Gross – 60% changed
Slide 47: Expand Gross Margin – Cross Country Sourcing
Expand Gross Margin – Cross Country Sourcing B ildi M Building Materials t i l E Europe Sourcing Offices China Approx 30% of Building Products procured via multi Lithuania market direct sourcing arrangements Own label 4.6% - 6.4% B il Brazil Annual profit increases Russia – €10m in mar
Slide 48: Productivity and Low Cost
Productivity and Low Cost Sales force p productivity y France: 6.4x – 6.8x (gross profit / labour cost) Reduction in lease costs Group central costs reduced US savings of $3m by £8m to £31m Upgrade of branch Group IT costs reduced by management £4m Improve productivity Expand gross Profitable Gain m
Slide 49: Productivity and Lower Costs – Branch management
Gain Market Productivity and Lower Costs – Share Expand Profitable Improve G Gross B Branch h managementt – Plumb Pl b - UK Margin Growth Productivity Improve returns & cash Branch Manager Assessment July 2011 Branch managers assessed 2x per year ance All retrained during the year Performa 32
Slide 50: Improve Productivity and Lower Costs – Group Metrics
Improve Productivity and Lower Costs – Group Metrics 50.9% 51.0% 49.0% 37.9% 36.7% 34.6% 16.4% 11.2% 12.3% Labour cost as a % of gross profit Other costs as a % of gross profit Trading profit as a % of gross profit 2008/2009 2009/2010 2010/2011 Productivity metrics monitored across all business unit
Slide 51: Summary
Summary Attractive markets long-term long term Resilient business models – gross margin and cash flow Strong market positions More dependent on less volatile segments – RMI versus New Residential Wolseley is very focused Strong organic and acquisition growth opportunities Short-term ve
Slide 52: Q&A
Q&A
Slide 53: Appendices
Appendices
Slide 54: Regional Analysis
Regional Analysis Trading Trading £m Revenue Revenue profit profit 2011 2010 2011 2010 USA 5,500 5,174 314 239 Canada 811 765 39 41 UK 2,404 2,466 109 91 Nordic 2,128 2,012 113 101 France 1,943 1,937 53 30 Central Europe 772 849 30 9 Central and other costs - - (36) (61) 13,558 13,203 622 450 54
Slide 55: Ongoing and Disposals Data 2011
Ongoing and Disposals Data 2011 Trading g Trading g Trading g Revenue Revenue Revenue Profit Profit Profit £m Ongoing Disposals Total Ongoing Disposals Total USA 5,500 - 5,500 314 - 314 Canada 811 - 811 39 - 39 UK 1,749 655 2,404 91 18 109 Nordic 2,128 - 2,128 113 - 113 France 1,317 626 1,943 46 7 5
Slide 56: Ongoing and Disposals Data 2010
Ongoing and Disposals Data 2010 Trading g Trading g Trading g Revenue Revenue Revenue Profit Profit Profit £m Ongoing Disposals Total Ongoing Disposals Total USA 5,174 - 5,174 239 - 239 Canada 765 - 765 41 - 41 UK 1,712 754 2,466 84 7 91 Nordic 2,012 - 2,012 101 - 101 France 1,294 643 1,937 38 (8) 3
Slide 57: Branch Analysis
Branch Analysis At 31 July Other At 31 July Held for 2010 Disposals Movement 2011 sale Ongoing USA 1 241 1,241 - 20 1 261 1,261 - 1 261 1,261 Canada 220 - 1 221 - 221 UK 1,486 (261) 8 1,233 (174) 1,059 Nordic 288 - - 288 - 288 France 697 - (7) 690 (368) 322 C. Europe 186 (44) 2 144 - 144 4,118 (305)
Slide 58: Headcount Analysis
Headcount Analysis At 31 July Other At 31 July Held for 2010 Disposals Movement 2011 sale Ongoing USA 17 241 17,241 - 240 17 481 17,481 - 17 481 17,481 Canada 2,573 - 120 2,693 - 2,693 UK 10,118 (1,493) 144 8,769 (2,096) 6,673 Nordic 6,575 - 179 6,754 - 6,754 France 8,306 - (234) 8,072 (2,651) 5,421
Slide 59: Currency
Currency 2011 2010 @ 31 July @ 31 July Average Average Movement 2011 2010 US$ 1.60 1.57 +1.7% 1.64 1.57 CAN$ 1 59 1.59 1 64 1.64 (3 6%) (3.6%) 1 57 1.57 1 61 1.61 DKK 8.65 8.48 +2.0% 8.49 8.96 Euro 1.16 1.14 +1.8% 1.14 1.20 CHF 1 49 1.49 1 66 1.66 (11 8%) (11.8%) 1 29 1.29 1 63 1.63 59
Slide 60: Product Destination Analysis
Product Destination Analysis 2% 3% 2% 6% 7% 14% 11% 13% Civil Infrastructure 18% 16% 35% Non-Residential 14% 27% 21% New construction 12% 31% Residential New 20% Construction 14% 16% 14% Non-Residential RMI 30% Residential RMI 34% 21% 16% 30% 9% 52% 51% 36 % 23% 38% 36% 28% 28% 8% US Canada UK Nordi
Slide 61: Market Overview Key Indicators
Market Overview Trend Improving K Key IIndicators di t Flat Declining USA Consumer Existing Home Architecture GDP Growth (2011F)1 1 6% 1.6% Confidence Index3 Sales (000s)4 Billings Index: 5 Annual Unemployment Rate Aug 11 v Aug 11 v 9.1% -14 +19% Aug 11 51.4 (2011F)2 Jul 11 Aug 10 UK Property GDP Gr
Slide 62: Market Overview Key Indicators – Sources and Definitions
Market Overview K Key IIndicators di t – Sources S and dDDefinitions fi iti Ref Name Source General 1 GDP Growth - Gross Domestic Product Global Insight 2 Annual Unemployment Rate Global Insight USA 3 Consumer Confidence Index The Conference Board 4 T t lE Total Existing i ti H Home S Sales l N ti N