Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Investor Day (January 2022)
56 slides from Ferguson Enterprises's investor day presentation, Jan 13, 2022
Slide 1: Investor Day 2022
Investor Day 2022 www.fergusonplc.com January 13, 2022
Slide 2: Cautionary note on forward-looking statements
Cautionary note on forward-looking statements Forward-Looking Statements Certain information included in this presentation and discussed on the conference call that this presentation accompanies is forward-looking, including within the meaning of the United States Private Securities Litigation Refor
Slide 3: Who is Ferguson?
Who is Ferguson? Ferguson is a $23B value-added distributor in North America providing expertise, solutions, and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We make our customers’ complex projects simple, successful and sustainable. 3
Slide 4: The leading value-added distributor in North America
The leading value-added distributor in North America FY21 financial highlights $22.8B $2.1B 34.4% Revenue* Adjusted operating profit** Return on 9.2% adjusted operating margin** Capital Employed** Balanced approach Residential / Non-Residential RMI / New Construction to attractive end markets Reside
Slide 5: Scaled business model connects thousands of suppliers with over one million customers
Scaled business model connects thousands of suppliers with over one million customers 34K 1M+ SUPPLIERS CUSTOMERS CORE STRENGTHS Value-added solutions <5% 3.5M Global supply chain 31K 1% No supplier is larger than Products Omnichannel Associates No single customer 5% of total cost of sales accounts
Slide 6: Leading a responsible business
Leading a responsible business Our ESG framework Environmental Social Governance Facilities Health and Safety Board Management and Composition Energy management Associate Development Shareholder Engagement Renewable energy Inclusion and diversity Shareholder rights Fleet Talent management and retent
Slide 7: Why Ferguson?
Why Ferguson? • ~75% of U.S. revenue generated from #1 or #2 market positions Leading positions in • 10,000+ small- to medium-sized competitors large, growing and • $23B revenue in a $300B opportunity fragmented markets • Highly-resilient business model • Our markets have historically grown 2-3% abo
Slide 8: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 9: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 10: Leading positions in highly fragmented markets
Leading positions in highly fragmented markets ~75% of U.S. revenue generated from #1 or #2 market positions ~$90B ~$50B $27B $25B $25B $25B $24B $15B $13B $3B 12% 26% 23% 23% 5% 18% 1% 4% 9% Residential Building Waterworks Commercial / Fire & Industrial Residential Trade Facilities HVAC Residential
Slide 11: Leading positions in large, growing and fragmented markets
Leading positions in large, growing and fragmented markets Balanced approach to attractive end markets ~$300B North American opportunity 56% 44% RESIDENTIAL NON-RESIDENTIAL 60% 40% RMI NEW CONSTRUCTION $23B Revenue in FY21 Market size and Residential / Non-Residential and RMI / New Construction prop
Slide 12: Strong fundamentals drive continued growth in residential
Leading positions in large, growing and fragmented markets Strong fundamentals drive continued growth in residential • Strong single-family housing Residential end markets (56% revenue) starts growth driven by substantial housing deficit • Low mortgage rates and 20% declining household debt Residen
Slide 13: Diverse end markets and macro trends drive non-residential growth
Leading positions in large, growing and fragmented markets Diverse end markets and macro trends drive continued growth in non-residential Broad mix of commercial building types • Broad mix of commercial building types Non-residential end marketsAs (44% revenue)expands into residential • As residen
Slide 14: Growth in RMI provides resilience through cycle
Leading positions in large, growing and fragmented markets Growth in RMI provides resilience through cycle FY08 FY21 RMI RMI 31% 40% 60% 69% New New Construction Construction Revenue: $12B Revenue: $23B 14
Slide 15: We consistently outgrow strong markets
Leading positions in large, growing and fragmented markets We consistently outgrow strong markets 9.7% Acquisitions 2.4% Organic Growth 1.6% 3.8% 7.3% U.S. GDP growth U.S. end market growth Ferguson: U.S. growth 5-year average 5-year average* 5-year average * U.S. end market growth derived from mana
Slide 16: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 17: Scale delivers sustainable market outperformance
Scale delivers sustainable market outperformance 1. Value-added solutions Market-leading capabilities deliver 2. Global supply chain scale locally 3. Omnichannel 4. Our associates 17
Slide 18: Value-added solutions
Value-added solutions We make our customers' complex projects simple, successful and sustainable Sourcing Sales Customized Fulfillment After sales channels solutions options support • Best product breadth • Inside sales / outside • Take-off • Same-day delivery • Warranty support and depth sales • Va
Slide 19: Value-added solutions: Ferguson product strategy
Add image SCALED PLATFORM fromABOVE DRIVES JS original back MARKET Value-added solutions ORGANIC GROWTH Ferguson product strategy • Best product breadth and depth • Consultative approach guides everything we do • Right product, right application • From leading branded manufacturers, to exclusives an
Slide 20: Own Brand opportunity
Value-added solutions Own Brand opportunity Own Brand ~9% ~2x ~2x Total revenue Core Ferguson Non-Own Brand growth gross margin 20
Slide 21: Consultative approach to the most sustainable product solutions
Value-added solutions Consultative approach to the most sustainable product solutions Water access, quality, efficiency Reducing carbon emissions • Residential and commercial Watersense • LED lighting certified products • Appliances • Low-flow toilets, showerheads and faucets • Water heaters • Touch
Slide 22: Virtual Design provides unmatched capabilities
Value-added solutions Virtual Design provides unmatched capabilities and competitive advantage Large university project: Academic building with 1992 plans • Tight timeline for demo and new construction • Complex requirements for ongoing lab experiments • Using reality capture capability, scanned the
Slide 23: National relationship, national footprint
Value-added solutions National relationship, national footprint 2D estimation and take-off • Large national customer • Building same footprint in different areas of the country required scale and ability to adapt to local spec • Provided the right products and materials based on geographic location
Slide 24: Global supply chain: scale enables broad access to products
Global supply chain 250 Scale enables broad access to products Global product and sourcing professionals 34K Worldwide suppliers 30 Countries 53 Global ports 22K • 2 Import Centers Imported containers • 10 regional DCs C-TPAT • 60 ship hubs Security certified • 1,400 ship hubs/branches Supply Chain
Slide 25: The industry's most extensive network
Global supply chain The industry’s most extensive network placing Ferguson 2 within 60 miles of 95% of the population Import Centers 11 Distribution Centers 42M ft² Total footprint 1,600+ Final mile locations Branch Distribution Center (DC) 3.5M Market Distribution Center (MDC) Products Import Cente
Slide 26: Next generation Market Distribution Centers
Global supply chain Automated: Inventory picking and replenishment system Next generation Market Distribution Centers completes almost 75% of all product picks in the facility • Located in the largest MSAs • 350-750K sq ft facilities provide final mile distribution, Health & safety: 50% reduction br
Slide 27: Omnichannel: leading our industry
Omnichannel Leading our industry with omnichannel capabilities 1. Ordering 2. Tracking 3. Delivery • Best-in-class omnichannel • Detailed order tracking with live updates • 24/7 automated lockers customer experience • Multi-channel notifications • Pro Pick-up within 1 hour • Seamless ordering platfo
Slide 28: build.com and showrooms
Omnichannel Best-in-class digital platform combined with bricks & mortar to deliver a connected experience 250+ 1,200+ 250+ build.com 350+ State-of-the-art Associates providing a Outside sales associates more than just a website Associates supporting inbound Showrooms with personalized design levera
Slide 29: Our associates: a culture of growth
Our associates A culture of growth • Industry first trainee program, founded in 1968, exposes associates to all aspects of the business • Develop and promote from within, creating a career orientation • Grounded in a common understanding of customer needs • Sales and growth-oriented associates frame
Slide 30: Our associates: a culture of growth
Our associates A culture of growth • Acquire companies with talented associates • Develop and promote from within, creating longstanding customer and vendor relationships • Creates diversity of thought and challenges status quo • Builds credibility for acquisition strategy 16% Of current associates
Slide 31: Bringing it all together: scale delivered locally
Bringing it all together Scale delivered locally Large manufacturing plant • Complex job, multiple trades, fast-paced construction cycle • Fire protection design services, fire and water take-off and bid tender • Pipe fabrication leveraging 13 of our fire fabrication shops across the country • Best
Slide 32: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 33: Additional growth from bolt-on acquisitions
Additional growth from bolt-on acquisitions Proven track record of successful acquisitions Past 5 years of U.S. acquisitions Geographic acquisitions • Consolidate fragmented markets 44 $2.1B Acquisitions Acquired revenue • Associate expertise • Customer relationships • Leverage our market-leading ca
Slide 34: Leveraging a geographic acquisition
Additional growth from bolt-on acquisitions Leveraging a geographic acquisition Phoenix market: • 5th largest city in the U.S. • Over $3B market Canyon Pipe & Supply • Acquired July 2021 • ~$100M revenue • 7 locations with ~160 associates Acquisition benefits: Leveraging scale • Quick integration of
Slide 35: Leveraging an acquired capability through our platform
Additional growth from bolt-on acquisitions Leveraging an acquired capability through our platform Signature Hardware • Attractive luxury brand with kitchen and bath products sold exclusively online • ~$115M in revenue at time of acquisition (July 2016) Acquisition benefits and synergies • Leveraged
Slide 36: Large pipeline for further acquisition
Additional growth from accretive acquisitions Large pipeline for further acquisition Fragmented market landscape Total market competitors • Industry comprised of thousands of small- 10,000+ to medium-sized independent family-owned companies ($10-300M in revenue) Competitor database ~1,500 Discipline
Slide 37: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 38: Long-term track record of outperformance
Long-term track record of outperformance Over the past decade: Revenue 8.3% $22.8bn CAGR $2.1bn Gross margins 9.2% +300bps $11.1B Underlying $0.6B trading profit 5.9% ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ‘21 13.9% Revenue (US and Canada) Underlying Trading Profit (US, Canada and Central Costs) CAGR +
Slide 39: Cash generation
Cash generation $1,573 $M $1,290 $1,245 $1,036 $1,284 5-year $950 $1,034 Operating cash flow / $956 net income 108% $857 $750 FY17 FY18 FY19 FY20 FY21 Operating cash flow Free cash flow For the fiscal years ended 2017-2021, operating cash flow, including discontinued operations, was calculated in ac
Slide 40: Capital allocation priorities
Capital allocation priorities Consistent allocation of capital 1. Invest in above-market organic growth 1-2x 2. Sustainably grow the ordinary dividend Target net leverage range 3. Invest in bolt-on geographic and capability acquisitions 4. Return surplus capital to shareholders 40 40
Slide 41: Our history of capital allocation
Our history of capital allocation Accelerates growth and shareholder value Over the past 10 years: $2.7B $2.9B $2.5B $150 $2.0B Invested in Returned surplus capital $1.7B CAPEX via share buybacks $1.4B $1.4B $1.2B $1.3B $1.3B $3.6B $2.4B $0.9B Returned in ordinary Returned surplus capital $0.5B divi
Slide 42: Generating strong returns on capital
Generating strong returns on capital Return on gross capital employed* Growth, improved 31.0% operating margins and capital discipline result 26.2% 24.9% in strong returns 22.7% 18.6% For FY21, FY20 and FY19, the equivalent non-GAAP metric was 34.4%, 28.5% and 29.4%, respectively.** FY17 FY18 FY19 F
Slide 43: Strong balance sheet creates additional resilience and optionality
Strong balance sheet creates additional resilience and optionality Current leverage level Net debt: Adjusted EBITDA* positions us well to create future value 1-2x target through economic and seasonal cycle range 0.7x 0.6x 0.6x 0.6x 0.5x Cash cycle is seasonal during the fiscal year with leverage typ
Slide 44: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 45: Continued value creation
Continued value creation Expected Growth Our markets Over-market growth Acquisitions Annual Our markets will continue to Market-leading capabilities drive Consolidating our revenue growth outgrow base-level GDP due continued outperformance fragmented markets expectation to fundamental trends + + = 3
Slide 46: Growth and improvement
Continued value creation Growth and improvement 5-year history Medium-term outlook Revenue1 9% 7-12% Flowthrough2 12% 11-13% Operating cash to net income3 108% 100%+ Earnings Per Share Growth4 16% Low/Mid-teens% 1. Historical revenue growth represents US and Canada and was calculated in accordance w
Slide 47: Example of capital available for further deployment
Example of capital available for further deployment Potential 3-year view Illustrative assumptions Revenue ~midpoint of range (8% organic, 2% acquisition) Revenue 10% Flowthrough at mid-point of range (12%) Flowthrough 12% CAPEX ~1.5% of revenue Cumulative potential investment capacity after CAPEX,
Slide 48: Why Ferguson?
Leading positions Additional growth in large, growing and from bolt-on fragmented markets acquisitions Why Ferguson? Scale delivers Long-term track sustainable market record of outperformance outperformance and cash generation Continued value creation
Slide 49: Appendix
Appendix # FERGUSON
Slide 50: U.S. GAAP Net Income to Adjusted Operating Profit (non-GAAP)
U.S. GAAP Net Income to Adjusted Operating Profit (non-GAAP)1 (In millions, unaudited) FY 2021 FY 2020 FY 2019 Net Income $1,472 961 1,122 Add: Net loss (income) from discontinued operations 158 12 (66) Add: Income tax 232 299 254 Add: Interest expense, net 89 83 72 Add: Other non-operating costs, n
Slide 51: Return on capital employed (ROCE)
Return on capital employed (ROCE) (In millions, unaudited) FY 2021 FY 2020 FY 2019 ROCE (U.S. GAAP – derived) 34.4% 28.5% 29.4% Operating profit, less non-GAAP adjustments1 $1,961 $1,473 $1,429 Average Capital Employed2 $5,699 $5,172 $4,862 1 See U.S. GAAP to U.S. non-GAAP Adjusted Operating Profit
Slide 52: Average Capital Employed
Average Capital Employed (In millions, unaudited) FY 2021 FY 2020 FY 2019 FY 2018 Long-term debt $2,528 $2,635 $2,296 $1,525 Short-term debt 36 531 25 319 Derivative (assets) liabilities (21) (39) (22) 2 Cash (1,335) (2,115) (1,133) (833) Net debt1 $1,208 $1,012 $1,166 $1,013 Average net debt $1,110
Slide 53: Market Backdrop – Residential New
Market Backdrop – Residential New Housing starts growth driven by housing deficit, low interest rates, and declining household debt U.S. housing starts and excess inventory Rate environment and household debt levels (millions of houses) (%) Cumulative under-build Cumulative over-build Long term avg.
Slide 54: Market Backdrop – Residential RMI
Market Backdrop – Residential RMI RMI demand supported by aging housing stock and rising home values Median Age of Housing stock S&P/Case-Shiller Home Price Appreciation Index (Years) (YoY%) 44 15.0% 41 40 40 39 38 10.0% 37 36 35 32 32 32 5.0% 32 31 30 30 28 28 28 27 0.0% 25 25 24 23 -5.0% 20 -10.0%
Slide 55: Market Backdrop – Non-Residential market trends
Market Backdrop – Non-Residential market trends Leading indicators point to continued growth American Society of Civil Engineers’ Momentum index - Dodge non-res PIPE forecast Report Card 200 150 Drinking water grade: C- 100 50 2005 07 09 11 13 15 17 19 21 23F 25F Architecture Billing Index (ABI)2 Ja
Slide 56: FERGUSON
44 FERGUSON