Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — H1 2015 Earnings Presentation
56 slides from Ferguson Enterprises's earnings presentation, Mar 24, 2015
Slide 1: 2015 Half Year Results
2015 Half Year Results
Slide 2: Highlights
Highlights 1. Improvement in like-for-like growth rate across Group − market share performance − service, product availability, sales force, customer propositions, marketing 2. Excellent growth in US – improving in rest of Group 3. Gross margin progress remains tough − Initiatives gaining traction −
Slide 3: Operating and Financial Review
Operating and Financial Review John Martin, Chief Financial Officer
Slide 4: Financial highlights
Financial highlights Change Like-for-like H1 2014 (at constant H1 2015 Restated** Change exchange rates) Change Ongoing revenue £6,435m £5,910m +8.9% +10.3% +7.8% Ongoing trading profit* £390m £351m +11.1% +12.0% Ongoing trading margin %* 6.1% 5.9% +0.2% Headline earnings per share* 103.6p 91.4p +13
Slide 5: USA (76% of Group trading profit)
USA (76% of Group trading profit) Change (at constant £m H1 2015 H1 2014 Change exchange rates) Revenue 3,912 3,418 +14.5% +13.3% Like-for-like growth 11.7% 6.3% +5.4% Trading profit 311 252 +23.4% +21.9% Trading margin 7.9% 7.4% +0.5% Branches 1,391 1,358 +33 Headcount 21,248 19,135 +11.0% 5
Slide 6: USA revenue growth
USA revenue growth 13.3% 10.9% 9.5% 8.2% 8.5% 2011 2012 2013 2014 H1 15 Organic growth % Acquisitions 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 • Broadly-bas
Slide 7: USA profitability
USA profitability 7.7% 7.9% 7.3% 2007 former peak margin 7.0% £542m 6.3% £490m 5.7% £389m 4.6% £314m £239m 2010 2011 2012 2013 2014 H1 15 Trading Profit Trading margin • Gross margin driven by service, mix, pricing discipline, vendor partnering • Leverage DC / hub / branch fulfilment model • Driving
Slide 8: Canada (6% of Group trading profit)
Canada (6% of Group trading profit) Change (at constant £m H1 2015 H1 2014 Change exchange rates) Revenue 388 406 (4.4%) +2.2% Like-for-like growth 1.8% (1.9%) +3.7% Trading profit 23 24 (4.2%) +5.0% Trading margin 5.9% 5.9% - Branches 232 222 +10 Headcount 2,515 2,461 +2.2% 8
Slide 9: Impact of oil
Impact of oil Oil Production 2013 Alberta* 1bn barrels/year • Direct sales to oil and gas sector c.4%, most significant in Canada • Deflationary impact on £0.8bn of purchases p.a. Texas • Fuel costs reduced by c.£1m per month 0.9bn barrels/year Expect little overall Group impact USA source: U. S. En
Slide 10: UK (10% of Group trading profit)
UK (10% of Group trading profit) Change (at constant £m H1 2015 H1 2014 Change exchange rates) Revenue 984 943 +4.3% +4.3% Like-for-like growth 1.9% 3.2% (1.3%) Trading profit 43 48 (10.4%) (10.4%) Trading margin 4.4% 5.1% (0.7%) Branches 762 759 +3 Headcount 6,049 5,835 +3.7% 10
Slide 11: Nordic (5% of Group trading profit)
Nordic (5% of Group trading profit) Change (at constant £m H1 2015 H1 2014 Change exchange rates) Revenue 936 913 +2.5% +11.3% Like-for-like growth 3.3% (1.2%) +4.5% Trading profit 22 32 (31.3%) (23.7%) Trading margin 2.4% 3.5% (1.1%) Branches 258 233 +25 Headcount 5,736 5,357 +7.1% 11
Slide 12: Central Europe (3% of Group trading profit)
Central Europe (3% of Group trading profit) Change (at constant £m H1 2015 H1 2014 Change exchange rates) Revenue 215 230 (6.5%) (2.1%) Like-for-like growth (1.5%) (1.9%) +0.4% Trading profit 14 17 (17.6%) (12.6%) Trading margin 6.5% 7.4% (0.9%) Branches 77 73 +4 Headcount 1,082 1,092 (0.9%) 12
Slide 13: Revenue and trading profit in the ongoing business
Revenue and trading profit in the ongoing business (£46m) £215m (£83m) £439m £6,435m Revenue £5,910m £4m £8m (£19m) £7m (£6m) (£2m) £47m £390m Trading profit £351m H1 2014 Organic Acquisitions Gross margin Business Cost increases Sales days Exchange H1 2015 growth improvement model less efficiency i
Slide 14: Impairments, exceptionals & discontinued operations
Impairments, exceptionals & discontinued operations Impairments & £m discontinued Exceptionals Cash Non-cash Nordic impairment (245) - - (245) France discontinued (11) (59) (12) (58) Gains on disposal / other - 8 8 - Foreign exchange recycling - (5) - (5) (256) (56) (4) (308) • France discontinued r
Slide 15: Central costs, financing and tax
Central costs, financing and tax H1 2014 £m H1 2015 Restated* Central costs 23 22 Financing P&L charge 18 13 Exceptionals (FX recycling) (5) - Underlying P&L charge 13 13 Tax P&L charge 91 87 Exceptionals, intangibles & non-recurring items 15 6 Underlying P&L charge 106 93 Effective tax rate 28.1% 2
Slide 16: Cash
Cash H1 2014 £m H1 2015 Restated* EBITDA before exceptionals 444 393 Seasonal working capital outflow (274) (303) Exceptionals and other (21) 1 Cash flow from operating activities 149 91 Disposals 44 14 Interest & tax (124) (114) Acquisitions & capex (144) (109) Dividends & buybacks (358) (417) FX &
Slide 17: Acquisitions
Acquisitions Rationale Example Adjacent business expansion New channels Bolt-ons 17
Slide 18: Organic investment
Organic investment H1 2015 H1 2015 £m Capex Opex Technology - Network infrastructure 7 3 - Processes and systems development 32 13 39 16 Freehold DCs and hubs 37 1 Branch expansion, showrooms and refurbishment 40 2 116 19 18
Slide 19: Capital structure
Capital structure 31 Jan 31 July 31 Jan 2015 2014 2014 Net debt* £1,221m £801m £927m Net pension assets / (liabilities) (£84m) £7m £1m Committed facilities £2.3bn £2.2bn £2.4bn Interim dividend +10% 30.25p - 27.50p Share buyback programme: bought 6.5m shares for £214m (average £32.81 per share) * 31
Slide 20: Outlook for the second half
Outlook for the second half Expected like-for-like revenue growth over the next 6 months About 6% Opex investment in technology and processes £15m Restructuring costs to be charged to trading profit £10m Trading days compared to H2 last year One more day Impact of restating last years H2 trading pro
Slide 21: Financial highlights
Financial highlights Change Like-for-like H1 2014 (at constant H1 2015 Restated** Change exchange rates) Change Ongoing revenue £6,435m £5,910m +8.9% +10.3% +7.8% Ongoing trading profit* £390m £351m +11.1% +12.0% Ongoing trading margin %* 6.1% 5.9% +0.2% Headline earnings per share* 103.6p 91.4p +13
Slide 22: Business Review and Strategy Update
Business Review and Strategy Update Ian Meakins, Chief Executive
Slide 23: Wolseley Strategy Re-cap
Wolseley Strategy Re-cap 1. Develop our great portfolio of strong businesses 2. Drive performance systematically across Group 3. Accelerate profitable growth 4. Drive evolution of business model 5. Deliver Group synergies 6. Underpin strategy with strong balance sheet 23
Slide 24: Wolseley Strategy Re-cap
Wolseley Strategy Re-cap 1. Develop our great portfolio of strong businesses 2. Drive performance systematically across Group 3. Accelerate profitable growth 4. Drive evolution of business model – benefits of scale 5. Deliver Group synergies 6. Underpin strategy with strong balance sheet 24
Slide 25: Revenue growth
Revenue growth Group ongoing Key: Like for like revenue growth % 11.5% Acquisition revenue growth % 6.8% 5.8% 5.7% 6.0% 2011 2012 2013 2014 H1 15 Growth principally driven by: US (61%) UK (15%) Nordic (15%) 14.8% 10.2% 11.2% 8.8% 9.7% 9.3% 6.4% 6.0% 5.1% 3.8% 4.4% 3.2% 1.7% (0.7%) (5.1%) 2011 2012 2
Slide 26: Accelerating profitable growth
Accelerating profitable growth Customer service Employee engagement Network expansion • >99% product availability • Best employees in industry • Geographic expansion • Speed of service • Branch and sales staff • Supply chain / logistics • Range • Experienced and knowledgeable • Leverage cost base •
Slide 27: Network Expansion – New York Metro Area: US Market Share by state
Network Expansion – New York Metro Area US Market Share by state US Blended Branches market share by state H1 2015* WA AK ME MT ND VT OR MN NH ID SD WI NY MA WY MI CT RI IA PA NE NJ NV OH DC IL IN DE UT CA CO WV KS MO VA KY NC TN OK MD AZ NM AR SC MS AL GA Key: TX LA 0.0% to 7.0% NY metro market sha
Slide 28: Network Expansion – New York Metro Area
Network Expansion – New York Metro Area New York Metro Area • c. 20 million population • Estimated market of $5.8bn • Buoyant new/remodeling market • Good growth in commercial, residential, institutional • Fragmented competition /customer base • Market leader – 9% share 28
Slide 29: Plumbing and Heating Commercial Market Opportunity
Network Expansion – New York Metro Area Plumbing and Heating Commercial Market Opportunity Key: Low priority opportunity Medium priority opportunity High priority opportunity 29
Slide 30: Waterworks Market Opportunity
Network Expansion – New York Metro Area Waterworks Market Opportunity Key: Low priority opportunity Medium priority opportunity High priority opportunity 30
Slide 31: Local Network Expansion – Branch network in 2012
Local Network Expansion – New York Metro Area Branch network in 2012 New Jersey New York • 22 Branches • 12 Showrooms • DC Front Royal, VA (c. 300 miles) • Revenue $270m • Market share 5% Branch location Showroom location 31
Slide 32: Local Network Expansion – Branch network 2015
Local Network Expansion – New York Metro Area Branch network 2015 New Jersey New York • 40 Branches • 21 Showrooms • Low cost logistics from ship hub and DC • Revenue $500m • Market share 9% Branches in 2012 Showroom New branches New Ship Hub New DC (Cocksackie, NY)
Slide 33: New York Metro Strategy
New York Metro Strategy • Growth opportunities for each customer type by line of business at the zip code level • Managed branch network serving core blended and adjacent businesses • Extension of branch footprint by a combination of organic and bolt-on acquisitions: – Davis & Warshow (2012) – Karl’
Slide 34: Accelerating profitable growth
Accelerating profitable growth Customer service Employee engagement Network Customerexpansion service • >99% product availability • Best employees in industry •• Geographic >99% productexpansion availability • Speed of service • Branch and sales staff •• Supply Rate and speedlogistics chain / of ser
Slide 35: Sales management
Sales management Total £3.9bn Total 7,800 people 5% Managed by 12% branch staff 9% 40% 12% Inside sales 4,810 Outside sales 2,990 Managed by dedicated, commissioned sales people 60% 62% Group revenue (£bn) Sales resources USA Canada UK Nordic CE 35
Slide 36: Sales management
Sales management Customer Benefits Effectiveness/Efficiency Wolseley Benefits Winning bids Sales resources Competitive advantage • Tailored propositions • Customers covered • Wallet share gains • Technical specifications • Size and mix of sales teams • New customers at lower cost • Lower cost soluti
Slide 37: US sales management dashboard
US sales management dashboard Rep A Rep B Customer profitability Rep C Rep D 100 Customer Rep E operating % of gross profit Rep F costs Benchmark sales performance by salesman and by 0 customer/ product mix Customer vs. best performance Contribution margin Order channel costs Fulfilment channel cost
Slide 38: Nordic – Daily sales performance dashboard
Nordic – Daily sales performance dashboard 38
Slide 39: UK – Sales pipeline management
UK – Sales pipeline management Number of new quotes Value of new quotes Current tender pipeline
Slide 40: Wolseley Strategy Re-cap
Wolseley Strategy Re-cap 1. Develop our great portfolio of strong businesses 2. Drive performance systematically across Group 3. Accelerate profitable growth 4. Drive evolution of business model - benefits of scale - E-commerce 5. Deliver Group synergies 6. Underpin strategy with strong balance shee
Slide 41: E-commerce
E-commerce Group £811m 13% sales 21% growth US Sales Share Growth £693m UK £38m 4% 46% 18% sales Nordics £10m 1% 22% 22% growth Canada £8m 2% 62% CE £62m 29% 7% B2B B2C £500m £193m 13% sales 5% sales 23% growth 16% growth 2014/15 revenue c. £1.7bn – £1.9bn Revenue numbers shown are for H1 2015 and g
Slide 42: B2B e-commerce
B2B e-commerce Customer Benefits Investment Wolseley Benefits • 24/7 – self service • Investment in platforms / • Very satisfied customers processes / data – NPS 73 • Product / availability management / product • Marginally better basket • Pricing consistency and specifications size / gross margins
Slide 43: US B2B e-business
US B2B e-business B2B e-business revenue B2B e-business SSEs Number of $795m online customers 13% of sales 5.2m 100k $371m 2.9m 61k 7% of sales +114% +79% +65% H1 13 H1 15 H1 13 H1 15 H1 13 H1 15 $m Predominantly switch from Improves Dedicated teams other order channels productivity converting custo
Slide 44: US B2B e-business
US B2B e-business Easy to use website: • Predictive search • Multiple my lists function • Electronic proof of delivery • Online bill pay Personalised profile by customer segment Transactional mobile site Waterworks Facilities Maintenance 44
Slide 45: US B2B e-business
US B2B e-business Inventory replenishment Dispensing E-trading with large customers Campaign testing & optimisation • Interface with major software platforms • Seamless ordering and account management process • Industry leading e-business solutions • Improved customer service • Lower cost to serve 4
Slide 46: UK B2B e-business
UK B2B e-business UK B2B e-business revenue £38m 4% £20m 2% CAGR +39% H1 13 H1 15 £m % Sales Conversion of large customers E-trading with large customers • Seamless ordering and account management process • Industry leading e-business solutions • Improved customer service • Lower cost to serve 46
Slide 47: UK B2B e-business
UK B2B e-business Re-platformed the website to improve usability: • Predictive search • Quicker checkout • My lists function Transactional mobile Open trade cash Click & Collect site launched Dec-14 account instantly pilot started 47
Slide 48: Tobler B2B e-business
Tobler B2B e-business E-shop mobile Online flip catalogues E-ordering smart E-invoicing 48
Slide 49: Summary
Summary • Good set of results − Top line better and gross margins OK − Flow through – good in US – disappointing in Europe • Attractive long term growth opportunities − Profitable share gains • Service, people, great execution − Build out expansion of our network • Key metro areas − Investing in sal
Slide 50: Appendices
eS \ of Wee RY Appendices
Slide 51: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m H1 2015 H1 2014 H1 2015 H1 2014 Ongoing USA 3,912 3,418 311 252 Canada 388 406 23 24 UK 984 943 43 48 Nordic 936 913 22 32 Central Europe 215 230 14 17 Central and other costs - - (23) (22) 6,435 5,910 390 351 Sold or held for sale U
Slide 52: FX impact
FX impact H1 2014 H1 2015 H1 2014 H1 2015 H2 2014 9-Mar H2 2014 H2 2015 average average Trading impact average 2015 spot Trading impact* rate rate profit gain/(loss) rate rate profit gain/(loss) £m £m £m £m USD 1.61 1.59 252 3 USD 1.68 1.51 290 30 CAD 1.69 1.81 24 (1) CAD 1.84 1.90 20 (1) EUR 1.19 1
Slide 53: Branch numbers
Branch numbers Closed, As at disposed of Ongoing at Acquired Opened 31 July 2014 or held for 31 Jan 2015 sale USA 1,377 17 16 (19) 1,391 Canada 222 1 11 (2) 232 UK 768 - 3 (9) 762 Nordic 267 - 1 (10) 258 Central Europe and France 244 - 2 (169) 77 Group 2,878 18 33 (209) 2,720 53
Slide 54: Headcount numbers
Headcount numbers As at Net joiners / Ongoing at Acquired Held for sale 31 July 2014 (leavers) 31 Jan 2015 USA 20,307 169 - 772 21,248 Canada 2,503 9 - 3 2,515 UK 5,978 - - 71 6,049 Nordic 6,250 - - (514) 5,736 Central Europe and France 4,410 - (3,324) (4) 1,082 Other 109 - - (1) 108 Group 39,557 17
Slide 55: Acquisitions
Acquisitions US Waterworks US Blended Branches US Blended Branches Canada Industrial £9m Revenue £7m Revenue £3m Revenue £7m Revenue Aug-14 Sep-14 Oct-14 Oct-14 US HVAC US Blended Branches US Industrial (MRO) US Blended Branches £10m Revenue £3m Revenue £18m Revenue £18m Revenue Nov-14 Dec-14 Dec-14
Slide 56: Product destination analysis
Product destination analysis 3% 10% 7% 12% 17% 10% 23% 15% 21% 14% 15% 20% Civil Infrastructure 8% 21% 11% 16% Non-Residential New 16% 14% 15% Construction 19% Residential New 21% 24% Construction Non-Residential RMI 61% 53% 52% 36% 39% Residential RMI 31% 32% US Canada UK Nordic Central Europe Grou