Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — H1 2016 Earnings Presentation
57 slides from Ferguson Enterprises's earnings presentation, Mar 22, 2016
Slide 1: Half Year Results
2016 Half Year Results
Slide 2: Welcome and highlights
Welcome and highlights Ian Meakins, Chief Executive
Slide 3: Highlights
Highlights • Group performance - resilient − Share gain or held in most businesses − Improvements in customer service − Gross margins ahead − Tight cost management • US results improving in tougher markets − Deflation / Industrial − Residential, Commercial, Infrastructure robust • UK results disappo
Slide 4: Operating and Financial Review
Operating and Financial Review John Martin, Chief Financial Officer
Slide 5: Financial highlights
Financial highlights Change Like-for-like (at constant H1 2016 H1 2015 Change exchange rates) Change Ongoing revenue £6,795m £6,418m +5.9% +4.6% +2.7% Ongoing trading profit* £410m £390m +5.1% +2.3% Ongoing gross margin % 28.3% 27.9% +0.4% Ongoing trading margin %* 6.0% 6.1% (0.1%) Headline earnings
Slide 6: Total revenue growth
Total revenue growth £28m (£42m) £78m (£90m) £136m £267m £6,795m £6,418m H1 2015 Like-for-like volume Deflation Acquisitions New branches Sales day Exchange H1 2016 growth % +4.1% (1.4%) +2.1% +0.4% (0.6%) +1.3% 6
Slide 7: Like-for-like growth
Like-for-like growth Q2 Q3 Q4 Q1 Q2 last year last year last year this year this year USA 11.1% 8.3% 7.1% 4.5% 4.0% UK 3.4% 7.6% 3.1% (1.1%) (2.9%) Nordics 5.4% 8.8% 6.4% 5.5% 2.4% Canada 3.1% (1.9%) (5.8%) (3.7%) 0.6% Central Europe 4.6% 1.0% (3.4%) (1.2%) (5.0%) Ongoing businesses 8.4% 7.5% 5.4% 3
Slide 8: Industrial end-markets
Industrial end-markets H1 impact Proportion Like-for-like Impact on of regional change growth sales USA Standalone branch sales 8% (11%) (0.9%) Blended branch sales 7% (8%) (0.6%) Total impact on US growth (1.5%) Canada Industrial sales 10% (29%) (2.9%) Group (1.2%) 8
Slide 9: Commodity deflation impact
Commodity deflation impact H1 impact £m % Revenue (90m) (1.4%) Gross profit (15m) (0.8%) Gross margin +0.16% Trading profit (15m) (3.8%) % devaluation 2015 2016 H1 Cumulative Copper (9%) (16%) (25%) Plastic (1%) (13%) (14%) Carbon steel (9%) (7%) (16%) 9
Slide 10: Currency impact
Currency impact Translation Translation Region Trading impact impact in H1 impact in H2 gain / (loss) gain / (loss) * Negative impact on US USA +£16m +£21m manufacturing UK Negligible - - Nordics Negligible (£2m) +£1m Negative impact of US$ Canada (£3m) - denominated imports Negative impact of Centr
Slide 11: USA (80% of Group trading profit)
USA (80% of Group trading profit) Change (at constant £m H1 2016 H1 2015 Change exchange rates) Revenue 4,381 3,912 +12.0% +6.5% Like-for-like growth 4.3% 11.7% (7.4%) Trading profit 345 311 +10.9% +5.5% Trading margin 7.9% 7.9% - Branches 1,444 1,391 +3.8% Headcount 22,343 21,248 +5.2% 11
Slide 12: USA like-for-like revenue growth
USA like-for-like revenue growth Revenue Like-for-like Business unit £m Change % Blended Branches 2,719 +4.8% Waterworks 681 +1.8% Industrial 333 (10.8%) HVAC, Fire & Fabrication, B2C, MRO 648 +15.2% North 4,381 +4.3% AK Central (2.3%) WA ME MT ND MN MA OR VT West ID SD WI NY NH RI CT MI +7.8% WY PA
Slide 13: US investment and cost control
US investment and cost control Associate Labour Other Total Growth numbers $m $m $m % 21,248 H1 2015 873 473 1,346 472 Acquisitions 15 4 19 1.4% 248 Branch investment 11 18 29 2.2% 126 IT and key strategies 5 8 13 1.0% - Merit increases 18 18 1.3% - Healthcare 6 6 0.4% - Commissions 6 6 0.4% - Fuel
Slide 14: UK (8% of Group trading profit)
UK (8% of Group trading profit) Change (at constant £m H1 2016 H1 2015 Change exchange rates) Revenue 996 984 +1.2% +1.2% Like-for-like growth (2.0%) 1.9% (3.9%) Trading profit 34 43 (20.9%) (20.9%) Trading margin 3.4% 4.4% (1.0%) Branches 748 762 (1.8%) Headcount 6,201 6,049 +2.5% 14
Slide 15: UK investment and cost control
UK investment and cost control Labour Other Total Growth Associate numbers £m £m £m % 6,049 H1 2015 105.2 82.6 187.8 258 Acquisitions 4.4 10.3 14.7 7.8% Branch investment - 1.7 1.7 0.9% IT and key strategies 0.5 1.0 1.5 0.8% Merit increases 2.1 - 2.1 1.1% Fuel - (0.8) (0.8) (0.4%) (106) Cost savings
Slide 16: Nordic (5% of Group trading profit)
Nordic (5% of Group trading profit) Change (at constant £m H1 2016 H1 2015 Change exchange rates) Revenue 885 935 (5.3%) +3.2% Like-for-like growth 4.2% 3.4% +0.8% Trading profit 23 22 +4.5% +14.5% Trading margin 2.6% 2.4% +0.2% Branches 258 258 - Headcount 5,640 5,732 (1.6%) 16
Slide 17: Canada (4% of Group trading profit)
Canada (4% of Group trading profit) Change (at constant £m H1 2016 H1 2015 Change exchange rates) Revenue 329 372 (11.6%) (0.5%) Like-for-like growth (1.8%) 3.4% (5.2%) Trading profit 17 23 (26.1%) (16.7%) Trading margin 5.2% 6.2% (1.0%) Branches 215 222 (3.2%) Headcount 2,371 2,431 (2.5%) 17
Slide 18: Central Europe (3% of Group trading profit)
Central Europe (3% of Group trading profit) Change (at constant £m H1 2016 H1 2015 Change exchange rates) Revenue 204 215 (5.1%) (2.7%) Like-for-like growth (3.1%) (1.5%) (1.6%) Trading profit 13 14 (3.9%) (2.7%) Trading margin 6.4% 6.5% (0.1%) Branches 78 77 +1.3% Headcount 1,069 1,082 (1.2%) 18
Slide 19: Trading profit in the ongoing business
Trading profit in the ongoing business £22m (£15m) (£31m) £32m £1m £11m (£5m) £11m (£6m) £410m £390m H1 2015 Like-for-like Commodity Acquisitions Gross margin Branch and IT Restructuring Sales day Exchange Other cost H1 2016 volume growth deflation improvement investment increases less efficiency sa
Slide 20: Central costs, financing and tax
Central costs, financing and tax £m H1 2016 H1 2015 Central costs 22 23 Financing P&L charge 20 18 Exceptionals (FX recycling) - (5) Underlying P&L charge 20 13 Tax P&L charge 103 91 Exceptionals, intangibles & non-recurring items 6 15 Underlying P&L charge 109 106 Effective tax rate 27.9% 28.1% 20
Slide 21: Cash
Cash £m H1 2016 H1 2015 EBITDA before exceptionals 475 444 Seasonal working capital outflow (307) (274) Exceptionals and other 23 (21) Cash flow from operating activities 191 149 Disposals 35 44 Interest & tax (106) (124) Acquisitions (62) (28) Capex (109) (116) Dividends & buybacks (316) (358) FX &
Slide 22: Organic investment
Organic investment H1 2016 H1 2015 £m Capex Capex Technology, processes, systems 22 39 Freehold, DCs and hubs 46 37 Branch expansion, showrooms and refurbishment 41 40 109 116 22
Slide 23: Acquisitions
Acquisitions Fire and Fab £32m Revenue Fire and Fab B2C Appliances Fire and Fab £5m Revenue £47m Revenue £13m Revenue £32m Revenue Aug -15 Oct -15 Oct -15 Oct -15 Fire and Fab Commercial MRO Waterworks Waterworks £3m Revenue £15m Revenue £3m Revenue £10m Revenue Nov -15 Jan -16 Feb -16 March -16 Com
Slide 24: Capital structure
Capital structure 31 Jan 31 July 31 Jan 2016 2015 2015 Net debt* £1,253m £935m £1,221m Net pension liabilities £35m £15m £84m Committed facilities £2.2bn £2.2bn £2.3bn Interim dividend +10% 33.28p - 30.25p Share buyback programme: bought 4.3m shares for £162m (average £37.39 per share) * 31 July 201
Slide 25: Outlook for the second half
Outlook for the second half Like-for-like revenue growth in December to February 3.2% H2 restructuring costs committed to date £15m Trading days compared to H2 last year Same Impact of restating last years H2 trading profit at current FX rates +£22m Effective tax rate 28.0% Capital investment in the
Slide 26: Business Review and Strategy update
Business Review and Strategy update Ian Meakins, Chief Executive
Slide 27: Agenda – US / UK / Nordics
Agenda – US / UK / Nordics • Current market conditions • Performance by business and KPIs • Actions taken and plans to improve performance 27
Slide 28: US – current market conditions
US – current market conditions Index Consumer Confidence 000s Existing Home Sales (SAAR) 120 7,000 Peak Sep-05 Peak Feb-07 6,000 110 5,000 100 4,000 3,000 90 2,000 H1 growth +5.4% 80 1,000 70 0 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 O
Slide 29: US – current market conditions
US – current market conditions $bn Commercial & Institutional Put-in-Place Index Architectural Billings Index 40 Peak Jul-08 70 Peak Sep-05 30 60 20 50 H1 growth +10.8% 10 40 0 30 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Source:
Slide 30: US – Ferguson’s business mix
US – Ferguson’s business mix H1 like-for-like Impact on US Ferguson 100% revenue growth growth rate market share Civils 15% +3% +0.5% Gaining Industrial 15% (9%) (1.5%) Holding Commercial 30% +6% +1.7% Gaining Residential 40% +9% +3.6% Gaining 0% +4.3% 30
Slide 31: US - key performance indicators
US - key performance indicators Net Promoter Score 90 80 70 79.0 60 71.3 70.7 66.0 50 63.1 64.4 40 30 20 10 0 Blended W'works Ind'l F&F HVAC Overall Top 3,000 SKUs availability Employee Engagement 99.2% 87.5% 31
Slide 32: US - key performance indicators
US - key performance indicators LFL revenue growth Market growth 12% Performance vs Market 8% 4% 0% -4% -8% -12% Blended WW Industrial F&F HVAC B2C Change in Gross Margin Operating Expenses / Gross Profit +40 bps 73.7% 73.1% H1 2016 H1 2016 H1 2015 32
Slide 33: Accelerate profitable growth – Profit levers re-cap
Accelerate profitable growth Profit levers – re-cap Market Share Gross Margin Customer service Pricing management New branches / channels / segments Business mix Sales force effectiveness Customer discounts Employee engagement Category management Bolt-on acquisitions Profitable Sourcing growth Impro
Slide 34: Accelerate profitable growth – US actions
Accelerate profitable growth US actions Market Share Gross Margin Gradual improvements Price management and compliance -NPS / availability / OTIF Own label development Net new branches – 15 in H1, 15 in H2 Commodity management - commercial Organisational improvement – dedicated resources by district
Slide 35: Accelerate profitable growth – US actions
Accelerate profitable growth US actions Profitable growth Improve Productivity Improve Returns Associate numbers tightly managed Gradual replacement of legacy finance platforms B2B e-commerce conversion Telephony / infrastructure CRM roll-out Re-platform of B2B e-commerce Higher utilisation of regio
Slide 36: US Summary
US Summary • Residential, commercial and infrastructure markets remain robust – Industrial still declining but at lower rate • Like-for-like revenue growth rate returned to 5.7% − Deflation at c.2% • Flow through reduced − Industrial / deflation − Cost growth rate being reduced • Strategy consistent
Slide 37: Agenda – UK
Agenda – UK • Current market conditions • Performance by business and KPIs • Actions taken and plans to improve performance 37
Slide 38: UK macro and residential data
UK macro and residential data Relative Consumer Confidence - UK 000s LTM Housing Transactions - UK Index 8 1,800 Peak Jun-07 Prior peak May-02 6 1,600 4 2 1,400 0 (2) 1,200 (4) 1,000 (6) (8) 800 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15
Slide 39: UK RMI, commercial, industrial and infrastructure
UK RMI, commercial, industrial and infrastructure £m Repairs, Maintenance and Improvements 7,500 Housing RMI Total Non-housing RMI 7,000 Peak Q1-06 6,500 Peak Q2-08 6,000 5,500 H1 decline - housing -0.6% H1 decline – non-housing -6.6% 5,000 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Source: ONS
Slide 40: UK business mix
UK business mix H1 like-for-like Impact on UK UK 100% revenue growth growth rate market share H2 14/15 H1 15/16 Infrastructure 15% +0.7% +0.1% Pipe & Climate 12% (8.2%) (1.2%) Plumbing & 73% (1.3%) (0.9%) Heating 0% (2.0%) 40
Slide 41: UK key performance indicators
UK key performance indicators Net Promoter Score Top 3,000 SKUs Availability Employee Engagement +16% 98.3% +5% +3% 52% 47% 43% 57% P&H P&C Burdens Small Customers Change in Gross Margin CTC Days Improvement % revenue +8% growth -30 bps +3.7 days 31% 1 41
Slide 42: UK – Pipe and Climate Center
UK – Pipe and Climate Center • Overall market down 6% in H1 (3% price deflation) • Significant improvement in service − NPS improved by 16% to 52% − Availability at 95.8% – core product range roll-out − Daily delivery for all branches • Reduce costs and improving the business model − Consolidation o
Slide 43: Accelerate profitable growth – UK actions
Accelerate profitable growth UK actions Market Share Gross Margin Significant service improvements – key Price management and compliance differentiator Guidance and terms NPS / availability of core range / OTIF Own label / exclusive branded products Showroom expansion – 23 in H1, 25 in H2 Growth in
Slide 44: Accelerate profitable growth – UK actions
Accelerate profitable growth UK actions Profitable Productivity growth Improve Returns Costs well controlled Telephony / infrastructure Simplify Pricing processes and platforms Currently £15m restructuring costs committed ePOD Drive e-commerce conversion E-commerce mobile applications Compliance wit
Slide 45: Agenda – Nordics
Agenda – Nordics • Current market conditions • Performance by business and KPIs • Actions taken and plans to improve performance 45
Slide 46: Nordics macro and residential data
Nordics macro and residential data Index Consumer Confidence - Denmark LTM Housing Transactions - Denmark 18.0 160,000 Peak Jan 2006 16.0 Peak Q1 2006 14.0 140,000 12.0 10.0 120,000 8.0 100,000 6.0 4.0 80,000 2.0 0.0 60,000 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Q1-14 Q2-14 Q
Slide 47: Nordics macro and residential data
Nordics macro and residential data Index Consumer Confidence - Finland LTM Housing Transactions – Finland 25 100,000 Peak Sep 2010 20 Peak Q2 2008 90,000 15 10 80,000 5 70,000 0 -5 60,000 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 S
Slide 48: Nordics – key performance indicators
Nordics – key performance indicators Net Promoter Score ProductProduct Availability Availability – SKUs – Top 500 Employee Engagement Top 500 SKUs 77.7% 98.5% 96.7% 96.5% 97.0% 96.5% 61.6% 78.4% 78.3% 78.2% 77.1% 55.1% 72.6% 47.4% 50.8% Market Share % Change in Gross Margin OpEx as % of Gross Profit
Slide 49: Accelerate profitable growth – Nordics actions
Accelerate profitable growth Nordics – actions Market Share Gross Margin Further improvements Price management and compliance NPS / availability / OTIF Own label development CRM Sales training pipeline conversion Better sourcing / supply chain compliance across Front line staff – time planning / fle
Slide 50: Summary
Summary • Overall Group performance was resilient − Tougher markets and deflation − US back to decent growth − UK disappointing, Nordics better • Cost base well under control • Continuing to invest in proven initiatives − Execution of core processes − More productive / efficient business models • Ex
Slide 51: Appendices
Appendices
Slide 52: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m H1 2016 H1 2015 H1 2016 H1 2015 Ongoing USA 4,381 3,912 345 311 UK 996 984 34 43 Nordic 885 935 23 22 Canada 329 372 17 23 Central Europe 204 215 13 14 Central and other costs - - (22) (23) 6,795 6,418 410 390 Sold or held for sale U
Slide 53: FX impact
FX impact H1 2015 H1 2016 H1 2015 H1 2016 H2 2015 21-Mar H2 2015 H2 2016 average average Trading impact average 2016 spot Trading impact* rate rate profit gain/(loss) rate rate profit gain/(loss) £m £m £m £m USD 1.59 1.51 311 +16 USD 1.53 1.45 372 +21 CAD 1.81 2.03 23 (3) CAD 1.91 1.88 11 - EUR 1.27
Slide 54: Branch numbers
Branch numbers Closed, As at disposed of Ongoing at Acquired Opened 31 July 2015 or held for 31 Jan 2016 sale USA 1,418 11 31 (16) 1,444 UK 758 - 3 (13) 748 Nordic 259 - 6 (7) 258 Canada 226 - 1 (12) 215 Central Europe 78 - - - 78 Group 2,739 11 41 (48) 2,743 54
Slide 55: Associate numbers
Associate numbers As at Net joiners / Ongoing at 31 Acquired 31 July 2015 (leavers) Jan 2016 USA 22,171 191 (19) 22,343 UK 6,331 - (130) 6,201 Nordic 6,293 - (653) 5,640 Canada 2,490 - (119) 2,371 Central Europe 1,072 - (3) 1,069 Other 107 - (4) 103 Group 38,464 191 (928) 37,727 55
Slide 56: Product destination analysis
Product destination analysis 4% 3% 8% 7% 15% 12% 10% 13% 23% 22% 14% 15% 20% Civil Infrastructure 9% 11% 15% 15% 17% 22% Non-Residential New 14% Construction 22% Residential New 26% 19% Construction Non-Residential RMI 60% 53% 52% 37% Residential RMI 36% 33% 29% US UK Nordic Canada Central Europe Gr
Slide 57: Legal Disclaimer
Legal Disclaimer Certain information included in this announcement is forward-looking and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward-looking statements. Forward-looking statements cover all matters whi