Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — H1 2011 Earnings Presentation
58 slides from Ferguson Enterprises's earnings presentation, Mar 26, 2011
Slide 1: 2011 Half Year Results
2011 Half Year Results WOLSELEY
Slide 2: 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 2
Slide 3: Welcome and Highlights
Welcome and Highlights Ian Meakins Chief Executive
Slide 4: Highlights
Highlights Like Like-for-like for like growth in H1 – market share gains Group gross margin – stable Operating performance – improving Customer service – improving Stronger leadership teams teams, emplo employee ee engagement – improving impro ing Progress on focus and ‘clean up’ 4
Slide 5: Operating and Financial Review
Operating and Financial Review John Martin Chief Financial Officer
Slide 6: Financial Highlights
Financial Highlights Like-for-like £m H1 2011 H1 2010 Change change Revenue 6,629 6,331 +5% +5% Gross profit 1 833 1,833 1 741 1,741 +5% Gross margin 27.7% 27.5% +0.2% Trading profit* profit 275 167 +64% Trading margin 4.1% 2.6% +1.5% Profit/(loss) before tax 195 (261) Headline EPS* 60p 24p +150% Di
Slide 7: Quarterly Like-for-Like Revenue Growth
Quarterly Like-for-Like Revenue Growth Q2 Q3 Q4 Q1 Q2 2010 2010 2010 2011 2011 USA (14%) (4%) +5% +6% +11% Canada (1%) +6% +12% +7% +4% UK (4%) +4% 4% +5% 5% +5% 5% +8% 8% Nordic (9%) (5%) +3% +4% +4% France ((11%)) ((8%)) ((2%)) +2% +2% Central Europe (4%) (3%) (6%) (3%) (4%) ((10%)) ((2%)) +4% +4%
Slide 8: USA
USA Like-for-like Like for like £m H1 2011 H1 2010 Change change Revenue 2,678 2,373 +13% +9% Trading profit 146 98 +49% Trading margin 5.5% 4.1% +1.4% Branches , 1,257 1,230 +27 Headcount 16,980 16,890 +1% 8
Slide 9: Canada
Canada Like-for-like Like for like £m H1 2011 H1 2010 Change change Revenue 408 353 +15% +6% Trading profit 23 18 +31% Trading margin 5.6% 5.0% +0.6% Branches 221 221 - Headcount 2,650 2,480 +7% 9
Slide 10: UK
UK Like-for-like £m H1 2011 H1 2010 Change change Revenue Ongoing 1,215 1,130 +7% +6% Sold* Sold 6 103 1,221 1,233 Trading profit Ongoing 50 38 +31% Sold* 1 (5) 51 33 Trading margin Ongoing 4.1% 3.4% +0.7% Branches Ongoing 1,312 1,345 (33) Headcount Ongoing 9,303 9,280 - * Brandon Hire and Ireland 1
Slide 11: Nordic
Nordic Like-for-like Like for like £m H1 2011 H1 2010 Change change Revenue 1,020 990 +3% +4% Trading profit 48 47 +3% Trading margin 4.7% 4.7% - Branches 287 296 (9) Headcount 6,330 6,290 +1% 11
Slide 12: Central Europe
Central Europe Like-for-like Lik f lik £m H1 2011 H1 2010 Change change Revenue Ongoing 361 379 (5%) (3%) Sold* 53 69 414 448 Trading profit Ongoing 17 9 +71% Sold* (1) (5) 16 4 Trading margin Ongoing 4.7% 2.6% +2.3% Branches Ongoing 143 139 +4 Headcount Ongoing 1,990 2,050 (3%) * Italy, Czech, Belg
Slide 13: France
France Like-for-like Like for like £m H1 2011 H1 2010 Change change Revenue 888 934 (5%) +2% Trading profit 13 (5) n/a Trading margin 1.5% (0.5%) +2.0% Branches 691 726 (35) Headcount 8,110 8,540 (5%) 13
Slide 14: Brossette
Brossette Progress this year – Performance improved from a low base: H1 trading profit £7 million better – Executing a clear plan to return to acceptable margins Strategic position remains challenged – Trading margin <1% – Return on capital < WACC – Strategically weaker than Growth Engines and S
Slide 15: Performance Builders
Performance Builders Number of businesses Total As of Januaryy 2010 19 Being integrated with other Business Units (5) Exited* (3) Being exited (5) Balance 6 Build and Brossette represent two thirds of all performance builder revenue *Brandon Brandon Hire, France Public Works, Italy 15
Slide 16: Central and Other Costs
Central and Other Costs £ £m H1 2011 H1 2010 Group costs (17) (18) IT costs now allocated to businesses - (4) Non-recurring costs (3) (3) Construction loans (2) (3) (22) (28) 16
Slide 17: Income Statement
Income Statement £m H1 2011 H1 2010 Trading profit 275 167 Associate - ( ) (13) Exceptional items (11) (255) Amortisation (38) (48) Impairment - (71) Finance charges (31) (41) Profit/(loss) ( ) before tax 195 ((261)) Tax (62) 37 Discontinued operations - 4 P fit/(l Profit/(loss) ) ffor the th period
Slide 18: Finance Charges
Finance Charges £m H1 2011 H1 2010 Net interest and margin g 18 28 Facility charges 7 7 Pensions 6 6 31 41 18
Slide 19: Tax
Tax Pre-tax Tax Effective £m profit thereon rate Trading profit less financing costs 244 73 30% Exceptionals and amortisation (49) (11) 195 62 19
Slide 20: Net Debt and Pensions
Net Debt and Pensions 31 Jan 31 July 31 Jan £m 2011 2010 2010 Net debt as reported 714 346 910 Period end working capital adjustment - 495 181 714 841 1,091 Receivables ece ab es financing a c g 156 56 274 232 3 Construction loan debt 63 80 124 Adjusted net debt 933 1,195 1,447 Pension liabilities 3
Slide 21: Cash Flow from Operating Activities
Cash Flow from Operating Activities £m H1 2011 H1 2010 Trading profit 275 167 Depreciation and amortisation 78 101 EBITDA 353 268 Working capital - Unwind of year end position (495) - Reduction in factoring (118) (142) - Other working capital movements (72) Provisions and other movements (46) (70) C
Slide 22: Other Cash Flow
Other Cash Flow £m H1 2011 H1 2010 Cash flow from operating activities (378) 56 Net interest (25) (32) Tax (paid) / received (46) 100 Acquisitions and disposals 52 (22) C Capex (48) (41) Asset disposals 34 54 FX and other items 43 ( ) (66) (Increase)/decrease in net debt (368) 49 Opening net debt (3
Slide 23: Capital Structure
Capital Structure Dividends Interim dividend of 15p per share Normal interim payment expected to be one third of total dividend for the year Expect dividends to grow over time Balance Sheet Ongoing net debt target range 1x – 2x EBITDA Consistent with investment grade financial profile 23
Slide 24: Financial Highlights
Financial Highlights Like-for-like £m H1 2011 H1 2010 Change change Revenue 6,629 6,331 +5% +5% Gross profit 1 833 1,833 1 741 1,741 +5% Gross margin 27.7% 27.5% +0.2% Trading profit* profit 275 167 +64% Trading margin 4.1% 2.6% +1.5% Profit/(loss) before tax 195 (261) Headline EPS* 60p 24p +150% Di
Slide 25: Business Review and Strategy
Business Review and Strategy Ian Meakins Chief Executive
Slide 26: Agenda
Agenda Delivery over last 6 months Progress on Resource Allocation Progress on Business Unit Performance: – Ferguson, US – Plumb, UK – Stark, Denmark Summary 26
Slide 27: Delivery Over Last 6 Months
Delivery Over Last 6 Months Improved p capital p allocation – Support pp new g growth initiatives • Employee training and development Invest in Growth Engines • Product availability and Synergy Drivers • E-commerce – Selective bolt-on acquisitions Focus on performance and – Dashboards by branch
Slide 28: Value Creation - Recap
Value Creation - Recap Operational Strategy Performance Within Cross Resource Business Unit Business Business Allocation Strategies Unit Unit Profitable Growth 28
Slide 29: Resource Allocation Selection Criteria
Resource Allocation S l ti Selection Criteria C it i 29
Slide 30: Portfolio: Trading Margin vs Market Share
Portfolio T di Trading M Margin i vs Market M k t Share Sh Market leaders £m Sales Growth engine Synergy driver Performance Builder 10% Trading T di 5% High Margin performers % 0% ‐5% 5% 0.0 0.5 1.0 1.5 2.0 2.5 Relative Market Share 30
Slide 31: Business Unit Strategy Framework
Business Unit Strategy Framework UK – Plumb Driving organic growth Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Best Branch Staff US – Ferguson Most efficient operating model Nordic – Stark Focusing on the Driving performance drivers of
Slide 32: Ferguson – Major Initiatives
Ferguson – Major Initiatives Pricing initiatives across network Private label expansion Showroom Sh productivity d ti it / ttechnology h l E-commerce: – Ferguson online – Build.com Branch performance management National advertising campaign Customer service improvements 32
Slide 33: Ferguson - Best Customer Service: Dashboard
Ferguson - Best Customer Service C t Customer Service S i D Dashboard hb d/C Correlations l ti FEII February b Net Promoter Score S (NPS) ( S) Prior Month FEI Average Relationship l i hi withi hA Associates i Prior Month FEI Average Ã Ã Ã Ä Feb‐2011, average score 65.00 Feb‐2011, average score 8.18
Slide 34: Ferguson - Best Customer Service: Top 3,000 SKU Initiative
Ferguson - Best Customer Service T Top 3 3,000 000 SKU Initiative I iti ti Launched top 2 2,000 000 SKU initiative in November 2009 – Goal to provide 100% fill rate at branch – Within branch and from Distribution Centers Extended to 3 3,000 000 SKUs in August 2010 Progress – Feb 2010 to Feb 20
Slide 35: Ferguson - Top 3,000 SKU Fill Rate
Ferguson - Best Customer Service T Top 3 3,000 000 SKU Fill R Rate t Fill Rate to Customer from Branch 99.20% 99.10% 99.00% Supplier OTIF to Ferguson is 75% 98.90% Point of conversion from 2,000 2 000 to 3,000 3 000 SKUs 98.80% Mar‐10 Apr‐10 May‐10 Jun‐10 Jul‐10 Aug‐10 Sep‐10 Oct‐10 Nov‐10 Dec‐10 Ja
Slide 36: Ferguson - Quarterly Market Share Performance
Ferguson - Best Customer Service Quarterly Market Share Performance 10% Launch of top Launch of top 2,000 project 3,000 project 8% 6% 4% 2% 0% Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Performance v Market 36
Slide 37: Ferguson Service Guarantee
Ferguson - Best Customer Service F Ferguson Service S i G Guarantee t 37
Slide 38: Business Unit Strategy Framework: UK – Plumb
Business Unit Strategy Framework UK UK –Plumb Plumb Driving organic growth Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Best Branch Staff Most efficient operating model 38
Slide 39: Plumb – Major Initiatives
Plumb – Major Initiatives Local L l Area A Networks N t k Salesforce.com E-commerce Branch in-fills in fills Product availability focus Merchandising M h di i Parts into Plumb Employee Engagement 39
Slide 40: Plumb – Gross Margin Performance
Plumb – Gain Share of Existing and New Customers Gross Margin Performance Gross Marrgin (%) Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul FY09 FY10 FY11 40
Slide 41: Plumb – Growth of Parts Sales and Gross Margins
Plumb – Gain Share of Existing and New Customers Growth of Parts Sales and Gross Margins in Plumb Branches 300 6.0% 250 5.0% dex 200 4.0% Index Sales Inde Sales 150 3.0% 100 2.0% 50 1.0% 0 0.0% Aug Sep Oct Nov Dec Jan YoY Sales Increase YoY Margin Increase 41
Slide 42: Plumb – Employee Engagement Survey 2010
Plumb – Gain Share of Existing and New Customers Employee Engagement Survey 2010 Area of engagement 2008 2010 Change Satisfaction with my current job 79% 80% +1% Motivated in my present job 68% 71% +3% Satisfied with my company as an employer 61% 75% +14% 14% Committed to the company 69% 80% +11% Pr
Slide 43: Plumb – Customer Service Improvement
Plumb – Gain Share of Existing and New Customers Customer Service Improvement p Q2 Q vs Q Q1 ‐5 5.0% 0% 0 0% 0.0% 5 0% 5.0% 10 0% 10.0% 15 0% 15.0% Courtesy Attendance Efficiency Knowledge g Clean/Tidy Stock Terms Overall 43 Source: Company data (based on 2,642 respondents)
Slide 44: Plumb – Major Markets Survey vs Wolseley
Plumb – Gain Share of Existing and New Customers Major Markets Survey vs Wolseley 5.0% 4 0% 4.0% 3.0% 2.0% 1.0% 0.0% Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 1 0% -1.0% -2.0% -3.0% -4.0% -5.0% Performance v Market * Excludes Bathstore and Pipe Centre 44
Slide 45: Business Unit Strategy Framework: Nordic – Stark
Business Unit Strategy Framework Gain share of existing customers and gain new customers Best Customer Preferred Vendor Service Relationship Best Branch Staff Most efficient operating p g model Nordic – Stark Driving performance at branch level 45
Slide 46: Stark – Major Initiatives
Stark – Major Initiatives Sales channel strategies Staff training / skills enhancement New category concepts Customer training a Branch performance management 46
Slide 47: Stark – Most Efficient Operating Model: Front Office Dashboard
Stark – Most Efficient Operating Model F Front t Office Offi - Dashboard D hb d Sales & gross profit Follow up customer Sales activities on quotations Customer growth and decline Customer Satisfaction scores Product split 47
Slide 48: Stark – A Closer Look at a KPI
Stark – Most Efficient Operating Model A Closer Cl Look L k att a KPI Example: KPI showing proportion of invoices matched with orders => Best-in-class => Development compared to last period => List all branches in league table => STARK Greenland 48
Slide 49: Stark – An Even Closer Look at a KPI
Stark – Most Efficient Operating Model A Even An E Cl Closer L Look k att a KPI Best in Class STARK Performance Indicators Development over time Details in time League table Details last period To join average of Top 30 must improve to 68.8 68 8 49
Slide 50: Summary
Summary Future direction of Group clear – Organic growth in Growth Engines and Synergy Drivers – Performance Builders being resolved – Bolt-on acquisitions Business performing better – Like-for-like growth above market – Customer C t service i Branch by branch – Employee engagement – Gross margi
Slide 51: Q&A
Q&A The name the world builds on
Slide 52: Appendices
Appendices a WOLSELEY
Slide 53: Currency
Currency H1 2011 H1 2010 @ 31 J January @ 31 JJuly l Average Average Movement 2011 2010 US$ 1.57 1.63 4% 1.60 1.57 CAN$ 1.60 1.74 8% 1.60 1.61 DKK 8.78 8.34 (5%) 8.72 8.96 Euro 1.18 1.12 (5%) 1.17 1.20 CHF 1.55 1.69 9% 1.51 1.63 53
Slide 54: Product Destination Analysis
Product Destination Analysis Civil Infrastructure Non - Residential New Construction Residential New Construction Non - Residential RMI Residential RMI Group: RMI 56%, New Residential 20% 54
Slide 55: Performance Builders
Performance Builders LY TY Total Brought g forward 19 13 19 Integrated (4) (1) (5) Exited* (2) (1) (3) 13 11 11 Being exited (3) (5) (5) Balance carried forward 10 6 6 Build and Brossette represent two thirds of all performance builder revenue *Brandon Brandon Hire, Public Works, Italy 55
Slide 56: Disposals
Disposals £m H1 2011 H1 2010 H2 2010 Revenue Ireland - 69 - Brandon 6 34 36 UK 6 103 36 Italy 53 60 64 Trading Profit Ireland - (6) - Brandon 1 1 4 UK 1 ((5)) 4 Italy (1) (5) (4) 56
Slide 57: Market Overview Key Indicators
Market Overview Trend Improving K Key IIndicators di t Flat Declining USA- Consumer Single-Family Billings Index: GDP Growth (2011F)1 3 2% 3.2% Confidence Index3 Home Sales (000s)4 Commercial5 Annual Unemployment Rate Feb 11 v Jan 11 v Jan 11 v 9.0% +5.6 +5.3% +1.9 (2011F)2 Jan 11 Jan 10 Dec 10 UK P
Slide 58: 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 N New and dEExisting i ti SiSingle-Family l F il H