Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — H1 FY2008 Earnings Presentation
67 slides from Ferguson Enterprises's earnings presentation, Mar 17, 2008
Slide 1: Interim results for the six months ended 31 January 2008
The name the world builds on Interim results for the six months ended 31 January 2008 This presentation contains certain forward-looking statements. By their nature, such statements involve uncertainty; as a consequence, actual results and developments may differ from those expressed in or implied b
Slide 2: Agenda
Agenda • Introduction • Financials • Outlook • Update on operations and strategy • Q&A The name the world builds on 2
Slide 3: Introduction
Introduction Our priorities • Experienced management team • Focus on creating a leaner, fitter Wolseley • Balanced with continuing to develop the long term business model The name the world builds on 3
Slide 4: Financial and Operational Review
Financial and Operational Review
Slide 5: Summary of results
Summary of results Strong cash flow conversion, lower profit reflects challenging conditions 2008 2007 Change Con’t curr’cy change £m £m % % Revenue 8,029 7,870 2.0 3.1 Trading profit* 300 390 (23.1) (22.1) Trading margin* 3.7% 5.0% - Net finance costs (67) (60) 11.7 PBT* 233 330 (29.4) (28.6) EPS*
Slide 6: Cash flow - Strong cash flow conversion
Cash flow - Strong cash flow conversion 2008 £m 2007 £m Trading profit 300 390 Depreciation and profits on sale of property 104 79 Increase in working capital (35) (32) Share based payments and other non cash items (2) 10 Cash flow from operating activities 367 447 Acquisitions (including debt acqui
Slide 7: Working capital - cash to cash days
Working capital - cash to cash days FY06 FY07 FY08 Jan YTD Jan YTD Jan YTD Spot inventory days 72.7 68.1 65.3 Spot receivables days 54.4 55.4 59.1 Spot payables days 52.7 60.3 68.4 Spot cash to cash days 74.4 63.2 56.0 The name the world builds on 7
Slide 8: Debt covenant position
Debt covenant position Full compliance at 31 January 2008 and expected in the future • Almost all facilities have net debt to EBITDA covenants of 3.5x except two facilities totalling £270 million at 3x (all adjust EBITDA for acquisitions) • Net debt to EBITDA 2.85x at 31 January 2008 • No breach of
Slide 9: US plumbing and heating
US plumbing and heating Market outperformance 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 2,804 156 (71) (2.7) (141) 2,748 (2.0) 3.2 Trading profit 173 13 (4) (2.8) (9) 173 (0.3) 4.9 Trading margin 6.2% 6.3% • Market slowdown but strong outperformance • Gross
Slide 10: US building materials
US building materials Market outperformance but profit hit by housing slowdown 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 1,260 26 (334) (27.9) (63) 889 (29.4) (25.7) Trading profit 42 1 (85) (210.5) (2) (44) (204.0) (209.4) Trading margin 3.3% (4.9)% • New h
Slide 11: Canada
Canada Underlying profit flat 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 303 4 7 2.3 22 336 11.3 3.7 Trading profit 19 0 (3) (15.3) 1 17 (8.8) (15.0) Trading margin 6.2% 5.1% • Residential market held up well and not affected by US housing concerns • Economic
Slide 12: UK and Ireland
UK and Ireland Progress with underlying improvement in profit and margin in UK – overall result affected by Ireland 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 1,554 9 32 2.1 7 1,602 3.1 2.7 Trading profit 92 0 (7) (8.5) 0 85 (8.2) (8.2) Trading margin 6.0% 5.
Slide 13: France
France Continued focus on market repositioning 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 889 29 (19) (2.1) 43 942 5.9 1.0 Trading profit 41 1 (14) (32.0) 2 30 (25.6) (29.1) Trading margin 4.6% 3.2% • New residential market slowed • Less positive business env
Slide 14: Nordic
Nordic Another strong performance in markets generally holding up well 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 621 358 25 3.9 31 1,035 66.6 58.8 Trading profit 31 26 7 20.6 1 65 113.6 103.0 Trading margin 4.9% 6.3% • Results reflect extra 2 months trading
Slide 15: Central and Eastern Europe
Central and Eastern Europe Profits impacted by restructuring and IT implementation in Austria but expect better second half 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 439 36 (18) (3.9) 20 477 8.6 3.8 Trading profit 21 1 (12) (54.8) 1 11 (49.4) (51.5) Trading
Slide 16: Outlook
Outlook Actions will be taken to ensure that Wolseley’s competitive advantage is maintained. Longer term fundamentals remain sound • Further deterioration expected in US new residential North • Further pressure in US RMI market America • Commercial and Industrial likely to remain stable over the nex
Slide 17: Wolseley
Wolseley the name the world builds on
Slide 18: Overview
Overview Gross margins held in tough markets • Ferguson strong outperformance in challenging markets • Stock trading loss but revenues down less than the market – continued progress on diversification • In Europe, major markets generally held up well • Operational improvements delivering benefits in
Slide 19: Lowering the cost base and driving cash flow
Lowering the cost base and driving cash flow Cost reduction and cash containment • Reduction in headcount and location • Employee numbers reduced by 10,000 from the peak • General headcount freeze • Targeted branch closures • Slower rate of branch openings • Restructuring to streamline the business
Slide 20: Second half focus
Second half focus Further actions in line with market conditions • Maintain appropriate cost base for market conditions • Cost base appropriate to market conditions • Outperformance in major markets • Cash containment • More cautious acquisitions spend • Full year capex spend to be well below £400m
Slide 21: Earn, Turn, Grow
Earn, Turn, Grow A leaner and fitter organisation • Strategy embedded • Emphasis on productivity and margin • Enhanced capital efficiency and cash flow • Maintain growth characteristic and improve quality of earnings • Lower our cost to serve • Drive our sales faster than expense base Raptor • Busin
Slide 22: Summary
Summary • Experienced management team • Focus on creating a leaner, fitter Wolseley • Balanced with continuing to develop the long term business model The name the world builds on 22
Slide 23: Wolseley
WOLSELEY
Slide 24: Appendices
Appendices WOLSELEY
Slide 25: Market strategy
Market strategy “Wolseley is a distributor of construction materials and a provider of construction services to primarily professional contractors, industry and government in Europe and North America.” Outstanding local companies successfully serving customers in home markets. The name the world bui
Slide 26: What is Wolseley?
What is Wolseley? • Founded in 1887 in Australia as the Wolseley Sheep Shearing Machine Company Limited • Nine years later the first Wolseley motor car was produced in Birmingham, UK • 1999 – finally exited all manufacturing to focus on construction materials distribution • Now world’s number one pl
Slide 27: Who are we?
Who are we? Significant growth opportunity from scale and diversity Leading supplier of construction products and services in North America and Europe Growth Scale/Size Diversity • Unique footprint • Geography • DC/branch network • Business segment • Sourcing opportunities • Customer type • Acquisit
Slide 28: Wolseley group total – revenue & profits
Wolseley group total – revenue & profits Sterling millions 1982 - 2007 1,700 100 % Revenue Profit ROC £14bn 1,500 90 % 80 % £12bn 1,300 Profit 70 % Revenue 1,100 £10bn £1,000m 60 % 900 £800m £8bn 50 % 700 £600m £6bn 40 % 500 £400m £4bn 30 % 300 20 % £200m £2bn 100 10 % 0 0 -100 82/3 84/5 86/7 88/9 9
Slide 29: Organisation & operating brands
Organisation & operating brands North America Europe The name the world builds on 29
Slide 30: Group revenue & trading profit
Group revenue & trading profit Six months to 31 January 2008 US Plumbing US Building Materials and Heating 11.1% 34.2% Trading profit UK and Ireland 20.0% US Plumbing US Building and Heating Materials 51.3% (13.0)% UK and France 11.7% Ireland Nordic 25.2% 12.9% Canada 4.2% CEE 5.9% France 9.0% Reven
Slide 31: Our diverse customer mix
Our diverse customer mix % of group revenue, six months to 31 January 2008 HVAC 4.6% Industrial 5.2% Utilities 6.5% Mechanical Contractors 10.5% Plumbing and Heating Contractors 22.8% End Users 10.1% Building Contractors 38.3% Electrical Contractors 2.0% The name the world builds on 31
Slide 32: North America – Plumbing and Heating
North America Plumbing and Heating Alaska Wolseley Canada 2007 - 257 branches Distribution Centre Hawaii Proposed DC Ferguson Pipeyard 2007 – 1,453 branches Also in Puerto Rico, Panama, Trinidad & Tobago and Mexico The name the world builds on 32
Slide 33: North America – Building Materials
North America Building Materials Stock Building Supply 2007 – 286 branches Distribution Centre The name the world builds on 33
Slide 34: Europe
Europe Branch numbers 1 UK (1,815) 2 Ireland (112) 3 France (885) 4 Belgium (14) 5 Netherlands (29) 20 6 Luxemburg (2) 7 Switzerland (39) 8 Italy (49) 9 San Marino (1) 10 Romania (9) 18 11 Hungary (34) 19 12 Slovakia (12) 17 13 Austria (72) 14 Czech Republic (36) 2 15 Poland (13) 1 16 16 Denmark (14
Slide 35: Business drivers 2007 & 2006
Business drivers 2007 & 2006 % of divisional sales £8,000 *Includes DT Group for 10 months 4% £7,000 11% 13% 12% £6,000 15% 6% £5,000 17% 16% Revenue £m 11% £4,000 5% 41% 31% 27% £3,000 50% 8% £2,000 16% 17% 13% 84% £1,000 29% 28% 23% 27% 79% £0 2007 2006 2007 2006 2007 2006 Europe* NA P&H US BM New
Slide 36: Branch numbers
Branch numbers 31 July Net new 31 Jan 2007 openings Acquired 2008 UK & Ireland 1,917 6 4 1,927 France 825 30 30 885 Nordic 275 2 0 277 Central & Eastern Europe 294 20 0 314 US Plumbing & Heating 1,417 21 15 1,453 Canada 260 (3) 0 257 US Building Materials 308 (28) 6 286 Group total 5,296 5,399 The n
Slide 37: Branch growth
Branch growth 5500 5000 4500 1677 1710 4000 1483 3500 308 286 1179 3000 1008 314 961 2500 940 236 255 3403 911 222 3311 2906 2000 591 216 2486 504 220 2393 1500 210 2266 131 1799 1000 1443 1615 500 1357 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 H1 2008 Year to July Europe US Building Materials
Slide 38: Financial targets
Financial targets • Double digit sales growth with 5% organic and 5% through acquisition • Greater than 10% profit growth • 7% trading margin by 2011 • Return on gross capital employed of at least 4% above pre tax WACC • Gearing – net debt/shareholder funds • Long term average – less than 75% • Shor
Slide 39: Acquisition strategy
Acquisition strategy • Increase market share • Platform for organic growth • Expand geographic coverage • Expand service and product range • 5% organic growth from bolt on acquisitions following completion • Target of £450 million spend on bolt ons and expect one substantial acquisition every 2-3 ye
Slide 40: Acquisition spend
Acquisition spend 2,200 2,000 1,800 1,600 1,400 1,200 £m 1,000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD Year to July Europe US Building Materials US Plumbing and Heating and Canada 'Strategic' Acquisition The name the world builds on 40
Slide 41: Financial detail for year ended 31 July 2007
Financial detail for year ended 31 July 2007
Slide 42: North America
North America Con’t 2006 Acq'n Organic change Exch 2007 Ch’ge cur’cy £m £m £m % £m £m % Ch’ge Revenue US Plumbing & Heating 5,396 458 274 5.5 (443) 5,685 5.4 14.8 US Building Materials 2,966 296 (660) (24.2) (244) 2,358 (20.5) (13.4) Canada 646 5 7 1.2 (39) 619 (4.2) 2.1 Total 9,008 759 (379) (4.6)
Slide 43: Europe
Europe Con’t 2006 Acq'n Organic change Exch 2007 Ch’ge cur’cy £m £m £m % £m £m % Ch’ge Revenue UK & Ireland 2,690 221 265 9.9 (5) 3,171 17.9 18.1 France 1,725 75 100 5.9 (28) 1,872 8.5 10.3 Nordic - 1,617 - - - 1,617 - - Central & Eastern Euro 735 97 84 11.7 (17) 899 22.4 25.2 Total 5,150 2,010 449
Slide 44: Revenue
Revenue 6,000 5,000 4,000 2006 £m 3,000 2007 2,000 1,000 - Ferguson SBS Canada UK & France Central Ireland Europe The name the world builds on 44
Slide 45: Trading profit
Trading profit 450 400 350 300 250 2006 £m 200 2007 150 100 50 - Ferguson SBS Canada UK & France Central Ireland Europe The name the world builds on 45
Slide 46: Balance sheet
Balance sheet Strong financial position As at 31 July 2007 31 July 2006 £m £m Intangible assets 2,680 1,506 Property, plant and equipment 1,718 1,144 Inventory, receivables, payables 2,130 2,321 Retirement benefit obligations (111) (189) Net debt (2,467) (1,950) Other assets and liabilities (499) (2
Slide 47: Financial track record
Financial track record WOLSELEY
Slide 48: Financial performance
Financial performance Revenue (£m) EBITA (£m) CAGR = 19% CAGR = 17% 882 877 16,221 14,158 708 619 11,256 10,128 473 8,221 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 EPS (p) (pre-amortisation) DPS (p) CAGR = 12% CAGR = 11% 29.4 32.4 98.9 26.4 82.6 87.8 23.8 74.8 21.2 56.7 2003 2004 2005 2006 2
Slide 49: Financial performance
Financial performance Return on Gross Capital EBITA margin Employed (ROGCE) 19.1% 18.8% 18.4% 6.3% 6.2% 6.1% 16.7% 5.8% 5.4% 13.7% 4 10 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 UK GAAP IFRS The name the world builds on 49
Slide 50: Cash flow generation
Cash flow generation Year to 31 July 2007 2006 2005 2004* 2003* Cash flow from operating companies 1,299 850 765 325 608 Maintenance capex (191) (140) (117) (108) (93) Tax (167) (206) (151) (128) (108) Interest (117) (57) (31) (13) (25) Free cash flow pre dividends 824 447 466 76 382 Dividends (198)
Slide 51: Capex
Capex Investment in infrastructure continues 2007 2006 £m £m Freehold land and buildings 79 104 Leasehold land and buildings 79 56 Plant machinery and equipment 202 205 Software 50 25 410 390 The name the world builds on 51
Slide 52: Performance in 1990/1991 downturn
Performance in 1990/1991 downturn Background Global recession Significant decline in California construction market Gulf War Savings & Loan crisis US housing starts around 1 million 15% of Group involved in manufacturing with higher fixed cost base Less diversity in the US distribution business No b
Slide 53: Wolseley’s trading margin in early 1990’s recession
Wolseley’s trading margin in early 1990’s recession Year to 31 July 1990 1991 1992 1993 1994 Wolseley Group 7.0% 5.1% 4.9% 5.2% 6.2% US Distribution 5.6% 3.5% 3.3% 3.9% 5.1% Ferguson 5.5% 4.2% 3.3% 3.3% 4.2% Stock Building Supply 6.4% 0.2% 4.8% 8.2% 8.0% Group Trading Profit declined by 32% in 1991
Slide 54: Group cash flow performance is resilient despite soft markets
Group cash flow performance is resilient despite soft markets (£m; FYE 31 July) 1990 1991 1992 2000 2001 2002 2005 2006 2007 Net Sales 1,847 1,738 1,954 6,403 7,195 7,968 11,256 14,158 16,221 Trading Profit (EBITA) 130 89 96 386 414 464 708 882 877 Depreciation / Other 26 29 32 74 85 93 125 146 184
Slide 55: Market information
Market information WOLSELEY
Slide 56: Enormous opportunity for growth
Enormous opportunity for growth Europe £ 292 Billion North America £ 416 Billion TOTAL £ 708 Billion Source: Management best estimates The name the world builds on 56
Slide 57: North America
North America Market opportunity of £416.2bn Plumbing, Heating & Air Building Materials & Conditioning Construction Services £3.3bn (10%) £2.5bn (1%) £239.8bn £32.8bn Civils/Waterworks, Electrical Industrial Commercial PVF £0.1bn (0%) £2.8bn (3%) £36.9bn £106.7bn Source: Management best estimates Wo
Slide 58: Europe
Europe Market opportunity of £291.5bn Plumbing, Heating & Air Building Materials Conditioning £2.7bn (9%) £4.0bn (1%) £31.0bn £182.8bn Civils/Waterworks, Electrical Industrial Commercial PVF £0.2bn (1%) £0.7bn (1%) £26.2bn £53.1bn Source: Management best estimates Wolseley Europe Market size The nam
Slide 59: North America – market opportunity
North America – market opportunity Revenue £bn Market Opportunity £bn US Canada US Canada Plumbing Heating 2.9 0.4 27.6 5.2 & Air Conditioning Electrical 0.1 0 30.3 6.6 Civils / Waterworks 2.6 0.2 102.7 4.0 Industrial Commercial PVF Building Materials 2.2 0 148.6 13.9 Construction 0.3 0 57.8 19.5 Se
Slide 60: Europe – market opportunity
Europe – market opportunity Revenue £bn Market Opportunity £bn UK & Fra CEE Nordic R of UK & Fra CEE Nordic R of Ire Euro Ire Euro Plumbing Heating 1.6 0.5 0.6 0 0 5.2 5.1 9.8 1.6 9.2 & Air Conditioning Electrical 0.1 0 0 0.1 0 3.2 6.2 7.1 1.9 7.7 Civils / Waterworks 0.4 0.1 0.2 0 0 3.8 5.8 20.6 3.3
Slide 61: Average lumber price 1995 - 2008
Average lumber price 1995 - 2008 $550 $550 $500 $500 feet board feet $445 $445 $450 $450 thousand board $390 $390 $400 $400 $400 $365 $365 $373 $373 $372 $372 $378$400 $378 US$ US$ $362 $362 $362 $362 per thousand $350 $350 $313 $313 $313 $313 $287 $287 $290 $290 $300 $300 $268 $268 per $250 $250 $2
Slide 62: Monthly lumber price 2003 - 2008
Monthly lumber price 2003 - 2008 475 475 2003 2003 425 425 feet 2004 board feet 2004 2005 2005 thousand board 2006 2006 375 375 2007 2007 US$ US$ 2008 2008 per thousand 325 325 per 275 275 225 225 Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Year to
Slide 63: US housing starts
US housing starts 2300 2200 2100 2000 1900 1800 000’s 1700 1600 1500 1400 1300 1200 1100 1000 900 800 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 0
Slide 64: New residential construction activity in U.S.
New residential construction activity in U.S. Total US housing starts 1959 – 2007 2500 2000 1500 1000 500 0 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 Single-family Starts Multi-family Starts S
Slide 65: New residential construction activity in U.S.
New residential construction activity in U.S. Total US housing starts 1950 – 2007, year over year % change 80 60 40 20 0 -20 -40 -60 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 Single-family Starts Mu
Slide 66: Repair and remodeling activity in the US
Repair and remodeling activity in the US Residential repair and remodeling expenditure vs expenditures for new 700000 residential construction 1970–2007 600000 500000 400000 300000 200000 100000 (Mil. $ NSA) 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 19 19 19 19 19 19 19 19 19 19 19
Slide 67: Repair and remodeling activity in the US
Repair and remodeling activity in the US Residential maintenance and repair expenditures vs expenditures for remodeling and alterations 1970–2007 200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 (Mil. $, NSA) 0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 19 19 19 19 19