Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — FY2016 Earnings Presentation
61 slides from Ferguson Enterprises's earnings presentation, Sep 27, 2016
Slide 1: 2016 Full Year Results
2016 Full Year Results
Slide 2: Highlights of 2016 results
Highlights of 2016 results John Martin, Chief Executive
Slide 3: Agenda
Agenda − Highlights of 2016 results John Martin − Operating and financial review David Keltner − Business review and outlook John Martin 33
Slide 4: Highlights of 2016 results
Highlights of 2016 results − Continued improvement in financials − Revenue growth of +2.4% LFL, +4.2% total at constant exchange rates − Continued good progress on gross margin, +0.3% − Better second half performance on costs and more to do − Trading profit growth +1.6% at constant exchange rates −
Slide 5: Operating and financial review
Operating and financial review David Keltner, Interim Group CFO
Slide 6: Financial highlights
Financial highlights Change (at constant Like-for-like 2016 2015 Change exchange rates) change Revenue £14,430m £13,300m +8.5% +4.2% +2.4% Gross margin % 28.3% 28.0% +0.3% Trading profit* £917m £857m +7.0% +1.6% Trading margin %* 6.4% 6.4% - Headline earnings per share* 247.7p 230.2p +7.6% Ordinary
Slide 7: Like-for-like growth
Like-for-like growth Q4 Q1 Q2 Q3 Q4 2015 2016 2016 2016 2016 USA +7.1% +4.5% +4.0% +5.0% +3.1% UK +3.1% (1.1%) (2.9%) (0.4%) (2.1%) Nordics +6.4% +5.5% +2.4% (2.6%) (2.3%) Canada & Central Europe (5.0%) (2.8%) (1.7%) - +0.3% +5.4% +3.2% +2.3% +2.8% +1.5% Group annual like-for-like growth 7.1% 5.6% 4
Slide 8: Revenue and trading profit growth
Revenue and trading profit growth Revenue +3.9% +1.8% - +4.3% +0.3% (0.3%) (1.5%) 36 (38) (193) 552 - 245 14,430 528 13,300 Trading profit 46 (36) (6) (35) 40 6 45 917 857 2015 Like-for-like Acquisitions Gross margin Exchange Organic Trading day Commodity 2016 volume growth improvement investment de
Slide 9: Impact of commodity price deflation
Impact of commodity price deflation Q4 Q1 Q2 Q3 Q4 Revenue 2015 2016 2016 2016 2016 USA (0.5%) (1.8%) (2.4%) (2.3%) (2.4%) Group (0.2%) (1.2%) (1.4%) (1.4%) (1.5%) 2016 2016 2016 Revenue growth Revenue Trading profit Full year impact on Group (1.5%) (£193m) (£35m) 9
Slide 10: Impact of weaker demand from US industrial customers
Impact of weaker demand from US industrial customers Q4 Q1 Q2 Q3 Q4 FY Revenue growth 2015 2016 2016 2016 2016 2016 US total industrial growth rate (1%) (12%) (8%) (11%) (8%) (10%) Impact on overall US growth rate (0.2%) (1.7%) (1.1%) (1.5%) (0.9%) (1.3%) US industrial is 12% of US revenue 10
Slide 11: Impact of movements in foreign exchange
Impact of movements in foreign exchange – Trading profit* +£46m – Net debt** +£149m – Minimal impact on net debt : EBITDA ratio * 7% average strengthening of USD and other foreign exchange movements ** 18% strengthening of USD spot rate and other foreign exchange movements 11
Slide 12: Ferguson (USA)
Ferguson (USA) (81% of Group trading profit) Change (at constant £m 2016 2015 Change exchange rates) Revenue 9,456 8,337 +13.4% +6.2% Like-for-like growth +4.1% +9.6% Trading profit 775 683 +13.5% +6.3% Foreign exchange impact 47 Commodity deflation (36) Trading margin 8.2% 8.2% - Branches 1,465 1,4
Slide 13: Ferguson like-for-like revenue growth
Ferguson like-for-like revenue growth Revenue Like-for-like Business unit £m change % Blended Branches (see regional analysis below) 5,784 +4.0% Waterworks 1,494 +4.3% Industrial standalone 706 (7.8%) HVAC, Fire & Fabrication, B2C, MRO 1,472 +11.7% 9,456 +4.1% North AK Central (2.3%) WA ME MT ND MN
Slide 14: Ferguson end-market revenue growth
Ferguson end-market revenue growth % of US revenue Revenue growth 2016 2016* Residential 45% +10% Commercial 28% +7% Municipal 15% +6% Industrial 12% (10%) * at constant exchange rates 14
Slide 15: UK
UK (8% of Group trading profit) £m 2016 2015 Change Revenue 1,996 1,987 +0.5% Like-for-like growth (1.6%) +3.6% Trading profit 74 90 (17.8%) Trading margin 3.7% 4.5% (0.8%) Branches 737 758 (21) Headcount 6,071 6,331 (4.1%) 15
Slide 16: Nordic
Nordic (6% of Group trading profit) Change (at constant £m 2016 2015 Change exchange rates) Revenue 1,881 1,863 +1.0% +0.8% Like-for-like growth +0.6% +5.5% Trading profit 60 72 (16.7%) (17.6%) Foreign exchange impact - Trading margin 3.2% 3.9% (0.7%) Branches 256 259 (3) Headcount 6,168 6,293 (2.0%
Slide 17: Canada & Central Europe
Canada & Central Europe (5% of Group trading profit) Change (at constant £m 2016 2015 Change exchange rates) Revenue 1,097 1,113 (1.4%) +0.3% Like-for-like growth (1.1%) (0.7%) Trading profit 53 55 (3.6%) (0.2%) Foreign exchange impact (1) Trading margin 4.8% 4.9% (0.1%) Branches 296 304 (8) Headcou
Slide 18: Impairments & exceptional items
Impairments & exceptional items £m Cash Non-cash Total Disposal / closure of businesses 4 4 8 UK restructuring (11) 1 (10) UK goodwill impairment - (94) (94) (7) (89) (96) 18
Slide 19: Financing & tax
Financing & tax £m 2016 2015 Financing P&L charge 40 28 Pensions and provisions - (2) 40 26 Tax P&L charge 231 187 Exceptionals, intangibles & non-recurring items 17 44 Underlying P&L charge 248 231 Effective tax rate 28.3% 27.9% 19
Slide 20: Cash
Cash £m 2016 2015 Trading profit (reported) 916 854 Depreciation & amortisation 140 117 EBITDA 1,056 971 Working capital (44) (8) Exceptionals and other 7 (26) Cash flow from operating activities 1,019 937 Interest & tax (232) (253) Acquisitions (113) (105) Disposals 65 86 Capex (218) (231) Dividend
Slide 21: Capital structure
Capital structure 2016 2015 Net debt as reported £936m £805m Impact of timing of payment runs £120m £130m £1,056m £935m Net pension liability £147m £15m Operating lease commitments £853m £776m Reported net debt / EBITDA 0.9x 0.8x Total dividend 100.0p 90.75p Triennial review of UK pension - £25m a y
Slide 22: Acquisitions
Acquisitions Financial impact £m Revenue Trading profit 1 August 2015 to date of acquisition 87 5 Date of acquisition to 31 July 2016 110 6 197 11 Acquisitions completed in FY2017 to date 92 19 c.£300 million of completed / approved transactions since year-end 22
Slide 23: Technical guidance for the year to 31 July 2017
Technical guidance for the year to 31 July 2017 Trading days and estimated impact on trading profit One more day / £6m Impact of restating 2016 trading profit at current exchange rates* +£93 million Trading profit impact of YTD acquisitions £19 million Exceptional costs £100 million Effective tax ra
Slide 24: Business review and outlook
Business review and outlook John Martin, Chief Executive
Slide 25: Operating principles
Operating principles Where we will operate ─ Primary focus on organic growth in existing businesses ─ Pursue adjacent opportunities, such as Commercial MRO, where we are equipped to win and can generate strong synergies ─ Bolt-on acquisitions where we are performing strongly and have management band
Slide 26: Large, specialist US distributor with international operations
Large, specialist US distributor with international operations % Group trading profit Ferguson 81% 26
Slide 27: Key priorities
Key priorities 1. Generate best profitable growth in Ferguson 2. Execute UK turnaround and repositioning plan 3. Review Nordics operational strategy and restore business to profitable growth 27
Slide 28: Ferguson is a great business, the US a large, attractive, growth market
Ferguson is a great business, the US a large, attractive, growth market Ferguson is a great business − Strong people and service culture with excellent record of execution − Benefits of scale in operations, procurement, technology and supply chain help to generate strong returns − Performance cultur
Slide 29: Generate best profitable growth in Ferguson
Generate best profitable growth in Ferguson i. Excellent service ethic ii. Strong sales culture iii. Organic expansion of our network iv. Bolt-on acquisitions where we can generate synergies: we will stay disciplined v. Build scale and capability in selected adjacent markets vi. Accelerate e-commerc
Slide 30: i. Excellent service ethic
i. Excellent service ethic − 3,700+ customers surveyed − 720 customers interviewed − 550 associates surveyed − 36 local markets visited − 5 customer journey maps − 3 segmentation pilots Ferguson recently ranked #1 supplier in all districts surveyed for responsiveness, relationships, expertise and su
Slide 31: ii. Strong sales culture
ii. Strong sales culture Example: National Sales Center Supports: − Growth in Commercial MRO business c. 50% of customer interactions − National services e.g. emergency water heaters, HVAC equipment − National accounts e.g. national restaurant 45k sqft facility in VA chains and shopping malls 350 as
Slide 32: iii. Organic expansion of our network
iii. Organic expansion of our network AK WA ME MT ND MN OR VT MA ID NH WI NY SD RI WY MI CT PA NV IA NE NJ OH IL IN UT DE CO WV KS VA MD CA MO KY DC TN NC AZ OK NM AR SC MS AL GA 0.0% to 7.0% LA TX HI 7.0% to 13.5% 13.5% to 18.5% FL 18.5% to 25.0% 25.0% + Blended Branches market share by state 32
Slide 33: iv. Bolt-on acquisitions
iv. Bolt-on acquisitions 300 250 200 Consideration ($m) 150 100 50 0 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 YTD Ferguson acquisition spend 33
Slide 34: v. Build scale and capability in adjacent markets
v. Build scale and capability in adjacent markets e.g. Commercial MRO − Large, attractive addressable facilities maintenance market of c. $90 billion − Highly fragmented market − Synergies with core Ferguson business include sales and logistics − Standalone business unit from 1 August 2016, with rev
Slide 35: vi. Accelerate e-commerce penetration
vi. Accelerate e-commerce penetration 3.0 25.0% 2.5 20.0% 2.0 15.0% $bn 1.5 10.0% 1.0 5.0% 0.5 - 0.0% FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 B2B B2C e-commerce share of total sales Further brand building investment in 2017 of $11 million 35
Slide 36: vii. Further development of operating model
vii. Further development of operating model Example: changing regional structure to better align to customer needs − Consolidation to fewer large profit centres to enhance consistency of customer experience e.g. pricing, invoicing − Focus in each district by each discipline − Getting the most out of
Slide 37: Omni-channel strategy
Omni-channel strategy Omni-Channel: All channels seamlessly available to our customers and are connected 37
Slide 38: Ferguson from the ground up
Ferguson from the ground up Commercial MRO HVAC Fire & Fabrication Commercial Plumbing Underground OMNI-CHANNEL APPROACH 38
Slide 39: Key priorities
Key priorities 1. Generate best profitable growth in Ferguson 2. Execute UK turnaround and repositioning plan 3. Review Nordics operational strategy and restore business to profitable growth 39
Slide 40: Why did we conduct the UK review?
Why did we conduct the UK review? Trading profit 120 100 80 £m 60 40 20 0 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 UK operational review process – Interviews with all major category suppliers – Interviews, focus groups and quantitative surveys with all customer groups – Analysis of 46 million custome
Slide 41: Good opportunities for growth
Good opportunities for growth Allocate more resources to growing plumbing/bathrooms, drainage and PVF categories and small and medium customer segments Product category opportunities Customer segment opportunities Drainage Cooling High High Small PVF Parts Gross margin Medium Gross margin Defend Gro
Slide 42: Small trade and large customers have some different needs
Small trade and large customers have some different needs We will provide two distinct customer propositions Small specialist trade customers Large specialist trade customers Branch requirements Local branches Wide national network Customer needs Local expertise and access Dedicated account manageme
Slide 43: There is a high degree of overlap between networks
There is a high degree of overlap between networks We will optimise the branch network to drive service and efficiency E.g: Overlap of Plumb Center and Drain Center networks Customer overlap SKU overlap Drain Center Plumb Center Drain Center Plumb Center 82% 72% Most Drain Center customers also Most
Slide 44: We operate multiple brands and formats
We operate multiple brands and formats We will operate a single network, with two formats and transition to a single brand Local branches (c.440) Destination branches (c.80) Everyday needs of local customers More comprehensive range c. 4,000 core products in stock c. 9,000 core products in stock Ext
Slide 45: 83% of sales are pre-ordered with the large majority picked from branch
83% of sales are pre-ordered with the large majority picked from branch Picking and packing of pre-ordered items will be done at distribution centre/hubs Same day Same day delivered collect 13% 4% New centralised logistics network Customer Customer Pre-ordered Distribution Regional Customer delivere
Slide 46: Other transformation objectives
Other transformation objectives − Substantial simplification of branch based activities: focus on sales and service − Further technology investment in multi channel platform and digital tools to support customers − Single, national, non-negotiable pricing on range of SKUs to improve price perception
Slide 47: Costs and benefits
Costs and benefits ─ Expect to close 80 branches and one distribution centre ─ Expect up to 800 job losses (subject to consultation) ─ Restructuring charges of c. £100m (£70m cash) ─ Cash element to be fully offset by property proceeds and working capital reduction ─ Incremental investment in estate
Slide 48: Summary of UK turnaround and repositioning plan
Summary of UK turnaround and repositioning plan − UK performance has deteriorated − We have strong positions in attractive markets − We will generate growth by targeting attractive categories and segments − Action plan identified with new customer propositions and leaner, fitter supply chain network
Slide 49: Key priorities
Key priorities 1. Generate best profitable growth in Ferguson 2. Execute UK turnaround and repositioning plan 3. Review Nordics operational strategy and restore business to profitable growth 49
Slide 50: Short-term actions in Nordics
Short-term actions in Nordics ─ Generate above market organic profitable growth in Sweden ─ Stabilise and improve gross margins in Denmark ─ Align capacity with market demand in Finland ─ Reduce central costs 50
Slide 51: Why are we initiating the Nordics review?
Why are we initiating the Nordics review? Trading profit 100 80 60 40 £m 20 0 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Starting operating review in September 2016 and expect to complete in H1 2017 51
Slide 52: Capital allocation priorities
Capital allocation priorities 1. Top priority is to reinvest in organic growth opportunities 2. Fund ordinary dividend, to grow in line with long term earnings growth 3. Bolt-on acquisitions to existing businesses, where we have momentum and management bandwidth ─ Post year-end completed and / or ap
Slide 53: Outlook and summary
Outlook and summary ─ Like-for-like revenue growth in the new financial year has been 1.5 per cent for the Group and 4.5 per cent in the USA. ─ Demand across our markets remains mixed, with some uncertainty in the economic outlook. ─ We will remain vigilant in controlling our costs to protect profit
Slide 54: Appendix
Appendix
Slide 55: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m 2016 2015 2016 2015 USA 9,456 8,337 775 683 UK 1,996 1,987 74 90 Nordic 1,881 1,863 60 72 Canada & Central Europe 1,097 1,113 53 55 Central costs - - (45) (43) 14,430 13,300 917 857 Non-ongoing - 32 (1) (3) 14,430 13,332 916 854 55
Slide 56: Foreign exchange impact
Foreign exchange impact 2016 16-Sep-2016 2016 Trading 2017 2015 2016 2015 2016 average rate spot rate profit impact* average rate average rate Trading profit impact gain/(loss) £m gain/(loss) £m £m £m USD 1.56 1.46 683 47 USD 1.46 1.32 775 81 CAD 1.86 1.94 34 (2) CAD 1.94 1.72 32 4 EUR 1.33 1.31 16
Slide 57: Movement in Ferguson commodity prices
Movement in Ferguson commodity prices Plastic price Copper price Impact until Q2 2017 at current rates Impact until Q3 2017 at current rates (8%) (14%) (11%) (16%) (16%) (18%) (26%) (24%) Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Carbon steel pri
Slide 58: Branch numbers
Branch numbers Brought forward Carried forward Acquired Opened Closed 31 July 2015 31 July 2016 USA 1,418 26 69 (48) 1,465 UK 758 - 6 (27) 737 Nordic 259 - 7 (10) 256 Canada & Central Europe 304 4 3 (15) 296 2,739 30 85 (100) 2,754 58
Slide 59: Headcount
Headcount Brought forward Carried forward Acquired Net joiners / (leavers) 31 July 2015 31 July 2016 USA 22,171 361 468 23,000 UK 6,331 - (260) 6,071 Nordic 6,293 - (125) 6,168 Canada & Central Europe 3,562 37 (93) 3,506 Other 107 - - 107 38,464 398 (10) 38,852 59
Slide 60: American Depositary Receipts (ADRs) programme
American Depositary Receipts (ADRs) programme Wolseley has a Level 1 ADR program trading on OTCQX, the premier tier of the US over-the-counter market Ticker: WOSYY ADR key benefits Exchange: OTCQX - Convenient means of trading/holding foreign shares CUSIP: 977868306 - USD-denominated security – redu
Slide 61: ‘pipers
‘pipers WOLSELEY