Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — FY2008 Earnings Presentation
66 slides from Ferguson Enterprises's earnings presentation, Sep 22, 2008
Slide 1: Final results for the year ended 31 July 2008
The name the world builds on Final results for the year ended 31 July 2008 22 September 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 im
Slide 2: Agenda
Agenda • Introduction • Financial review • Outlook • Update on operations and strategy • Q&A The name the world builds on 2
Slide 3: Introduction
Introduction • Unprecedented market conditions • Experienced management team focused on cost reduction and cash maximisation • Good progress on ensuring adequate covenant headroom • Determined to take the tough action required to navigate cycle The name the world builds on 3
Slide 4: Financial Review
Financial Review WOLSELEY
Slide 5: Summary of results
Summary of results Lower profit reflects losses in Stock Building Supply, exceptional costs and impairment provisions 2008 2007 Change Con’t curr’cy £m £m % change % Revenue 16,549 16,221 2.0 0.0 Trading profit* 683 877 (22.1) (23.7) Exceptional restructuring costs (76) - Goodwill and acquired intan
Slide 6: Debt covenant calculation
Debt covenant calculation Cost reduction and improved cash management result in comfortable covenant headroom at 31 July 2008 2007 £m £m Operating profit 301 753 Amortisation and impairment of acquired intangibles 306 124 Depreciation and other amortisation 242 191 Exceptional items 76 - Depreciatio
Slide 7: Actions taken to improve cash position
Actions taken to improve cash position Over £1.2 billion extra headroom created over the last year £m Items that have reduced debt in 2008 Reduced working capital 350 Business and asset disposals 102 Receivables factoring 74 Reduction in net debt for year to 31 July 2008 526 Other actions to conserv
Slide 8: Additional actions to improve headroom
Additional actions to improve headroom Further working capital improvement expected • Further working capital improvement (over 10% by 31 July 2009) • Further reduction in capex by £140 million to £180 million • Proposed extension of receivables factoring • Property and business disposals • Confiden
Slide 9: Liquidity
Liquidity Strong liquidity position – committed, undrawn facilities of nearly £1.2 billion Committed facilities £3,875m undrawn £1,159m Committed Facilities 5,000 4,500 Maturing in year: £135m £0m £105m £2,500m 4,000 3,500 3,000 £m 2,500 2,000 3,875 3,740 3,740 3,635 1,500 1,000 500 1,135 0 31-Jul-0
Slide 10: Cash flow
Cash flow Operating cash flow nearly £1.3 billion 2008 £m 2007 £m Trading profit 683 877 Exceptional items (76) - Depreciation and profits on sale of property 226 164 Decrease in working capital 424 238 Share based payments and other non cash items 5 20 Cash flow from operating activities 1,262 1,29
Slide 11: Working capital - cash to cash days
Working capital - cash to cash days 30% improvement over last two years Improvement over FY06 FY07 FY08 2 years 1 year Spot inventory days 68.8 63.7 60.9 7.9 2.8 Spot receivables days 52.7 51.3 49.2 3.5 2.1 Spot payables days (56.3) (63.2) (64.2) 7.9 1.0 Spot cash to cash days 65.2 51.8 45.9 19.3 5.
Slide 12: Exceptional costs and benefits from restructuring and business initiatives
Exceptional costs and benefits from restructuring and business initiatives Incremental benefit of £129 million in 2009 Cost £m Headcount Benefit Benefit reduction £m pa £m ytd UK and Ireland 12 450 17 - France 21 710 11 1 Nordic 3 350 2 - Central and Eastern Europe 2 120 4 - European central costs 4
Slide 13: Goodwill and intangibles
Goodwill and intangibles One-off impairment provisions 2008 2007 £m £m Amortisation of acquired intangibles 135 119 Goodwill and acquired intangibles impairment - Stock Building Supply 114 5 - Ireland 46 171 - 5 - Italy 11 - Total amortisation and impairment of acquired intangibles 306 124 Software
Slide 14: Finance costs
Finance costs One-off impairment of equity investment 2008 2007 £m £m Net interest payable (136) (118) Other finance costs (1) 1 (137) (117) Pension finance income/(charge) 3 (2) Impairment of equity investment (22) - (156) (119) The name the world builds on 14
Slide 15: 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 5,685 206 (132) (2.4) (146) 5,613 (1.3) 1.3 Trading profit 411 21 (25) (6.2) (10) 397 (3.3) (0.8) Trading margin 7.2% 7.1% • Market slowdown but strong market outperforma
Slide 16: 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 2,358 63 (626) (27.2) (60) 1,735 (26.4) (24.5) Trading profit 44 5 (171) (397.2) (1) (123) (379.0) (386.3) Trading margin 1.9% (7.1)% • N
Slide 17: Canada
Canada Residential market held up but profits marginally down 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 619 6 4 0.5 55 684 10.5 1.4 Trading profit 42 - (7) (15.1) 4 39 (6.4) (14.1) Trading margin 6.8% 5.8% • Residential market held up, largely avoiding the p
Slide 18: UK and Ireland
UK and Ireland Tougher trading conditions impact results 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 3,171 13 (11) (0.3) 30 3,203 1.0 0.1 Trading profit 211 - (37) (17.5) 2 176 (16.6) (17.4) Trading margin 6.7% 5.5% • UK housing market slowed significantly and
Slide 19: Nordic
Nordic Another strong performance with revenue and profit growth 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 1,617 387 31 1.7 162 2,197 35.9 23.5 Trading profit 99 28 22 19.9 10 159 59.9 45.4 Trading margin 6.1% 7.2% • Results reflect extra 2 months trading in
Slide 20: 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 1,872 83 (27) (1.3) 188 2,116 13.1 2.7 Trading profit 101 9 (17) (15.0) 10 103 2.1 (7.2) Trading margin 5.4% 4.9% • New residential and RMI markets slowed • Less positiv
Slide 21: Central and Eastern Europe
Central and Eastern Europe Profits impacted by business disruption and IT impairment charge 2007 Acq’n Organic Change Exch 2008 Ch’ge Cons’t £m £m £m % £m £m % Cur’y % Revenue 899 39 (32) (3.3) 95 1,001 11.2 0.6 Trading profit 35 - (38) (101.7) 3 - (100.7) (100.6) Trading margin 3.8% 0.0% • Gross ma
Slide 22: Outlook
Outlook Focus on cost reduction and cash maximisation • Markets likely to deteriorate • US commercial and industrial markets likely to remain stable for next few months • Focus on cost reduction and cash maximisation • Further restructuring and fundamental review of Stock • Confident of covenant com
Slide 23: Wolseley the name the world builds on
Wolseley the name the world builds on
Slide 24: Year on year trading performance
Year on year trading performance Dramatic impact of Stock loss in 2008 Trading Profit By Cluster 411 Ferguson 397 44 Stock -123 42 Canada 39 2007 211 2008 UK and Ireland 176 35 CEE 0 99 Nordic 159 101 France 103 -150 -50 50 150 250 350 450 £m The name the world builds on 24
Slide 25: Lowering the cost base
Lowering the cost base Significant progress to date • Reduction in headcount and locations • Cash flow generation remains a central focus of the business • Capital expenditure curtailed significantly to reflect conditions • Asset disposals where acceptable returns achievable The name the world build
Slide 26: FY 2009 focus
FY 2009 focus Further actions in line with market conditions • Maintain appropriate cost base • Restructuring actions announced today • Further action appropriate to market conditions • Cash flow generation and cost containment • Improvement in working capital days of at least 10% • Reduction in dis
Slide 27: Summary
Summary • Unprecedented market conditions • Experienced management team focused on cost reduction and cash maximisation • Good progress on ensuring adequate covenant headroom • Determined to take the tough action required to navigate cycle The name the world builds on 27
Slide 28: Q&A
Q&A WOLSELEY
Slide 29: Appendices
Appendices WOLSELEY
Slide 30: 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 31: 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 32: 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 33: Wolseley group total – revenue & profits
Wolseley group total – revenue & profits Sterling millions 1982 - 2008 1,700 100 % Revenue Profit ROC ROGCE £14bn 1,500 90 % 80 % 1,300 £12bn Profit 70 % Revenue 1,100 £10bn £1,000m 60 % 900 £8bn £800m 50 % 700 £600m £6bn 40 % 500 30 % £400m £4bn 300 20 % £200m £2bn 100 10 % 0 0 -100 82/3 84/5 86/7
Slide 34: Organisation & operating brands
Organisation & operating brands North America Europe The name the world builds on 34
Slide 35: Group revenue & trading profit
Group revenue & trading profit Twelve months ended 31 July 2008 US Plumbing US Building Materials and Heating 10.5% 33.9% Trading profit UK and Ireland 19.4% US Plumbing US Building and Heating Materials 52.9% (16.4)% UK and France 12.8% Ireland Nordic 23.4% 13.3% Canada 4.1% CEE 6.0% France 13.7% R
Slide 36: Our diverse customer mix
Our diverse customer mix % of group revenue, twelve months ended 31 July 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 36
Slide 37: North America – Plumbing and Heating
North America Plumbing and Heating Alaska Wolseley Canada 2008 - 254 branches Distribution Centre Hawaii Proposed DC Ferguson Pipeyard 2008 – 1,382 branches Also in Puerto Rico, Panama, Trinidad & Tobago and Mexico The name the world builds on 37
Slide 38: North America – Building Materials
North America Building Materials Stock Building Supply 2008 – 285 branches Distribution Centre The name the world builds on 38
Slide 39: Europe
Europe Branch numbers 1 UK (1,834) 2 Ireland (93) 3 France (848) 4 Belgium (14) 5 Netherlands (30) 20 6 Luxemburg (2) 7 Switzerland (40) 8 Italy (53) 9 San Marino (1) 10 Romania (9) 18 11 Hungary (34) 19 12 Slovakia (21) 17 13 Austria (72) 14 Czech Republic (43) 2 15 Poland (14) 1 16 16 Denmark (140
Slide 40: Business drivers 2008 & 2007
Business drivers 2008 & 2007 % of divisional sales North America North America Europe Plumbing & Heating Building Materials 9,000 4% Revenue £m 8,000 4% 14% 7,000 11% 17% 6,000 13% 14% 15% 5,000 17% 18% 4,000 41% 41% 31% 34% 3,000 8% 2,000 16% 14% 13% 12% 16% 1,000 23% 20% 79% 72% 29% 24% 0 Resident
Slide 41: Branch numbers
Branch numbers 31 July Net 31 July 2007 closures Acquired 2008 UK & Ireland 1,917 5 5 1,927 France 825 (7) 30 848 Nordic 275 3 - 278 Central & Eastern Europe 294 30 12 336 US Plumbing & Heating 1,417 (52) 17 1,382 Canada 260 (6) - 254 US Building Materials 308 (34) 11 285 Group total 5,296 (61) 75 5
Slide 42: Branch growth
Branch growth 5500 5000 4500 1677 1636 4000 1483 3500 308 285 1179 1008 314 3000 961 255 3311 3389 2500 940 222 236 2906 911 2486 2000 591 216 2393 504 220 2266 1500 131 210 1799 1443 1615 1000 1357 500 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year to July Europe US Building Materials US
Slide 43: Financial targets
Financial targets • Double digit sales growth with 5% organic and 5% through acquisition • Greater than 10% profit growth • Aspirational 7% trading margin • Return on gross capital employed of at least 4% above pre tax WACC • Gearing – net debt/shareholder funds • Long term average – less than 75% •
Slide 44: 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 45: 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 Year to July Europe US Building Materials US Plumbing and Heating and Canada 'Strategic' Acquisition The name the world builds on 45
Slide 46: Financial detail for year ended 31 July 2008
Financial detail for year ended 31 July 2008
Slide 47: North America
North America Con’t 2007 Acq'n Organic change Exch 2008 Ch’ge cur’cy £m £m £m % £m £m % Ch’ge Revenue US Plumbing & Heating 5,685 206 (132) (2.4) (146) 5,613 (1.3) 1.3 US Building Materials 2,358 63 (626) (27.2) (60) 1,735 (26.4) (24.5) Canada 619 6 4 0.5 55 684 10.5 1.4 Total 8,662 275 (754) (8.9)
Slide 48: Europe
Europe Con’t 2007 Acq'n Organic change Exch 2008 Ch’ge cur’cy £m £m £m % £m £m % Ch’ge Revenue UK & Ireland 3,171 13 (11) (0.3) 30 3,203 1.0 0.1 France 1,872 83 (27) (1.3) 188 2,116 13.1 2.7 Nordic 1,617 387 31 1.7 162 2,197 35.9 23.5 Central & Eastern Euro 899 39 (32) (3.3) 95 1,001 11.2 0.6 Total
Slide 49: Revenue
Revenue 6,000 5,000 4,000 £m 2007 3,000 2008 2,000 1,000 - &H M d c a ce e n di ad B op la P an or S an Ire ur S N U Fr U lE C & tra K U en C The name the world builds on 49
Slide 50: Trading profit
Trading profit 500 400 300 200 2007 100 2008 - &H M d c a ce e n di ad -100 B op la P an or S an Ire ur S N U Fr U lE C & -200 tra K U en C The name the world builds on 50
Slide 51: Trading profit
Trading profit 877 18 (166) (38) 50 (37) (21) 683 2007 Exchange SBS CEE Nordic UK and Other 2008 Ireland The name the world builds on 51
Slide 52: Balance sheet
Balance sheet Strong financial position As at 31 July 2008 31 July 2007 £m Intangible assets 2,836 2,680 Property, plant and equipment 1,842 1,718 Inventory, receivables, payables 1,901 2,130 Retirement benefit obligations (236) (111) Net debt (2,469) (2,467) Other assets and liabilities (515) (499)
Slide 53: Financial track record
Financial track record WOLSELEY
Slide 54: Financial performance
Financial performance Revenue (£m) Trading profit (£m) 882 877 16,221 16,549 14,158 708 619 683 11,256 10,128 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 EPS (p) (pre-amortisation and DPS (p) exceptionals) 98.9 29.4 32.4 87.8 26.4 82.6 23.8 74.8 56.6 11.3 2004 2005 2006 2007 2008 2004 2005 200
Slide 55: Financial performance
Financial performance Return on Gross Capital Trading margin Employed (ROGCE) 7 19.1% 18.8% 6.3% 6.2% 18.4% 6.1% 5.4% 13.7% 4.1% 9.6% 0 2 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 UK GAAP IFRS The name the world builds on 55
Slide 56: Cash flow generation
Cash flow generation Year to 31 July 2008 2007 2006 2005 2004* Cash flow from operating companies 1,262 1,299 850 765 325 Maintenance capex (242) (191) (140) (117) (108) Tax (99) (167) (206) (151) (128) Interest (135) (117) (57) (31) (13) Free cash flow pre dividends 786 824 447 466 76 Dividends (21
Slide 57: Capex
Capex 2008 2007 £m £m Freehold land and buildings 74 79 Leasehold land and buildings 28 79 Plant machinery and equipment 133 202 Software 99 50 334 410 The name the world builds on 57
Slide 58: 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
Slide 59: 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 199
Slide 60: 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 2006 2007 2008 Net Sales 1,847 1,738 1,954 6,403 7,195 7,968 14,158 16,221 16,549 Trading Profit (EBITA) 130 89 96 386 414 464 882 877 683 Exceptional items (76) Depreciation / Other 26 29 3
Slide 61: Average lumber price 1995 - 2008
Average lumber price 1995 - 2008 $550 $500 per thousand board feet $445 $450 $390 $400 $365 $372 $378$400 $373 US$ $362 $362 $350 $313 $313 $287 $290 $300 $263 $250 $200 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year to July The name the world builds on 61
Slide 62: Monthly lumber price 2003 - 2008
Monthly lumber price 2003 - 2008 475 2003 2004 425 per thousand board feet 2005 2006 2007 375 2008 US$ 325 275 225 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Year to July The name the world builds on 62
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- 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 Source: US Cen
Slide 64: New residential construction activity in U.S.
New residential construction activity in U.S. 2500 Total US housing starts 1959 – 2008* 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
Slide 65: New residential construction activity in U.S.
New residential construction activity in U.S. Total US housing starts 1950 – 2008*, 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 08 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 Single-family St
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 600000 residential construction 1970–2008* 500000 400000 300000 200000 100000 (Mil. $ NSA) 0 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 19 19 19 19 19 19 19 19 19