Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — FY2013 Earnings Presentation
58 slides from Ferguson Enterprises's earnings presentation, Oct 1, 2013
Slide 1: Full Year Results 2013
2013 Full Year Results
Slide 2: Welcome and Highlights
Welcome and Highlights Ian Meakins, Chief Executive
Slide 3: Highlights
Highlights • Like-for-like growth, market share gains, margins ahead • Gross margin improvements • Decent flow-through – US margins – cost control / productivity • Strong cash generation - dividends • Six small bolt-on acquisitions completed • Execution of French plans • Continued performance manage
Slide 4: Operating and Financial Review
Operating and Financial Review John Martin, Chief Financial Officer
Slide 5: Financial highlights
Financial highlights Like-for-like 2013 2012** Change Change Ongoing revenue £12,854m £12,345m +4.1% +2.9% Ongoing gross margin % 27.8% 27.5% +0.3% Ongoing trading profit* £725m £655m +10.7% Ongoing trading margin %* 5.6% 5.3% +0.3% Impairments & exceptional items (£174m) (£377m) Net (debt) / cash (
Slide 6: Like-for-like growth
Like-for-like growth Q4 Q1 Q2 Q3 Q4 last year this year this year this year this year USA +6.7% +7.1% +9.7% +8.3% +7.8% Canada +4.5% +3.1% +1.2% +0.0% +3.0% UK +3.6% (0.3%) +0.3% +5.2% +5.1% Nordic (3.1%) (4.8%) (8.0%) (7.5%) (3.1%) France (5.0%) (8.4%) (12.9%) (9.8%) (5.8%) Central Europe (1.5%) (0
Slide 7: USA
USA Like-for-like £m 2013 2012 Change Change Revenue 6,785 6,168 +10.0% +8.2% Trading profit 492 388 +26.8% Trading margin 7.3% 6.3% +1.0% Branches 1,348 1,301 Headcount 18,969 18,254 7
Slide 8: Canada
Canada Like-for-like £m 2013 2012 Change Change Revenue 875 850 +2.9% +2.0% Trading profit 51 49 +2.7% Trading margin 5.8% 5.8% - Branches 219 220 Headcount 2,511 2,607 8
Slide 9: UK ongoing
UK ongoing Like-for-like £m 2013 2012* Change Change Revenue 1,769 1,667 +6.1% +2.5% Trading profit 95 93 +2.2% Trading margin 5.4% 5.6% (0.2%) Branches 765 764 Headcount 5,952 5,900 * 2012 restated to exclude the results of businesses sold or held for sale at 31 July 2013 9
Slide 10: Nordic ongoing
Nordic ongoing Like-for-like £m 2013 2012* Change Change Revenue 1,916 2,029 (5.6%) (5.7%) Trading profit 86 93 (7.5%) Trading margin 4.5% 4.6% (0.1%) Branches 260 263 Headcount 6,145 6,276 Denmark GDP 5.9% Sweden GDP Finland GDP 5.1% 5% 6% 6% 4.3% 4.1% 4% 5% 5% 3% 2.8% 4% 4% 2.9% 2.1% 2% 1.7% 3% 3%
Slide 11: France ongoing
France ongoing Like-for-like £m 2013* 2012* Change Change Revenue 642 720 (10.8%) (9.1%) Trading profit 10 17 (41.2%) Trading margin 1.6% 2.4% (0.8%) Branches 158 163 Headcount 2,869 3,180 3% 2.8% France GDP 3% 2.1% 2% 1.8% 1.5% 2% 1% 0.4% 0.3% 1% 0.1% 0.0% 0% -1% (0.3%) (0.5%) -1% Q1 2011 Q2 2011 Q
Slide 12: Central Europe ongoing
Central Europe ongoing Like-for-like £m 2013* 2012* Change Change Revenue 867 911 (4.8%) (2.5%) Trading profit 33 43 (23.3%) Trading margin 3.8% 4.7% (0.9%) Branches 167 181 Headcount 2,736 2,887 Switzerland GDP Netherlands GDP Austria GDP 5% 5% 5% 4.0% 3.9% 4% 4% 4% 2.7% 3% 2.3% 3% 3% 2.4% 2.1% 2.1
Slide 13: Central and other costs
Central and other costs £m 2013 2012 Group costs 35 32 Non-recurring items 7 (4) 42 28 13
Slide 14: Revenue and gross profit in the ongoing business
Revenue and gross profit in the ongoing business £20m £66m (£61m) (£76m) £195m £365m £12,854m Revenue £12,345m £23m (£21m) £12m £6m £18m £43m £101m £3,579m Gross profit £3,397m FY12 Like-for-like 2013 Gross margin New branches Exchange Other Sales days FY13 growth acquisitions improvement Gross marg
Slide 15: Operating expenses of the ongoing businesses
Operating expenses of the ongoing businesses (£5m) £4m £14m £9m (£45m) £43m £38m £14m £40m £2,854m £2,742m 2012 B2C Investment 2013 acquisitions US Healthcare New branches Exchange Depreciation Efficiency savings 2013 Variable costs Pay rises and from like-for-like cost increases growth 15
Slide 16: Income statement
Income statement £m 2013 2012 Trading profit 725 665 Amortisation (55) (60) Impairments and exceptional items (174) (377) Financing charges (23) (30) Profit before tax 473 198 Tax (180) (138) Discontinued operations 12 (3) Profit for the year 305 57 16
Slide 17: Financing and tax
Financing and tax £m 2013 2012 Financing Net interest charges 21 17 Pensions and provisions (2) 9 Facility charges 4 4 23 30 Tax P&L charge 180 138 Exceptionals, intangibles and other adjustments 21 20 Underlying P&L charge 201 158 Trading profit less financing charges 702 635 Effective tax rate 28.
Slide 18: Impairments and exceptional items
Impairments and exceptional items Timing of cash impact 2012 and 2015 and £m Charge / (credit) 2013 2014 Total earlier later Severance costs - 19 19 - 38 Property provisions - - 9 18 27 Impairments 67 - - - 67 Disposals impact 14 (10) 7 - 11 Other items 2 36 - (7) 31 83 45 35 11 174 18
Slide 19: Cash flow from operating activities
Cash flow from operating activities £m 2013 2012 Trading profit 725 665 Depreciation and amortisation 116 125 EBITDA 841 790 Working capital (14) 52 Special pension contributions (125) (60) Provisions, other movements and exceptional costs (69) (35) Cash flow from operating activities 633 747 19
Slide 20: Other cash flow
Other cash flow £m 2013 2012 Cash flow from operating activities 633 747 Net interest (35) (19) Tax paid (184) (86) Acquisitions (111) (41) Disposals 44 317 Capex (140) (135) Dividends (including £348m special dividend) (521) (142) Net purchase of shares by Employee Benefit Trusts (103) - FX and oth
Slide 21: Net debt, pensions and commitments
Net debt, pensions and commitments £m 2013 2012 Net (debt)/cash as reported (411) 45 Impact of timing of payment runs (160) (145) Adjusted net debt (571) (100) Net pension liabilities (133) (358) Operating lease commitments (868) (842) Committed facilities of £2.1bn 21
Slide 22: Planned FY14 capital investment
Planned FY14 capital investment £m FY14 Capex Freehold DCs and hubs 85 Branch expansion, showrooms and refurbishment 42 Environment, health and safety 14 Network infrastructure 15 Technology and processes 54 210 22
Slide 23: Guidance
Guidance FY14 Capital investment £200m - £220m Incremental opex in technology and processes £20m Trading profit impact of FX at current rates (£ = $1.60) £13m lower profit Impact of trading days In line with FY13 Restructuring £20m Effective tax rate 28.5% to 29.0% Working capital investment 12 - 13
Slide 24: Balance sheet reflects focus on productive assets
Balance sheet reflects focus on productive assets £5.1bn £4.3bn £4.0bn £3.6bn £3.2bn Adjusted Net Working Capital Fixed Assets Goodwill & Intangibles 2009 2010 2011 2012 2013 24
Slide 25: Improved productivity: trading profit / gross profit
Improved productivity: trading profit / gross profit* 20.3% 19.3% 17.9% Other cost improvement since 2010 Labour improvement 14.9% since 2010 14.5% 2009 2010 2011 2012 2013 * For the ongoing businesses 25
Slide 26: Sustained strong free cash flow
Sustained strong free cash flow* £639m £567m £558m £454m £453m 2009 2010 2011 2012 2013 * Adjusted for year end working capital measures and excluding provisions, exceptionals, share purchases and one-off pension payments 26
Slide 27: Sustained profitable growth and attractive returns on capital employed
Sustained profitable growth and attractive returns on capital employed £725m £665m £622m 32% 29% £450m 25% £448m Trading Profit 16% Return on Capital 14% Employed excluding goodwill 2009 2010 2011 2012 2013 27
Slide 28: Conservative balance sheet
Conservative balance sheet Pensions £2.0bn Adjusted Net Debt £1.6bn £1.1bn £0.7bn £0.5bn 2009 2010 2011 2012 2013 Operating leases £1,296m £1,292m £1,127m £842m £868m 28
Slide 29: Dividends
Dividends • Final dividend of 44p per share (full year of 66p per share; +10%) • Dividend covered 2.8x by headline EPS • Special dividend of £300m, approximately 110p per share • Net debt / EBITDA after fulfilling these commitments approximately 1.0x. 29
Slide 30: Outlook
Outlook • New financial year growth rates similar to Q4 • US continued to grow steadily • UK market is encouraging • Continental Europe: – economic conditions are very challenging and we expect them to remain so – we will continue to take actions to reduce our cost base 30
Slide 31: Business Review and Strategy Update
Business Review and Strategy Update Ian Meakins, Chief Executive
Slide 32: Wolseley Strategy Re-cap
Wolseley Strategy Re-cap 1. Develop our great portfolio of strong businesses 2. Drive performance systematically across Group 3. Accelerate profitable growth 4. Drive evolution of business models 5. Deliver Group synergies 6. Underpin strategy with strong balance sheet 32
Slide 33: Accelerate Profitable Growth: Profit Levers – Re-cap
Accelerate Profitable Growth Profit Levers – Re-cap Market Share Gross Margin Customer service Pricing matrix New branches / channels / segments Customer terms Bolt-on acquisitions Category management Profitable Sourcing growth Improve Productivity Improve Returns Cost reduction Investment Better bu
Slide 34: Accelerate Profitable Growth: US Blended Branches
Accelerate Profitable Growth US Blended Branches Market Share Gross Margin Customer service improvement +5% Price matrix compliance +2% Above-market revenue growth +4% Private label revenue growth Facilities Maintenance growth +17% Counter revenue growth Branch SKU availability Showroom revenue grow
Slide 35: Accelerate Profitable Growth: UK Plumb & Parts
Accelerate Profitable Growth UK Plumb & Parts Market Share Gross Margin Customer service improvement +10% Gross margin improvement Over-market revenue growth Accounts manual pricing -14% B2B e-commerce growth Sourcing benefits Customer on-time-in-full measure Profitable growth Productivity Improve R
Slide 36: Accelerate Profitable Growth: Stark
Accelerate Profitable Growth Stark Market Share Gross Margin Market share, low margin customers Consumer % total revenue -1% Customer service improvement +5% Private label % total revenue Share of loyal customers +6% E-sourcing / auctions Price matrix compliance Profitable growth Productivity Improv
Slide 37: Accelerate Profitable Growth
Accelerate Profitable Growth • Many small initiatives deliver results improvement • Required to offset continuous margin pressure from – consumers – customers – competitors – suppliers • Further margin progress achievable in reasonable markets – continued improved performance management – more effic
Slide 38: Wolseley Strategy Re-cap
Wolseley Strategy Re-cap 1. Develop our great portfolio of strong businesses 2. Drive performance systematically across Group 3. Accelerate profitable growth 4. Drive evolution of business models – deliver benefits of scale 5. Deliver Group synergies 6. Underpin strategy with strong balance sheet 38
Slide 39: Ongoing Pressures on Distributors’ Profit Pool
Ongoing Pressures on Distributors’ Profit Pool Consumers Trade customers – more influential – protecting margins – will shop around – competitors fighting for share – more tendering Profit pool New competitors Suppliers – e-commerce capabilities – protecting margins – price transparency – price incr
Slide 40: Evolution of Business Models: Benefits
Evolution of Business Models Benefits Loose confederation Systematically / centrally managed network • Improve service to existing customers at lower cost • Gain wallet share of existing and new customers • Improve gross margins over time • Best trained and most engaged employees • Integrate bolt-on
Slide 41: Evolution of Business Models: Major Initiatives
Evolution of Business Models Major Initiatives Major Initiatives Current performance Segmentation Pricing Customer Order capture Sales management Category management Rebate management Supplier Low cost country sourcing Lowest cost of goods Product availability Supply- Interface / integration Chain D
Slide 42: Evolution of Business Models: USA
Evolution of Business Models USA National promotions Branch of the future – across 540 branches – centralised sales approach – disciplined execution – +25% sales per day – revenue generated +140% – +40% sales per associate – roll-out to major cities Image to follow National Sales Center Sourcing – e
Slide 43: Evolution of Business Models: Infrastructure and Investment
Evolution of Business Models Implications on Infrastructure / Processes / IT / Investment • Current business models – fit for purpose – branch-based transactions – processes adequate but manual intervention – data management poor – difficult to get one view of customer / supplier – legacy systems sl
Slide 44: Evolution of Business Models: Process / Technology Initiatives
Evolution of Business Models Process / Technology Initiatives Major Initiatives Process / Technology Initiatives Segmentation CRM Pricing Customer Order capture E-commerce Mobile Sales management Category management Rebate management Supplier/product master data Supplier Low cost country sourcing Bu
Slide 45: Evolution of Business Models: Multiple mobile applications
Evolution of Business Models Multiple mobile applications Capability: • branch finder • product search and order • bar code integration • works on multiple devices Benefits: • enhanced service • lower cost to serve • better gross margins • larger order value 45
Slide 46: Evolution of Business Models: B2B E-commerce
Evolution of Business Models B2B E-commerce Parts Center Online: • 104,000 products • 60,000 photographs • specialise search ‘models this fits’ Plumb Center Online: • ‘Plumb Center recommends...’ • available across distribution network • price display options • choose from Retail or Terms driven Ben
Slide 47: Evolution of Business Models: Electronic proof of delivery
Evolution of Business Models Electronic proof of delivery Capability: • electronic signatures • point of sale transactions Benefits: • improved customer service • lower cost to serve • less customer disputes • process credit card transactions rapidly 47
Slide 48: Evolution of Business Models: Improving legacy systems
Evolution of Business Models Improving legacy systems • Builds on product master data images established for B2B/B2C e-commerce • Images of products/specification sheets available at counter Type ‘IM’ in Product Query for a specific image Select ‘Specification’ for data sheet 48
Slide 49: Evolution of Business Models: Better Salesforce Management
Evolution of Business Models Better Salesforce Management Capability: • KPIs per salesman • KPIs per customer • KPIs per supplier Benefits: • accurate real-time data • better managed teams • better gross margins 49
Slide 50: Evolution of Business Models: Re-cap
Evolution of Business Models Re-cap Loose confederation Systematically / centrally managed network • Improve service to existing customers at lower cost • Gain wallet share of existing and new customers • Improve gross margins over time • Best trained and most engaged employees • Integrate bolt-on a
Slide 51: Summary
Summary • Progress on better performance management − needed to more than offset ongoing margin pressures • Developing more efficient / productive business models − requires “proportionate” process / IT investment − progressive / de-risked programme • Targeted investment necessary to drive profitabl
Slide 52: Appendices
may yl Appendices
Slide 53: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m 2013 2012 2013 2012 Ongoing USA 6,785 6,168 492 388 Canada 875 850 51 49 UK 1,769 1,667 95 93 Nordic 1,916 2,029 86 93 France 642 720 10 17 Central Europe 867 911 33 43 Central and other costs - - (42) (28) 12,854 12,345 725 655 Sold
Slide 54: Acquisitions
Acquisitions Trading Revenue profit £m £m The results of acquisitions made during the year was as follows: USA 125 8 UK 67 (3) Central Europe 3 - 195 5 If we had acquired these businesses on 1 August 2012 the results would have been: USA 149 9 UK 134 (4) Central Europe 17 2 301 7 54
Slide 55: FX impact
FX impact 2013 2013 2014 Current Trading impact impact* 2012 2013 spot rate profit gain/(loss) gain/(loss) average rate average rate 26-Sep-13 £m £m £m USD 1.58 1.56 1.60 492 +4 (11) CAD 1.59 1.57 1.65 51 - (2) EUR 1.19 1.20 1.19 36 - - Other 93 +1 - 1.70 GBP v USD +5 (13) 1.60 1.59 1.60 1.56 1.57 1
Slide 56: Branch numbers
Branch numbers Closed, Consolidated Ongoing FY12 Transferred Acquired Opened sold / held / separated FY13 for sale USA 1,274 27 - 13 54 (20) 1,348 Canada 220 - - - 4 (5) 219 UK 919 (155)* - 22 6 (27) 765 Nordic 264 - - - 8 (12) 260 France 313 - (41) - - (114) 158 Central Europe 142 - 41 2 2 (20) 167
Slide 57: Headcount numbers
Headcount numbers Sold / held Net joiners Ongoing FY12 Transferred Acquired for sale / (leavers) FY13 USA 18,245 9 304 - 411 18,969 Canada 2,607 - - - (96) 2,511 UK 5,913 (9) 554 (4) (502) 5,952 Nordic 6,340 - - (64) (131) 6,145 France 5,293 (970) - (1,080) (374) 2,869 Central Europe 2,023 970 46 (1
Slide 58: Product destination analysis
Product destination analysis 5% 4% 5% 10% 15% 8% 18% Civil Infrastructure 25% 16% 21% 14% 13% 20% 8% Non-Residential 17% New Construction 14% 19% 14% 33% 14% 37% Residential New 23% Construction 29% 27% 13% Non-Residential 11% RMI 57% 54% 36 36% 36% Residential RMI % 29% 29% 26% US Canada* UK Nordic