Ferguson Enterprises Inc. · NYSE:FERG
Ferguson Enterprises — Wolseley — H1 2017 Earnings Presentation
55 slides from Ferguson Enterprises's earnings presentation, Mar 28, 2017
Slide 1: Half Year Results Presentation 2016/17
2016/17 Half Year Results Presentation 6 months to 31 January 2017
Slide 2: Agenda
Agenda − Half year 2016/17 highlights John Martin − Operating and financial review David Keltner − Business review and outlook John Martin 22
Slide 3: Half Year 2016/17 Highlights
Half Year 2016/17 Highlights John Martin, Chief Executive
Slide 4: Operating and strategy highlights
Operating and strategy highlights Solid operational performance − 3.2% like-for-like revenue growth, 5.4% in the US − Gross margin 0.3% ahead of last year − Trading profit growth of 5.0% at constant exchange rates − Continued strong cash flow and balance sheet Good progress on strategy − Ferguson ex
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 H1 2017 H1 2016² Change exchange rates) change Revenue £8,461m £6,795m +24.5% +6.7% +3.2% Gross margin % 28.6% 28.3% +0.3% Trading profit¹ £515m £412m +25.0% +5.0% Trading margin %¹ 6.1% 6.1% - Headline earnings per share¹ 141.0p 111.3p +26.7% I
Slide 7: Like-for-like growth
Like-for-like growth Q2 Q3 Q4 Q1 Q2 2016 2016 2016 2017 2017 USA +4.0% +5.0% +3.1% +4.2% +6.7% UK (2.9%) (0.4%) (2.1%) (2.9%) +3.6% Nordics +2.4% (2.6%) (2.3%) (2.9%) (1.5%) Canada & Central Europe (1.7%) - +0.3% (2.7%) +0.3% Group +2.3% +2.8% +1.5% +1.8% +4.8% Group annual like-for-like growth 6.8%
Slide 8: Revenue and trading profit growth
Revenue and trading profit growth Revenue +4.4% +1.7% - +0.2% +1.6% (1.2%) 129 (96) 139 0 14 349 1,131 8,461 7,926 6,795 Trading profit 8 (16) 12 (17) 17 21 78 515 490 412 2016 Exchange 2016 inc. exchange Like-for-like Acquisitions Gross margin Organic Trading days USA commodity 2017 growth exc. imp
Slide 9: Impact of USA commodity price deflation
Impact of USA commodity price deflation Q2 Q3 Q4 Q1 Q2 Revenue growth 2016 2016 2016 2017 2017 USA (2.4%) (2.3%) (2.4%) (2.4%) (1.2%) H1 2017 H1 2017 H1 2017 Revenue growth Revenue Trading profit Half year impact on USA (1.8%) (£96m) (£17m) 9
Slide 10: Impact of weaker demand from USA industrial customers
Impact of weaker demand from USA industrial customers Q2 Q3 Q4 Q1 Q2 H1 Revenue growth 2016 2016 2016 2017 2017 2017 USA total industrial (8%) (11%) (8%) (1%) (3%) (2%) Impact on USA (1.1%) (1.5%) (0.9%) (0.1%) (0.3%) (0.2%) Total industrial is 10% of USA revenue 10
Slide 11: Ferguson (USA)
Ferguson (USA) (84% of Group trading profit) Change (at constant £m H1 2017 H1 2016 Change exchange rates) Revenue 5,761 4,381 +31.5% +9.9% Like-for-like growth +5.4% +4.3% Trading profit 450 345 +30.4% +9.1% Foreign exchange impact 68 Commodity deflation (17) Trading margin 7.8% 7.9% (0.1%) Branche
Slide 12: 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) 3,452 +6.3% Waterworks 886 +3.6% HVAC 388 +6.6% Industrial standalone, Fire & Fabrication, B2C, MRO 1,035 +3.6% 5,761 +5.4% North AK Central (1.4%) WA ME MT ND MN MA O
Slide 13: Ferguson end-market revenue growth
Ferguson end-market revenue growth % of USA revenue Market growth Like-for-like growth H1 2017 H1 2017 H1 2017* Residential 47% 4 - 5% +7 - 8% Commercial 28% 6 - 7% +6 - 7% Municipal 15% Flat +3 - 4% Industrial 10% (2%) (2%) * Estimate of like-for-like revenue growth, excludes the effect of currency
Slide 14: UK
UK (7% of Group trading profit) £m H1 2017 H1 2016¹ Change Revenue 1,011 996 +1.5% Like-for-like growth +0.3% (2.0%) Trading profit 35 36 (2.8%) Trading margin 3.5% 3.6% (0.1%) Branches 664 710 (46) Headcount 5,972 6,201 (3.7%) ¹ Trading profit for the half year to 31 January 2016 has been restated
Slide 15: Nordic
Nordic (3% of Group trading profit) Change (at constant £m H1 2017 H1 2016 Change exchange rates) Revenue 1,036 885 +17.1% (0.7%) Like-for-like growth (2.3%) +4.2% Trading profit 16 23 (30.4%) (38.7%) Foreign exchange impact 4 Trading margin 1.5% 2.6% (1.1%) Branches 250 258 (8) Headcount 5,661 5,64
Slide 16: Canada & Central Europe
Canada & Central Europe (6% of Group trading profit) Change (at constant £m H1 2017 H1 2016 Change exchange rates) Revenue 653 533 +22.5% +1.6% Like-for-like growth (1.4%) (2.3%) Trading profit 35 30 +16.7% (6.5%) Foreign exchange impact 6 Trading margin 5.4% 5.6% (0.2%) Branches 291 293 (2) Headcou
Slide 17: Businesses that will be excluded from ongoing results at 31 July 2017
Businesses that will be excluded from ongoing results at 31 July 2017 Revenue Trading profit £m FY 2016 FY 2016 To be sold Nordic 1,881 59 Small non-core business in USA 168 14 To be merged Tobler - Switzerland 235 15 Total 2,284 88 Results from our 39.2% stake in the new combined business of Walter
Slide 18: Impairments & exceptional items
Impairments & exceptional items £m Cash Non-cash Total Closure of branches (24) (12) (36) One-off credits - 14 14 Impairment of goodwill and acquired intangibles - (102) (102) (24) (100) (124) 18
Slide 19: Financing & tax
Financing & tax £m H1 2017 H1 2016 Financing P&L charge 23 20 Pensions 2 - 25 20 Tax P&L charge 118 103 Exceptionals, intangibles & non-recurring items 18 6 Underlying P&L charge 136 109 Effective tax rate 27.8% 27.8% 19
Slide 20: Cash
Cash £m H1 2017 H1 2016 Trading profit (reported) 515 412 Depreciation & amortisation 86 65 EBITDA 601 477 Working capital (258) (307) Exceptionals and other (19) 21 Cash flow from operating activities 324 191 Interest & tax (170) (106) Acquisitions (230) (62) Disposals - 1 Capex (73) (109) Dividend
Slide 21: Capital structure
Capital structure 31 Jan 2017 31 July 2016 31 Jan 2016 Net debt as reported £1,297m £936m £1,253m Net pension liability £105m £147m £35m Reported net debt / last twelve months EBITDA 1.1x 0.9x 1.2x Interim dividend 36.67p - 33.28p 21
Slide 22: Acquisitions
Acquisitions Acquisitions completed in six months to 31 January 2017 Acquisitions completed after 31 January 2017 Total consideration of £291m and annualised revenue of £247m 22
Slide 23: Technical guidance for the second half to 31 July 2017
Technical guidance for the second half to 31 July 2017 Impact of trading days compared to H2 2016 One less day / (£6m) Impact of restating H2 2016 trading profit at current exchange rates* +£60 million Second half trading profit impact of YTD acquisitions £14 million Full year effective tax rate 28%
Slide 24: Business review and outlook
Business review and outlook John Martin, Chief Executive
Slide 25: Key priorities
Key priorities 1. Generate best profitable growth in Ferguson 2. Execute UK transformation 3. Review Nordics operational strategy 25
Slide 26: Ferguson is a great business and the US is a large, attractive, growth market
Ferguson is a great business and the US is a large, attractive, growth market Drivers to generate best profitable growth i. Excellent service ethic ii. Strong sales culture iii. Organic expansion iv. Bolt-on acquisitions v. Pursue selected adjacent market opportunities vi. Accelerate e-commerce vii.
Slide 27: Excellent service ethic
Excellent service ethic Branch network Omni-channel Same day delivery Online portal Warranty support Advice Value engineering Tendering support Fabrication Next day availability “Will call” Inventory availability “ProVisions” Timed delivery slots Field sales Convenient opening hours e-commerce Retur
Slide 28: Strong sales culture
Strong sales culture "At the MRO University, we have been soaking up as much product knowledge as possible. Having this knowledge will help us be successful when we consult with our customers and provide solutions." 28
Slide 29: Organic expansion
Organic expansion New ship hubs New branches Branch refurbishments Technology upgrades MRO New showrooms 29
Slide 30: Bolt-on acquisitions
Bolt-on acquisitions 3 branches in Boston 7 branches in 7 New York and New Jersey 0.0% to 7.0% 7.0% to 13.5% 13.5% to 18.5% 18.5% to 25.0% 25.0% + 5 branches in Texas Blended Branches est. market share by state Year-to-date 8 US acquisitions with total annual revenue of £245m and trading profit of £
Slide 31: Pursue selected adjacent market opportunities
Pursue selected adjacent market opportunities MRO − National sales centre serving the MRO business − 130 dedicated sales associates − Dedicated fleet providing final mile delivery − MRO service centre set up in all DC’s − Supplemented by 3 bolt-on acquisitions Grown MRO business to $450m revenue in
Slide 32: Accelerate e-commerce
Accelerate e-commerce − Development of new Ferguson online platform • Real-time stock availability and pricing of over 200,000 products • Personalised content • New tools - place and check order status • Proof of delivery online − System-to-system and punch-out catalogues streamline order processing
Slide 33: Development of operating model
Development of operating model Plansoft software - Waterworks 33
Slide 34: Key priorities
Key priorities 1. Generate best profitable growth in Ferguson 2. Execute UK transformation 3. Review Nordics operational strategy 34
Slide 35: Transformation plan
Transformation plan − Target growth in most attractive categories − Two distinct customer propositions − Transition to a single brand with two distinct formats: • Local branches • Destination branches New centralised logistics network − Optimise branch network and reconfigure supply chain: Customer
Slide 36: Branch network reconfiguration and upgrade
Branch network reconfiguration and upgrade Barking branch consolidation – pilot destination branch Climate Center Drain Center Branch 2 Branch 1 Parts Center Pipe Center Branch 3 Plumb Center Single destination branch Pre Change Post Change Branches 3 1 Space 30,400 sq ft across three branches 20,35
Slide 37: Simplification of logistics and supply chain
Simplification of logistics and supply chain In night delivery to destination branches Distribution Centre Destination branch 120 associates and 100 trucks transferring to 3rd party supplier subject to consultation 37
Slide 38: Technology
Technology ‘Connect Plus’ including ‘Sign-on-glass’ technology transforming branch efficiency 38
Slide 39: Category management and range rationalisation
Category management and range rationalisation Known Value Items (“KVI”) − KVI rolled out across all branches − One consistent competitive fixed price across the whole network for a core range of products − Gross profit maintained or increased from KVI SKUs − Price competitiveness perception improved
Slide 40: Key priorities
Key priorities 1. Generate best profitable growth in Ferguson 2. Execute UK transformation 3. Review Nordics operational strategy 40
Slide 41: Short-term actions in Nordics
Short-term actions in Nordics − Closed 32 unviable branches across the region − Reduced capacity in Finland and now returned to profitable growth − Reducing central costs − Implementing good margin controls in Denmark − Selling Silvan, our Danish DIY business Like-for-like growth of 5% in January an
Slide 42: Key themes of the Nordic strategy
Key themes of the Nordic strategy − Focus on SME B2B customer segment and specialist trades such as bricklayers and carpenters − Strong category management to drive the best assortment and excellent availability − Competitive prices, particularly on trade-specific known value items − Nordic-wide sou
Slide 43: Exit of Nordic building materials business
Exit of Nordic building materials business − Sound, executable strategy − No significant operating synergies with rest of Group − Group focus on plumbing and heating − Pursue more attractive returns available elsewhere in the Group Group will focus on our core activities in attractive growth markets
Slide 44: Large, specialist US distributor with international operations
Large, specialist US distributor with international operations % Group trading profit International operations Ferguson 44
Slide 45: Corporate actions
Corporate actions − Change of Group name to Ferguson plc from 31 July 2017 − Change in presentational currency to US dollars from 1 August 2017 • Will reduce earnings volatility • Dividends will be declared in US dollars, shareholders will have choice of receiving in GBP or USD − Tobler to merge wit
Slide 46: People update
People update ─ Frank Roach to retire on 31 July 2017 ─ Kevin Murphy Ferguson Chief Operating Officer will succeed him on 1 August ─ As previously announced Mike Powell appointed as Group CFO from 1 June 2017 46
Slide 47: Market update and outlook
Market update and outlook Market − US residential and commercial remained good − Deflation and Industrial headwinds have eased − European and Canadian market conditions mixed Outlook − Like-for-like revenue growth since the end of the period has been about 4.5% for the Group and 5.5% in the USA − Co
Slide 48: Appendix
Appendix
Slide 49: Regional analysis
Regional analysis Revenue Revenue Trading profit Trading profit £m H1 2017 H1 2016 H1 2017 H1 2016 USA 5,761 4,381 450 345 UK 1,011 996 35 36 Nordic 1,036 885 16 23 Canada & Central Europe 653 533 35 30 Central costs - - (21) (22) Group reported 8,461 6,795 515 412 49
Slide 50: Foreign exchange impact
Foreign exchange impact H2 2016 24-Mar-2017 H2 2016 H2 2017 H1 2016 H1 2017 H1 2016 H1 2017 average rate spot rate Trading profit impact* average rate average rate Trading profit impact gain/(loss) £m gain/(loss) £m £m £m USD 1.51 1.26 345 68 USD 1.41 1.25 430 55 CAD 2.03 1.67 17 4 CAD 1.84 1.67 15
Slide 51: 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 (11%) (5%) +4% (24%) +6% (16%) (18%) (10%) Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Carbon steel price S
Slide 52: Branch numbers
Branch numbers Brought forward Carried forward Acquired Opened Closed 31 July 2016¹ 31 January 2017 USA 1,465 21 26 (17) 1,495 UK 699 - - (35) 664 Nordic 256 1 1 (8) 250 Canada & Central Europe 296 - 1 (6) 291 2,716 22 28 (66) 2,700 ¹ UK branch numbers have been restated at 31 July 2016 to reflect p
Slide 53: Headcount
Headcount Brought forward Carried forward Acquired Net joiners / (leavers) 31 July 2016 31 January 2017 USA 23,000 558 906 24,464 UK 6,071 - (99) 5,972 Nordic 6,168 12 (519) 5,661 Canada & Central Europe 3,506 - (107) 3,399 Other 107 - (2) 105 38,852 570 179 39,601 53
Slide 54: 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 55: Q&A
Q&A