TIDMFERG
RNS Number : 4090V
Ferguson PLC
03 December 2019
3 December 2019
Ferguson plc
Trading update for the 3 months to 31 October 2019
CONTINUED MARKET OUTPERFORMANCE, OUTLOOK FOR THE YEAR
UNCHANGED
Ongoing businesses(1) Q1 2020 Q1 2019 Change Organic
US$ millions change(2)
--------- -------- --------
Revenue 5,208 4,947 +5.3% +2.5%
Trading profit(3) 451 413
Less impact of IFRS16 (18) -
--------- --------
Underlying trading profit 433 413 +4.8%
Trading days 65 65 -
Net debt to EBITDA(4) 0.8x 0.9x
--------------------------- -------- --------- -------- -------- -----------
First quarter highlights
- Ongoing revenue 5.3% ahead of last year including 6.2% in the USA.
- Continued tight cost control ensured good profit delivery.
- Underlying trading profit of $433 million was $20 million ahead of last year.
- Invested $62 million in acquisitions in Q1, healthy forward deal pipeline.
- UK demerger progressing as planned.
- Completed $400 million of the $500 million share buy back as at 31 October 2019.
Kevin Murphy, Group Chief Executive, commented:
"Ferguson continued to take market share against a backdrop of
flat US markets and we remain firmly focused on maximizing organic
revenue growth, while tightly managing gross margins and costs. We
are pleased that this disciplined approach enabled us to grow US
trading profit in line with revenue growth in the quarter. Cash
generation in the quarter was good and our balance sheet remains
strong. We will continue to invest organically in our businesses
and in selective bolt-on acquisitions which will be integrated into
our network.
"We expect to make further good progress in the year ahead.
While US market growth is currently broadly flat we remain
confident of outperforming our end markets and our order books
support continued modest revenue growth in the months ahead. This
strong focus on growth with continued cost and margin discipline
gives us confidence in our expectations for the full year which
remain unchanged."
1) 'Ongoing businesses' excludes businesses that have been
closed, disposed of or are classified as held for sale. The UK has
been moved to 'Non-ongoing operations'.
2) The increase or decrease in revenue excluding the effect of
currency exchange, acquisitions, disposals and trading days.
3) Before exceptional items and amortisation of acquired intangible assets.
4) Ratio of net debt before leases to pre-IFRS16 last twelve months EBITDA.
Group results
The Group generated revenue of $5,208 million in the first
quarter, 5.4% ahead of last year at constant exchange rates and
2.5% ahead on an organic basis. While gross margins were slightly
lower at 29.7% in the quarter, operating costs were well controlled
which led to a good overall trading performance. Underlying trading
profit of $433 million was $20 million higher than last year. The
impact of IFRS16 added a further $18 million to trading profit.
Trading days were the same in Q1 compared to 2019.
Regional analysis
US$ millions Revenue Revenue Change Trading Less Underlying Trading Change
Q1 2020 Q1 2019 (at constant profit impact Trading profit (at constant
exchange Q1 2020 of IFRS16 profit Q1 2019 exchange
rates) Q1 2020 Q1 2020 rates)
----------------- -------- -------- ------------- -------- ---------- ---------- -------- -------------
US 4,893 4,607 +6.2% 442 (17) 425 400 +6.3%
Canada 315 340 (5.8%) 20 (1) 19 27 (26.3%)
Central costs - - (11) - (11) (14)
----------------- -------- -------- ------------- -------- ---------- ---------- -------- -------------
Ongoing Group 5,208 4,947 +5.4% 451 (18) 433 413 +4.9%
----------------- -------- -------- ------------- -------- ---------- ---------- -------- -------------
UK (Non-ongoing) 541 580 (2.2%) 15 - 15 19 (16.9%)
================= ======== ======== ============= ======== ========== ========== ======== =============
Quarterly organic revenue growth
Ongoing businesses Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
------------------- ------- ------- ------- ------- -------
US +9.6% +9.7% +3.3% +3.0% +3.1%
Canada +3.3% +0.5% (2.9%) (5.2%) (6.4%)
==================== ======= ======= ======= ======= =======
Group +9.2% +9.1% +3.0% +2.5% +2.5%
==================== ======= ======= ======= ======= =======
USA
Our US business continued to outperform with revenue growth of
6.2%, which comprised 3.1% organic growth and 3.1% from
acquisitions. Price inflation during the quarter was about
1-2%.
New residential housing starts and permits from the US Census
Bureau improved in the quarter. The Architectural Billings Index,
more closely linked to commercial markets, was lower in the
quarter. Our order books have grown year-on-year consistent with
continuing modest revenue growth over the coming months.
The major business units of Blended Branches, Waterworks and
HVAC all continued to grow well. Revenue in Industrial was lower
against strong comparators arising from two large capital projects
last year. Gross margins were slightly lower mainly as a result of
strong prior year comparators. Operating expenses were well
controlled, up 3.8% compared to last year on a pre-IFRS16 basis.
Underlying trading profit of $425 million was 6.3% ahead of last
year.
We completed one small acquisition in the quarter, Process
Instruments & Controls, a California based industrial business
with annualised revenue of approximately $8 million. After the
quarter end we acquired S.W. Anderson which provides HVAC equipment
and supplies to residential and commercial contractors, retailers
and commercial property owners. The company operates in the New
York metro area, which is one of the largest and most attractive
construction markets in the USA. In the year ended 31 December 2018
it generated revenue of approximately $90 million.
Canada
Organic revenue in Canada was 6.4% lower. Residential markets
remained weak as a result of government measures to restrict
mortgage credit and the impact of foreign buyer taxes. Underlying
trading profit of $19 million was $7 million below last year at
constant exchange rates.
Non-ongoing operations
The demerger process for Wolseley UK is on track and we expect
to complete the transaction in 2020. Organic revenue declined 4.2%
in the quarter against a backdrop of uncertainty in repair,
maintenance and improvement markets where the majority of our
revenue is generated. Trading profit of $15 million was $3 million
lower than last year at constant exchange rates. We continue to
actively manage the cost base in the UK given the challenging
market environment and exceptional costs of $5 million were
incurred, principally relating to the announced closure of a
further distribution center in Worcester and headcount reductions.
We completed one acquisition in the quarter, Continental Power
Equipment, a high quality infrastructure business which has
annualised revenue of around $60 million and contributed 2.0% of
revenue growth in the quarter.
Financial position
Net debt excluding leases at 31 October 2019 was $1,381 million
after a cash outflow of $62 million relating to acquisitions,
capital expenditure of $83 million and a better than expected
working capital performance which is expected to unwind in the
second quarter. The IFRS 16 lease liability recognised on the
balance sheet as at 31 October 2019 was $1,439 million.
Following shareholder approval at the AGM, the final dividend of
145.1 cents per share, amounting to approximately $328 million, was
paid to shareholders on 28 November 2019. On 10 June 2019 we
announced our intention to buy back $500 million of our shares;
this program is ongoing and at 31 October we had completed $400
million. We expect the buy back will be completed before the end of
the calendar year.
Our capital allocation policy is unchanged and the Group aims to
operate with investment grade credit metrics and within a through
cycle range of net debt of one to two times EBITDA on a pre-IFRS16
basis. Our investment priorities remain focused on investing in
organic growth, maintaining and growing the ordinary dividend in
line with earnings through the cycle and investing in bolt-on
acquisitions that meet our investment criteria. Any surplus cash
after meeting these investment needs will be returned to
shareholders promptly and Ferguson has returned $3.5 billion of
surplus cash to shareholders over the last 6 years.
Given the cash outflows for the final dividend, acquisitions and
normal seasonal working capital movements the Group expects to be
operating within its stated net debt to EBITDA range by the half
year.
There have been no other significant changes to the financial
position of the Group.
Outlook
We expect to make further good progress in the year ahead. While
US market growth is currently broadly flat we remain confident of
outperforming our end markets and our order books support continued
modest revenue growth in the months ahead. This strong focus on
growth with continued cost and margin discipline gives us
confidence in our expectations for the full year which remain
unchanged.
For further information please contact Ferguson plc
Mike Powell, Group Chief Financial Officer Tel: +44 (0) 1189 273800
Mark Fearon, Director of Corporate Communications
and IR Mobile: +44 (0) 7711 875070
Media enquiries
Mike Ward, Head of Corporate Communications Mobile: +44 (0) 7894 417060
+44 (0) 20 7404
Nina Coad (Brunswick) Tel: 5959
Investor conference call and webcast
A call with Mike Powell, Chief Financial Officer will commence
at 08.00 UK time today. The call will be recorded and available on
our website after the event www.fergusonplc.com.
Dial in number UK: +44 (0)330 336 9105
Ask for the Ferguson call quoting 1749027.
To access the call via your laptop, tablet or mobile device
please click here. If you have technical difficulties, please click
the "Listen by Phone" button on the webcast player and dial the
number provided.
Ferguson plc is the world's largest specialist trade distributor
of plumbing and heating products to professional contractors
principally operating in North America. Ongoing revenue for the
year ended 31 July 2019 was $21.8 billion and ongoing trading
profit was $1.6 billion. Ferguson plc is listed on the London Stock
Exchange (LSE: FERG) and is in the FTSE 100 index of listed
companies. For more information, please visit www.fergusonplc.com
or follow us on Twitter https://twitter.com/Ferguson_plc.
Provisional financial calendar
H1 Results for period ending 31 17 March 2020
January 2020
Q3 results for the period ending 9 June 2020
30 April 2020
Full Year Results for year ended 29 September 2020
31 July 2020
Legal disclaimer
Certain information included in this announcement is
forward-looking and involves risks, assumptions and uncertainties
that could cause actual results to differ materially from those
expressed or implied by forward-looking statements. Forward-looking
statements cover all matters which are not historical facts and
include, without limitation, projections relating to results of
operations and financial conditions and the Company's plans and
objectives for future operations, including, without limitation,
discussions of expected future revenues, financing plans, expected
expenditures and divestments, risks associated with changes in
economic conditions, the strength of the plumbing and heating
markets in North America and Europe, fluctuations in product prices
and changes in exchange and interest rates. Forward-looking
statements can be identified by the use of forward-looking
terminology, including terms such as "believes", "estimates",
"anticipates", "expects", "forecasts", "intends", "plans",
"projects", "goal", "target", "aim", "may", "will", "would",
"could" or "should" or, in each case, their negative or other
variations or comparable terminology. Forward-looking statements
are not guarantees of future performance. All forward-looking
statements in this announcement are based upon information known to
the Company on the date of this announcement. Accordingly, no
assurance can be given that any particular expectation will be met
and readers are cautioned not to place undue reliance on
forward-looking statements, which speak only at their respective
dates. Additionally, forward-looking statements regarding past
trends or activities should not be taken as a representation that
such trends or activities will continue in the future. Other than
in accordance with its legal or regulatory obligations (including
under the UK Listing Rules, the Prospectus Rules, the Disclosure
Guidance and the Transparency Rules of the Financial Conduct
Authority), the Company undertakes no obligation to update publicly
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Nothing in this
announcement shall exclude any liability under applicable laws that
cannot be excluded in accordance with such laws.
-ends
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END
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