x

Q3 Interim Management Statement for 3 months to 30 April 2019


CONTINUED GROWTH, RE-AFFIRMING GUIDANCE, $500 MILLION SHARE BUY BACK

Ongoing businesses1

US$ millions

Q3 2019

Q3 2018

 

Change

Revenue

5,274

4,968

+6.2%

Trading profit2

359

351

+2.3%

Net debt to EBITDA

0.9x

0.9x3

 

Third quarter highlights

  • Ongoing revenue growth of 6.2%, including 8.4% in the USA.
  • Solid gross margins, slightly ahead of last year.
  • Good cost control, underlying operating costs lower than in Q2.
  • Ongoing trading profit of $359 million was $8 million ahead of last year.
  • Strong operating cash generation of $632 million in the quarter with net debt to EBITDA of 0.9x.
  • Share buy back of $500 million announced today.

John Martin, Chief Executive, commented:

“The Group continued to grow in Q3 with revenue 6.2% ahead. We also continued to successfully grow our gross margins and have improved our underlying cost base over the last two quarters.

“We are confident that Ferguson will continue to make progress as we remain firmly focused on delivering superior customer service. We expect to generate ongoing Group trading profit in the year ended 31 July 2019 in line with current analysts’ consensus forecasts.4

“Cash generation continued to be excellent and our balance sheet remains strong. We will continue to invest organically in our businesses supplemented by bolt-on acquisitions in our core operations. Given our strong financial position, and in line with our capital allocation policy, we are initiating a $500 million share buy back programme which we expect to complete over the next 12 months.”


Group results

Revenue in the quarter was $5,274 million, 6.2% ahead of last year and 2.7% ahead on an organic basis. Gross margins continued to improve, up 20 basis points to 29.5% and operating costs were well controlled. Trading profit of $359 million was $8 million ahead of last year. There were the same number of trading days as in Q3 last year and exceptional costs were $18 million in the quarter.

1)  ‘Ongoing businesses’ excludes businesses that have been closed, disposed of, or are classified as held for sale.

2)  Before exceptional items and amortisation of acquired intangible assets.

3)  Adjusted for $1.3 billion proceeds from sale of Nordic businesses, $1.0 billion of which was returned to shareholders on 29 June 2018. Q3 2018 reported net debt to EBITDA was 0.1x.

4)  Analysts’ consensus for 2019 trading profit on the Company’s website is an average of $1,585 million (ranging from $1,570 million to $1,597 million)   

Three months to 30 April by region

Ongoing businesses US$ millions

Revenue

Q3 2019

Revenue

Q3 2018

Change

(at constant exchange rates)

Trading profit

Q3 2019

Trading profit

Q3 2018

Change
(at constant exchange

rates)

US

4,457

4,109

+8.4%

346

334

+3.6%

UK

567

605

+0.4%

20

22

(0.1%)

Canada

250

254

+2.9%

4

7

(49.5%)

Central costs

-

-

 

(11)

(12)

 

Group

5,274

4,968

+7.3%

359

351

+2.5%

Quarterly organic revenue growth trends were as follows:

Ongoing businesses

 

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

US

+10.6%

+11.4%

+9.6%

+9.7%

+3.3%

UK1

+0.2%

(0.6%)

+0.8%

(1.0%)

+2.8%

Canada

+4.7%

+6.3%

+3.3%

+0.5%

(2.9%)

Group

+7.0%

+8.1%

+6.7%

+6.4%

+2.7%

 

Ongoing businesses US$ million 9 months to 30 April 2019

Revenue

2019

Revenue

 2018

Change

(at constant exchange rates)

Trading profit

2019

Trading profit

2018

Change 

(at constant exchange rates)

USA

13,330

12,020

+10.9%

1,046

982

+6.5%

UK

1,694

1,913

(7.5%)

53

58

(5.6%)

Canada

865

852

+6.3%

42

42

+5.4%

Central costs

-

-

 

(36)

(40)

 

Group

15,889

14,785

+8.3%

1,105

1,042

+6.4%

Financial position

The Group’s cash generation has been strong resulting in net debt at 30 April 2019 of $1,588 million (30 April 2018: $1,582 million1) and the ratio of net debt to the last twelve months EBITDA was 0.9x (30 April 2018: 0.9x1). The Group aims to operate with a net debt to EBITDA ratio of between 1x and 2x.

Board changes

In May, Geoff Drabble joined the Board as a Non-Executive Director and will succeed Gareth Davis as Chairman after the 2019 Annual General Meeting, subject to shareholder approval. Gareth will step down as a Director in January 2020 to ensure an orderly handover of responsibilities. Geoff joins Ferguson following a 12-year period as Chief Executive of Ashtead, the FTSE 100 industrial equipment rental company. He was previously an executive director of The Laird Group plc and held a number of senior management positions at Black & Decker. Gareth has served as a Non-Executive Director of Ferguson for 16 years including nearly nine years as the Company’s Chairman. The Board would like to express its thanks to Gareth for the significant contribution he has made to Ferguson and his outstanding stewardship of the Board.

Capital allocation policy and shareholder returns

Ferguson consistently generates strong operating cash flows with free cash flows2 in excess of $700 million in each of the last four years. In normal economic conditions the business reinvests in fixed and working capital to support strong growth. In periods of lower growth, reinvestment needs are more modest and free cash flows tend to be higher with maintenance capital expenditure of less than 1% of revenue. The Company aims to grow ordinary dividends over time commensurate with the long-term earnings growth of the business. Investment in selective bolt-on acquisitions has typically been in the range $200 million to $300 million per year.

Ferguson has returned $3.5 billion of surplus cash to shareholders over the last 6 years and we expect to continue to generate significant free cash flows which are beyond our immediate re-investment needs. The Group currently has surplus cash and in line with the Company’s capital allocation policy, we are proposing to buy back $500 million of our shares over the next 12 months.

Outlook

We are confident that Ferguson will continue to make progress as we remain firmly focused on delivering superior customer service. We expect to generate ongoing Group trading profit in the year ended 31 July 2019 in line with current analysts’ consensus forecasts.3

1)     Adjusted for approx. $1.3 billion proceeds from sale of Nordic businesses, $1.0 billion of which was returned to shareholders on 29 June 2018. Q3 2018 reported net debt to EBITDA was 0.1x.

2)     Free cash flow is cash generated from operations less interest, tax and capex.

3)     Analysts’ consensus for 2019 trading profit on the Company’s website is an average of $1,585 million (ranging from $1,570 million to $1,597 million)

For further information please contact:

Ferguson plc:

Mike Powell, Group Chief Financial Officer:
Tel: +44 (0) 118 927 3800

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

Nina Coad (Brunswick):
Tel: +44 (0) 20 7404 5959

Investor conference call

A conference call with John Martin, Group Chief Executive, and Mike Powell, Group Chief Financial Officer, will commence at 08.00 UK time today. The call will be recorded and available on our website after the event at www.fergusonplc.com.

Dial in number

UK:

+44 (0)330 336 9105


Ask for the Ferguson call quoting 8638361.