Ferguson plc 2021 First Quarter Results
First Quarter Highlights
– Ongoing revenue 3.1% ahead of last year, despite one fewer trading day.
– US ongoing revenue growth of 3.2% and underlying trading profit growth of 11.3%.
– Gross margin down 0.1% driven by mix.
– Tight cost control ensured strong trading profit delivery.
– Restarted M&A program with two US bolt-on acquisitions in the new financial year.
– Excellent operating cash generation.
– Strong balance sheet with net debt : adjusted EBITDA of 0.5 times, 0.7 times pro-forma if adjusted for expected $467 million cash outflow from the final dividend payment in December 2021.
Kevin Murphy, Group Chief Executive, commented:
“We are pleased with the revenue growth in the first quarter and today’s results further demonstrate the resilience of our business model. We are firmly focused on revenue growth and continued market share gains at the same time as carefully controlling gross margins and costs. This approach has enabled us to deliver robust trading profit growth in the first quarter. Cash generation was good and our balance sheet remains strong. This has enabled us to continue to invest in the business including our technology platforms to drive the best digitally enabled customer relationships and a seamless omni-channel experience.
“Our continued focus is on protecting our associates and supporting our customers and we would like to express our sincere thanks to all of our 33,000 associates for their dedication and commitment during these challenging times. Our associates are the main contributors to our success as they continue to deliver outstanding service to our customers.
“Since the start of the second quarter Ferguson has continued to generate low single digit revenue growth in broadly flat markets although we remain cautious on the outlook for the year as a whole, considering current pandemic trends. Despite these potential headwinds the business is in very good shape and we are well prepared should there be any further market related disruption and overall management’s expectations for FY 2021 are unchanged.”
The ongoing business generated revenue of $5,372 million in the first quarter, 3.1% higher than last year and 3.3% ahead on an organic basis. Gross margins of 29.6% were down 0.1% driven by mix but operating costs continued to be well controlled which led to a good overall trading performance. Ongoing underlying trading profit of $486 million was $53 million higher than last year despite one fewer day in the quarter compared to 2020. Underlying trading profit excludes an $18 million impact arising from IFRS16 (2019/20: $18 million).
Our US business generated revenue growth of 3.2%, which comprised 3.3% organic growth, 1.5% from acquisitions offset by 1.6% arising from one fewer trading day in the quarter. Price inflation during the quarter was broadly flat.
Residential end markets, which comprise just over half of our US revenue, have remained solid in the period generating good growth. New residential housing starts and permits grew well in the quarter and residential RMI has remained resilient. Commercial markets were more challenging with Civil markets impacted as a result of more restricted municipal funding. Industrial markets remained soft in part due to a tough environment for manufacturing during the pandemic. Overall, our order books grew year-on-year in the first quarter consistent with continuing modest revenue growth over the coming months.
Residential trade and residential showroom grew well while Commercial growth continued to be restricted by more challenging non-residential markets. HVAC continued to grow well, as did eBusiness which generated exceptional growth from strong residential demand. The Waterworks business was broadly flat while Industrial revenue also remained weak. Gross margins were a touch lower than last year and operating expenses were well controlled benefiting from restructuring actions announced last year and continued savings during the pandemic in areas such as travel, customer engagement and healthcare costs. Underlying trading profit was strong at $473 million, $48 million ahead of last year, driven principally by the lower cost base which delivered improved operating leverage as revenue growth returned.
We completed one small acquisition towards the end of the quarter, Old Dominion Supply, a residential and commercial HVAC distributor with annualized revenue of approximately $55 million. The business gives us greater vendor and product synergies in the Washington D.C. metro area, Maryland and Northern Virginia markets.
After the quarter end we also acquired Atlantic Construction Fabrics, a geotextile company offering erosion control solutions and geosynthetic products. The company operates along the East coast and generates annualized revenue of approximately $100 million. Its additional geotextile capabilities will further diversify our Waterworks business and complement our existing customer offering in geosynthetics, erosion control and stormwater management.
Revenue grew by 2.2% in Canada with inflation of approximately 2%. Organic growth of 3.5% was offset by the lower number of workdays. Residential end markets showed signs of growth but trading conditions remained more challenging in Western Canada. Gross margins were slightly lower but underlying trading profit of $23 million was $4 million ahead of last year, benefitting from restructuring actions and a lower cost base.
UK (non-ongoing operations)
Revenue grew by 5.2% in the UK with organic growth of 1.2% and inflation being broadly flat in the quarter. Gross margins were slightly lower due to product mix but underlying trading profit of $25 million was $10 million ahead of last year. The business continues to benefit from refocusing on a clear customer proposition and targeted sales initiatives combined with recent restructuring actions to significantly improve the cost base and focus the business on operational efficiencies.
In September 2019, the Board announced its intention to separate its Wolseley UK operations by way of a demerger into an independent UK listed company, subject to shareholder approval. As announced in September 2020, this remains uncertain in the current economic environment and consequently the Board is assessing other separation options in parallel with progress towards the demerger to facilitate the exit of the Wolseley UK business.
Net debt excluding leases at October 31, 2020 was $866 million after a cash outflow of $103 million relating to acquisitions and capital expenditure and a $189 million outflow relating to working capital. The IFRS 16 lease liability recognised on the balance sheet as at October 31, 2020 was $1,212 million.
Following shareholder approval at the AGM, the dividend of 208.2 cents per share, amounting to approximately $467 million, will be paid to shareholders on December 11, 2020.
There have been no other significant changes to the financial position of the Group.
Since the start of the second quarter Ferguson has continued to generate low single digit revenue growth in broadly flat markets although we remain cautious on the outlook for the year as a whole, considering current pandemic trends. Despite these potential headwinds the business is in very good shape and we are well prepared should there be any further market related disruption and overall management’s expectations for FY 2021 are unchanged.
For the full first quarter results, click here.
Ferguson plc is a value-added distributor of plumbing and heating products to professional contractors principally operating in North America and the UK. Ongoing revenue for the year ended July 31, 2020 was $19.9 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
Mark Fearon – Director of Corporate Communications & IR – +44 (0) 7711 875070
Source: Ferguson plc