Ferguson boosted by US performance as UK markets remain 'challenging'

Ferguson has reported on trading results for the half year ended 31 January 2018, describing it as a ‘strong first-half performance’ which leaves the group, ‘well positioned for the second half’.

In the USA, which accounts for 79% of revenue, markets remained good and the businesses continued to take market share. Canadian markets continued to recover and improved. In the UK, plumbing and heating markets were challenging.

Financial highlights include:

- Group revenue was up 10.3% to $10,027 million on the previous year, including organics growth of 7.4%.
- Gross margin of the ongoing business was 29.4%, 0.4% ahead of last year.
- Ongoing trading profit of $698 million, 15.0% ahead of last year.
- Statutory profit before tax after exceptional costs of $598 million, 7.6% ahead of last year.
- Net debt of $1.4 billion, 0.8x EBITDA.
- Interim dividend of 57.4 cents per share, an increase of 10%.
- Proposed $4 per share ($1 billion) special dividend and share consolidation.
- Ongoing share buyback to continue.

Operating highlights include:

- Strong US organic revenue growth of 8.7% with continued market share gains.
- Good growth in improved Canadian markets.
- UK restructuring programme accelerated in challenging markets.
- Six acquisitions completed in the first half for total consideration of $116 million
- Sale of Stark Group expected to complete at end of March 2018.

UK Performance (5% of Group trading profit)

Organic revenue growth in the UK was 0.5%, including inflation of 3% - 4% offset by a reduction in revenue from closed branches and the exit of low margin business towards the end of the half. Going forward we expect these actions to reduce revenue by about 10%.

Repair, maintenance and improvement markets were flat. Gross margins were slightly lower in competitive markets as a result of our decision to stop opportunistic forward buys.

Operating costs increased with our move to in-night replenishment to improve customer service. Trading profit of $38 million was $6 million lower than last year, after a $2 million gain from favourable exchange rates. The trading margin was 2.8% (2017: 3.5%).

We have accelerated the UK restructuring programme including the closure of a further 52 branches and a significant reduction in central support costs.

John Martin, Ferguson Chief Executive, commented:

“The Group delivered a strong trading performance in the first half driven by good growth and margin progression in the USA where we continued to grow well across all geographic regions and business units.

“US residential markets are growing well, commercial market growth is good and industrial markets have recovered. Canadian markets are healthy, though UK markets are challenging. Group organic revenue growth since the end of January has continued in line with growth in the second quarter, though comparators get progressively tougher through the second half. The Group is confident of achieving trading profit in line with analyst expectations for the full year.”

Review the full results presentation here

Source : Insight DIY and Ferguson PLC

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