TIDMFERG

RNS Number : 3685G

Ferguson PLC

17 March 2020

Ferguson plc

17 March 2020

Results for the half year ended 31 January 2020

STRONG OPERATIONAL DELIVERY IN THE FIRST HALF

 
  $m                                                  H1 2020    H1 2019    Change 
                       ===========================  =========  =========  ======== 
 Statutory financial results 
==================================================  =========  =========  ======== 
 Revenue                                               10,966     10,847     +1.1% 
 Profit before tax                                        640        679    (5.7%) 
 Basic earnings per share                              206.7c     254.5c 
 Interim dividend 
  per share                                             67.5c      63.1c     +7.0% 
=========================  =======================  =========  =========  ======== 
 Alternative performance measures(1) 
==================================================  =========  =========  ======== 
 Ongoing revenue                                        9,893      9,489     +4.3% 
 Ongoing gross margin                                   30.2%      30.2% 
 Ongoing trading profit                                   782        714     +9.5% 
  Less impact of IFRS16                                  (35)          - 
                                                    ---------  --------- 
  Underlying trading profit                               747        714     +4.6% 
 Headline earnings per share                           245.7c     241.9c     +1.6% 
 Net debt : Adjusted 
  EBITDA                                                 1.1x       1.1x 
 Trading days                                             127        127         - 
--------------------------------------------------  ---------  ---------  -------- 
 
 

Highlights

   -          Ongoing revenue 4.3% ahead of last year with continued market share gains in the US. 
   -          US revenue growth of 5.0% and underlying trading profit growth of 5.7%. 

- Good gross margin and cost control ensured trading profit growth outpaced revenue growth.

- Good operating cash generation and the Group has a strong balance sheet and liquidity position.

   -          Interim dividend of 67.5c up 7.0%. 

- Invested $141 million in acquisitions in the first half, including S.W. Anderson and since the end of the period Columbia Pipe and Supply.

- The Board expects to make a further announcement on listing assessment later in the spring of 2020.

   -          UK demerger on track for completion this calendar year. 

1) The Group uses Alternative Performance Measures ("APMs"), which are not defined or specified under IFRS, to provide additional helpful information. These measures are not considered to be a substitute for IFRS measures and are consistent with how business performance is planned, reported and assessed internally by management and the Board. For further information on APMs, including a description of our policy, purpose, definitions and reconciliations to equivalent IFRS statutory measures see note 2 on pages 18 to 22.

Kevin Murphy, Group Chief Executive, commented:

"Our focus has remained on serving our customers and making their projects more successful because they worked with Ferguson. Given the markets we serve remained flat we were pleased with our progress in the first half and we continued to generate above market revenue growth in the major US business units. This, alongside continued operational delivery including tight cost control, ensured we delivered robust trading profit growth and good cash generation.

"In response to the outbreak of the Coronavirus (COVID-19) in recent weeks the Company is taking steps to mitigate any potential impacts. We are following the guidance of governmental health agencies including the World Health Organization and the Center for Disease Control. Our immediate priority is safeguarding the health and wellbeing of our associates, supporting our business and customers and helping the communities in which we operate.

"Given the strength of our first half results, we had intended to confirm our full-year trading profit outlook for 2020. However, due to the dynamic situation unfolding with COVID-19 it is too early to understand its impact on current trading. Recent government actions to contain the spread of COVID-19 and societal reactions, alongside any potential actions we will take to mitigate them are not reflected in existing market forecasts and it is too early to quantify them. Ferguson remains well positioned for long-term success operating in attractive and fragmented markets with a robust business model and backed by a strong balance sheet and liquidity position."

For further information please contact

 
Ferguson plc 
Mike Powell, Group Chief Financial Officer          Tel:      +44 (0) 118 9273800 
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, David Litterick (Brunswick)              Tel:      +44 (0) 20 7404 5959 
 

In light of current restrictions on travel as a result of Coronavirus (COVID-19) Ferguson has decided to change its usual Half Year Results presentation to a conference call. The call hosted by Kevin Murphy, Chief Executive and Mike Powell, Chief Financial Officer will commence at 11:00 UK time (07:00 US EST) today. The call will be recorded and available on our website after the event www.fergusonplc.com.

 
Dial in number   United Kingdom   +44 (0)20 3936 2999 
 United States                    +1 646 664 1960 
 

Ask for the Ferguson call quoting 007088.

To register for the webcast please click here .

Financial results

Ferguson plc delivered a strong trading result in the first half. Markets in the US remained flat and the businesses continued to take market share.

Statutory results

Revenue of $10,966 million (2019: $10,847 million) was 1.1% ahead of last year. Statutory profit before tax was $640 million (2019: $679 million), lower due to exceptional charges ($19 million) and the impairment of an associate ($22 million) in the current year partially offset by t he adoption of IFRS 16 in the period which increased profit before tax by $8 million. Profit for the period decreased to $467 million (2019: $586 million) due to the factors noted above plus an increase in the tax charge primarily as a result of Swiss tax reform and a non-recurring gain from discontinued operations in the prior period ($46 million).

Alternative performance measures

Ongoing revenue of $9,893 million (2019: $9,489 million) was 4.3% ahead at constant exchange rates and 2.0% ahead on an organic basis. Inflation in the first half was approximately 1 % . Ongoing gross margins of 30.2% (2019: 30.2%) were in line with last year. The cost base was well controlled with operating expenses in the ongoing business 3.9% higher which included 2.1% from acquisitions.

Underlying trading profit was $747 million (2019: $714 million), 4.6% ahead of last year outpacing revenue growth. Foreign exchange movements had an immaterial impact on revenue and trading profit.

Update on Group strategy

Our strategy is unchanged. We continue to focus on driving all our resources and knowledge to serve our customers and make their projects better because they worked with Ferguson. To achieve this we will attract, retain and develop the very best associates in the industry who act as trusted advisors to our customers. We will give customers an unrivalled choice of products sourcing the leading brands in all our categories, including the highest quality own brands. We will drive scale in our business ensuring customers have access to products and advice where and when they need it, offering them an omni-channel experience. We will use technology to make our business more productive and equip our associates with the tools to make them more effective, while we constantly look to innovate and disrupt ourselves.

Operating and financial review

Further details of the financial performance and market conditions in the Group's businesses are set out below.

First half regional analysis

 
US$ millions            Revenue   Revenue  Change   Trading        Less  Underlying   Trading  Underlying 
                        H1 2020   H1 2019            profit      impact     Trading    profit      Change 
                                                    H1 2020   of IFRS16      profit   H1 2019 
                                                                H1 2020     H1 2020 
=====================  ========  ========  ======  ========  ==========  ==========  ========  ========== 
US                        9,318     8,874   +5.0%       774        (34)         740       700       +5.7% 
Canada                      575       615  (6.5%)        30         (1)          29        39     (25.6%) 
Central costs                 -         -              (22)           -        (22)      (25) 
=====================  ========  ========  ======  ========  ==========  ==========  ========  ========== 
Ongoing Group             9,893     9,489   +4.3%       782        (35)         747       714       +4.6% 
=====================  ========  ========  ======  ========  ==========  ==========  ========  ========== 
UK (non-ongoing) (1)      1,073     1,126  (4.7%)        30           -          30        32      (6.3%) 
=====================  ========  ========  ======  ========  ==========  ==========  ========  ========== 
 

1) H1 2019 UK (non-ongoing) numbers are presented excluding soak.com

Quarterly organic revenue growth

 
                  Q1 2019   Q2 2019   Q3 2019   Q4 2019   Q1 2020   Q2 2020   H1 2020 
---------------  --------  --------  --------  --------  --------  --------  -------- 
 USA                +9.6%     +9.7%     +3.3%     +3.0%     +3.1%     +2.1%     +2.6% 
 Canada             +3.3%     +0.5%    (2.9%)    (5.2%)    (6.4%)    (6.7%)    (6.6%) 
---------------  --------  --------  --------  --------  --------  --------  -------- 
 Ongoing Group      +9.2%     +9.1%     +3.0%     +2.5%     +2.5%     +1.6%     +2.0% 
---------------  --------  --------  --------  --------  --------  --------  -------- 
 

USA

The US business grew revenue by 5.0% which included acquisition growth of 2.4%. Price inflation was about 1%. US market growth was broadly flat with all of our business units except Industrial generating organic revenue growth in the first half. Blended Branches achieved 3.7% revenue growth overall. The East grew significantly boosted by acquisitions, with moderate growth in the Central and West. Waterworks revenue growth of 12.8% was principally driven by strong growth in the single-family residential sector. HVAC revenue growth was good and eBusiness revenues were up. Industrial revenues were lower in line with slightly weaker markets.

The organic revenue growth by end market was as follows:

 
                             % of US    Market    Organic 
                             revenue    growth    revenue 
                                                   growth 
========================   =========  ========  ========= 
 Residential                    50%       +1%        +3% 
 Commercial                     35%       +1%        +3% 
 Civil / Infrastructure          7%       +3%       +10% 
 Industrial                      8%      (6%)       (7%) 
=========================  =========  ========  ========= 
                                          Flat      +2.6% 
 ========================  =========  ========  ========= 
 

Gross margins remained strong and operating expens es were well controlled and included labor cost inflation of approximately 2%. As a result, underlying trading profit of $740 million (2019: $700 million) was 5.7% ahead of last year and outpaced total revenue growth. The underlying trading margin was 7.9% (2019: 7.9%).

Two bolt-on acquisitions were completed in the first half with total annualised revenues of approximately $98 million. As previously announced these included S.W. Anderson and Process Instruments & Controls. After the half year end we acquired Columbia Pipe & Supply which specializes in PVF, commercial mechanical, commercial plumbing, industrial, valve automation, engineered products and hydronics. The business operates from 16 locations in five states in the Midwest region and generated revenue of $220 million in the year ended 31 December 2019.

Canada

In Canada, revenue was 6.5% lower with our markets remaining challenging throughout the period including inflation of approximately 2%. Gross margins were slightly lower than last year but operating expenses were well controlled. Underlying trading profit of $29 million was $10 million behind last year and the underlying trading margin was 5.0% (2019: 6.3%) with the decline driven by lower revenues.

Central costs

Central costs in the first half were $22 million, $3 million lower than last year.

UK (non-ongoing operations)

Revenue declined 4.7% in the UK, primarily as a result of a deliberate move away from low margin sales, partially offset by 2.1% of growth from acquisitions. Inflation was about 1%. Repairs, maintenance and improvement markets were subdued. Gross margins were ahead due to improved product mix. Underlying t rading profit of $30 million was $2 million lower than last year, however performance in the second quarter improved with trading profit of $15 million, up $2 million year-over-year. The trading margin was 2.8% (2019: 2.8%). We continue to actively manage the cost base in the UK and exceptional costs of $9 million were incurred, principally relating to the closure of a distribution centre in Worcester.

E xceptional items

A total exceptional charge of $19 million (2019: exceptional gain of $3 million) included $8 million of demerger costs relating to the UK business; $9 million principally related to the closure of a UK distribution centre; and $2 million of costs relating to the Group's listing consultation.

Finance costs

Net finance costs before exceptional items were $70 million (2019: $35 million), with $27 million of the increase due to the adoption of IFRS16.

Tax

The Group incurred a tax charge of $173 million (2019: $139 million) on profit before tax of $640 million (2019: $679 million). This includes an ongoing tax charge of $181 million (2019: $155 million) which equates to an ongoing effective tax rate of 25.4% (2019: 22.8%) on the ongoing trading profit less net finance costs of $712 million (2019: $679 million). The tax rate increased, as previously guided, during the first half as a result of Swiss tax reform. The ongoing effective tax rate is in line with technical guidance for the full year.

Earnings per share

Total basic earnings per share were 206.7 cents (2019: 254.5 cents). Headline earnings per share increased by 1.6% to 245.7 cents (2019: 241.9 cents) mainly due to the increase in trading profit and the lower share count as a result of last year's share buy back programme, partially offset by a higher effective tax rate.

Cash flow

The Group continued to generate good cash flows with cash generated from operations of $465 million (1) (2019: $287 million), after a seasonal working capital outflow of $381 million (2019: $503 million). Net interest (1) and tax amounted to $215 million (2019: $166 million) and acquisitions amounted to $141 million (2019: $589 million). Capital investment was $164 million (2019: $244 million). Ordinary dividends paid amounted to $327 million (2019: $300 million) and we completed $350 million (2019: $nil) of share buy backs.

1) Cash generated from operations is presented excluding IFRS16. IFRS 16 has no impact on net Cash Flow, but does increase cash generated from operations by $171 million, offset by increased interest of $27 million and capital lease payments of $144 million.

Net debt and pensions

The Group's net debt, which excludes leases, at 31 January 2020 was $1,944 million (31 January 2019: $1,885 million (1) ) and the ratio of net debt to the last twelve months adjusted EBITDA was 1.1x (31 January 2019: 1.1x). The Group has a strong liquidity position and aims to operate with a net debt to adjusted EBITDA ratio of between 1x and 2x.

The IFRS16 lease liability recognised on the balance sheet as at 31 January 2020 was $1,445 million.

On 10 March 2020 the Group entered into a new $1.1 billion revolving credit facility, provided by a syndicate of eleven banks, with an initial maturity of five years and the option for the Group to apply for two further one year maturity extensions. This facility will replace the existing GBP800 million revolving credit facility which has now been cancelled.

At 31 January 2020 the Group's net pension position was an asset of $113 million (2019: net asset of $154 million) with the decline due to lower discount rates on the liability.

1) 2019 net debt includes $5 million of finance leases which have not been adjusted

Shareholder returns

In November 2019 the Group paid a final dividend of 145.1 cents per share (2019: 131.9 cents per share) amounting to $327 million. This included an upwards rebasing of 10% reflecting the Group's excellent track record of cash generation and the ongoing strength of the balance sheet. An interim dividend of 67.5 cents per share (2019: 63.1 cents per share) representing an increase of 7% will be paid on 30 April 2020 to shareholders on the register on 27 March 2020. In the six months to 31 January 2020, the Company bought back $350 million of shares. On 4 February we announced a further $500 million share buy back program and in the period to 13 March 2020 we bought back $96 million of shares.

Board changes

On 19 November 2019 Kevin Murphy succeeded John Martin as Group Chief Executive. Kevin, a US national based in Virginia, was appointed CEO of Ferguson Enterprises in the USA and joined the Board in August 2017. Under his leadership Ferguson has continued to gain market share and generate profitable growth. He has a wealth of operational experience gained in the plumbing and heating industry in the US. He has a strong track record of delivery having previously served as Chief Operating Officer of Ferguson Enterprises for 10 years after joining the business through an acquisition of his family's Waterworks business Midwest Pipe and Supply in 1999.

Following the Annual General Meeting (AGM) in November 2019, Geoff Drabble succeeded Gareth Davis as Chairman. Geoff joins Ferguson following a 12 year period as Chief Executive of Ashtead Group plc, 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. His record of value creation is outstanding and he brings a wealth of experience in the distribution, technology and manufacturing sectors, particularly in the USA.

Darren Shapland stood down as a Non Executive Director at the AGM in November 2019 and Gareth Davis stood down as a Non Executive Director in January 2020.

UK demerger

The demerger process for Wolseley UK is on track and we expect to complete the transaction within the current calendar year.

The Board is delighted that Gareth Davis has agreed to be Chairman of the demerged Group once completed. Gareth currently serves as Chairman of DS Smith plc, as Deputy Chairman of M&C Saatchi plc and as a Non Executive Director for Gresham House plc. He was previously Chairman of Ferguson plc for nearly 9 years, Chairman of William Hill plc and Group Chief Executive of Imperial Tobacco Group plc. Gareth is in the process of forming a Board for the new company which will be called 'Wolseley Group plc'.

In January 2020 Simon Oakland was appointed as the Chief Executive Officer of Wolseley UK after a short period as the interim. Simon brings extensive experience in strategy, finance and operations to the role and was formerly CEO of Ferguson's Canadian business and Head of Corporate Development. He joined Ferguson as Managing Director of the French business before moving on to the role of Group Head of Corporate Development where he was responsible for M&A activity and corporate strategy. Prior to joining Ferguson in 2012, Simon gained valuable strategic and Board experience across a variety of sectors spanning Europe, North America and the Far East as part of a successful career in private equity, most recently as a Partner at Alchemy Partners.

Outlook

Given the strength of our first half results, we had intended to confirm our full-year trading profit outlook for 2020. However, due to the dynamic situation unfolding with COVID-19 it is too early to understand its impact on current trading. Recent government actions to contain the spread of COVID-19 and societal reactions, alongside any potential actions we will take to mitigate them are not reflected in existing market forecasts and it is too early to quantify them. Ferguson remains well positioned for long-term success operating in attractive and fragmented markets with a robust business model and backed by a strong balance sheet and liquidity position.

Principal risks and uncertainties

The principal risks and uncertainties which affect the Group are:

 
 New competitors     Wholesale and distribution businesses in other industry 
  and technology      sectors have been disrupted by the arrival of new 
                      competitors with lower-cost transactional business 
                      models or new technologies to aggregate demand away 
                      from incumbents. The Board is attuned to both the 
                      risks and opportunities presented by these changes 
                      and is actively engaged as the Group takes action 
                      to respond. 
 Market conditions   This risk relates to the Group's exposure to short-term 
                      macroeconomic conditions and market cycles in our 
                      sector (i.e. periodic market downturns). Some of 
                      the factors driving market growth are beyond the 
                      Group's control and are difficult to forecast. 
 
                      The Company is closely monitoring the outbreak of 
                      the COVID-19 coronavirus and taking prudent steps 
                      to mitigate any potential impacts to the health 
                      and safety of our associates or to the successful 
                      operation of our business. We are following the 
                      guidance of the World Health Organization and other 
                      governmental health agencies, including with respect 
                      to travel restrictions. The Company remains prepared 
                      to implement appropriate mitigation strategies to 
                      minimize any potential business disruption. 
 Pressure on         The Group's ability to maintain attractive profit 
  margins             margins can be affected by a range of factors. These 
                      include levels of demand and competition in our 
                      markets, the arrival of new competitors with new 
                      business models, the flexibility of the Group's 
                      cost base, changes in the cost and availability 
                      of commodities or goods purchased, the imposition 
                      of new or increased governmental tariffs on international 
                      sources of supply, customer or supplier consolidation 
                      or manufacturers shipping directly to customers. 
                      There is a risk that the Group may not identify 
                      or respond effectively to changes in these factors. 
                      If it fails to do so, the amount of profit generated 
                      by the Group could be significantly reduced. 
 Information         The Group has a clearly defined global technology 
  and technology      strategy and roadmap. Technology systems and data 
                      are fundamental to the future growth and success 
                      of the Group. Information Technology (IT) risks 
                      are categorised as strategic and operational. Strategic 
                      risks are threats that could prevent execution of 
                      the IT strategic plan such as inadequate leadership, 
                      poor allocation/management of resources and/or poor 
                      execution of the organisational change of management 
                      necessary to adopt and apply new business processes. 
                      Operational risks include business disruption resulting 
                      from system failures, fraud or criminal activity. 
                      This includes security threats and/or failures in 
                      the ability of the organisation to operate, recover 
                      and restore operations after such disruptions. While 
                      cyber security incidents encountered by Group businesses 
                      to date have resulted in minimal impact, this risk 
                      continues to persist and evolve. 
 Health and safety   The nature of Ferguson's operations can expose its 
                      associates, contractors, customers, suppliers and 
                      other individuals to health and safety risks. Health 
                      and safety incidents can lead to loss of life or 
                      severe injuries. 
 Regulations         The Group's operations are affected by various statutes, 
                      regulations and standards in the countries and markets 
                      in which it operates. The amount of such regulation 
                      and the penalties can vary. While the Group is not 
                      engaged in a highly regulated industry, it is subject 
                      to the laws governing businesses generally, including 
                      laws relating to competition, product safety, data 
                      protection, labour and employment practices, accounting 
                      and tax standards, international trade, fraud, bribery 
                      and corruption, land usage, the environment, health 
                      and safety, transportation and other matters. Violations 
                      of certain laws and regulations may result in significant 
                      fines and penalties and damage to the Group's reputation. 
 Talent management   As the Group develops new business models and new 
  and retention       ways of working, it needs to develop suitable skill-sets 
                      within the organisation. Furthermore, as the Group 
                      continues to execute a number of strategic change 
                      programmes, it is important that existing skill-sets 
                      and talent are retained. Failure to do so could 
                      delay the execution of strategic change programmes, 
                      result in a loss of "corporate memory" and reduce 
                      the Group's supply of future leaders. 
 

The Group faces many other risks which, although important and subject to regular review, have been assessed as less significant and are not listed here. These include, for example, natural catastrophe and business interruption risks and certain financial risks.

Statement of Directors' responsibilities

The Directors confirm, to the best of their knowledge, that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

-- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-- material related party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report and Accounts.

   A list of current Directors is maintained on the Ferguson plc website :   www.fergusonplc.com . 

By order of the Board,

 
 
  Kevin Murphy           Mike Powell 
Group Chief Executive  Group Chief Financial Officer 
 

Notes to statement

   1.            About Ferguson 

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 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 .

   2.            Timetable for the interim dividend 

The timetable for payment of the interim dividend is as follows:

 
Ex dividend date:  26 March 2020 
Record date:       27 March 2020 
Payment date:      30 April 2020 
 

The dividend is declared in US dollars but will be paid in sterling, shareholders can elect to receive the dividend in US dollars. A dividend reinvestment plan is in operation. Those shareholders who have not elected to receive dividends in US dollars or elected to participate in the dividend reinvestment plan, and who would like to make an election with respect to the 2020 interim dividend, may do so by contacting Equiniti on 0371 384 2934 (or if outside the UK +44 (0) 121 415 7011). The last day for election for the proposed interim dividend is 7 April 2020 and any requests should be made in good time ahead of that date.

   3.            Legal disclaimer 

Certain information included in this announcement is forward-looking and involves known and unknown risks, assumptions and uncertainties that could cause actual results or outcomes to differ from those expressed or implied in any forward-looking statement. There forward-looking statements are based on the Company's current belief and expectations about future events and 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, prospects, growth, strategies, expected expenditures and divestments, risks associated with changes in economic conditions, the strength of the plumbing and heating market in North America and Europe, fluctuations in product prices and changes in exchange and interest rates. Forward-looking statements are sometimes identified by the use of forward-looking terminology, including terms such as "believes", "estimates", "continues", "anticipates", "expects", "forecasts", "intends", "plans", "projects", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations thereon or comparable terminology. Forward-looking statements are not guarantees of future performance and actual events or results may differ materially from any estimates or forecasts indicated, expressed or implied in such forward looking statements. 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 these forward-looking statements, which speak only as at the date of this announcement. 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 applicable law, (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, change in events or otherwise. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

-ends-

Condensed consolidated income statement (unaudited)

Half year to 31 January 2020

 
                                                                                 2020                                                   2019 
------------------------  -----  ----------------------------------------------------   ---------------------------------------------------- 
                                                           Exceptional items                                      Exceptional items 
                                 Before exceptional items           (note 4)    Total   Before exceptional items           (note 4)    Total 
Half year to 31 January   Notes                        $m                 $m       $m                         $m                 $m       $m 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Continuing operations 
Revenue                       3                    10,966                  -   10,966                     10,847                  -   10,847 
Cost of sales                                     (7,722)                (2)  (7,724)                    (7,653)                (1)  (7,654) 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Gross profit                                        3,244                (2)    3,242                      3,194                (1)    3,193 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Operating costs: 
amortisation of acquired 
 intangible assets            9                      (60)                  -     (60)                       (44)                  -     (44) 
other                                             (2,432)               (17)  (2,449)                    (2,441)                  1  (2,440) 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Operating costs                                   (2,492)               (17)  (2,509)                    (2,485)                  1  (2,484) 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Operating profit              3                       752               (19)      733                        709                  -      709 
Net finance costs             5                      (70)                  -     (70)                       (35)                  -     (35) 
Share of (loss)/profit 
 after tax of associates                              (1)                  -      (1)                          2                  -        2 
Impairment of interests 
 in associates                                       (22)                  -     (22)                          -                  -        - 
Gain on disposal of 
 interests in associates                                -                  -        -                          -                  3        3 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Profit before tax                                     659               (19)      640                        676                  3      679 
Tax                           6                     (175)                  2    (173)                      (143)                  4    (139) 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Profit from continuing 
 operations                                           484               (17)      467                        533                  7      540 
Profit from discontinued 
 operations                                           (1)                  1        -                          1                 45       46 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Profit for the period                                 483               (16)      467                        534                 52      586 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Earnings per share            8 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Continuing operations and discontinued operations 
Basic earnings per share                                                       206.7c                                                 254.5c 
Diluted earnings per 
 share                                                                         205.5c                                                 252.8c 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Continuing operations 
 only 
Basic earnings per share                                                       206.7c                                                 234.5c 
Diluted earnings per 
 share                                                                         205.5c                                                 233.0c 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
 
Alternative performance 
 measures 
Underlying trading 
 profit from ongoing 
 operations                   2                       747                                                    714 
Underlying trading 
 profit from non-ongoing 
 operations                   2                        30                                                     39 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Underlying trading 
 profit from continuing 
 operations                2, 3                       777                                                    753 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Adjusted EBITDA from 
 continuing operations        2                       872                                                    842 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
Headline earnings per 
 share                     2, 8                    245.7c                                                 241.9c 
------------------------  -----  ------------------------  -----------------  -------   ------------------------  -----------------  ------- 
 

The Group adopted IFRS 16 "Leases" on 1 August 2019 applying the modified retrospective transition method. As a result, comparatives have not been restated and are shown on an IAS 17 "Leases" basis. See note 1 for further details.

Condensed consolidated statement of comprehensive income (unaudited)

Half year to 31 January 2020

 
                                                                                                  2020  2019 
Half year to 31 January                                                                             $m    $m 
----------------------------------------------------------------------------------------------  ------  ---- 
Profit for the period                                                                              467   586 
----------------------------------------------------------------------------------------------  ------  ---- 
Other comprehensive income/(expense): 
Items that may be reclassified subsequently to profit or loss: 
    Exchange gain/(loss) on translation of international operations(1)                              74   (9) 
    Exchange (loss)/gain on translation of borrowings and derivatives designated as hedges of 
     international operations(1)                                                                  (32)     4 
    Cumulative currency translation differences on disposal of interests in associates(1)            -     7 
Items that will not be reclassified subsequently to profit or loss: 
    Actuarial loss on retirement benefit plans(2)                                                 (52)  (32) 
    Income tax credit/(charge) on retirement benefit plans(2)                                        9   (1) 
----------------------------------------------------------------------------------------------  ------  ---- 
Other comprehensive expense for the period                                                         (1)  (31) 
----------------------------------------------------------------------------------------------  ------  ---- 
Total comprehensive income for the period                                                          466   555 
----------------------------------------------------------------------------------------------  ------  ---- 
 

1. Impacting the translation reserve.

2. Impacting retained earnings.

Condensed consolidated statement of changes in equity (unaudited)

 
                                                                                    Reserves 
-----------------  -----  --------  ----------  --------------------------------------------  ---------------  ------- 
                             Share       Share  Translation    Treasury      Own    Retained  Non-controlling    Total 
                           capital     premium      reserve      shares   shares    earnings         interest   equity 
                   Notes        $m          $m           $m          $m       $m          $m               $m       $m 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Profit for the 
 period                          -           -            -           -        -         467                -      467 
Other 
 comprehensive 
 income/(expense)                -           -           42           -        -        (43)                -      (1) 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Total 
 comprehensive 
 income                          -           -           42           -        -         424                -      466 
Purchase of own 
 shares by 
 Employee Benefit 
 Trusts                          -           -            -           -     (26)           -                -     (26) 
Issue of own 
 shares by 
 Employee Benefit 
 Trusts                          -           -            -           -       39        (39)                -        - 
Credit to equity 
 for share-based 
 payments                        -           -            -           -        -          21                -       21 
Tax relating to 
 share-based 
 payments                        -           -            -           -        -         (3)                -      (3) 
Purchase of 
 Treasury shares                 -           -            -       (191)        -           -                -    (191) 
Disposal of 
 Treasury shares                 -           -            -          13        -        (11)                -        2 
Dividends paid     7             -           -            -           -        -       (327)                -    (327) 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Net change to 
 equity                          -           -           42       (178)       13          65                -     (58) 
At 31 July 2019                 30           9        (598)       (305)    (102)       5,316                -    4,350 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Adjustment on 
 adoption of IFRS 
 16                1             -           -            -           -        -       (187)                -    (187) 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
At 1 August 2019                30           9        (598)       (305)    (102)       5,129                -    4,163 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
At 31 January 
 2020                           30           9        (556)       (483)     (89)       5,194                -    4,105 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
 
 
                                                                                    Reserves 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
                             Share       Share  Translation    Treasury      Own    Retained  Non-controlling    Total 
                           capital     premium      reserve      shares   shares    earnings         interest   equity 
                   Notes        $m          $m           $m          $m       $m          $m               $m       $m 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Profit for the 
 period                          -           -            -           -        -         586                -      586 
Other 
 comprehensive 
 income/(expense)                -           -            2           -        -        (33)                -     (31) 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Total 
 comprehensive 
 income                          -           -            2           -        -         553                -      555 
Purchase of own 
 shares by 
 Employee Benefit 
 Trusts                          -           -            -           -     (38)           -                -     (38) 
Issue of own 
 shares by 
 Employee Benefit 
 Trusts                          -           -            -           -       25        (25)                -        - 
Credit to equity 
 for share-based 
 payments                        -           -            -           -        -          21                -       21 
Tax relating to 
 share-based 
 payments                        -           -            -           -        -         (3)                -      (3) 
Disposal of 
 Treasury shares                 -           -            -           9        -         (8)                -        1 
Dividends paid     7             -           -            -           -        -       (303)                -    (303) 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
Net change to 
 equity                          -           -            2           9     (13)         235                -      233 
At 1 August 2018                45          67        (556)     (1,380)     (90)       5,972              (1)    4,057 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
At 31 January 
 2019                           45          67        (554)     (1,371)    (103)       6,207              (1)    4,290 
-----------------  -----  --------  ----------  -----------  ----------  -------  ----------  ---------------  ------- 
 

Condensed consolidated balance sheet (unaudited)

Half year to 31 January 2020

 
    As at                                                                                          As at 
  31 July                                                                            As at    31 January 
     2019                                                                  31 January 2020          2019 
       $m                                                         Notes                 $m            $m 
---------     --------------------------------------------------  -----  -----------------  ------------ 
              Assets 
              Non-current assets 
    1,656     Intangible assets: goodwill                             9              1,691         1,632 
      423     Intangible assets: other                                9                451           440 
        -     Right of use assets                                    10              1,197             - 
    1,349     Property, plant and equipment                           9              1,417         1,316 
       29     Interests in associates                                                    5            41 
       42     Financial assets                                                          51            38 
      178     Retirement benefit assets                                                137           171 
      164     Deferred tax assets                                                      509           124 
      340     Trade and other receivables                                              363           332 
       10     Derivative financial assets                                                -             7 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    4,191                                                                            5,821         4,101 
---------     --------------------------------------------------  -----  -----------------  ------------ 
              Current assets 
    2,821     Inventories                                                            2,970         2,915 
    3,213     Trade and other receivables                                            2,968         2,970 
        6     Current tax receivable                                                    16            12 
        9     Financial assets                                                           9             - 
       12     Derivative financial assets                                               22             3 
    1,133     Cash and cash equivalents                              12                775           699 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    7,194                                                                            6,760         6,599 
---------     --------------------------------------------------  -----  -----------------  ------------ 
        1     Assets held for sale                                                       2            51 
---------     --------------------------------------------------  -----  -----------------  ------------ 
   11,386     Total assets                                                          12,583        10,751 
---------     --------------------------------------------------  -----  -----------------  ------------ 
              Liabilities 
              Current liabilities 
    3,797     Trade and other payables                                               3,120         3,034 
      251     Current tax payable                                                      240           189 
       52     Borrowings                                             15                722           302 
        -     Lease liabilities                                      10                265             - 
        2     Obligations under finance leases                                           -             2 
       79     Provisions                                                                82            89 
        -     Retirement benefit obligations                                             6             6 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    4,181                                                                            4,435         3,622 
---------     --------------------------------------------------  -----  -----------------  ------------ 
              Non-current liabilities 
      292     Trade and other payables                                                 276           295 
        -     Derivative financial liabilities                                           -             7 
    2,292     Borrowings                                             15              2,019         2,280 
        -     Lease liabilities                                      10              1,180             - 
        4     Obligations under finance leases                                           -             3 
       56     Deferred tax liabilities                                                 369            75 
      186     Provisions                                                               181           168 
       25     Retirement benefit obligations                                            18            11 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    2,855                                                                            4,043         2,839 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    7,036     Total liabilities                                                      8,478         6,461 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    4,350     Net assets                                                             4,105         4,290 
---------     --------------------------------------------------  -----  -----------------  ------------ 
              Equity 
       30     Share capital                                                             30            45 
        9     Share premium                                                              9            67 
    4,311     Reserves                                                               4,066         4,179 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    4,350     Equity attributable to shareholders of the Company                     4,105         4,291 
---------     --------------------------------------------------  -----  -----------------  ------------ 
        -     Non-controlling interest                                                   -           (1) 
---------     --------------------------------------------------  -----  -----------------  ------------ 
    4,350     Total equity                                                           4,105         4,290 
---------     --------------------------------------------------  -----  -----------------  ------------ 
 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated cash flow statement (unaudited)

Half year to 31 January 2020

 
                                                                                         2020     2019 
Half year to 31 January                                                        Notes       $m       $m 
-----------------------------------------------------------------------------  -----  -------  ------- 
Cash flows from operating activities 
Cash generated from operations                                                    11      636      287 
Net interest paid                                                                        (72)     (38) 
Tax paid                                                                                (170)    (128) 
-----------------------------------------------------------------------------  -----  -------  ------- 
Net cash generated from operating activities                                              394      121 
-----------------------------------------------------------------------------  -----  -------  ------- 
Cash flows from investing activities 
Acquisitions of businesses (net of cash acquired)                                 13    (141)  ( 589 ) 
Disposals of businesses (net of cash disposed of)                                           -      199 
Purchases of property, plant and equipment                                            ( 145 )    (230) 
Proceeds from sale of property, plant and equipment and assets held for sale                8       38 
Purchases of intangible assets                                                           (19)     (14) 
Acquisition of associates and other investments                                           (3)      (9) 
Disposal of interests in associates                                                         -       18 
-----------------------------------------------------------------------------  -----  -------  ------- 
Net cash used in investing activities                                                   (300)  ( 587 ) 
-----------------------------------------------------------------------------  -----  -------  ------- 
Cash flows from financing activities 
Purchase of own shares by Employee Benefit Trusts                                        (26)     (38) 
Purchase of Treasury shares1                                                            (350)        - 
Proceeds from the sale of Treasury shares                                                   2        1 
Proceeds from borrowings and derivatives                                                  154      754 
Repayments of borrowings                                                                    -      (2) 
Lease liability capital payments                                                      ( 144 )        - 
Finance lease capital payments                                                              -      (1) 
Dividends paid to shareholders                                                          (327)    (300) 
-----------------------------------------------------------------------------  -----  -------  ------- 
Net cash (used in)/generated from financing activities                                  (691)      414 
-----------------------------------------------------------------------------  -----  -------  ------- 
Net cash used                                                                           (597)     (52) 
Effects of exchange rate changes                                                          (1)      (3) 
-----------------------------------------------------------------------------  -----  -------  ------- 
Net decrease in cash, cash equivalents and bank overdrafts                              (598)     (55) 
Cash, cash equivalents and bank overdrafts at the beginning of the period               1,086      458 
-----------------------------------------------------------------------------  -----  -------  ------- 
Cash, cash equivalents and bank overdrafts at the end of the period               12      488      403 
-----------------------------------------------------------------------------  -----  -------  ------- 
 

1. Purchase of Treasury shares includes a cash outflow of $159 million which was irrevocably committed to at 31 July 2019 relating to the share buy back programme

announced on 10 June 2019.

Notes to the condensed consolidated interim financial statements (unaudited)

Half year to 31 January 2020

1. Basis of preparation

The Company is incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in the UK.

The condensed consolidated interim financial statements for the six months ended 31 January 2020 were approved by the Board of Directors on 16 March 2020. The condensed consolidated interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those set out in the Group's Annual Report and Accounts for the year ended 31 July 2019, except for the adoption of IFRS 16 "Leases" on 1 August 2019.

The condensed consolidated interim financial statements are unaudited. The financial information for the year ended 31 July 2019 does not constitute the Group's statutory financial statements. The Group's statutory financial statements for that year have been filed with the Jersey Registrar of Companies and received an unqualified auditor's report.

Going concern

The condensed consolidated interim financial statements have been prepared on a going concern basis. Given the current dynamic situation unfolding with Covid-19, the Group has assessed the impact of a number of alternate scenarios including a severe short term revenue reduction and taking into account reasonable mitigating actions. The Directors of the Company are confident, on the basis of current financial projections and facilities available and after considering these downside scenarios and sensitivities, that the Group has sufficient resources for its operational needs and will remain in compliance with the financial covenants in its bank facilities for at least the next 12 months.

Accounting developments and changes

On 1 August 2019, the Group adopted IFRS 16 "Leases". The standard makes changes to the treatment of leases in the financial statements, requiring the use of a single model to recognise a lease liability and a right of use asset for all leases, including those classified as operating leases under IAS 17 "Leases", unless the underlying asset has a low value or the lease term is 12 months or less. Rental charges in the income statement previously recorded under IAS 17 are replaced with depreciation and interest charges under IFRS 16 and right of use assets will be subject to impairment reviews in accordance with IAS 36 "Impairment of Assets" replacing the previous requirement to recognise a provision for onerous lease contracts.

The Group has applied the modified retrospective transition method and has not restated comparatives for the six months ended 31 January 2019 or the year ended 31 July 2019. For the majority of leases, the right of use asset on transition has been measured as if IFRS 16 had been applied since the commencement of the lease, discounted using the Group's incremental borrowing rate as at 1 August 2019, with the difference between the right of use asset and the lease liability taken to retained earnings. For the remaining leases which relate to the Group's US fleet, where sufficient historic information has not been available, the right of use asset has been measured as equal to the lease liability on transition.

The Group has elected to apply the following practical expedients on transition:

-- To not reassess whether contracts are, or contain, a lease at the date of initial application;

-- Application of a single discount rate to a portfolio of leases with reasonably similar characteristics;

-- Reliance on previous assessment of whether leases are onerous in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" immediately before the date of initial application as an alternative to performing an impairment review;

-- Election to not apply the measurement requirements of the standard to leases where the term ends within 12 months of the date of initial application;

-- Exclusion of initial direct costs from the measurement of the right of use asset at the date of initial application; and

   --      Use of hindsight, such as in determining the lease term. 

The impact of the adoption of IFRS 16 on the income statement in the six months ended 31 January 2020 was to decrease rental costs by $166 million, increase depreciation by $131 million and increase finance costs by $27 million. The impact on the cash flow statement was to increase cash generated from operations by $171 million, increase interest paid by $27 million and increase lease liability capital payments by $144 million. There was no impact on the net decrease in cash, cash equivalents and bank overdrafts.

The impact of the adoption of IFRS 16 on the opening balance sheet at 1 August 2019 was as follows:

 
                                        $m 
---------------------------------  ------- 
Right of use assets                  1,220 
Property, plant and equipment          (6) 
Net deferred tax assets                 69 
Lease liabilities                  (1,481) 
Obligations under finance leases         6 
Other                                    5 
---------------------------------  ------- 
Net retained earnings adjustment     (187) 
---------------------------------  ------- 
 

A reconciliation of the operating lease commitments previously reported under IAS 17 in the Group's Annual Report and Accounts for the year ended 31 July 2019 to the lease liability at 1 August 2019 under IFRS 16 is as follows:

 
                                                                              $m 
-------------------------------------------------------------------------  ----- 
Operating lease commitments at 31 July 2019                                1,126 
Leases of low value assets                                                  (20) 
Long-term leases that expire before 31 July 2020                            (12) 
Reasonably certain extension or termination options                          564 
Effect from discounting(1)                                                 (183) 
Lease liabilities due to initial application of IFRS 16 at 1 August 2019   1,475 
Lease liabilities from finance leases under IAS 17 at 31 July 2019             6 
-------------------------------------------------------------------------  ----- 
Total lease liabilities at 1 August 2019                                   1,481 
-------------------------------------------------------------------------  ----- 
 

1. The weighted average incremental borrowing rate applied by the Group upon transition was 3.5 per cent.

Leases accounting policy applied from 1 August 2019

The Group enters into leases in the normal course of its business, these principally relate to property for the Group's branches, distribution centres and offices which have varying terms including extension and termination options and periodic rent reviews.

The Group recognises a right of use asset and a lease liability at the lease commencement date. Non-lease components of a contract are not separated from lease components and instead are accounted for as a single lease component.

Lease liabilities are initially measured at the present value of lease payments using the interest rate implicit in the lease, or if this is not readily available, at the Group's incremental borrowing rate. Lease payments comprise fixed payments, variable payments that depend on an index or rate, payments expected under residual value guarantees, and payments under purchase and termination options which are reasonably certain to be exercised. Lease terms are determined as the non-cancellable period of a lease adjusted for options to extend or terminate a lease that are reasonably certain to be exercised, management judgement is required in making this determination.

Lease liabilities are subsequently measured at amortised cost using the effective interest method. Lease liabilities are remeasured when there is a change in future lease payments as a result of a rent review or a change in an index or rate, or if there is a change in the assessment of whether it is reasonably certain that extension or termination options will be exercised.

Right of use assets are carried at cost less accumulated depreciation and impairment losses and any subsequent remeasurement of the lease liability. Initial cost comprises the lease liability adjusted for lease payments at or before the commencement date, lease incentives received, initial direct costs and an estimate of restoration costs. Right of use assets are depreciated on a straight-line basis to the earlier of the end of the useful life of the asset or the end of the lease term and tested for impairment if an indicator exists.

Leases that have a term of 12 months or less and leases for which the underlying asset is of low value are recognised as an expense on a straight-line basis over the lease term.

Critical accounting judgements - Leases

Property leases entered into by the Group typically include extension and termination options to provide operational flexibility to the Group. Management exercises significant judgement in determining whether these options are reasonably certain to be exercised when determining the lease term. In making these judgements management considers the remaining lease term, future business plans and other relevant economic factors.

2. Alternative performance measures

The Group uses alternative performance measures ("APMs"), which are not defined or specified under IFRS. These APMs, which are not considered to be a substitute for IFRS measures, provide additional helpful information. APMs are consistent with how business performance is planned, reported and assessed internally by management and the Board and provide comparable information across the Group.

Ongoing and non-ongoing

The Group reports some financial measures net of businesses that have been or may be disposed of, closed or classified as held for sale and uses the following terminology:

Non-ongoing operations are businesses which do not meet the criteria to be classified as discontinued operations under IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations", which may be disposed of, closed or classified as held for sale. In 2020, the Group's UK business has been classified as non-ongoing. All comparatives have been restated for consistency and comparability.

Ongoing operations are continuing operations excluding non-ongoing operations.

Organic revenue growth

Management uses organic revenue growth as it provides a consistent measure of the percentage increase/decrease in revenue year-on-year, excluding the effect of currency exchange rate fluctuations, trading days, acquisitions and disposals.

A reconciliation of revenue using the above APMs to statutory revenue is provided below:

 
                                               Ongoing  Non-ongoing  Continuing 
                                       -----  --------  -----------  ---------- 
Revenue                                   $m  % growth           $m          $m 
-------------------------------------  -----  --------  -----------  ---------- 
Reported 2019 restated                 9,489                  1,358      10,847 
Impact of exchange rate movements        (1)                   (20)        (21) 
-------------------------------------  -----  --------  -----------  ---------- 
Reported 2019 to 2020 exchange rates   9,488                  1,338      10,826 
Organic growth                           194       2.0       ( 58 )         136 
Acquisitions                             211       2.3           23         234 
Disposals                                  -         -        (230)       (230) 
-------------------------------------  -----  --------  -----------  ---------- 
Reported 2020                          9,893       4.3        1,073      10,966 
-------------------------------------  -----  --------  -----------  ---------- 
 

Exceptional items

Exceptional items are those which are considered significant by virtue of their nature, size or incidence. These items are presented as exceptional within their relevant income statement category to assist in the understanding of the trading and financial results of the Group as these types of cost/credit do not form part of the trading business.

Examples of items that are considered by the Directors for designation as exceptional items include, but are not limited to:

-- restructuring costs within a segment which are both material and incurred as part of a significant change in strategy or due to the closure of a large part of a business and are not expected to be repeated on a regular basis;

-- significant costs incurred as part of the integration of an acquired business and which are considered to be material;

-- gains or losses on disposals of businesses are considered to be exceptional in nature as they do not reflect the performance of the trading business;

   --      material costs or credits arising as a result of regulatory and litigation matters; 

-- gains or losses arising on significant changes to, or closures of, defined benefit pension plans are considered to be exceptional in nature as they do not reflect the performance of the trading business; and

-- other items which are material and considered to be non-recurring in nature and/or are not as a result of the trading activities of the business.

If provisions have been made for exceptional items in previous years, any reversal of these provisions is treated as exceptional.

Exceptional items for the current and prior period are disclosed in note 4.

Ongoing gross margin

The ratio of ongoing gross profit, excluding exceptional items, to ongoing revenue. Ongoing gross margin is used by management for assessing business unit performance and it is a key performance indicator for the Group. A reconciliation of ongoing gross margin is provided below:

 
                                                                                                            Restated 
                                                                     2020                                       2019 
                                   ------------  -------  ---------------  ---------------  -------  --------------- 
                                   Gross profit  Revenue          Ongoing                   Revenue          Ongoing 
                                             $m       $m   gross margin %  Gross profit $m       $m   gross margin % 
---------------------------------  ------------  -------  ---------------  ---------------  -------  --------------- 
Continuing                                3,242   10,966                             3,193   10,847 
Non-ongoing                               (257)  (1,073)                             (324)  (1,358) 
Exceptional items                             2        -                                 1        - 
---------------------------------  ------------  -------  ---------------  ---------------  -------  --------------- 
Ongoing excluding exceptional 
 items                                    2,987    9,893             30.2            2,870    9,489             30.2 
---------------------------------  ------------  -------  ---------------  ---------------  -------  --------------- 
 

Trading profit/underlying trading profit and ongoing trading margin/underlying ongoing trading margin

Trading profit is defined as operating profit before exceptional items and amortisation of acquired intangible assets. Trading profit is used as a performance measure because it excludes costs and other items that do not form part of the trading business. Underlying trading profit is defined as trading profit excluding the impact of IFRS 16.

Ongoing trading margin is the ratio of ongoing trading profit to ongoing revenue and is used to assess profitability and is a key performance indicator for the Group. Underlying ongoing trading margin is the ratio of underlying ongoing trading profit to ongoing revenue.

Underlying trading profit and underlying ongoing trading margin are presented to allow better comparison between the six months ended 31 January 2020 prepared under IFRS 16 and the six months ended 31 January 2019 prepared under IAS 17. The expectation is that these APMs will only be presented in the year ending 31 July 2020.

A reconciliation of underlying trading profit and trading profit to statutory operating profit is provided below:

 
                                                                                                    Restated 
                                                                      2020                              2019 
                                          -------  -----------  ----------  -------  -----------  ---------- 
                                          Ongoing  Non-ongoing  Continuing  Ongoing  Non-ongoing  Continuing 
                                               $m           $m          $m       $m           $m          $m 
----------------------------------------  -------  -----------  ----------  -------  -----------  ---------- 
Trading profit 2019 restated                  714           39         753 
Growth                                         33         (9 )          24 
----------------------------------------  -------  -----------  ----------  -------  -----------  ---------- 
Underlying trading profit                     747           30         777      714           39         753 
Impact of IFRS 16                              35            -          35        -            -           - 
----------------------------------------  -------  -----------  ----------  -------  -----------  ---------- 
Trading profit                                782           30         812      714           39         753 
Amortisation of acquired intangible 
 assets                                      (51)          (9)        (60)     (43)          (1)        (44) 
Exceptional items                            (10)          (9)        (19)      (8)            8           - 
----------------------------------------  -------  -----------  ----------  -------  -----------  ---------- 
Operating profit                              721           12         733      663           46         709 
----------------------------------------  -------  -----------  ----------  -------  -----------  ---------- 
 

Revenue, trading profit/underlying trading profit and trading margin/underlying trading margin by reportable segment and the calculation of ongoing trading margin and underlying ongoing trading margin are shown below. For information on our reportable segments see note 3.

 
                                                      Impact 
                                                          of      Underlying                             Underlying 
                                            Trading     IFRS         trading         Trading   Trading      trading    Trading 
                            Revenue   profit/(loss)       16   profit/(loss)   profit/(loss)    margin       margin     margin 
              ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
                                                                                    Restated                          Restated 
                2020  Restated 2019            2020     2020            2020            2019      2020         2020       2019 
                  $m             $m              $m       $m              $m             $ m         %            %          % 
------------  ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
USA            9,318          8,874             774   ( 34 )             740             700       8.3          7.9        7.9 
Canada and 
 Central 
 Europe          575            615              30      (1)              29              39       5.2          5.0        6.3 
Central 
 costs             -              -           ( 22)        -            (22)          ( 25 )         -            -          - 
------------  ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
Total 
 ongoing 
 operations    9,893          9,489             782   ( 35 )             747             714       7.9          7.6        7.5 
------------  ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
Canada and 
 Central 
 Europe            -            181               -        -               -               9 
UK             1,073          1,177              30        -              30              30       2.8          2.8        2.5 
------------  ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
Total 
 non-ongoing 
 operations    1,073          1,358              30        -              30              39 
------------  ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
 
Continuing 
 operations   10,966         10,847             812   ( 35 )             777             753 
------------  ------  -------------   -------------   ------   -------------   -------------   -------   ----------   -------- 
 

Adjusted EBITDA

Adjusted EBITDA is operating profit before charges/credits relating to depreciation, amortisation, impairment, exceptional items and the impact of IFRS 16. Adjusted EBITDA is used in the net debt to adjusted EBITDA ratio to assess the appropriateness of the Group's financial gearing and excludes IFRS 16 in line with the requirements of the Group's debt covenants. A reconciliation of statutory profit for the period to adjusted EBITDA is provided below:

 
                                                                           2020                               20 1 9 
----------------------------------------------  ----------  ------------  -----  -------------  ------------  ------ 
                                                Continuing  Discontinued  Group                 Discontinued   Group 
                                                        $m            $m     $m  Continuing $m            $m      $m 
----------------------------------------------  ----------  ------------  -----  -------------  ------------  ------ 
Profit for the period                                  467             -    467            540            46     586 
Exceptional items (net of tax)                          17           (1)     16            (7)          (45)    (52) 
Tax                                                    175             6    181            143             1     144 
Share of loss/(profit) after tax of associates           1             -      1            (2)             -     (2) 
Impairment of interests in associates                   22             -     22              -             -       - 
Net finance costs                                       70           (1)     69             35             -      35 
Amortisation of acquired intangible assets              60             -     60             44             -      44 
----------------------------------------------  ----------  ------------  -----  -------------  ------------  ------ 
Trading profit                                         812             4    816            753             2     755 
Impact of IFRS 16                                     (35)             -   (35)              -             -       - 
----------------------------------------------  ----------  ------------  -----  -------------  ------------  ------ 
Underlying trading profit                              777             4    781            753             2     755 
Depreciation and impairment of property, plant 
 and equipment                                          78             -     78             73             -      73 
Amortisation of non-acquired intangible assets          17             -     17             16             -      16 
----------------------------------------------  ----------  ------------  -----  -------------  ------------  ------ 
Adjusted EBITDA                                        872             4    876            842             2     844 
----------------------------------------------  ----------  ------------  -----  -------------  ------------  ------ 
 

Ongoing effective tax rate

The ongoing effective tax rate is the ratio of the ongoing tax charge to ongoing profit before tax and is used as a measure of the tax rate of the ongoing business.

 
                                                                                          Restated 
                                                                                    2020      2019 
Half year to 31 January                                                               $m        $m 
---------------------------------------------------------------------------------  -----  -------- 
Tax charge in relation to continuing operations                                    (173)     (139) 
Deduct: tax credit on the amortisation of acquired intangible assets                (15)      (11) 
Deduct: tax credit on exceptional items                                              (2)       (4) 
Add back: tax charge on profits from non-ongoing operations                            5         8 
Add back/(deduct): non-recurring tax charges                                           4       (9) 
---------------------------------------------------------------------------------  -----  -------- 
Ongoing tax charge                                                                 (181)     (155) 
---------------------------------------------------------------------------------  -----  -------- 
Profit before tax and exceptional items from continuing operations                   659       676 
Add back: amortisation of acquired intangible assets                                  60        44 
Add back/(deduct): share of loss/(profit) after tax and impairment of associates      23       (2) 
Deduct: other profits before tax from non-ongoing operations                        (30)      (39) 
---------------------------------------------------------------------------------  -----  -------- 
Ongoing profit before tax                                                            712       679 
---------------------------------------------------------------------------------  -----  -------- 
 
Ongoing effective tax rate                                                         25.4%     22.8% 
---------------------------------------------------------------------------------  -----  -------- 
 

Ongoing profit before tax means profit before tax, exceptional items, amortisation of acquired intangible assets, impairments of interests in associates and share of loss/profit after tax of associates for ongoing operations. Ongoing tax is the tax expense arising on ongoing profit before tax.

Headline profit after tax and headline earnings per share

Headline profit after tax is calculated as the profit from continuing operations after tax, before charges for amortisation of acquired intangible assets and impairments of interests in associates net of tax, exceptional items net of tax and non-recurring tax relating to changes in tax rates and other adjustments. The Group excludes amortisation and impairment of acquired intangible assets to improve the comparability between acquired and organically grown operations, as the latter cannot recognise internally generated intangible assets.

Headline earnings per share is the ratio of headline profit after tax to the weighted average number of ordinary shares in issue during the period, excluding those held by the Employee Benefit Trusts and those held by the Company as Treasury shares. Headline earnings per share is used for the purpose of setting remuneration targets for executive directors and other senior executives. See reconciliation in

note 8.

Net debt

Net debt comprises cash and cash equivalents, bank overdrafts, bank and other loans, derivative financial instruments and obligations under finance leases under IAS 17. Net debt is a good indicator of the strength of the Group's balance sheet position and is used by the Group's debt providers. See reconciliation in note 12.

3. Segmental analysis

The Group's reportable segments have been determined on the same basis as, and are consistent with, those disclosed in the Annual Report and Accounts for the financial year ended 31 July 2019.

The Group's business is not highly seasonal and the Group's customer base is highly diversified, with no individually significant customer.

The changes in revenue and underlying trading profit for continuing operations between the period ended 31 January 2019 and 31 January 2020 include changes in exchange rates, disposals, acquisitions and organic change.

An analysis of the change in revenue by reportable segment for continuing operations is as follows:

 
                                                                              Organic 
                                  2019    Exchange  Disposals  Acquisitions    change    2020 
                                    $m          $m         $m            $m        $m      $m 
--------------------------      ------  ----------  ---------  ------------  --------  ------ 
USA                              8,874           -          -           210       234   9,318 
UK                               1,177        (20)       (49)            23      (58)   1,073 
Canada and Central Europe          796         (1)      (181)             1      (40)     575 
------------------------------  ------  ----------  ---------  ------------  --------  ------ 
Group                           10,847        (21)      (230)           234       136  10,966 
------------------------------  ------  ----------  ---------  ------------  --------  ------ 
 

An analysis of the change in underlying trading profit/(loss) by reportable segment for continuing operations is as follows:

 
                                                                            Organic 
                                2019    Exchange  Disposals  Acquisitions    change  2020 
                                  $m          $m         $m            $m        $m    $m 
--------------------------      ----  ----------  ---------  ------------  --------  ---- 
USA                              700           -          -             8        32   740 
UK                                30         (1)          2             4       (5)    30 
Canada and Central Europe         48         (1)        (9)             1      (10)    29 
Central costs                   (25)           1          -             -         2  (22) 
------------------------------  ----  ----------  ---------  ------------  --------  ---- 
Group                            753         (1)        (7)            13        19   777 
------------------------------  ----  ----------  ---------  ------------  --------  ---- 
 

The reconciliation between underlying trading profit/(loss), trading profit/(loss) and operating profit/(loss) by reportable segment for continuing operations is as follows:

 
                                                                                                                                                                                  2020                                                                                                      2019 
                          --------------------------------  -----------------  -------------------------------------------------------------------------------------------------------   ------------------------------------------------------------------------------------------------------- 
                                                                                       Trading                                                                                                   Trading 
                          Underlying trading profit/(loss)  Impact of IFRS 16    profit/(loss)  Exceptional items  Amortisation of acquired intangible assets  Operating profit/(loss)     profit/(loss)  Exceptional items  Amortisation of acquired intangible assets  Operating profit/(loss) 
Half year to 31 January                                 $m                 $m               $m                 $m                                          $m                       $m                $m                 $m                                          $m                       $m 
------------------------  --------------------------------  -----------------  ---------------  -----------------  ------------------------------------------  -----------------------   ---------------  -----------------  ------------------------------------------  ----------------------- 
USA                                                    740                 34              774                  -                                        (50)                      724               700                  -                                        (43)                      657 
UK                                                      30                  -               30                (9)                                         (9)                       12                30               (35)                                           -                      (5) 
Canada and Central 
 Europe                                                 29                  1               30                  -                                         (1)                       29                48                 38                                         (1)                       85 
Central costs                                         (22)                  -             (22)               (10)                                           -                     (32)              (25)                (3)                                           -                     (28) 
------------------------  --------------------------------  -----------------  ---------------  -----------------  ------------------------------------------  -----------------------   ---------------  -----------------  ------------------------------------------  ----------------------- 
Group                                                  777                 35              812               (19)                                        (60)                      733               753                  -                                        (44)                      709 
Net finance costs                                                                                                                                                                 (70)                                                                                                      (35) 
Share of (loss)/profit 
 after tax of associates                                                                                                                                                           (1)                                                                                                         2 
Impairment of interests 
 in associates                                                                                                                                                                    (22)                                                                                                         - 
Gain on disposal of 
 interests in associates                                                                                                                                                             -                                                                                                         3 
------------------------  --------------------------------  -----------------  ---------------  -----------------  ------------------------------------------  -----------------------   ---------------  -----------------  ------------------------------------------  ----------------------- 
Profit before tax                                                                                                                                                                  640                                                                                                       679 
------------------------  --------------------------------  -----------------  ---------------  -----------------  ------------------------------------------  -----------------------   ---------------  -----------------  ------------------------------------------  ----------------------- 
 

Other information on assets and liabilities by segment is set out in the table below:

 
                                                                                      31 January 2020                                                    31 January 2019 
                                    -----------------------------------------------------------------   ---------------------------------------------------------------- 
                                      Segment                                                            Segment 
                                       assets  Segment liabilities  Segment net assets/ (liabilities)     assets  Segment liabilities  Segment net assets/ (liabilities) 
Segment assets and liabilities(1)          $m                   $m                                 $m         $m                   $m                                 $m 
----------------------------------  ---------  -------------------  ---------------------------------   --------  -------------------  --------------------------------- 
USA                                     9,257              (3,985)                              5,272      7,928              (2,570)                              5,358 
UK                                      1,332                (738)                                594      1,327                (670)                                657 
Canada and Central Europe                 594                (252)                                342        534                (178)                                356 
Central costs                              76                (126)                               (50)         94                (144)                               (50) 
Discontinued                                2                 (27)                               (25)         23                 (41)                               (18) 
----------------------------------  ---------  -------------------  ---------------------------------   --------  -------------------  --------------------------------- 
Total                                  11,261              (5,128)                              6,133      9,906              (3,603)                              6,303 
Tax assets and liabilities                525                (609)                               (84)        136                (264)                              (128) 
Net cash/(debt)                           797              (2,741)                            (1,944)        709              (2,594)                            (1,885) 
----------------------------------  ---------  -------------------  ---------------------------------   --------  -------------------  --------------------------------- 
Group assets/(liabilities)             12,583              (8,478)                              4,105     10,751              (6,461)                              4,290 
----------------------------------  ---------  -------------------  ---------------------------------   --------  -------------------  --------------------------------- 
 

1. As at 31 January 2020, segment assets includes right of use assets and segment liabilities includes lease liabilities.

4. Exceptional items

Exceptional items included in profit before tax from continuing operations are analysed by purpose as follows:

 
                                               2020  2019 
Half year to 31 January                          $m    $m 
--------------------------------------------  -----  ---- 
(Loss)/gain on disposal of businesses           (1)    38 
Business restructuring                          (8)  (31) 
Other exceptional items                        (10)   (7) 
--------------------------------------------  -----  ---- 
Total included in operating profit             (19)     - 
Gain on disposal of interests in associates       -     3 
--------------------------------------------  -----  ---- 
Total included in profit before tax            (19)     3 
--------------------------------------------  -----  ---- 
 

For the half year to 31 January 2020, business restructuring comprises costs incurred in the UK and includes $2 million charged to cost of sales for inventory write downs.

Other exceptional items predominantly relate to the demerger of the UK business.

5. Net finance costs

 
                                                  2020  2019 
Half year to 31 January                             $m    $m 
------------------------------------------------  ----  ---- 
Interest income                                      5     5 
Interest expense 
    Lease liability expense                       (27)     - 
    Other                                         (50)  (43) 
------------------------------------------------  ----  ---- 
                                                  (77)  (43) 
Net interest income on retirement benefit asset      2     3 
------------------------------------------------  ----  ---- 
Total net finance costs                           (70)  (35) 
------------------------------------------------  ----  ---- 
 

6. Tax

The tax charge on continuing operations for the half year has been calculated by applying the expected full year rate to the half year results with specific adjustments for items that distort the rate (amortisation and impairment of acquired intangible assets, share of loss/profit and impairment of interests in associates, exceptional items and non-recurring tax items). The tax charge for the period comprises:

 
                                                                          2020   2019 
Half year to 31 January                                                     $m     $m 
-----------------------------------------------------------------------  -----  ----- 
Current tax charge                                                       (145)  (134) 
Deferred tax charge: origination and reversal of temporary differences    (28)    (5) 
-----------------------------------------------------------------------  -----  ----- 
Total tax charge                                                         (173)  (139) 
-----------------------------------------------------------------------  -----  ----- 
 

The total tax charge includes an ongoing tax charge of $181 million (restated 2019: $155 million). This equates to an ongoing effective tax rate of 25.4 per cent (restated 2019: 22.8 per cent) on the ongoing profit of $712 million (restated 2019: $679 million). See note 2 for reconciliation.

7. Dividends

 
                                                                        2020  2019 
Half year to 31 January                                                   $m    $m 
----------------------------------------------------------------------  ----  ---- 
Amounts recognised as distributions to equity shareholders: 
Final dividend for the year ended 31 July 2018: 131.9 cents per share      -   303 
Final dividend for the year ended 31 July 2019: 145.1 cents per share    327     - 
----------------------------------------------------------------------  ----  ---- 
Dividends paid                                                           327   303 
----------------------------------------------------------------------  ----  ---- 
 

Since 31 January 2020, the Directors proposed an interim dividend of 67.5 cents per share (2019: interim dividend 63.1 cents per share). This is not included as a liability in the balance sheet at 31 January 2020.

Dividends were declared in US dollars and paid in both pounds sterling and US dollars. For those shareholders paid in pounds sterling, the exchange rate used to translate the declared value was set in advance of the payment date. As a result of foreign exchange rate movements between these dates, the total amount paid (shown in the Group cash flow statement) may be different to that stated above.

8. Earnings per share

 
                                                                             2020                               2019 
                                                 --------  ----------  ----------  ---------  ----------  ---------- 
                                                                Basic     Diluted                  Basic     Diluted 
                                                             earnings    earnings               earnings    earnings 
                                                 Earnings   per share   per share   Earnings   per share   per share 
  Half year to 31 January                              $m       cents       cents         $m       cents       cents 
-----------------------------------------------  --------  ----------  ----------  ---------  ----------  ---------- 
Profit for the period                                 467       206.7       205.5        586       254.5       252.8 
Profit from discontinued operations                     -           -           -       (46)      (20.0)      (19.8) 
-----------------------------------------------  --------  ----------  ----------  ---------  ----------  ---------- 
Profit from continuing operations                     467       206.7       205.5        540       234.5       233.0 
Non-recurring tax charge/(credit) relating to 
 changes in tax rates and other adjustments 
 (note 
 2)                                                     4         1.8                    (9)       (3.9) 
Amortisation of acquired intangible assets and 
 impairment of interests in associates                 82        36.3                     44        19.1 
Tax on amortisation of acquired intangible 
 assets and impairment of interests in 
 associates 
 (note 2)                                            (15)       (6.6)                   (11)       (4.8) 
Exceptional items (net of tax)                         17         7.5                    (7)       (3.0) 
-----------------------------------------------  --------  ----------  ----------  ---------  ----------  ---------- 
Headline profit from continuing operations            555       245.7                    557       241.9 
-----------------------------------------------  --------  ----------  ----------  ---------  ----------  ---------- 
 

The weighted average number of ordinary shares in issue during the period, excluding those held by Employee Benefit Trusts and those held by the Company as Treasury shares, was 225.9 million (2019: 230.3 million). The impact of all potentially dilutive share options on earnings per share would be to increase the weighted average number of shares in issue to 227.3 million (2019: 231.8 million).

9. Intangible assets and property, plant and equipment

 
                                                 Other intangible assets 
                           --------  ----------------------------------- 
                                                  Other 
                                               acquired                              Property,          Total tangible 
                           Goodwill   intangible assets  Software  Total   plant and equipment   and intangible assets 
                                 $m                  $m        $m     $m                    $m                      $m 
-------------------------  --------  ------------------  --------  -----  --------------------  ---------------------- 
Net book value at 31 July 
 2019                         1,656                 356        67    423                 1,349                   3,428 
Adjustment on adoption of 
 IFRS 16                          -                   -         -      -                   (6)                     (6) 
-------------------------  --------  ------------------  --------  -----  --------------------  ---------------------- 
Net book value at 1 
 August 2019                  1,656                 356        67    423                 1,343                   3,422 
Acquisition of businesses        46                  66         -     66                     2                     114 
Adjustment to fair value 
 on prior year 
 acquisitions                 (14 )                  16         -     16                     -                       2 
Additions                         -                   -        19     19                   146                     165 
Disposals                         -                   -         -      -                   (4)                     (4) 
Amortisation and 
 depreciation                     -                (60)      (17)   (77)                  (77)                   (154) 
Impairment                        -                   -         -      -                   (1)                     (1) 
Reclassified to held for 
 sale                             -                   -         -      -                   (5)                     (5) 
Exchange rate adjustment          3                   2         2      4                    13                      20 
-------------------------  --------  ------------------  --------  -----  --------------------  ---------------------- 
Net book value at 31 
 January 2020                 1,691                 380        71    451                 1,417                   3,559 
-------------------------  --------  ------------------  --------  -----  --------------------  ---------------------- 
 

10. Leases

Movements in right of use assets for the period ended 31 January 2020 were as follows:

 
                                                    Land and buildings  Plant and machinery  Total right of use assets 
                                                                    $m                   $m                         $m 
--------------------------------------------------  ------------------  -------------------  ------------------------- 
Net book value at 31 July 2019                                       -                    -                          - 
Adjustment on adoption of IFRS 16                                  940                  280                      1,220 
--------------------------------------------------  ------------------  -------------------  ------------------------- 
Net book value at 1 August 2019                                    940                  280                      1,220 
Acquisition of businesses                                           17                    -                         17 
Additions                                                           29                   32                         61 
Disposals                                                          (1)                  (1)                        (2) 
Adjustment as a result of remeasurement of lease 
 liability                                                          21                    -                         21 
Depreciation                                                      (94)                 (37)                      (131) 
Exchange rate adjustments                                            9                    2                         11 
--------------------------------------------------  ------------------  -------------------  ------------------------- 
Net book value at 31 January 2020                                  921                  276                      1,197 
--------------------------------------------------  ------------------  -------------------  ------------------------- 
 

The maturity of lease liabilities at 31 January 2020 was as follows:

 
                                      2020 
                                        $m 
----------------------------------  ------ 
Due in less than one year              310 
Due in one to two years                326 
Due in two to three years              300 
Due in three to four years             244 
Due in four to five years              175 
Due in over five years                 276 
----------------------------------  ------ 
Total undiscounted lease payments    1,631 
Effect of discounting                (186) 
----------------------------------  ------ 
Total lease liabilities              1,445 
----------------------------------  ------ 
 
Current lease liabilities              265 
Non-current lease liabilities        1,180 
----------------------------------  ------ 
Total lease liabilities              1,445 
----------------------------------  ------ 
 

Amounts charged/(credited) to the Group income statement during the period were as follows:

 
                                                       2020 
                                                         $m 
---------------------------------------------------  ------ 
Depreciation of right of use assets                     131 
Short-term lease expense                                  8 
Low-value lease expense                                   8 
Sublease income                                         (1) 
---------------------------------------------------  ------ 
Charged to operating costs                              146 
Charged to finance costs                                 27 
---------------------------------------------------  ------ 
Total amount charged to the Group income statement      173 
---------------------------------------------------  ------ 
 

11. Reconciliation of profit to cash generated from operations

Profit for the period is reconciled to cash generated from operations as follows:

 
                                                                                        2020    2019 
Half year to 31 January                                                                   $m      $m 
-------------------------------------------------------------------------------------  -----  ------ 
Profit for the period                                                                    467     586 
Net finance costs                                                                         70      33 
Share of loss/(profit) after tax of associates                                             1     (2) 
Gain on disposal of interests in associates                                                -     (3) 
Impairment of interests in associates                                                     22       - 
Tax charge                                                                               179     134 
Profit on disposal and closure of businesses and revaluation of assets held for sale       -  ( 67 ) 
Amortisation of acquired intangible assets                                                60      44 
Amortisation of non-acquired intangible assets                                            17      16 
Depreciation and impairment of property, plant and equipment                              78      73 
Depreciation of right of use assets                                                      131       - 
Profit on disposal of property, plant and equipment and assets held for sale               -     (7) 
Increase in inventories                                                                (106)   (250) 
Decrease in trade and other receivables                                                  281     179 
Decrease in trade and other payables                                                   (556)   (432) 
Decrease in provisions and other liabilities                                            (29)    (38) 
Share-based payments                                                                      21      21 
-------------------------------------------------------------------------------------  -----  ------ 
Cash generated from operations                                                           636     287 
-------------------------------------------------------------------------------------  -----  ------ 
 

12. Reconciliation of opening to closing net debt including lease liabilities

 
                                                                                                    Derivative(1)            Obligations(1) under 
                                                                                             Total      financial                         finance 
                                                              cash, cash equivalents and bank over 
                Cash and cash equivalents  Bank overdrafts                                  drafts    instruments  Loans(1)                leases  Net debt  Lease(1) liabilities  Net debt including lease liabilities 
                                       $m               $m                                      $m             $m        $m                    $m        $m                    $m                                    $m 
--------------  -------------------------  ---------------  --------------------------------------  -------------  --------  --------------------  --------  --------------------  ------------------------------------ 
At 31 July 
 2019                               1,133             (47)                                   1,086             22   (2,297)                   (6)   (1,195)                     -                               (1,195) 
Adjustment on 
 adoption of 
 IFRS 16                                -                -                                       -              -         -                     6         6               (1,481)                               (1,475) 
At 1 August 
 2019                               1,133             (47)                                   1,086             22   (2,297)                     -   (1,189)               (1,481)                               (2,670) 
--------------  -------------------------  ---------------  --------------------------------------  -------------  --------  --------------------  --------  --------------------  ------------------------------------ 
Cash movements 
  Proceeds 
   from 
   borrowings 
   and 
   derivatives                                                                                   -            (4)     (150)                     -     (154)                     -                                 (154) 
  Lease 
   liability 
   capital 
   payments                                                                                      -              -         -                     -         -                   144                                   144 
  Interest 
   paid on 
   lease 
   liabilities                                                                                   -              -         -                     -         -                    27                                    27 
  Changes in 
   net debt 
   including 
   lease 
   liabilities 
   due to 
   acquisition 
   of 
   businesses                                                                                    5              -         -                     -         5                  (17)                                  (12) 
  Other cash 
   flows                                                                                     (602)              -         -                     -     (602)                     -                                 (602) 
Non-cash 
movements 
  Lease 
   liability 
   additions                                                                                     -              -         -                     -         -                  (61)                                  (61) 
  Discount 
   unwinding 
   on lease 
   liabilities                                                                                   -              -         -                     -         -                  (27)                                  (27) 
  Fair value 
   and other 
   adjustments                                                                                   -             10       (7)                     -         3                  (20)                                  (17) 
  Exchange 
   movements                                                                                   (1)            (6)         -                     -       (7)                  (10)                                  (17) 
--------------  -------------------------  ---------------  --------------------------------------  -------------  --------  --------------------  --------  --------------------  ------------------------------------ 
At 31 January 
 2020                                 775          ( 287 )                                     488             22   (2,454)                     -   (1,944)               (1,445)                               (3,389) 
--------------  -------------------------  ---------------  --------------------------------------  -------------  --------  --------------------  --------  --------------------  ------------------------------------ 
 

1. Liabilities from financing activities.

13. Acquisitions

The Group acquired the following businesses in the period ended 31 January 2020. All of these businesses are engaged in the distribution of plumbing and heating products. These transactions have been accounted for by the purchase method of accounting.

 
Name                                             Date   Country of incorporation   Shares/asset deal  % acquired 
------------------------------------  ---------------  -------------------------  ------------------  ---------- 
Continental Product Engineering Ltd       August 2019                         UK              Shares         100 
Process Instruments & Controls, LLC    September 2019                        USA              Assets         100 
S W Anderson                            November 2019                        USA              Shares         100 
------------------------------------  ---------------  -------------------------  ------------------  ---------- 
 

The assets and liabilities acquired and the consideration for all acquisitions in the period are as follows:

 
                                                                            2020 
                                                Provisional fair values acquired 
                                                                              $m 
-------------------------------------------    --------------------------------- 
Intangible assets 
- Customer relationships                                                      53 
- Trade names and brands                                                      12 
- Other                                                                        1 
Right of use assets                                                           17 
Property, plant and equipment                                                  2 
Inventories                                                                   19 
Receivables                                                                   29 
Cash, cash equivalents and bank overdrafts                                     5 
Payables                                                                    (14) 
Current tax                                                                    3 
Lease liabilities                                                           (17) 
Provisions                                                                   (2) 
Deferred tax                                                                (18) 
---------------------------------------------  --------------------------------- 
Total                                                                         90 
Goodwill arising                                                              46 
---------------------------------------------  --------------------------------- 
Consideration                                                                136 
---------------------------------------------  --------------------------------- 
 
Satisfied by: 
Cash                                                                         127 
Deferred consideration                                                         9 
---------------------------------------------  --------------------------------- 
Total consideration                                                        1 3 6 
---------------------------------------------  --------------------------------- 
 

The fair value adjustments for the period ended 31 January 2020 are provisional figures, being the best estimates currently available. Amendments may be made to these figures in the 12 months following the date of acquisition when additional information is available for some of the judgemental areas.

The goodwill arising on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which the Group has gained access and to additional profitability and operating efficiencies in respect of existing markets.

The acquired businesses contributed $44 million to revenue and $5 million to trading profit for the period between the date of acquisition and the balance sheet date. If each acquisition had been completed on the first day of the financial year, continuing revenue would have been $11,001 million and continuing trading profit would have been $815 million. It is not practicable to disclose the impact of acquisitions on profit before or after tax, as the Group manages its borrowings as a portfolio and cannot attribute an effective borrowing rate to an individual acquisition.

It is also not practicable to disclose the impact of acquisitions on operating profit as the Group cannot estimate the amount of intangible assets that would have been acquired at a date other than the acquisition date.

The net outflow of cash in the period to 31 January 2020 with respect to the purchase of businesses is as follows:

 
                                                                              2020 
                                                                                $m 
----------------------------------------------------------------------------  ---- 
Purchase consideration                                                         127 
Deferred and contingent consideration in respect of prior year acquisitions     19 
----------------------------------------------------------------------------  ---- 
Cash consideration                                                             146 
Cash, cash equivalents and bank overdrafts acquired                            (5) 
----------------------------------------------------------------------------  ---- 
Net cash outflow in respect of the purchase of businesses                      141 
----------------------------------------------------------------------------  ---- 
 

14. Related party transactions

In the period ended 31 January 2020, the Group purchased goods and services on an arm's length basis totalling $9 million from and owed $nil in respect of these goods and services to a company that is controlled by another company in respect of which one of the Group's Non Executive Directors is the chief executive officer.

There are no other material related party transactions requiring disclosure under IAS 24 "Related Party Disclosures" other than compensation of key management personnel which will be disclosed in the Group's Annual Report and Accounts for the year ending 31 July 2020.

15. Borrowings, financial instruments and financial risk management

 
                                             31 January 2020              31 January 2019 
                              ------------------------------  --------------------------- 
                              Current                  Total  Current  Non-current  Total 
                                   $m  Non-current $m     $m       $m           $m     $m 
----------------------------  -------  --------------  -----  -------  -----------  ----- 
Bank overdrafts                   287               -    287      296            -    296 
----------------------------  -------  --------------  -----  -------  -----------  ----- 
Bank loans                        150               -    150        -            -      - 
Senior unsecured loan notes       285           2,019  2,304        6        2,280  2,286 
----------------------------  -------  --------------  -----  -------  -----------  ----- 
Total loans                       435           2,019  2,454        6        2,280  2,286 
----------------------------  -------  --------------  -----  -------  -----------  ----- 
Total borrowings                  722           2,019  2,741      302        2,280  2,582 
----------------------------  -------  --------------  -----  -------  -----------  ----- 
 

At 31 January 2020, the Group has total available facilities, excluding bank overdrafts, of $3,916 million (2019: $3,935 million), of which $2,431 million is drawn and $1,485 million is undrawn (2019: $2,286 million and $1,649 million respectively). The Group does not have any debt factoring or supply chain financing arrangements.

The senior unsecured loan notes have an estimated fair value of $2,495 million (2019: $2,312 million).

Included in bank overdrafts at 31 January 2020 is an amount of $219 million (2019: $219 million) which is part of the Group's cash pooling arrangement where there is an equal and opposite balance included within cash and cash equivalents. The amounts are subject to a master netting arrangement.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is determined by using valuation techniques including net present value calculations. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of foreign exchange swaps has been calculated as the present value of the estimated future cash flows based on observable future foreign exchange rates.

The Group's other financial instruments are measured on bases other than fair value. Other receivables include an amount of $73 million (2019: $70 million) which has been discounted at a rate of 1.6 per cent (2019: 2.7 per cent) due to the long-term nature of the receivable. Other current assets and liabilities are either of short maturity or bear floating rate interest and so their fair values approximate to book values.

The Group is exposed to risks arising from the international nature of its operations and the financial instruments which fund them, in particular to foreign currency risk, interest rate risk and liquidity risk. Full details of the Group's policies for managing these risks are disclosed in the Group's Annual Report and Accounts for the financial year ended 31 July 2019. Since the date of that report, there have been no significant changes in:

   --      the nature of the financial risks to which the Group is exposed; 
   --      the nature of the financial instruments which the Group uses; or 
   --      its contractual cash outflows. 

16. Subsequent events

Since 31 January 2020, the Group has acquired Columbia Pipe & Supply, a business in the US with annual revenue of $220 million.

On 5 February 2020, the Group entered into an irrevocable and non-discretionary arrangement with its broker Barclays Capital Securities Limited to purchase shares until 31 March 2020 as part of the recently announced share buy back programme.

On 10 March 2020, the Group entered into a new $1.1 billion revolving credit facility, provided by a syndicate of eleven banks, with an initial maturity of five years and the option for the Group to apply for two further one year maturity extensions. This facility will replace the existing GBP800 million revolving credit facility which has now been cancelled.

17. Exchange rates

 
Exchange rates (equivalent to $1)                                  2020  2019 
-----------------------------------------------------------------  ----  ---- 
Pounds sterling 
Income statement (average rate for the six months to 31 January)   0.79  0.78 
Balance sheet (rate at 31 January)                                 0.76  0.76 
Balance sheet (rate at 31 July)                                          0.82 
-----------------------------------------------------------------  ----  ---- 
Canadian dollars 
Income statement (average rate for the six months to 31 January)   1.32  1.32 
Balance sheet (rate at 31 January)                                 1.32  1.31 
Balance sheet (rate at 31 July)                                          1.32 
-----------------------------------------------------------------  ----  ---- 
 

Independent review report to Ferguson plc

We have been engaged by Ferguson plc (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2020 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and related notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, UK

16 March 2020

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR EAEDKFSKEEAA

(END) Dow Jones Newswires

March 17, 2020 03:00 ET (07:00 GMT)

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