TIDMFERG
RNS Number : 3660A
Ferguson PLC
29 September 2020
Results for the year ended July 31, 2020
September 29, 2020
STRONG AND RESILIENT PERFORMANCE DURING HIGHLY CHALLENGING
PERIOD.
CONTINUED ROBUST FINANCIAL POSITION.
US$ millions 2020 2019 Change
-------- --------
Statutory financial results
Revenue 21,819 22,010 (0.9%)
Profit before tax 1,261 1,324 (4.8%)
Total basic earnings per share 427.5c 481.3c (11.2%)
Total ordinary dividend
per share 208.2c 208.2c -
---------------------------------------- -------- -------- ---------
Alternative performance measures(1)
---------------------------------------- -------- -------- ---------
Ongoing revenue 19,940 19,549 +2.0%
Ongoing gross margin 30.0% 30.0% -
Ongoing trading profit 1,663 1,532 +8.6%
Less impact of IFRS 16 (68) -
-------- --------
Ongoing underlying trading profit 1,595 1,532 +4.1%
Headline earnings per share 511.6c 517.4c (1.1%)
Adjusted EBITDA(2) 1,802 1,793 +0.5%
Net debt : adjusted
EBITDA(2) 0.6x 0.7x
---------------------------------------- -------- -------- ---------
Highlights
- Ongoing revenue 2.0% ahead of last year with continued market
share gains in the US.
- US revenue growth of 2.7% and underlying trading profit growth
of 5.2%.
- Good gross margin and cost control ensured trading profit
growth outpaced revenue growth.
- Total basic earnings per share 11.2% lower due to higher
effective tax rate from previously announced tax
reform and exceptional discontinued disposal gains in the prior
year.
- Excellent operating cash generation and the Group has
maintained a strong balance sheet and liquidity position.
- Invested $351 million in 6 acquisitions before pausing
activity in March.
- Taking into account the Group's prospects and strong financial
position r estoring total ordinary dividend to
same level as 2018/19 of 208.2 cents per share.
- Bill Brundage, current CFO of Ferguson Enterprises to succeed
Mike Powell as Group CFO on November 1, 2020
as announced separately today. Mike will step down on October
31, 2020.
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.
2. Net debt excludes lease liabilities and Adjusted EBITDA excludes the impact of IFRS 16.
Kevin Murphy, Group Chief Executive, commented:
"We have delivered a strong performance in 2020, which given the
global pandemic has highlighted the resilience of our business
model. Early in the crisis we moved decisively to protect the
health and wellbeing of our associates while continuing to serve
our customers supporting critical infrastructure. We have rapidly
adjusted our ways of working to adapt to this new operating reality
while taking action to lower the cost base. We have also managed
working capital and capital expenditure which alongside the strong
profit delivery has led to an excellent cash performance.
"On an ongoing basis we delivered Group revenue growth and grew
trading profit ahead of revenue despite lockdowns in the second
half. I would like to thank all of our 34,000 associates for their
dedication and commitment during this challenging period. They have
demonstrated a remarkable ability to adapt to an unprecedented
change in their personal and professional lives while still
delivering outstanding service to our customers.
"We have the necessary safeguards in place to protect our
associates and support our customers and the majority of our
colleagues are now back at work. We continue to execute our
strategy of developing the business through organic growth and
given recent better than expected trading we are now proposing to
reinstate ordinary dividends.
"It is impossible to predict the future progress of the virus,
or its economic impact and we expect the current levels of
uncertainty to continue for the foreseeable future. However, the
fundamental aspects of our business model remain attractive and
since the start of the new financial year Ferguson has generated
low single digit revenue growth in the US in flat markets overall.
While we remain cautious on the outlook for the year as a whole,
the business is in good shape and well prepared to address any
further market related disruption."
For further information please contact
Ferguson plc
Mike Powell, Group Chief Financial Officer Tel: +44 (0) 1189 273800
Mark Fearon, Director of Corporate Communications
and IR Mobile: +44 (0) 7711 875070
Media Enquiries
Mike Ward, Head of Corporate Communications Mobile: +44 (0) 7894 417060
Nina Coad, David Litterick (Brunswick) Tel: +44 (0) 20 7404 5959
A live analyst and investor presentation will be webcast at 1200
UK time (0700 ET) today. This event will be available on
www.fergusonplc.com and we recommend you register at 1145 UK time
(0645 ET).
To join the presentation by call please use the following dial
in details:
United Kingdom: +44 (0)20 3936 2999
United States: +1 646 664 1960
Participant access code: 868057
Financial results
Ferguson delivered a strong and resilient trading result for the
year, achieved despite the pandemic which started to emerge from
March 2020 onwards. The impact on our business in the second half
was significant and a summary of our approach to navigate the
business though the pandemic is set out below:
COVID-19 response
Our approach to managing the business has been to focus on three
key areas:
1. Protecting the health and wellbeing of our associates;
2. Continuing to serve our customers during the crisis phase of
the virus - a critical time of need; and
3. Protecting and preserving the strength of our businesses for the long-term.
To safeguard the wellbeing of our associates and support our
customers we immediately moved to operating our business in
adherence with the recommended Center for Disease Control (CDC)
guidelines. Cleaning protocols at all sites were put into operation
alongside appropriate social distancing measures. In the early
weeks of the pandemic our branches moved to pick-up and delivery
only with customers encouraged to order ahead with pick-up in store
or at the curbside. Showrooms moved to virtual appointments only
and we also implemented new processes and protocols to keep our
drivers safe including touchless signature at the point of delivery
or pick-up location. At the peak of the pandemic about 14,000 US
associates (over 50%) were working remotely supported by
technology.
Ferguson provides a critical function in the supply of essential
products and services. In March we took decisive steps to ensure
our key services were authorized as 'essential' which included
Government and state level liaison across our key geographies. This
allowed our associates to continue to serve customers, including
supermarkets, hospitals, schools, public utilities, food producers
and other manufacturers.
Ferguson has an agile business model and as short-term revenue
pressure impacted the business during April, a key priority was the
preservation of the cash flow of the business. We therefore
identified significant cost and cash savings and these measures,
some of which were temporary, have enabled us to remain highly cash
generative in the second half of the year. We also took decisive
action to ensure the business is appropriately sized for the post
COVID-19 operating environment. Cash savings included suspension of
the $500 million share buy back program, withdrawal of the interim
dividend payment, a pause in the M&A program and tight control
over capital expenditure. The Group has retained a strong financial
position throughout the pandemic.
Since May, as local lockdown restrictions have been lifted we
have reopened all of our customer facing locations in adherence
with guidance given by state and local government authorities. A
summary of trading conditions during the pandemic is set out by
country below.
Statutory results
Revenue of $21,819 million (2019: $22,010 million) was 0.9%
lower than last year and the prior year comparator included revenue
of $239 million for businesses sold in 2019. Statutory profit
before tax was $1,261 million (2019: $1,324 million) after
exceptional charges. Profit attributable to shareholders was lower
at $961 million (2019: $1,108 million) due principally to a higher
tax rate, arising from previously announced tax reform, in the
current year and exceptional disposal gains in the prior year.
Alternative performance measures
Ongoing revenue of $19,940 million (2019: $19,549 million) was
2.0% ahead of last year but 0.1% lower on an organic basis.
Inflation in the year was broadly flat. Ongoing gross margins of
30.0% (2019: 30.0%) were in line with last year as a result of good
pricing discipline, reflecting the value we deliver to our
customers. Operating expenses in the ongoing business were tightly
controlled and in the second half included the specific COVID-19
actions outlined earlier. In addition to temporary measures such as
a hiring freeze, reductions in overtime and temps and temporary
lay-offs we took decisive actions to right-size the cost base for
the market environment. During the year we reduced net permanent
headcount by approximately 2,100 across the US, Canada and UK and
made 94 branch closures.
Ongoing underlying trading profit was $1,595 million (2019:
$1,532 million), 4.1% ahead of last year as the actions on costs
contained the profit reduction from lower revenue in the second
half. There was one additional trading day compared to last year
which increased ongoing underlying trading profit by about $17
million. Acquisitions generated revenue of $356 million and trading
profit of $16 million in the year.
Operating and financial review
Further details of the financial performance of the Group's
ongoing businesses are set out below.
Regional analysis
US$ millions Revenue Revenue Change Trading Less Underlying Trading Change
profit trading profit
profit
2020 2019 2020 impact 2020 2019
of IFRS
16
2020
------------------- ------- ------- ------- ------- --------- ---------- ------- -------
USA 18,857 18,358 +2.7% 1,654 (67) 1,587 1,508 +5.2%
Canada 1,083 1,191 (9.1%) 44 (1) 43 67 (35.8%)
Central costs - - (35) - (35) (43)
------------------- ------- ------- ------- ------- --------- ---------- ------- -------
Ongoing operations 19,940 19,549 +2.0% 1,663 (68) 1,595 1,532 +4.1%
------------------- ------- ------- ------- ------- --------- ---------- ------- -------
UK (non-ongoing)
(1) 1,879 2,222 (15.4%) 9 (1) 8 69 (88.4%)
------------------- ------- ------- ------- ------- --------- ---------- ------- -------
1) 2019 UK (non-ongoing) numbers are presented excluding
soak.com which contributed $59 million of revenue and a $4 million
trading loss in 2019.
soak.com was sold in Q3 2019.
Quarterly organic revenue growth
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 FY 2020
--------------- -------- -------- -------- -------- -------- --------
USA +3.0% +3.1% +2.1% (1.0%) (2.4%) +0.4%
Canada (5.2%) (6.4%) (6.7%) (14.9%) (5.6%) (8.0%)
--------------- -------- -------- -------- -------- -------- --------
Ongoing Group +2.5% +2.5% +1.6% (1.7%) (2.6%) (0.1%)
--------------- -------- -------- -------- -------- -------- --------
USA
The US business grew revenue by 2.7% which included acquisitions
growth of 1.9%. Price inflation was broadly flat. Blended Branches
revenue grew 0.4% in the year, with growth constrained during the
lockdown period. Waterworks and eBusiness grew well with revenue up
by 9.1% and 12.2% respectively. HVAC grew by 9.4% while Industrial
revenue was 11.8% lower in the year.
Revenue growth was strong overall in the first half with good
momentum going into the first two months of the second half before
the virus hit. Revenue was lowest in April down 9.3% and we have
seen a steady sequential recovery in monthly revenue growth rates
through the Summer. The business returned to organic revenue growth
in August. The major impact on volume continues to be highly
correlated to the degree of disruption locally which has been
variable across the US states and localities. Initially we saw more
significant impacts in coastal states including New York and
California while the mid-west and south east regions were less
impacted. Our counter and showroom locations were open by mid-June
to support customers with appropriate protective measures in place.
We continue to encourage customers to use our e-commerce tools and
we have seen strong adoption rates from customers during the
pandemic with increased user activity of our mobile experience for
trade customers.
During the pandemic Blended Branches revenue was lowest in April
down 15.3% impacted by significant revenue declines in the hotspot
locations such as New England, New York, Michigan, the Pacific
North West and Northern California. Since April revenue growth
rates have recovered steadily. eBusiness generated very strong
revenue growth as it benefited from increased consumer demand for
home improvement products. Waterworks initially generated strong
revenue growth benefiting from fewer operating restrictions though
recent trends have been weaker as a result of tough prior year
comparators. HVAC having initially been adversely impacted by local
lockdowns with revenues down 17.0% in April, returned to growth in
June. Over the Summer HVAC benefited from good residential markets,
with high levels of repair and remodel activity from consumers
based at home and the contribution of the S.W. Anderson
acquisition.
The organic revenue growth by end market was as follows:
Estimated Estimated Estimated
Market Market Market 2020 Organic
% of US Growth Growth Growth revenue
revenue H1 2020 H2 2020 2020 growth
------------------------ --------- ---------- ---------- ---------- -------------
Residential 54% +1% (3%) (1%) +2%
Commercial 32% +1% (6%) (3%) (1%)
Civil / Infrastructure 7% +3% (1%) +1% +6%
Industrial 7% (6%) (19%) (13%) (12%)
------------------------- --------- ---------- ---------- ---------- -------------
Flat (6%) (3%) +0.4%
------------------------ --------- ---------- ---------- ---------- -------------
Over the last six months residential RMI markets have remained
fairly resilient with good single family activity levels.
Commercial markets have weakened overall with the weakest spots in
retail, office and lodging though partially offset by strong
activity in distribution and data centers, and healthcare projects.
Civil markets were resilient in the initial lockdowns but as we
moved in to Q4 the civil market turned negative as municipal
funding became more restricted. Industrial markets have remained
challenging through the year due in part to depressed oil prices
and a tough operating environment for manufacturing during the
pandemic.
Gross margins were well controlled with good pricing discipline
and reflect the value we deliver to our customers. During the early
months of COVID-19 there was an adverse product mix effect from
strong Waterworks revenue which is lower gross margin and the
impact of the closure of bricks and mortar counter and showroom
facilities which generate attractive gross margins.
We took a number of prudent cost saving measures to protect
short-term profitability including a hiring freeze, a reduction in
associate hours, overtime and temporary staff, and temporary
lay-offs being implemented in the worst hit regions. We have made
net reductions to permanent headcount of approximately 1,400 during
the year and consolidated 78 branch locations in order to
appropriately size the business for the post COVID-19 operating
environment. We expect the $65 million of US restructuring costs to
have a payback period of approximately one year.
Before acquisitions were paused in March, five bolt-on
acquisitions were completed in the year with total annualized
revenues of $333 million. The largest was 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 December 31, 2019.
Underlying trading profit of $1,587 million (2019: $1,508
million) was 5.2% ahead of last year and the underlying trading
margin was 8.4% (2019: 8.2%).
Canada
In Canada, revenue was 9.1% lower with inflation of
approximately 2%. Industrial end markets and Western Canada were
weak during the year and markets remained generally challenging
this year even prior to the country wide COVID-19 lockdown period.
The business returned to organic revenue growth in August.
Gross margins were slightly lower than last year and despite
cost cutting measures underlying trading profit of $43 million was
$24 million lower than last year. We have reduced net headcount by
approximately 300 during the year and closed 7 branch locations to
right size the business for the current environment.
Central costs
Central costs in the year were $35 million, $8 million lower
than last year mainly due to lower incentive costs.
UK (non-ongoing operations)
Revenue declined by 15.4% in the UK, primarily due to the
COVID-19 lockdown restrictions. Acquisitions contributed 1.8% and
inflation was approximately 1%. Gross margins were a touch lower
and underlying trading profit of $8 million was $61 million behind
last year as the national lockdown severely impacted demand. We
have seen a sequential improvement in revenue trends since April in
line with the easing of lockdown measures and the business returned
to organic revenue growth in August.
Towards the end of the financial year we have refocused the
business on a clear customer proposition and to drive operational
efficiencies. This included separating out Building Services from
the core Plumbing and Heating business to better align our service
offering with our customers' needs. We have also rationalized the
supply chain reducing capacity to lower the cost base which
included the closure of the Worcester distribution facility in
June. We have reduced net permanent headcount by approximately 400
and closed 9 branches during the year as markets continue to look
challenging in the near term.
In September 2019, the Board announced its intention to separate
its Wolseley UK operations by way of a demerger into an independent
UK listed company, subject to shareholder approval. The timing of
this remains uncertain in the current economic environment and
consequently the Board is assessing other separation options in
parallel with progress towards the demerger to facilitate the exit
of the Wolseley UK business.
Exceptional items
Net exceptional charges to operating profit of $120 million
(2019: $94 million) principally comprised business restructuring
across the USA, Canada and UK in respect of cost actions taken to
ensure the Group is appropriately sized for the post COVID-19
operating environment. There were also some additional costs
relating to the proposed UK separation and the planned listing in
the USA.
Finance costs
Net finance costs were $144 million (2019: $74 million) with $53
million of the increase due to the adoption of IFRS 16. The
remaining increase was principally due to a higher level of average
gross debt than last year.
Tax
The Group incurred a tax charge of $307 million (2019: $263
million) on profit before tax of $1,261 million (2019: $1,324
million). This includes an ongoing tax charge of $376 million
(2019: $339 million) which equates to an ongoing effective tax rate
of 24.9% (2019: 23.3%) on the ongoing profit before tax,
exceptional items and other items. The increase in the effective
tax rate in the current year is due to previously announced tax
reform.
Earnings per share
Total basic earnings per share, including discontinued
operations, were 427.5 cents (2019: 481.3 cents). Headline earnings
per share decreased by 1.1% to 511.6 cents (2019: 517.4 cents)
mainly due to a higher effective tax rate from previously announced
tax reform.
Cash flow
The Group continued to generate strong cash flows with cash
generated from operations of $1,904 million(1) (2019: $1,609
million). Working capital was well controlled with a particularly
good receivables performance. Net interest(1) and tax amounted to
$331 million (2019: $319 million) and acquisitions amounted to $351
million (2019: $657 million). Capital investment decreased slightly
to $302 million (2019: $418 million) as we tightly managed cash
outflows. Ordinary dividends paid amounted to $327 million (2019:
$445 million) and share buy backs amounted to $451 million (2019:
$150 million). Return on gross capital employed decreased to 23.9%
(2019: 26.2%) with the reduction due to a flat return but a higher
average capital employed during the year.
(1) Cash generated from operations is presented excluding IFRS
16. IFRS 16 has no impact on net cash flow but does increase cash
generated from operations by $348 million, increase interest paid
by $53 million and increase lease liability capital payments by
$295 million.
Net debt, liquidity and pensions
Throughout the pandemic to date Ferguson has remained in a
strong financial position with long term committed facilities. The
Group's net debt at July 31, 2020 was $1,012 million (July 31,
2019: $1,195 million) and the ratio of net debt to adjusted EBITDA
was 0.6x (July 31, 2019: 0.7x). Net debt would have been
approximately $100 million higher before short term fluctuations in
working capital at the year end. The Group has a strong liquidity
position and aims to operate with a net debt to adjusted EBITDA
ratio of between 1x and 2x. Given the Group's strong financial
position, the Directors consider it appropriate to continue to
adopt the going concern basis in preparing the financial
statements. Further details of the going concern assessment can be
found in note 1.
In June 2020, Ferguson announced that it had issued $600 million
principal aggregate amount of bonds at 3.25% with a ten-year
maturity. Additionally, we agreed a $500 million bilateral facility
in March 2020 with a one-year term. As at 31 July 2020 the Group
had c.$4.1 billion of available liquidity comprising readily
available cash of approximately $1.9 billion and $2.2 billion of
undrawn facilities.
The IFRS 16 lease liability recognized on the balance sheet as
at July 31, 2020 was $1,355 million.
At July 31, 2020 the Group's net pension position was a net
deficit of $61 million (2019: net asset of $153 million).
Capital allocation and shareholder returns
Since 2009, Ferguson's investment priorities have remained
firmly focused on investing in the business and consistently
generating above market organic growth. We also set out to maintain
and grow the ordinary dividend in line with earnings through the
cycle and selectively invest in bolt-on acquisitions that meet our
investment criteria. Any surplus cash after meeting these
investment needs has been returned to shareholders promptly and we
have returned over $4 billion in share buy backs and special
dividends over the past eight years.
Given the uncertainty of COVID-19 our strong balance sheet has
been a source of great strength as we have guided the business
through the early challenges of the pandemic. Initially we took
prompt actions to optimize cash flow, reducing capital expenditure
and operating costs, and further improve our liquidity position.
This included suspending the $500 million share buy back announced
on February 4, 2020, pausing M&A activity, and after careful
consideration withdrawal of the interim dividend due for payment in
April 2020.
However, we stated at the time that the Board recognized the
importance of dividends to shareholders and, as such, intended to
consider the appropriateness, quantum and timing of future
dividends when the Board had a clearer view of the effects of
COVID-19 on the Group's business. Taking into account the Group's
prospects and financial position; the Board has decided to propose
a final dividend for the year ended July 31, 2020 of 208.2 cents
which effectively reinstates the previously withdrawn interim
dividend and is in line with last year's total dividend (2018/19:
208.2 cents per share). The dividend will be paid on December 11,
2020 to shareholders on the register on November 13, 2020. Dividend
payments in 2020/21 will revert back to the normal one third: two
thirds split between an interim and final dividend. The Group's
dividend policy remains unchanged.
We now intend to resume our focused M&A program, funding
selective bolt-on acquisitions to improve our market leadership
positions or expand the capabilities of our existing business
models.
While Ferguson remains in a strong financial position, in the
light of continued economic uncertainty the Board believes that it
is appropriate to preserve prudent levels of funding and liquidity.
As a result, the previously announced $500 million share buy back
program remains suspended and will continue to be assessed as we
gain further clarity on economic conditions. At the point at which
the share buy back was suspended in April 2020 the Company had
completed $101 million of the program.
Listing structure
During the year, the Board concluded that the US was the natural
long-term listing location for Ferguson. It believes a US listing
will provide the Company with access to significant incremental
pools of capital in the largest domestic investment market in the
world and is fully aligned with the long term strategy and focus
for the business.
In February 2020 we announced a formal consultation with
institutional shareholders on two potential listing structures
which would aim to facilitate greater North American domestic
investment in Ferguson. Following the consultation the Board,
together with its advisers, carefully considered the feedback
received and in July 2020 sought shareholder approval to implement
an additional listing of ordinary shares in the US. At the same
time the Board also set out that in due course its intention is to
put forward a further resolution to Ferguson shareholders to
relocate Ferguson's primary listing to the US.
Shareholders voted in favor of the additional listing resolution
and it received over 99% support, significantly ahead of the
required 75% threshold. The Company expects the new listing to
become effective in the first half of calendar year 2021. We
believe that this two-step process to transition to a full US
primary listing provides an appropriate period during which some
Ferguson shareholders that have mandates which may restrict their
long term ownership in Ferguson could sell their holdings in an
orderly manner.
The Board would like to thank shareholders for their feedback
and support in this matter and in the coming years has no doubt
that Ferguson will benefit from having direct access to this
significant incremental pool of capital in the USA.
Board changes
In May, we announced that Mike Powell resigned as Group Chief
Financial Officer ("CFO") in order to take up a role as Group CFO
of Mondi Plc. Mike has played a critical role in the Company's
transformation over the last three and a half years to focus the
business on its attractive North American markets and the Board
wishes him all the very best. Mike will step down from the Board
and resign as an Executive Director on October 31, 2020.
We have today made a separate announcement that Bill Brundage
CFO of Ferguson Enterprises will succeed Mike Powell as Group CFO
on November 1, 2020. Bill has been the CFO of Ferguson Enterprises
for the past 3 years.
Outlook
It is impossible to predict the future progress of the virus, or
its economic impact and we expect the current levels of uncertainty
to continue for the foreseeable future. However, the fundamental
aspects of our business model remain attractive and since the start
of the new financial year Ferguson has generated low single digit
revenue growth in the US in flat markets overall. While we remain
cautious on the outlook for the year as a whole, the business is in
good shape and well prepared to address any further market related
disruption.
Notes to statement
1. About Ferguson
Ferguson plc is a leading value added distributor of plumbing
and heating products to professional contractors principally
operating in North America. Ongoing revenue for the year ended July
31, 2020 was $19.9 billion and ongoing underlying 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. Provisional financial calendar
Annual General Meeting December 3, 2020
Other dates will be confirmed on the
Company's website
3. Timetable for the final dividend
The timetable for payment of the proposed final dividend of
208.2 cents per share is as follows:
Ex-dividend date: November 12, 2020
Record date: November 13, 2020
Payment date: December 11, 2020
The dividend is declared in US dollars and will be paid in
sterling but 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 final 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 final dividend is November 27, 2020 and
any requests should be made in good time ahead of that date.
4. 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. These 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, divestments, risks associated
with changes in economic conditions, the strength of the plumbing
and heating and building materials market in North America and
Europe, fluctuations in product prices and changes in exchange and
interest rates, and potential impacts of the COVID-19 pandemic on
our business operations, financial results, financial position and
on the global economy. 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.
Group income statement
Year ended July 31, 2020
2020 2019
----- ------------------------ ----------- -------- ------------------ ----------- --------
Exceptional Exceptional
items Before exceptional items
Before exceptional items (note 4) Total items (note 4) Total
Notes $m $m $m $m $m $m
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Revenue 3 21,819 - 21,819 22,010 - 22,010
Cost of sales (15,395) (3) (15,398) (15,550) (2) (15,552)
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Gross profit 6,424 (3) 6,421 6,460 (2) 6,458
Operating costs (4,882) (117) (4,999) (4,964) (92) (5,056)
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Operating profit 3 1,542 (120) 1,422 1,496 (94) 1,402
Finance costs (151) - (151) (86) - (86)
Finance income 7 - 7 12 - 12
Share of
(loss)/profit
after tax of
associates (2) - (2) 2 - 2
Gain on disposal of
interests in
associates and
other investments - 7 7 - 3 3
Impairment of
interests in
associates (22) - (22) (9) - (9)
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Profit before tax 1,374 (113) 1,261 1,415 (91) 1,324
Tax 5 (330) 23 (307) (282) 19 (263)
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Profit from
continuing
operations 1,044 (90) 954 1,133 (72) 1,061
Profit from
discontinued
operations 5 2 7 6 41 47
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Profit for the year
attributable to
shareholders of
the Company 1,049 (88) 961 1,139 (31) 1,108
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Earnings per share 7
Continuing operations and discontinued operations
Basic earnings per
share 427.5c 481.3c
Diluted earnings
per share 423.5c 477.8c
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Continuing
operations only
Basic earnings per
share 424.4c 460.9c
Diluted earnings
per share 420.4c 457.5c
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Alternative
performance
measures
Ongoing underlying
trading profit 2 1,595 1,532
Non-ongoing
underlying trading
profit 2 8 74
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Underlying trading
profit 2, 3 1,603 1,606
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Adjusted EBITDA
from continuing
operations 2 1,797 1,788
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
Headline earnings
per share 2, 7 511.6c 517.4c
------------------- ----- ------------------------ ----------- -------- ------------------ ----------- --------
The Group adopted IFRS 16 "Leases" on August 1, 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.
Group statement of comprehensive income
Year ended July 31, 2020
2020 2019
Notes $m $m
-------------------------------------------------------------------------------------------- ----- ----- -----
Profit for the year 961 1,108
-------------------------------------------------------------------------------------------- ----- ----- -----
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Exchange gain/(loss) on translation of overseas operations1 57 (86)
Exchange (loss)/gain on translation of borrowings and derivatives designated as hedges of
overseas operations1 (31) 36
Cumulative currency translation differences on disposals1 9 1
Cumulative currency translation differences on disposal of interests in associates1 - 7
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of retirement benefit plans2 (235) (36)
Tax credit on items that will not be reclassified to profit or loss2 5 44 6
-------------------------------------------------------------------------------------------- ----- ----- -----
Other comprehensive expense for the year (156) (72)
-------------------------------------------------------------------------------------------- ----- ----- -----
Total comprehensive income for the year 805 1,036
-------------------------------------------------------------------------------------------- ----- ----- -----
Total comprehensive income attributable to:
Continuing operations 787 993
Discontinued operations 18 43
-------------------------------------------------------------------------------------------- ----- ----- -----
Total comprehensive income for the year attributable to shareholders of the Company 805 1,036
-------------------------------------------------------------------------------------------- ----- ----- -----
1. Impacting the translation reserve.
2. Impacting retained earnings.
Group statement of changes in equity
Year ended July 31, 2020
Reserves
---------------- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
Non-
Share Translation Treasury Own Retained controlling Total
capital Share reserve shares shares earnings interest equity
Notes $m premium $m $m $m $m $m $m $m
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
At July 31, 2018 45 67 (556) (1,380) (90) 5,972 (1) 4,057
Profit for the
year - - - - - 1,108 - 1,108
Other
comprehensive
expense - - (42) - - (30) - (72)
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
Total
comprehensive
income - - (42) - - 1,078 - 1,036
Cancellation of
Treasury shares (4) - - 1,369 - (1,365) - -
Group
reconstruction (11) 16,083 - - - (16,072) - -
Capital
reduction - (16,150) - - - 16,150 - -
Issue of share
capital - 9 - - - - - 9
Purchase of own
shares by
Employee
Benefit Trusts - - - - (38) - - (38)
Issue of own
shares by
Employee
Benefit Trusts - - - - 26 (26) - -
Credit to equity
for share-based
payments - - - - - 34 - 34
Tax relating to
share-based
payments 5 - - - - - 6 - 6
Adjustment
arising from
change in
non-controlling
interest - - - - - - 1 1
Purchase of
Treasury shares - - - (309) - - - (309)
Disposal of
Treasury shares - - - 15 - (12) - 3
Dividends paid 6 - - - - - (449) - (449)
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
At July 31, 2019 30 9 (598) (305) (102) 5,316 - 4,350
Adjustment on
adoption of
IFRS 16 1 - - - - - (187) - (187)
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
At August 1,
2019 30 9 (598) (305) (102) 5,129 - 4,163
Profit for the
year - - - - - 961 - 961
Other
comprehensive
expense - - 35 - - (191) - (156)
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
Total
comprehensive
income - - 35 - - 770 - 805
Purchase of own
shares by
Employee
Benefit Trusts - - - - (26) - - (26)
Issue of own
shares by
Employee
Benefit Trusts - - - - 40 (40) - -
Credit to equity
for share-based
payments - - - - - 26 - 26
Tax relating to
share-based
payments 5 - - - - - 11 - 11
Purchase of
Treasury shares - - - (292) - - - (292)
Disposal of
Treasury shares - - - 27 - (16) - 11
Dividends paid 6 - - - - - (327) - (327)
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
At July 31, 2020 30 9 (563) (570) (88) 5,553 - 4,371
---------------- ----- -------- ------------ ----------- ------------ ------- ----------- ----------- -------
Group balance sheet
Year ended July 31, 2020
2020 2019
Notes $m $m
--------------------------------------------------- ----- ------ ------
Assets
Non-current assets
Intangible assets: goodwill 8 1,721 1,656
Intangible assets: other 8 521 423
Right of use assets 9 1,111 -
Property, plant and equipment 8 1,389 1,349
Interests in associates 4 29
Other financial assets 12 42
Retirement benefit assets - 178
Deferred tax assets 216 164
Trade and other receivables 377 340
Derivative financial assets 28 10
--------------------------------------------------- ----- ------ ------
5,379 4,191
--------------------------------------------------- ----- ------ ------
Current assets
Inventories 2,880 2,821
Trade and other receivables 3,042 3,213
Current tax receivable - 6
Other financial assets 9 9
Derivative financial assets 11 12
Cash and cash equivalents 2,115 1,133
--------------------------------------------------- ----- ------ ------
8,057 7,194
--------------------------------------------------- ----- ------ ------
Assets held for sale 20 1
--------------------------------------------------- ----- ------ ------
Total assets 13,456 11,386
--------------------------------------------------- ----- ------ ------
Liabilities
Current liabilities
Trade and other payables 3,591 3,797
Current tax payable 293 251
Borrowings 10 531 52
Lease liabilities 9 281 -
Obligations under finance leases - 2
Provisions 53 79
--------------------------------------------------- ----- ------ ------
4,749 4,181
--------------------------------------------------- ----- ------ ------
Non-current liabilities
Trade and other payables 338 292
Borrowings 10 2,635 2,292
Lease liabilities 9 1,074 -
Obligations under finance leases - 4
Deferred tax liabilities 26 56
Provisions 202 186
Retirement benefit obligations 61 25
--------------------------------------------------- ----- ------ ------
4,336 2,855
--------------------------------------------------- ----- ------ ------
Total liabilities 9,085 7,036
--------------------------------------------------- ----- ------ ------
Net assets 4,371 4,350
--------------------------------------------------- ----- ------ ------
Equity
Share capital 30 30
Share premium 9 9
Reserves 4,332 4,311
--------------------------------------------------- ----- ------ ------
Equity attributable to shareholders of the Company 4,371 4,350
--------------------------------------------------- ----- ------ ------
Group cash flow statement
Year ended July 31, 2020
2020 2019
Notes $m $m
------------------------------------------------------------------------------------------ ----- ----- -----
Cash flows from operating activities
Cash generated from operations 11 2,252 1,609
Interest received 8 13
Interest paid (167) (90)
Tax paid (225) (242)
------------------------------------------------------------------------------------------ ----- ----- -----
Net cash generated from operating activities 1,868 1,290
------------------------------------------------------------------------------------------ ----- ----- -----
Cash flows from investing activities
Acquisition of businesses (net of cash acquired) 12 (351) (657)
Disposals of businesses (net of cash disposed of) 7 201
Purchases of property, plant and equipment (215) (382)
Net proceeds from the disposal of property, plant and equipment, assets held for sale and
right of use assets 13 84
Purchases of intangible assets (87) (36)
Acquisition of associates and other investments (5) (11)
Disposal of interests in associates and other investments 32 18
------------------------------------------------------------------------------------------ ----- ----- -----
Net cash used in investing activities (606) (783)
------------------------------------------------------------------------------------------ ----- ----- -----
Cash flows from financing activities
Proceeds from the issue of shares - 9
Purchase of own shares by Employee Benefit Trusts (26) (38)
Purchase of Treasury shares (451) (150)
Proceeds from the sale of Treasury shares 11 3
Proceeds from loans and derivatives 13 1,169 757
Repayments of loans 13 (566) (2)
Lease liability capital payments 13 (295) -
Finance lease capital payments 13 - (3)
Dividends paid to shareholders (327) (445)
------------------------------------------------------------------------------------------ ----- ----- -----
Net cash (used in)/generated from financing activities (485) 131
------------------------------------------------------------------------------------------ ----- ----- -----
Net cash generated 777 638
Cash, cash equivalents and bank overdrafts at the beginning of the year 13 1,086 458
Effects of exchange rate changes 4 (10)
------------------------------------------------------------------------------------------ ----- ----- -----
Cash, cash equivalents and bank overdrafts at the end of the year 13 1,867 1,086
------------------------------------------------------------------------------------------ ----- ----- -----
Notes to the full year results announcement
Year ended July 31, 2020
1 - Basis of preparation
The full year results announcement for the year ended July 31,
2020, which is an abridged statement of the full Annual Report and
Accounts, has been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union.
The Group's principal objective when managing cash and debt is
to safeguard the Group's ability to continue as a going concern for
the foreseeable future. The Group retains sufficient resources to
remain in compliance with all the required terms and conditions
within its borrowing facilities with material headroom and no
material uncertainties have been identified. Whilst there remains
significant uncertainty as to the future impact of the COVID-19
pandemic, the Group continues to conduct ongoing risk assessments
of the potential impact of the pandemic on its business operations
and liquidity. The Group has also taken steps to enhance its
operational resilience and position the business for the current
operating environment. Consideration has also been given to reverse
stress tests, which seek to identify factors that might cause the
Group to require further liquidity, and a view can be formed of the
probability of those occurring. Having assessed the relevant
business risks, including the impact of COVID-19, and considered
the headroom available under several alternative scenarios
including a severe short term revenue reduction and taking into
account reasonable mitigating actions, the Directors consider it
appropriate to continue to adopt the going concern basis in
preparing the full year results announcement.
Ferguson plc is a public company limited by shares incorporated
in Jersey under the Companies (Jersey) Law 1991 and is
headquartered in the UK. It operates as the ultimate parent company
of the Ferguson Group. Its registered office is 26 New Street, St
Helier, Jersey, JE2 3RA, Channel Islands.
The financial information in the full year results announcement
for the year ended July 31, 2020 does not constitute the statutory
financial statements of the Group. The statutory financial
statements for the year ended July 31, 2019 have been filed with
the Jersey Registrar of Companies. The auditors have reported on
those accounts and on the statutory financial statements of the
Company for the year ended July 31, 2020 which will be filed with
the Jersey Registrar of Companies following the Annual General
Meeting. Both the audit reports were unqualified and did not
contain any statements under Article 111(2) or Article 111(5) of
the Companies (Jersey) Law 1991 or under section 498 of the
Companies Act 2006.
Accounting developments and changes
On August 1, 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 recognize a
lease liability and a right of use asset for all leases, including
those classified as operating 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 are subject to impairment
reviews in accordance with IAS 36 "Impairment of Assets" replacing
the previous requirement to recognize a provision for onerous lease
contracts.
The Group has applied the modified retrospective transition
method and has not restated comparatives for the year ended July
31, 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 August 1, 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 US fleet
represented $252 million of 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 year ended July 31, 2020 was to decrease rental costs by $337
million, increase depreciation by $268 million and increase finance
costs by $53 million. The impact on the cash flow statement was to
increase cash generated from operations by $348 million, increase
interest paid by $53 million and increase lease liability capital
payments by $295 million. There was no impact on the net increase
in cash, cash equivalents and bank overdrafts.
The impact of the adoption of IFRS 16 on the opening balance
sheet at August 1, 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 July 31, 2019 to the lease liability at August 1,
2019 under IFRS 16 is as follows:
$m
-------------------------------------------------------------------------- -----
Operating lease commitments at July 31, 2019 1,126
Leases of low value assets (20)
Long-term leases that expire before July 31, 2020 (12)
Reasonably certain extension of termination options 564
Effect from discounting1 (183)
--------------------------------------------------------------------------- -----
Lease liabilities due to initial application of IFRS 16 at August 1, 2019 1,475
Lease liabilities from finance leases under IAS 17 at July 31, 2019 6
--------------------------------------------------------------------------- -----
Total lease liabilities at August 1, 2019 1,481
--------------------------------------------------------------------------- -----
1. The weighted average incremental borrowing rate applied by
the Group upon transition was 3.5 per cent.
The following other standards and amendments to existing
standards became effective for the year ending July 31, 2020 and
have not had a material impact on the Group's consolidated
financial statements:
-- IFRIC 23 "Uncertainty over Income Tax Treatments";
-- Amendments to IFRS 9 - Prepayment Features with Negative
Compensation;
-- Amendments to IAS 28 - Long-term Interests in Associates and
Joint Ventures;
-- Annual Improvements to IFRSs 2015-2017 Cycle; and
-- Amendments to IAS 19 - Plan Amendment, Curtailment or
Settlement.
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 excluding businesses
that have been disposed of, closed or classified as held for sale
or the Group is committed to exiting 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 have been disposed of, closed or classified as held for sale
or the Group is committed to exiting. In 2020, the Group's UK
business has been classified as non-ongoing and all comparatives
have been restated for consistency and comparability. In 2019, the
Group's Dutch business Wasco and UK business soak.com were also
included in non-ongoing.
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. Organic
revenue growth is determined as the growth in total reported
revenue excluding the growth/decline attributable to acquisitions,
disposals, trading days and currency exchange rate fluctuations,
divided by the preceding financial year's revenue at the current
year's exchange rates.
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 19,549 2,461 22,010
Impact of exchange rate movements (20) (0.1) (51) (71)
------------------------------------- ------ -------- ----------- ----------
Reported 2019 at 2020 exchange rates 19,529 2,410 21,939
Organic growth (26) (0.1) (348) (374)
Trading days 81 0.4 11 92
Acquisitions 356 1.8 39 395
Disposals - - (233) (233)
------------------------------------- ------ -------- ----------- ----------
Reported 2020 19,940 2.0 1,879 21,819
------------------------------------- ------ -------- ----------- ----------
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 underlying 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, and the impact of
fluctuations in foreign currency exchange rates in relation to
pension assets or liabilities held in currencies which are
different to that of the functional currency of the entity. These
are considered exceptional by nature; and
-- other items which are material and considered to be
non-recurring in nature and/or are not as a result of the
underlying 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 year 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 segment performance and it is a key performance indicator
for the Group. A reconciliation of ongoing gross margin is provided
below:
Restated
2020 2019
------------------------------------------- ---------------------------------------
Ongoing gross
Gross profit Revenue Ongoing gross margin Revenue margin
$m $m % Gross profit $m $m %
------------------ ------------ ------- -------------------- --------------- ------- -------------
Continuing 6,421 21,819 6,458 22,010
Non-ongoing (441) (1,879) (590) (2,461)
Exceptional items 3 - 2 -
------------------ ------------ ------- -------------------- --------------- ------- -------------
Ongoing 5,983 19,940 30.0 5,870 19,549 30.0
------------------ ------------ ------- -------------------- --------------- ------- -------------
Trading profit/underlying trading profit and ongoing trading
margin/ongoing underlying trading margin
Trading profit is defined as operating profit before exceptional
items and the amortization and impairment 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
underlying trading business. Underlying trading profit is defined
as trading profit excluding the impact of IFRS 16.
The ongoing trading margin is the ratio of ongoing trading
profit to ongoing revenue. Ongoing underlying trading margin is the
ratio of ongoing underlying trading profit to ongoing revenue and
is used to assess business unit profitability and is a key
performance indicator for the Group.
Underlying trading profit and ongoing underlying trading margin
are presented to allow better comparison between the year ended
July 31, 2020 prepared under IFRS 16 and the year ended July 31,
2019 prepared under IAS 17.
A reconciliation of underlying trading profit and trading profit
to statutory operating profit and the calculation of ongoing
trading margin are provided below:
Restated
2020 2019
----------- ---------- ------- ----------- ----------
Ongoing Non-ongoing Continuing Ongoing Non-ongoing Continuing
--------------- ----------- ---------- ------- ----------- ----------
$m growth % $m $m $m $m $m
------------------------------------------ ----- -------- ----------- ---------- ------- ----------- ----------
Trading profit 2019 1,532 74 1,606 1,422 85 1,507
Impact of exchange rate movements - (1) (1) (1) (5) (6)
------------------------------------------ ----- -------- ----------- ---------- ------- ----------- ----------
Trading profit 2019 at 2020 exchange rates 1,532 73 1,605 1,421 80 1,501
Growth at constant exchange rates 63 4.1 (65) (2) 111 (6) 105
------------------------------------------ ----- -------- ----------- ---------- ------- ----------- ----------
Underlying trading profit 1,595 8 1,603 1,532 74 1,606
Impact of IFRS 16 68 1 69 - - -
------------------------------------------ ----- -------- ----------- ---------- ------- ----------- ----------
Trading profit 1,663 9 1,672 1,532 74 1,606
Exceptional items (99) (21) (120) (117) 23 (94)
Amortization of acquired intangible assets (114) (16) (130) (109) (1) (110)
------------------------------------------ ----- -------- ----------- ---------- ------- ----------- ----------
Operating profit 1,450 (28) 1,422 1,306 96 1,402
------------------------------------------ ----- -------- ----------- ---------- ------- ----------- ----------
Revenue, trading profit/underlying trading profit and trading
margin/underlying trading margin are reconciled below:
Underlying Underlying
Trading Impact of trading Trading Trading trading Trading
Revenue profit IFRS 16 profit profit margin margin margin
------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
Restated Restated Restated
2020 2019 2020 2020 2020 2019 2020 2020 2019
$m $m $m $m $m $m % % %
------------ ------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
USA 18,857 18,358 1,654 (67) 1,587 1,508 8.8 8.4 8.2
Canada and
Central
Europe 1,083 1,191 44 (1) 43 67 4.1 4.0 5.6
Central and
other costs - - (35) - (35) (43) - - -
------------ ------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
Total
ongoing
operations 19,940 19,549 1,663 (68) 1,595 1,532 8.3 8.0 7.8
------------ ------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
UK 1,879 2,222 9 (1) 8 69 0.5 0.4 3.1
Soak.com - 59 - - - (4) - - (6.8)
Canada and
Central
Europe - 180 - - - 9 - - 5.0
------------ ------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
Total
non-ongoing
operations 1,879 2,461 9 (1) 8 74 0.5 0.4 3.0
------------ ------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
Continuing
operations 21,819 22,010 1,672 (69) 1,603 1,606 7.7 7.3 7.3
------------ ------ -------- ------- --------- ---------- ----------- ------- ----------- -----------
Adjusted EBITDA
Adjusted EBITDA is operating profit before charges/credits
relating to depreciation, amortization, 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. For this reason,
adjusted EBITDA refers to Group adjusted EBITDA unless otherwise
stated. A reconciliation of statutory operating profit to adjusted
EBITDA is provided below:
2020 2019
---------- --------------- ----- ---------- ------------ -----
Continuing Group Continuing Discontinued Group
$m Discontinued $m $m $m $m $m
------------------------------------------------- ---------- --------------- ----- ---------- ------------ -----
Operating profit 1,422 7 1,429 1,402 47 1,449
Exceptional items 120 (2) 118 94 (42) 52
Amortization of acquired intangible assets 130 - 130 110 - 110
------------------------------------------------- ---------- --------------- ----- ---------- ------------ -----
Trading profit 1,672 5 1,677 1,606 5 1,611
Impact of IFRS 16 (69) - (69) - - -
------------------------------------------------- ---------- --------------- ----- ---------- ------------ -----
Underlying trading profit 1,603 5 1,608 1,606 5 1,611
Depreciation and impairment of property, plant
and equipment 159 - 159 147 - 147
Amortization of non-acquired intangible assets 35 - 35 31 - 31
Impairment of assets held for sale - - - 4 - 4
------------------------------------------------- ---------- --------------- ----- ---------- ------------ -----
Adjusted EBITDA 1,797 5 1,802 1,788 5 1,793
------------------------------------------------- ---------- --------------- ----- ---------- ------------ -----
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. See reconciliation in note 5.
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 amortization
and impairment of acquired intangible assets and impairment 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 amortization 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 year, 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 the Executive Directors and other senior executives.
See reconciliation in note 7.
Net debt
Net debt excluding lease liabilities comprises cash and cash
equivalents, bank overdrafts, bank and other loans, derivative
financial instruments and in the prior year obligations under
finance leases under IAS 17. The Group uses net debt excluding
lease liabilities, which excludes lease liabilities under IFRS 16,
to be consistent with adjusted EBITDA in line with the requirements
of the Group's debt covenants. For this reason the Group uses the
term net debt to refer to net debt excluding lease liabilities
unless otherwise stated. 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 note 13 for a reconciliation.
Return on gross capital employed
Return on gross capital employed is the ratio of the Group's
trading profit to the average year-end shareholders' equity, net
debt, lease liabilities and accumulated amortization and impairment
of goodwill and acquired intangible assets. Return on gross capital
employed is a key performance indicator. The calculation of return
on gross capital employed is shown below:
2020 2019
$m $m
------------------------------------------------------------------------------ ----- -----
Net debt excluding lease liabilities (note 13) 1,012 1,195
Lease liabilities (note 13) 1,355 -
Accumulated impairment losses of goodwill 140 133
Accumulated amortization and impairment losses of acquired intangible assets1 811 677
Shareholders' equity 4,371 4,350
------------------------------------------------------------------------------ ----- -----
Gross capital employed 7,689 6,355
------------------------------------------------------------------------------ ----- -----
Average gross capital employed2 7,022 6,138
------------------------------------------------------------------------------ ----- -----
Group trading profit3 1,677 1,611
------------------------------------------------------------------------------ ----- -----
Return on gross capital employed % 23.9 26.2
------------------------------------------------------------------------------ ----- -----
1. Excludes software.
2. Gross capital employed in 2018 was $5,921 million.
3. Reconciliation provided under adjusted EBITDA.
3 - Segmental analysis
The Group's operating segments are established on the basis of
the operating businesses overseen by distinct divisional management
teams responsible for their performance. These operating businesses
are managed on a geographical basis and are regularly reviewed by
the chief operating decision maker, which is determined to be the
Group Chief Executive Officer and the Group Chief Financial
Officer, in deciding how to allocate resources and assess the
performance of the businesses. All operating segments derive their
revenue from a single business activity, the distribution of
plumbing and heating products. Revenue is attributed to a country
based on the location of the Group company reporting the
revenue.
The Group has combined the Canada and Central Europe operating
segments into one reportable segment as individually they do not
meet the quantitative thresholds set out in IFRS 8 "Operating
Segments" to be separately disclosed. In 2019, the Group disposed
of its Dutch business, Wasco, which was the last of its Central
European businesses.
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 trading profit for continuing
operations between the years ended July 31, 2019 and July 31, 2020
include changes in exchange rates, disposals, acquisitions, trading
days and organic change.
Where businesses are disposed in the year, the difference
between the revenue and trading profit in the current year up to
the date of disposal and the revenue and trading profit in the
equivalent portion of the prior year is included in organic
change.
An analysis of the change in revenue by reportable segment for
continuing operations is as follows:
Organic
2019 Exchange Disposals Acquisitions Trading days change 2020
$m $m $m $m $m $m $m
-------------------------- ------ -------- --------- ------------ ------------ -------- ------
USA 18,358 - - 355 76 68 18,857
UK 2,281 (46) (58) 39 11 (348) 1,879
Canada and Central Europe 1,371 (25) (175) 1 5 (94) 1,083
-------------------------- ------ -------- --------- ------------ ------------ -------- ------
Continuing operations 22,010 (71) (233) 395 92 (374) 21,819
-------------------------- ------ -------- --------- ------------ ------------ -------- ------
An additional disaggregation of revenue by end market for
continuing operations is as follows:
2020 2019
$m $m
-------------------------- ------ ------
Residential 10,087 9,599
Commercial 6,116 6,054
Civil/Infrastructure 1,315 1,212
Industrial 1,339 1,493
-------------------------- ------ ------
USA 18,857 18,358
UK 1,879 2,281
Canada and Central Europe 1,083 1,371
-------------------------- ------ ------
Continuing operations 21,819 22,010
-------------------------- ------ ------
An analysis of the change in underlying trading profit/(loss)
(note 2) by reportable segment for continuing operations is as
follows:
Organic
2019 Exchange Disposals Acquisitions Trading days change 2020
$m $m $m $m $m $m $m
-------------------------- ----- -------- --------- ------------ ------------ -------- -----
USA 1,508 - - 16 16 47 1,587
UK 65 (1) 3 6 1 (66) 8
Canada and Central Europe 76 (1) (8) - 1 (25) 43
-------------------------- ----- -------- --------- ------------ ------------ -------- -----
Total reportable segments 1,649 (2) (5) 22 18 (44) 1,638
Central and other costs (43) 1 - - - 7 (35)
-------------------------- ----- -------- --------- ------------ ------------ -------- -----
Continuing operations 1,606 (1) (5) 22 18 (37) 1,603
-------------------------- ----- -------- --------- ------------ ------------ -------- -----
Underlying trading profit/(loss) (note 2) is the Group's measure
of segment performance in 2020 and is comparable to trading
profit/(loss) (note 2) in 2019. Trading profit/(loss) was the
Group's segment measure of performance in 2019 and prior years,
before the adoption of IFRS 16. The reconciliation between
underlying trading profit/(loss) by reportable segment and Group
profit before tax for continuing operations is as follows:
2020 2019
-------------- -------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
Amortization
Underlying trading of acquired intangible Operating Trading
profit/(loss) Impact of IFRS 16 Trading profit/(loss) Exceptional items assets profit/(loss) profit/(loss) Exceptional items Amortization of acquired intangible assets Operating profit/(loss)
$m $m $m $m $m $m $m $m $m $m
-------------- ------------------ ----------------- --------------------- ----------------- ------------------------ --------------- --------------- ----------------- ------------------------------------------ -----------------------
USA 1,587 67 1,654 (65) (113) 1,476 1,508 (63) (102) 1,343
UK 8 1 9 (21) (16) (28) 65 (54) - 11
Canada and
Central
Europe 43 1 44 (7) (1) 36 76 34 (8) 102
-------------- ------------------ ----------------- --------------------- ----------------- ------------------------ --------------- --------------- ----------------- ------------------------------------------ -----------------------
Total
reportable
segments 1,638 69 1,707 (93) (130) 1,484 1,649 (83) (110) 1,456
Central and
other costs (35) - (35) (27) - (62) (43) (11) - (54)
-------------- ------------------ ----------------- --------------------- ----------------- ------------------------ --------------- --------------- ----------------- ------------------------------------------ -----------------------
Group 1,603 69 1,672 (120) (130) 1,422 1,606 (94) (110) 1,402
Net finance
costs (144) (74)
Share of
(loss)/profit
after tax of
associates (2) 2
Gain on
disposal of
interests in
associates
and other
investments 7 3
Impairment of
interests in
associates (22) (9)
-------------- ------------------ ----------------- --------------------- ----------------- ------------------------ --------------- --------------- ----------------- ------------------------------------------ -----------------------
Profit before
tax 1,261 1,324
-------------- ------------------ ----------------- --------------------- ----------------- ------------------------ --------------- --------------- ----------------- ------------------------------------------ -----------------------
Other information on assets and liabilities by segment is set
out in the following tables:
2020 2019
--------- -------------------- -------------------------- -------- ------------------- --------------------------
Segment Segment Segment Segment
assets1 Segment liabilities1 net assets/(liabilities) assets Segment liabilities net assets/(liabilities)
$m $m $m $m $m $m
--------------------- --------- -------------------- -------------------------- -------- ------------------- --------------------------
USA 9,338 (4,402) 4,936 8,252 (3,243) 5,009
UK 1,093 (742) 351 1,144 (553) 591
Canada and Central
Europe 603 (315) 288 564 (267) 297
--------------------- --------- -------------------- -------------------------- -------- ------------------- --------------------------
Total reportable
segments 11,034 (5,459) 5,575 9,960 (4,063) 5,897
Central and other
costs 49 (132) (83) 97 (282) (185)
Discontinued 3 (9) (6) 4 (34) (30)
Tax
assets/(liabilities) 216 (319) (103) 170 (307) (137)
Net cash/(debt) 2,154 (3,166) (1,012) 1,155 (2,350) (1,195)
--------------------- --------- -------------------- -------------------------- -------- ------------------- --------------------------
Group
assets/(liabilities) 13,456 (9,085) 4,371 11,386 (7,036) 4,350
--------------------- --------- -------------------- -------------------------- -------- ------------------- --------------------------
1. As at July 31, 2020, segment assets includes right of use
assets and segment liabilities includes lease liabilities.
Geographical information of non-current assets is set out in the
table below. Non-current assets includes goodwill, other intangible
assets, right of use assets, property, plant and equipment and
interests in associates.
2020 2019
$m $m
-------------------------- ----- -----
USA 4,134 3,036
UK 357 225
Canada and Central Europe 255 196
-------------------------- ----- -----
Group 4,746 3,457
-------------------------- ----- -----
2020 2019
---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
Additions Additions
to other to other
acquired Additions to acquired
intangible non Additions to intangible Additions to Additions to
Additions assets and acquired Additions to property, Additions assets and non-acquired property,
to interests in intangible right of use plant and to interests in intangible plant and
goodwill associates assets assets equipment goodwill associates assets equipment
$m $m $m $m $m $m $m $m $m
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
USA 66 107 79 86 199 258 224 26 327
UK 12 31 5 19 13 - - 8 33
Canada and
Central
Europe - - 3 10 2 1 - 2 11
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
Total
reportable
segments 78 138 87 115 214 259 224 36 371
Central and
other costs - - - - - - - - 3
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
Group 78 138 87 115 214 259 224 36 374
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
2020 2019
---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
Impairment Impairment
of of
goodwill, goodwill,
other Amortization other Amortization
acquired and Depreciation acquired and Depreciation
intangible Amortization impairment Depreciation and intangible Amortization impairment and
assets and of other of non- and impairment assets and of other of non- impairment
interests acquired acquired impairment of property, interests acquired acquired of property,
in intangible intangible of right of plant and in intangible intangible plant and
associates assets assets use assets equipment associates assets assets equipment
$m $m $m $m $m $m $m $m $m
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
USA - 113 26 226 131 - 102 20 118
UK - 16 6 37 20 - - 8 21
Canada and
Central
Europe - 1 2 14 7 - 8 2 8
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
Total
reportable
segments - 130 34 277 158 - 110 30 147
Central and
other costs 22 - 1 1 1 9 - 1 -
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
Group 22 130 35 278 159 9 110 31 147
------------ ---------- ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------
4 - Exceptional items
Exceptional items credited/(charged) to profit before tax from
continuing operations are analyzed by purpose as follows:
2020 2019
$m $m
------------------------------------------------------------------ ----- -----
(Loss)/gain on disposal of businesses (3) 23
Business restructuring (93) (108)
Other exceptional items (24) (9)
------------------------------------------------------------------ ----- -----
Total included in operating profit (120) (94)
Gain on disposal of interests in associates and other investments 7 3
------------------------------------------------------------------ ----- -----
Total included in profit before tax (113) (91)
------------------------------------------------------------------ ----- -----
For the year ended July 31, 2020, business restructuring
principally comprises costs incurred in the USA, UK and Canada in
respect of cost actions taken to ensure the business is
appropriately sized for the post COVID-19 operating
environment.
Other exceptional items principally relate to the proposed
separation of the UK business and the Group's planned listing in
the USA.
The gain on disposal of interests in associates and other
investments relates to the sale of the Group's investment in Meier
Tobler AG.
During the year, the cash flows relating to exceptional items
were $113 million (2019: $53 million) used in respect of operating
activities and $41 million (2019: $169 million) generated in
respect of investing activities.
5 - Tax
The tax charge for the year comprises:
2020 2019
$m $m
-------------------------------------------------------------------------------- ---- ----
Current year tax charge 294 306
Adjustments to tax charge in respect of prior years (16) 4
-------------------------------------------------------------------------------- ---- ----
Total current tax charge 278 310
Deferred tax charge/(credit): origination and reversal of temporary differences 29 (47)
-------------------------------------------------------------------------------- ---- ----
Total tax charge 307 263
-------------------------------------------------------------------------------- ---- ----
An exceptional tax credit of $23 million (2019: $19 million) was
recorded against exceptional items. The deferred tax charge of $29
million (2019: credit of $47 million) includes a credit of $6
million (2019: charge of $3 million) resulting from changes in tax
rates. A tax charge of $nil (2019: $4 million charge) arises on the
profit from discontinued operations. Of this charge $nil (2019: $4
million) relates to exceptional items.
Tax on items charged to the Group statement of comprehensive
income:
2020 2019
$m $m
--------------------------------------------------------------------------- ---- ----
Deferred tax credit on remeasurement of retirement benefit plans 44 6
--------------------------------------------------------------------------- ---- ----
Total tax on items credited to the Group statement of comprehensive income 44 6
--------------------------------------------------------------------------- ---- ----
Tax on items credited to equity:
2020 2019
$m $m
-------------------------------------------- ---- ----
Current tax credit on share-based payments 6 5
Deferred tax credit on share-based payments 5 1
-------------------------------------------- ---- ----
Total tax on items credited to equity 11 6
-------------------------------------------- ---- ----
There is no tax charge in the statement of changes in equity
which relates to changes in tax rates in the current or prior
year.
The Group has made provisions for the liabilities likely to
arise from open audits and assessments. At July 31, 2020, the Group
has recognized provisions of $294 million (2019: $254 million) in
respect of its uncertain tax positions. The total provision has
increased by $40 million in the year due primarily to increases
related to certain cross-border transfer pricing risks. Although
there is uncertainty regarding the timing of the resolution of
these matters, management do not believe that the Group's uncertain
tax provisions constitute a major source of estimation uncertainty
as they consider that there is no significant risk of a material
change
to its estimate of these provisions within the next 12 months.
2020
------------------------------------------------------------------------------------------
Non-ongoing and
Ongoing profit/tax7 other profit/tax8 Total profit/tax from continuing operations
--------------------- -------------------- ---------------------------------------------
Tax reconciliation: $m % $m % $m %
---------------------- ---------- --------- --------- --------- ---------------------- ---------------------
Profit before tax 1,512 (251) 1,261
Expected tax at
weighted average tax
rate1 (327) 21.6 61 (24.3) (266) 21.1
Adjusted for the
effects of:
(under)/over
provisions in
respect of prior
periods2 (9) 0.6 11 (4.4) 2 (0.2)
exceptional items
which are non-tax
deductible3 - - 1 (0.4) 1 (0.1)
current year charge
in relation to
uncertain tax
provisions4 (33) 2.2 - - (33) 2.6
tax credits and
incentives 6 (0.4) - - 6 (0.5)
non-taxable income 8 (0.5) - - 8 (0.6)
other non-tax
deductible
expenditure5 (20) 1.3 (4) 1.6 (24) 1.9
other (1) 0.1 (6) 2.4 (7) 0.6
effect of tax rate
changes6 - - 6 (2.4) 6 (0.5)
---------------------- ---------- --------- --------- --------- ---------------------- ---------------------
Tax (charge)/credit /
effective tax rate (376) 24.9 69 (27.5) (307) 24.3
---------------------- ---------- --------- --------- --------- ---------------------- ---------------------
Restated
2019
---------------------------------------------------------------------
Non-ongoing and Total profit/tax from
Ongoing profit/tax7 other profit/tax8 continuing operations
--------------------- -------------------- ------------------------
Tax reconciliation: $m % $m % $m %
------------------------------------------- ---------- --------- --------- --------- ----------- -----------
Profit before tax 1,456 (132) 1,324
Expected tax at weighted average tax rate1 (289) 19.8 69 (52.3) (220) 16.6
Adjusted for the effects of:
over provisions in respect of prior
periods2 (7) 0.5 9 (6.8) 2 (0.1)
exceptional items which are non-tax
deductible3 - - (7) 5.3 (7) 0.6
current year charge in relation to
uncertain tax provisions4 (35) 2.5 - - (35) 2.6
tax credits and incentives 4 (0.3) - - 4 (0.3)
non-taxable income 3 (0.2) - - 3 (0.2)
other non-tax deductible expenditure5 (11) 0.8 (5) 3.8 (16) 1.2
recognition of previously unrecognised
deferred tax asset - - 11 (8.3) 11 (0.8)
other (2) 0.1 - - (2) 0.1
effect of tax rate changes (2) 0.1 (1) 0.7 (3) 0.2
------------------------------------------- ---------- --------- --------- --------- ----------- -----------
Tax (charge)/credit / effective tax rate (339) 23.3 76 (57.6) (263) 19.9
------------------------------------------- ---------- --------- --------- --------- ----------- -----------
1. This expected weighted average tax rate reflects the
applicable statutory corporate tax rates on the accounting
profits/losses in the countries in which the Group operates after
intra--group financing. This results in interest deductions and
lower taxable profits in many of the countries and therefore
reduces the tax rate. The pre intra-group financing ongoing
expected weighted average tax rate is 25.6 per cent (2019 restated:
26.8 per cent) and this is reduced to a post intra-group financing
ongoing expected weighted average tax rate of 21.6 per cent (2019
restated: 19.8 per cent) following intra-group financing. The 1.8
per cent increase in the post intra-group financing ongoing
expected weighted average tax rate is primarily due to tax
reform.
2. This includes adjustments arising out of movements in
uncertain tax provisions regarding prior periods and differences
between the final tax liabilities in the tax computations and the
tax liabilities provided in the consolidated financial
statements.
3. This primarily relates to non-taxable disposal of
businesses.
4. This reflects management's assessment of the potential tax
liability for the current year in relation to open tax issues and
audits.
5. This relates to certain expenditure for which no tax relief
is available such as disallowable business entertaining costs and
legal/professional fees.
6. This relates to the change of the deferred tax rate to 19 per
cent from the previously enacted 17 per cent in the UK.
7. Ongoing profit means profit before tax, exceptional items,
the amortization and impairment of acquired intangible assets and
impairment of interests in associates for ongoing operations as
defined in note 2. Ongoing tax is the tax expense arising on
ongoing profit.
8. Non-ongoing and other profit or loss is profit or loss from
non-ongoing operations as defined in note 2 and from the
amortization and impairment of acquired intangible assets,
impairment of interests in associates and exceptional items.
Non-ongoing and other tax is the tax expense or credit arising on
the non-ongoing and other profit or loss and includes other
non-recurring tax items. In 2020, the non-ongoing and other credit
of $69 million relates primarily to exceptional restructuring
costs, tax deductable amortization in relation to intangible
assets, non-taxable disposal of businesses and the amortization of
loan premium.
6 - Dividends
Amounts recognized as distributions to equity shareholders:
2020 2019
$m $m
------------------------------------------------------------------------ ---- ----
Final dividend for the year ended July 31, 2018: 131.9 cents per share - 303
Interim dividend for the year ended July 31, 2019: 63.1 cents per share - 146
Final dividend for the year ended July 31, 2019: 145.1 cents per share 327 -
Interim dividend for the year ended July 31, 2020: nil - -
------------------------------------------------------------------------ ---- ----
Dividends paid 327 449
------------------------------------------------------------------------ ---- ----
After careful consideration, the Board decided to withdraw the
interim dividend for the year ended July 31, 2020 which was due for
payment on April 30, 2020 due to the significant uncertainty around
the impact and duration of the COVID-19 disruption.
Since the end of the financial year, the Directors have proposed
a final ordinary dividend of $466 million (208.2 cents per share)
which effectively reinstates the previously withdrawn interim
dividend. The dividend is subject to approval by shareholders at
the Annual General Meeting and is therefore not included in the
balance sheet as a liability at July 31, 2020.
Dividends are 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.
7 - Earnings per share
2020 2019
-------- ---------- ---------------- -------- ---------- ----------
Basic Basic Diluted
earnings Diluted earnings earnings earnings
Earnings per share per share Earnings per share per share
$m cents cents $m cents cents
------------------------------------------ -------- ---------- ---------------- -------- ---------- ----------
Profit from continuing and discontinued
operations attributable to shareholders
of the Company 961 427.5 423.5 1,108 481.3 477.8
Profit from discontinued operations (7) (3.1) (3.1) (47) (20.4) (20.3)
------------------------------------------ -------- ---------- ---------------- -------- ---------- ----------
Profit from continuing operations 954 424.4 420.4 1,061 460.9 457.5
Non-recurring tax credit relating to
changes in tax rates and other
adjustments (13) (5.7) (33) (14.3)
Amortization and impairment of acquired
intangible assets and impairment of
interests in associates
(net of tax) 119 52.9 91 39.5
Exceptional items (net of tax) 90 40.0 72 31.3
------------------------------------------ -------- ---------- ---------------- -------- ---------- ----------
Headline profit after tax from continuing
operations 1,150 511.6 1,191 517.4
------------------------------------------ -------- ---------- ---------------- -------- ---------- ----------
The weighted average number of ordinary shares in issue during
the year, excluding those held by Employee Benefit Trusts and those
held by the Company as Treasury shares, was 224.8 million (2019:
230.2 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 226.9 million (2019: 231.9 million).
8 - Intangible and tangible assets
Other intangible assets
----------------------------
Total
Acquired intangible and
intangible Property, tangible
Goodwill assets Software Total plant and equipment assets
$m $m $m $m $m $m
--------------------------------------- -------- ----------- -------- ----- -------------------- ---------------
Net book value at July 31, 2019 1,656 356 67 423 1,349 3,428
Adjustment on adoption of IFRS 16 - - - - (6) (6)
--------------------------------------- -------- ----------- -------- ----- -------------------- ---------------
Net book value at August 1, 2019 1,656 356 67 423 1,343 3,422
Additions - - 87 87 214 301
Acquisitions 78 138 13 151 19 248
Adjustment to fair value on prior year
acquisitions (14) 15 - 15 - 1
Disposals and transfers - - 6 6 (13) (7)
Depreciation and amortization - (130) (35) (165) (154) (319)
Impairment - - - - (5) (5)
Reclassification as held for sale - - - - (24) (24)
Exchange rate adjustment 1 1 3 4 9 14
--------------------------------------- -------- ----------- -------- ----- -------------------- ---------------
Net book value at July 31, 2020 1,721 380 141 521 1,389 3,631
--------------------------------------- -------- ----------- -------- ----- -------------------- ---------------
Goodwill and intangible assets acquired during the year have
been allocated to the individual cash generating units or
aggregated cash generating units (together "CGUs") which are deemed
to be the smallest identifiable group of assets generating
independent cash inflows. CGUs have been aggregated in the
disclosure below at a segmental level except for certain CGUs in
the USA which are considered to be significant (more than 10 per
cent of the current year goodwill balance). Impairment reviews were
performed for each individual CGU during the year ended July 31,
2020.
2020 2019
------------ -------------- -------------- -------- ------------ --------- --------- --------
Post-tax Pre-tax
Long-term Post-tax Pre-tax Long-term discount discount
growth rate discount rate discount rate Goodwill growth rate rate rate Goodwill
% % % $m % % % $m
-------------- ------------ -------------- -------------- -------- ------------ --------- --------- --------
Blended
Branches1 991 973
Waterworks 183 188
Rest of USA1 353 314
-------- --------
USA 2.2 8.1 10.8 1,527 2.2 9.3 12.6 1,475
UK 1.5 7.7 9.4 55 2.0 8.0 9.8 39
Canada 1.3 7.8 10.8 139 2.0 8.5 11.6 142
-------------- ------------ -------------- -------------- -------- ------------ --------- --------- --------
Total 1,721 1,656
-------------- ------------ -------------- -------------- -------- ------------ --------- --------- --------
1. Due to a reorganization of the reporting structure, a
component of the eBusiness CGU has been reallocated to the Blended
Branches CGU. As a result, the eBusiness CGU is no longer
considered to be significant and is not disclosed separately. The
comparative has been reclassified for comparability.
The relevant inputs, including key assumptions, to the value in
use calculations of each CGU are set out below.
Cash flow forecasts for years one to three are derived from the
most recent Board approved strategic plan. The forecast for year
five represents an estimate of "mid-cycle" trading performance for
the CGU based on historic analysis. Year four is calculated as the
average of the final year of the strategic plan and year five's
mid-cycle estimate. The other inputs include: a risk-adjusted
pre-tax discount rate, calculated by reference to the weighted
average cost of capital ("WACC") of each country and reflecting the
latest equity market risk factors; and the 30-year long-term growth
rate by country, as published by the IMF in April 2020.
The strategic plan is developed based on analyses of sales,
markets and costs at a regional level. Consideration is given to
past events, knowledge of future contracts and the wider economy.
It takes into account both current business and future initiatives.
The most recent strategic plans were approved by the Board in July
2020. The plans take into account the impact of COVID-19 on recent
trading and reflect the Board's latest expectations of future
trading activity in a post COVID-19 environment.
Management has performed a sensitivity analysis across all CGUs
which have goodwill and acquired intangible assets using reasonably
possible changes in the following key impairment review
assumptions: compound average revenue growth rate, post-tax
discount rate and long--term growth rate, keeping all other
assumptions constant. The sensitivity analysis included an
assessment of the break-even point for each of the key assumptions
and the break-even point was considered for reasonableness in light
of the recent impact of COVID-19 on the trading activities of the
business. The sensitivity testing identified no reasonably possible
changes in key assumptions that would cause the carrying amount of
any CGU to exceed its recoverable amount. As a result, management
do not believe that the key impairment review assumptions
constitute a major source of estimation uncertainty as they
consider that there is no significant risk of a material change to
its estimate of these assumptions within the
next 12 months.
9 - Leases
Movements in right of use assets for the period ended July 31,
2020 were as follows:
Land and buildings Plant and machinery Total right of use assets
$m $m $m
Net book value at July 31, 2019 - - -
Adjustment on adoption of IFRS 16 940 280 1,220
---------------------------------- ------------------ ------------------- -------------------------
Net book value at August 1, 2019 940 280 1,220
Acquisitions 28 2 30
Additions 54 61 115
Disposals and remeasurements 19 (3) 16
Depreciation charge for the year (191) (77) (268)
Impairment charge for the year (9) (1) (10)
Exchange rate adjustment 8 - 8
---------------------------------- ------------------ ------------------- -------------------------
Net book value at July 31, 2020 849 262 1,111
---------------------------------- ------------------ ------------------- -------------------------
The Group's land and building leases include leases for
branches, distribution centres and offices. Leases in the USA and
Canada often include one or more options to extend the lease term
and some of the Group's leases include options to terminate early.
Certain leases include variable lease payments that are linked to a
consumer price index or market rate. The Group's land and building
leases have a weighted average remaining lease term at July 31,
2020 of 5.9%.
The Group's plant and machinery leases include leases for fleet
vehicles, trucks and company cars. These leases have a weighted
average remaining lease term at July 31, 2020 of 4.5%.
The maturity of lease liabilities at July 31, 2020 was as
follows:
2020
$m
---------------------------------- -----
Due in less than one year 325
Due in one to two years 326
Due in two to three years 282
Due in three to four years 211
Due in four to five years 146
Due in over five years 218
---------------------------------- -----
Total undiscounted lease payments 1,508
Effect of discounting (153)
---------------------------------- -----
Lease liabilities 1,355
---------------------------------- -----
Current lease liabilities 281
Non-current lease liabilities 1,074
---------------------------------- -----
Lease liabilities 1,355
---------------------------------- -----
At July 31, 2020 the Group was committed to future undiscounted
lease payments of $nil relating to short term leases.
Amounts charged/(credited) to the Group income statement during
the year were as follows:
2020
$m
--------------------------------------------------- ----
Depreciation of right of use assets 268
Impairment of right of use assets 10
Short-term lease expense 15
Low-value lease expense 16
Sublease income (2)
--------------------------------------------------- ----
Charged to operating costs 307
Charged to finance costs 53
--------------------------------------------------- ----
Total amount charged to the Group income statement 360
--------------------------------------------------- ----
Operating lease commitments under IAS 17
Future minimum lease payments under non-cancellable leases for
the year ended July 31, 2019 were as follows:
2019
$m
---------------------------------------- -----
Less than one year 342
After one year and less than five years 631
After five years 153
---------------------------------------- -----
Total operating lease commitments 1,126
---------------------------------------- -----
10 - Borrowings
2020 2019
------- -------------- ----- ------- -------------- -----
Current Total Current Total
$m Non-current $m $m $m Non-current $m $m
---------------------------- ------- -------------- ----- ------- -------------- -----
Bank overdrafts 248 - 248 47 - 47
Senior unsecured loan notes 283 2,635 2,918 5 2,292 2,297
---------------------------- ------- -------------- ----- ------- -------------- -----
Total borrowings 531 2,635 3,166 52 2,292 2,344
---------------------------- ------- -------------- ----- ------- -------------- -----
In June 2020, the Group successfully issued $600 million of
10-year 3.25% notes maturing in June 2030 in the USA bond market.
At July 31, 2020 total USA bond debt was $1,350 million (2019: $750
million) which is held at par value.
The carrying value of the USPP senior unsecured loan notes of
$1,568 million comprises a par value of $1,530 million and a fair
value adjustment of $38 million (2019: $1,547 million, $1,530
million and $17 million respectively).
The Group applies fair value hedge accounting to debt of $355
million (2019: $355 million), swapping fixed interest rates into
floating interest rates using a series of interest rate swaps.
Included in bank overdrafts at July 31, 2020 is an amount of
$248 million (2019: $18 million) which is part of the Group's cash
pooling arrangements where there is an equal and opposite balance
included within cash and cash equivalents. These amounts are
subject to a master netting arrangement.
In April 2020, Ferguson Finance Plc was approved as an eligible
issuer under the Covid Corporate Financing Facility (CCFF), all
commercial paper issued under the CCFF was fully repaid in June
2020 and as a result there are no balances recognized in the
financial statements at the balance sheet date. The Group did not
utilize the funds that were previously drawn down under the
facility and Ferguson Finance Plc's CCFF eligibility expires in
October 2020. There are no unfulfilled conditions or contingencies
associated with the facility.
No bank loans were secured against trade receivables and the
trade receivables facility of $600 million was undrawn at July 31,
2020 and July 31, 2019.
There have been no significant changes during the year to the
Group's policies on accounting for, valuing and managing the risk
of financial instruments.
Non-current loans are repayable as follows:
2020 2019
$m $m
--------------------------- ----- -----
Due in one to two years - 282
Due in two to three years 250 -
Due in three to four years 150 250
Due in four to five years 150 150
Due in over five years 2,085 1,610
--------------------------- ----- -----
Total 2,635 2,292
--------------------------- ----- -----
11 - Reconciliation of profit to cash generated from
operations
Profit for the year is reconciled to cash generated from
continuing and discontinued operations as follows:
2020 2019
$m $m
------------------------------------------------------------------------------------------------ ----- -----
Profit for the year attributable to shareholders 961 1,108
Net finance costs 144 70
Share of loss/(profit) after tax of associates 2 (2)
Gain on disposal of interests in associates and other investments (7) (3)
Impairment of interests in associates 22 9
Tax charge 307 267
Loss/(gain) on disposal and closure of businesses and revaluation of assets held for sale 3 (53)
Amortization of acquired intangible assets 130 110
Amortization of non-acquired intangible assets 35 31
Depreciation and impairment of right of use assets 278 -
Depreciation and impairment of property, plant and equipment 159 147
Gain on disposal of property, plant and equipment, assets held for sale and right of use assets (3) (7)
Decrease/(increase) in inventories 19 (172)
Decrease/(increase) in trade and other receivables 210 (132)
(Decrease)/increase in trade and other payables (9) 227
Decrease in provisions and other liabilities (25) (25)
Share-based payments 26 34
------------------------------------------------------------------------------------------------ ----- -----
Cash generated from operations 2,252 1,609
------------------------------------------------------------------------------------------------ ----- -----
12 - Acquisitions
The Group acquired the following businesses during the year
ended July 31, 2020, which are all engaged in the distribution of
plumbing and heating products and were acquired to support growth
in the USA and UK. All transactions have been accounted for by the
acquisition method of accounting.
Name Date of acquisition 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 Sales Corporation November 2019 USA Shares 100
Columbia Pipe & Supply Co March 2020 USA Shares 100
Rencor Controls, Inc March 2020 USA Assets 100
MFP Design, LLC March 2020 USA Assets 100
------------------------------------ -------------------- ------------------------- ------------------ ----------
The assets and liabilities acquired and the consideration for
all acquisitions in the year are as follows:
2020 2019
$m $m
------------------------------------------- ---- ----
Intangible assets
Software 13 -
Trade names and brands 34 19
Customer relationships 101 202
Other 3 3
Right of use assets 30 -
Property, plant and equipment 19 95
Inventories 58 122
Trade and other receivables 62 93
Cash, cash equivalents and bank overdrafts 6 11
Obligations under finance leases - (3)
Lease liabilities (30) -
Trade and other payables (28) (71)
Deferred tax (11) (33)
Provisions (2) (2)
--------------------------------------------------- ---- ----
Total 255 436
Goodwill arising 78 259
--------------------------------------------------- ---- ----
Consideration 333 695
--------------------------------------------------- ---- ----
Satisfied by:
Cash 321 656
Deferred consideration 12 39
--------------------------------------------------- ---- ----
Total consideration 333 695
--------------------------------------------------- ---- ----
The fair values acquired are provisional figures, being the best
estimates currently available. Further adjustments may be necessary
when additional information is available for some of the judgmental
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 additional profitability
and operating efficiencies available in respect of existing
markets.
The acquisitions contributed $185 million to revenue, $15
million to trading profit, $17 million loss to the Group's
operating profit, $24 million loss to the Group's profit before tax
and $18 million loss to the Group's profit after tax 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 $21,993 million,
continuing trading profit would have been $1,686 million,
continuing operating profit would have been $1,419 million,
continuing profit before tax would have been $1,253 million and
continuing
profit after tax would have been $949 million.
The net outflow of cash in respect of the purchase of businesses
is as follows:
2020 2019
$m $m
---------------------------------------------------------------------------- ---- ----
Purchase consideration 321 656
Deferred and contingent consideration in respect of prior year acquisitions 36 12
---------------------------------------------------------------------------- ---- ----
Cash consideration 357 668
Cash, cash equivalents and bank overdrafts acquired (6) (11)
---------------------------------------------------------------------------- ---- ----
Net cash outflow in respect of the purchase of businesses 351 657
---------------------------------------------------------------------------- ---- ----
13 - Reconciliation of opening to closing net debt
Total cash, cash equivalents and bank
Cash and cash equivalents Bank overdrafts overdrafts Derivative1 financial instruments Loans1 Obligations1 under finance leases Net debt excluding lease liabilities Lease1 liabilities Net debt including lease liabilities
$m $m $m $m $m $m $m $m $m
--------------- ------------------------- --------------- ------------------------------------- --------------------------------- ------- --------------------------------- ------------------------------------ ------------------ ------------------------------------
At July 31,
2018 833 (375) 458 (2) (1,530) (6) (1,080) - (1,080)
Cash movements
Proceeds from
loans and
derivatives - (7) (750) - (757) - (757)
Repayments of
loans - - 2 - 2 - 2
Finance lease
capital
payments - - - 3 3 - 3
Changes in
net debt due
to disposal
of
businesses (1) - - - (1) - (1)
Changes in
net debt due
to
acquisition
of
businesses 11 - - (3) 8 - 8
Other cash
flows 628 - - - 628 - 628
Non-cash
movements
Fair value
and other
adjustments - 25 (26) - (1) - (1)
Exchange
movements (10) 6 7 - 3 - 3
--------------- ------------------------- --------------- ------------------------------------- --------------------------------- ------- --------------------------------- ------------------------------------ ------------------ ------------------------------------
At July 31,
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 August 1,
2019 1,133 (47) 1,086 22 (2,297) - (1,189) (1,481) (2,670)
Cash movements
Proceeds from
loans and
derivatives - (7) (1,162) - (1,169) - (1,169)
Repayments of
loans - - 566 - 566 - 566
Lease
liability
capital
payments2 - - - - - 295 295
Interest paid
on lease
liabilities2 - - - - - 53 53
Changes in
net debt due
to
acquisition
of
businesses 6 - - - 6 - 6
Other cash
flows 771 - - - 771 - 771
Non-cash
movements
Lease
liability
additions - - - - - (115) (115)
Changes in
lease
liabilities
due to
acquisition
of
businesses - - - - - (30) (30)
Discount
unwinding on
lease
liabilities - - - - - (53) (53)
Fair value
and other
adjustments - 28 (20) - 8 (16) (8)
Exchange
movements 4 (4) (5) - (5) (8) (13)
--------------- ------------------------- --------------- ------------------------------------- --------------------------------- ------- --------------------------------- ------------------------------------ ------------------ ------------------------------------
At July 31,
2020 2,115 (248) 1,867 39 (2,918) - (1,012) (1,355) (2,367)
--------------- ------------------------- --------------- ------------------------------------- --------------------------------- ------- --------------------------------- ------------------------------------ ------------------ ------------------------------------
1. Liabilities from financing activities.
2. Total cash outflow in relation to leases including short-term
leases, leases of low value assets and sublease
income in the year ended July 31, 2020 was $377 million.
14 - Exchange rates
The results of overseas subsidiaries have been translated into
US dollars using average rates of exchange. The year end rates of
exchange have been used to convert balance sheet amounts. The
principal currencies impacting the full year results announcement
are as follows:
2020 2019
--------------------------------- ---- ----
Pounds sterling translation rate
Income statement 0.79 0.78
Balance sheet 0.76 0.82
Canadian dollar translation rate
Income statement 1.35 1.32
Balance sheet 1.34 1.32
--------------------------------- ---- ----
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September 29, 2020 02:00 ET (06:00 GMT)
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