Ferguson delivered a strong and resilient trading result for the year, achieved despite the pandemic which started to emerge from March 2020 onwards.
- 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 restoring 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.
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.”
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.
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 Group continued to generate strong cash flows with cash generated from operations of $1,904 million1 (2019: $1,609 million). Working capital was well controlled with a particularly good receivables performance. Net interest1 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.
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