2nd Oct 2018 11:26
LONDON (Alliance News) - Ferguson PLC's poor UK performance clouded the strong outcome by the company's operations in the US, Canada and Central Europe.
Shares in the blue chip building materials distribution company were down 4.8% at 6,216.00 pence on Tuesday, the second worst performer in the FTSE 100.
For the year to the end of July, pretax profit fell to USD1.19 billion from USD1.42 billion the year before, due to a USD122 million impairment relating to its shareholding in Meier Tobler Group AG, which suspended dividends until 2020 due to difficult trading conditions.
Trading profit - adjusted operating profit - for the year rose by 15% to USD1.51 billion from USD1.31 billion, due to strong performances in the US and Canada & Central Europe regions, the former due to a strong residential, commercial and industrial market.
Revenue was USD20.75 billion, up 7.6% from USD19.28 billion the prior year.
Ferguson's trading performance was largely in line with market consensus expectations, which predicted trading profit for the year to reach USD1.50 billion, and revenue to reach USD20.66 billion.
The US remained Ferguson's biggest contributor and highest performer in the year, with revenue rising by 11% to USD16.67 billion from USD14.98 billion, with all business units gaining market share, especially the Industrial business, which grew strongly in a good market, as well as benefiting from two large capital projects.
"Ferguson is essentially a US company now with its legacy UK plumbing and heating distribution business making up only 12% of group revenues and 5% of group trading profit," said Shore analyst Greame Kyle
Canada & Central Europe rose by 9.2% in revenue to USD1.51 billion from USD1.32 billion the year before, with new acquisitions contributing 2.5% to growth.
After the year-end, Ferguson started a process to dispose of Wasco, its remaining business in Central Europe. The group said that although the business had consistently produced a strong performance, there were no real synergies for it with other businesses in the group.
However, the UK markets remained challenging, as revenue dropped by 5.3% to USD2.57 billion from USD2.55 billion, due to the closure of branches and the exit of low margin wholesale businesses.
The group is continuing with its restructuring programme first started in March, with Mark Higson appointed to lead the business throughout the programme. So far category management has been improved, the logistics and supply chain reconfigured and the branch network and distribution centre capacity.
"Sometimes management teams can be forgiven for wondering quite what they have to do to keep shareholders happy and Ferguson’s chief executive John Martin may be asking himself that very question today," said AJ Bell Investment Director Russ Mould.
"Investors' concerns seem to focus on the UK and a comment about September's sales growth rate coming in a little below that of August. UK organic sales fell 0.1% year-on-year in the fourth quarter, the second drop in three, and by more than that, if the effect of branch closures and business disposals are taken into account. However, a restructuring is already under way in the UK and it is by no means impossible that Ferguson could one day look to sell the operation," Mould added.
Ferguson declared a full year dividend of 189.3 cents per share, up 21% from 156.4 cents the year before. In addition, during the year the group returned USD2.0 billion to shareholders through dividends and buybacks.
Ferguson said for the first eight weeks of its current financial year, organic revenue growth was in line with overall growth rate the year before, even as September growth was slower compared to August's. Judging my growth in its order books, Ferguson has suggested that there will be continued growth in the months ahead.
"In the USA, which generated 90% of group trading profit, all businesses grew well and continued to gain market share, with the Industrial business having a particularly strong year. Markets in the US and Canada have remained good throughout the year despite recent inflationary pressures, though the UK remains tough," said Chief Executive John Martin.
"We continue to execute our strategy to allocate resources to markets and businesses where we are best equipped to win. Our focus remains on investing in organic growth, supplemented by selective bolt-on acquisitions where we can expand our leadership positions or invest in capabilities to extend the value of our brand," Martin added.
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