Welcome to
Ferguson plc
Annual Report and Accounts 2017
Contents
In this year’s report
02–11
What makes Ferguson
a great business
1
2
3
4
5
We operate
in attractive,
fragmented
markets
We work
in an
industry with
compelling
growth
opportunities
We offer our
customers
unrivalled
scale
We recruit
and retain the
best people,
with a passion
for customer
service
We use
technology
to give
customers
choice and
flexibility
13
Well positioned
for future growth
Gareth Davis
Chairman
12
16
Another good year
Ongoing revenue**
Revenue
Ongoing gross margin**
Ongoing trading profit**
Profit before tax
Headline earnings per share***
2017
Change
£14,878m
+22.5%
£15,224m
+21.3%
28.9%
+0.4%
£1,032m
+24.8%
£1,180m
+74.8%
288.9p
+23.1%
Continued strategic
development
John Martin
Group Chief Executive
Fulfilling
customer wants
Attractive
growth
opportunities
Excellent
execution
IFC*–49
Strategic report
50–84
Governance
85–137
Financials
138–146
Other information
Governance overview
86 Group income statement
138 Five-year summary
87 Group statement of
comprehensive income
87 Group statement of changes in equity
88 Group balance sheet
140 Group companies
142 Shareholder information
145 Group information
146 Forward-looking statements
IFC Contents
01 Welcome to Ferguson plc
51
52
Board of Directors
Highlights
54 How the Board operates
Chairman’s statement
56
Ferguson’s governance structure
Ferguson at a glance
57 What the Board has done
12
13
14
16
Group Chief Executive’s review
19 Marketplace overview
20 Our business model
22
26
28
34
38
42
Key resources and relationships
Key performance indicators
Regional performance
Sustainability
Financial and operating review
Principal risks and their management
during the year
89 Group cash flow statement
58
Evaluating the performance
of the Board of Directors
90 Notes to the consolidated
financial statements
59
Relations with shareholders
128 Independent auditor’s report
60 Audit Committee
64 Nominations Committee
66 Directors’ Report – other disclosures
69 Directors’ Remuneration Report
to the members of Ferguson plc
134 Company profit and loss account
134 Company statement of
changes in equity
135 Company balance sheet
136 Notes to the Company
financial statements
* IFC – Inside front cover.
** These are reported on an ongoing basis and represent Alternative Performance Measures (“APMs”), see page 12 and note 2 on pages 91 and 92 for further information.
*** Headline earnings per share is an APM, see page 12 and note 2 on pages 91 and 92 for further information.
Strategic report
Governance
Financials
Other information
Welcome to Ferguson plc
What’s in a name?
Our new name recognises the size and
importance of Ferguson in the USA which today
generates nearly 90 per cent of the Group’s
trading profit. It’s also about the Ferguson culture
that puts people and customers first, resulting
in the highest levels of quality, service and efficiency
for over sixty years.
Our customers rely on us every day and our
specialist products and services are used in almost
every stage of commercial, residential, industrial
and municipal development. We help them find the
best combination of services and solutions to
save them time and money. Whatever the challenge,
we work closely with our customers to help
them run their businesses more effectively and
save them time and money.
Over the following pages we celebrate our
new name by focusing on the strengths and
opportunities inherent in our US business which we
believe will generate sustainable profitable growth
and strong returns for our shareholders.
Welcome to Ferguson plc.
Ferguson plc Annual Report and Accounts 2017
01
1
What makes Ferguson a great business
We operate in attractive,
fragmented markets
As the largest distributor of plumbing and
heating products in the USA, we hold
leading market positions in the majority of
our businesses. These markets are typically
highly fragmented with few large
competitors and we compete with many
small local distributors.
Consequently, there continues to
be excellent opportunities to grow our
business geographically, particularly in large
metropolitan areas across the USA.
Page 19
02
Case study
Blended Branches is the
Number 1 distributor of plumbing
and heating products in the
USA with an estimated market
share of 17 per cent.
There are only three national
competitors with a market share
above 5 per cent with the majority
of supply houses being small local
distributors. Market share varies
across the USA from low single
digit in some states to high twenties
in others.
There are numerous opportunities
in highly populated regions in the
USA for us to grow our business.
For example in the north east
Ferguson has relatively low market
share with many huge metro
markets still relatively unpenetrated.
These include New York and Boston
which are some of the largest
metro markets in the USA.
We are now targeting accelerated
growth plans in these regions
and many others across the USA.
For information on the USA business
units and our international operations
see pages 14 and 15.
3There are only three national
competitors with a market share
above 5 per cent
03
2
What makes Ferguson a great business
We work in an industry with compelling
growth opportunities
Our strong service ethic combined with
scale advantages in logistics, supply chain
and technology, means we have consistently
gained market share to generate strong
profitable growth. Acquiring regional
or local competitors where we can rapidly
integrate them into our supply chain makes
bolt-on acquisitions highly attractive.
Other growth opportunities lie in
developing new adjacent businesses such
as Facilities Supply and B2C e-commerce
where we can utilise our existing skills,
capabilities and infrastructure.
Pages 17, 19 and 40
04
Case study
Our Facilities Supply business
provides our customers with
products and services used in the
repair, maintenance, replacement
and renovation of their facilities
with key product categories
including janitorial supplies,
hardware, heating ventilation
and air conditioning (“HVAC”),
lighting, plumbing, paint and
safety equipment.
The newest business group in the
USA operates in a c. $90 billion
addressable market that was
historically served by a highly
fragmented, localised base of
competitors. Our aim is to become
the market leader and we are
well positioned to capture market
share through our product mix,
national network, technology,
supplier relationships and talent
development programme.
Growth will continue to be
enhanced through both organic
business development and
targeted acquisitions that add to our
geographical capabilities, expand
our customer base and bring
talented associates into the business.
We strongly believe we will gain
market share and grow profitably
in this attractive market.
$90bn
The Facilities Supply market in the
USA is highly fragmented and estimated
to be worth circa $90 billion
05
3
What makes Ferguson a great business
We offer our customers
unrivalled scale
Our highly efficient national logistics and
distribution network enables us to achieve
volume discounts from suppliers and the
highest levels of availability for our customers
on a broad range of products.
We continue to invest in the latest
technology solutions to make us an even
more efficient business and to save time
and resources for our customers.
Pages 20 to 25
06
281,000
The new 281,000 square foot
facility will support the high growth
rate in the region
Case study
Our Texas distribution hub based in
Euless, near Dallas, was at capacity
due to increasing growth in the
region over the last two years.
The logistics operation was being
run from two separate buildings, with
more than 20 storage containers, and
an appliance warehouse in the Dallas
Fort Worth region. A solution was
found in a new Market Distribution
Centre (“MDC”) which centralises
the “final mile” logistics to customers
for the whole region from one
large location.
The new 281,000 square foot facility
will support the high growth rate in the
region with more capacity and better
operating efficiencies. Ideally situated
in the heart of the market, the MDC
drives scale and also enables local
branches to concentrate on sales and
service to customers.
This is Ferguson’s third MDC
installation in 18 months with two
others now fully operational in
the New York and San Francisco
metro regions.
07
4
What makes Ferguson a great business
We recruit and retain the best people,
with a passion for customer service
The knowledge and service our associates
provide is what our customers value.
Our dedication to provide unrivalled service
is the key Ferguson differentiator and it
will continue to be our focus by providing
the best trained workforce in the industry.
Employee engagement is key to delivering
outstanding service and our highly-structured
career development programmes, together
with specialist training for our associates,
is a primary driver behind achieving
industry leading net promoter scores.
Pages 22 to 24
08
+3,000
Over 3,000 current Ferguson
“University” Graduates in the USA
Case study
In the USA, our Industrial Group
welcomed their first cohort
of trainees at a newly designed,
state-of-the-art training facility
in Richmond, Virginia.
The Industrial Group University is
a five month, concentrated training
programme designed to provide
trainees with knowledge and hands-
on experience, allowing them to
successfully integrate into our sales
force. Centralising the training
programme allows trainees to focus
on the learning process, while
improving the speed to efficacy.
Trainees follow a specified curriculum
which aims to accelerate their
knowledge of products, business
systems, sales processes, industry
standards and safety regulations while
learning about our culture.
Upon completion of the programme,
trainees are well positioned to
contribute as highly functional sales
associates and deliver the excellent
customer service expected as
a sales associate.
For more information on talent
development see page 22.
09
5
What makes Ferguson a great business
We use technology to give customers
choice and flexibility
E-commerce has grown rapidly with
22 per cent of revenue in the USA now
generated online. Our omni-channel approach
gives our customers the choice of how they
want to do business with us; through traditional
bricks and mortar, for consultations and
to interact with products, or through the
latest e-business platforms where we offer
virtual help and advice and access to our
product range 24/7.
We are continually developing and
improving technology to make it quicker
and easier for our customers to do
business with us.
Pages 17, 24 and 25
10
Case study
Like the rest of Ferguson, the
HVAC business is making rapid
progress converting customers and
integrating our online channels into
their business.
27 per cent of HVAC revenue is
already generated from online
channels and this grew 20 per cent
last year. This included an increase
in system-to-system integration
that creates many efficiencies for
our customers including placing
orders and managing their accounts
online. Many HVAC contractors have
installed order processing systems
which are integrated with their
general ledgers.
We are able to integrate them with
our own order processing system to
save our customers time and money.
E-commerce makes us more efficient
with fewer manual processes and
customers order more when they
purchase their products online.
11
27%HVAC is generating 27 per cent
of its revenue from online orders
Highlights
Another good
year for the Group
In 2016/17 Ferguson delivered good revenue and trading profit
growth supporting our commitment to improve shareholder returns.
£14,878m
Revenue*
+22.5%
£15,224m
Revenue
+21.3%
353.4p
Continuing basic
earnings per share
+92.8%
Ongoing operations*
28.9%
Gross margin*
+0.4%
Continuing operations
29.0%
Gross margin*
+0.4%
288.9p
Headline earnings
per share*
+23.1%
£1,032m
Trading profit*
+24.8%
£1,180m
Profit before tax
+74.8%
110p
Ordinary
dividend
+10.0%
* The Group uses Alternative Performance Measures (“APMs”),
which are not defined or specified under International Financial
Reporting Standards (“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. Unless otherwise stated,
all financial information on the inside front cover to page 49 of the Strategic
report are reported on an ongoing basis. Ongoing is an APM and excludes
businesses that have been closed, disposed of or held for sale.
For further information on APMs, including a description of our policy,
purpose, definitions and reconciliations to equivalent IFRS statutory
measures see note 2 on pages 91 and 92.
12
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Chairman’s statement
Well positioned
for future growth
2016/17 has been a year of substantial progress under the stewardship
of John Martin in his first year as Group Chief Executive. The Group has
again delivered a good set of financial results and John has provided fresh
impetus to the rapid execution of our strategy, in particular prioritising
investment and focus on our largest growth opportunity in the USA,
commencing the transformation plan in the UK and the Nordics disposals.
Gareth Davis
Chairman
Key
highlights
Good trading
performance
Orderly
succession
completed of
Group CFO
and USA CEO
Increased
total ordinary
dividend to
110.0 pence
(2015/16: 100.0
pence) and share
buyback of
£500 million
Name change
Let me start out by welcoming
shareholders to this the first Annual
Report of Ferguson plc. We changed our
name from Wolseley plc to the name of
our business in the USA on 31 July 2017.
We strongly believe that the Ferguson
name is much more reflective of the
Group today with 89 per cent of our
trading profit generated in the USA.
Board changes
Mike Powell joined the Group as Chief
Financial Officer (“CFO”) on 1 June 2017
and he brings a wealth of experience
having worked in a variety of senior
finance positions. He has spent many
years running large businesses in
North America which will stand him in
good stead in his career at Ferguson.
Dave Keltner’s appointment as Interim
CFO last year, after 10 years as CFO
of the USA, enabled us to conduct a
thorough search for a suitable long-term
CFO and execute an orderly handover
of responsibilities to Mike.
Frank Roach, formerly Chief Executive of
the USA, also retired this year. Frank had
a remarkable career with Ferguson, joining
the business 41 years ago. In particular,
his tenure as Chief Executive for the
last eight years has been outstanding,
achieving sustained rapid growth and
record trading margins.
On behalf of the Board I’d like to
thank both Frank and Dave for their
significant contributions to the Group’s
success and wish them both long and
happy retirements.
Kevin Murphy succeeded Frank on
1 August 2017. Kevin joined the business
in 1999 and spent the last 10 years as the
Chief Operating Officer of the USA.
He has a great track record of
driving profitable growth and a deep
understanding of the business which
makes him the ideal Executive to drive
our future growth and development.
While the Group has made excellent
progress in developing our e-commerce
platforms, the Board is aware of the need
to stay vigilant to future potential threats
and opportunities in the digital space.
Nadia Shouraboura was appointed
as a Non Executive Director on 1 July
2017 and has spent her entire career
working in and running large international
e-commerce businesses including eight
years at Amazon.com Inc. Nadia will
provide support, challenge management
and assist in capitalising on the significant
opportunities in the years ahead.
Governance
The Company remains UK-listed and
meets the requirements of the regulations
published by the UK Government
concerning narrative and directors’
remuneration reporting. We continue
to meet these disclosure requirements,
monitor developments and adopt best
practice in corporate governance.
We describe how we have applied the
UK Corporate Governance Code’s main
principles in the Governance section of
this report on pages 50 to 84. The Board
places great emphasis on providing clear
and transparent reporting and believes
this Annual Report is fair, balanced
and understandable.
Shareholder returns
The Board is committed to maximising
long-term shareholder value. We are
recommending a final dividend of 73.33
pence per share (2015/16: 66.72 pence
per share), to be paid on 1 December
2017 to shareholders on the register
at 27 October 2017.
This will bring the total dividend for the year
to 110.0 pence per share (2015/16: 100.0
pence per share) representing a year-on-
year increase of 10.0 per cent.
Our investment priorities remain focused
on achieving organic growth, funding
the ordinary dividend through the cycle
and investing in bolt-on acquisitions that
meet our stringent investment criteria.
The Board has a progressive dividend
policy for future payouts, with the aim
of increasing dividends in line with the
long-term underlying growth in earnings.
Any surplus cash after meeting these
investment needs will be returned
to shareholders.
Reflecting management’s confidence
in the business and the continuing strong
cash generation of the Group, the Board
considers that the Group has surplus
cash resources available. The Group
will now commence a £500 million share
buyback programme with the intention
to complete this within the next 12 months.
Our balance sheet remains strong and
the Group will continue to target net debt
in the range of 1x to 2x EBITDA, consistent
with investment grade credit metrics.
People
On behalf of the Board, I would like to
thank all our associates for their hard work,
enthusiasm and dedication throughout
the year. It is the service they provide
that delivers continually improving results
for the Group and creates value for
customers, suppliers and shareholders
every year.
Gareth Davis
Chairman
Ferguson plc Annual Report and Accounts 2017
13
Ferguson at a glance
The shape of our
business today
Ferguson plc is the world’s largest specialist distributor of plumbing
and heating products. Today the business is primarily located in the
USA serving mainly repairs, maintenance and improvement markets.
We are in the process of disposing of our Nordics business which has
been classified as discontinued (see note 8, page 98).
Revenue
£11,824m
8.0%
Trading margin*
23,986
Associates
1,423
Branches
Key brands
USA
Business units
5
4
3
2
Revenue by
business unit
1 Blended Branches
2 Waterworks standalone
3 B2C e-commerce
4 HVAC standalone
5 Other (Industrial standalone,
Fire and Fabrication and
Facilities Supply)
Blended Branches
Provides plumbing and heating solutions
to customers across the residential
and commercial sectors for Repairs,
Maintenance and Improvement (“RMI”)
and new construction.
HVAC standalone
Distributes heating, ventilation, air
conditioning and refrigeration equipment
to specialist contractors, predominantly
in the residential and commercial markets
for repair and replacement.
1
60%
16%
7%
7%
10%
Waterworks standalone
Distributing pipe, valves and fittings
(“PVF”), hydrants, meters and related water
management products alongside related
services including water line tapping and
pipe fusion.
B2C e-commerce
Sells directly to consumers via websites
predominantly using the product range
and distribution network of the Blended
Branches business. The majority of our
B2C business is conducted through
www.build.com.
Industrial standalone
Distributes PVF products to
industrial customers.
Fire and Fabrication
Fabricates and supplies fire protection
systems primarily to commercial
contractors for new construction projects.
Facilities Supply
Provides products, services and solutions
to enable reliable maintenance of facilities
across multiple RMI markets.
* Trading margin is an APM, see note 2 on pages 91 and 92 for further information.
14
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Canada and
Central Europe
7%
UK
14%
Group
revenue
Canada and
Central Europe
4%
UK
7%
Group
trading
profit
USA
79%
USA
89%
4
3
Our
end
markets
2
6
1
5
7
1
Our
customer
mix
2
4
3
1 Residential
2 Commercial
3 Civil/Infrastructure
4 Industrial
~50%
~35%
~7.5%
~7.5%
13%
1 Building contractors
2 Plumbing and heating engineers 22%
3 Utilities
16%
4
Heating, ventilation and
air conditioning
5 Industrial
6 Mechanical contractors
7
End-users
8%
11%
22%
8%
UK
£2,012m
3.8%
Revenue
Trading margin*
Canada and
Canada and
Central Europe
Central Europe
£1,042m
4.3%
Revenue
Trading margin*
5,900
Associates
642
Branches
2,862
Associates
245
Branches
Key brands
Key brands
Ferguson plc Annual Report and Accounts 2017
15
Group Chief Executive’s review
Continued
strategic development
I am pleased to report a good financial performance in 2016/17
with all of our ongoing businesses ahead of last year and a particularly
pleasing result in the USA where we achieved good trading profit growth.
We also made rapid progress with our strategic development focusing
more of our resources on the USA to accelerate profitable growth.
We’re continuing to work hard to improve returns in the international
businesses, particularly in the UK, and to complete the previously
announced disposal of our Nordic business.
John Martin
Group Chief
Executive
Group revenue
was 6.0 per cent
ahead of
last year on
a like-for-like
basis at
£14,878 million
What’s been the highlight
of the year?
I began my first year as CEO with
two months visiting our operations
across the Group and listening to our
associates. Their enthusiasm for serving
our customers to the highest standards
and furthering our strategic objectives
is extremely motivating. Their passion
for our business and relentless focus to
improve it makes the Group what it is
today: the largest and most successful
distributor of plumbing and heating
products in the world. These results are
a testament to their commitment.
How did the Group perform
this year?
Ongoing revenue of £14,878 million was
22.5 per cent ahead of last year (2015/16:
£12,146 million) and 6.0 per cent ahead
on a like-for-like basis*. Our gross
margins were 40 basis points ahead
of last year as we continue to focus
on a better mix of higher value-added
products and services and improving
our purchasing terms. The Group’s
operating expenses were 10.1 per cent
higher at constant exchange rates* which
included 2.6 per cent from acquisitions.
Ongoing trading profit was 24.8 per
cent ahead of last year at £1,032 million
(2015/16: £827 million) which included
a £122 million benefit from foreign
exchange movements.
Statutory profit before tax of £1,180 million
(2015/16: £675 million) is after exceptional
gains from disposals and losses from
impairments and restructuring costs.
To read more about our financial
performance see pages 26 to 33 and
38 to 41.
Our first priority is to ensure that we
capitalise on this opportunity. However,
that doesn’t mean our international
businesses are not important. Whilst
they are smaller, they make an important
contribution to the Group. They do not
detract from our focus and we will continue
to develop and invest in them too.
Why did you change
the name of the Group
to Ferguson?
The majority of our associates work
in the USA, which also serves nearly
800,000 customers so it made sense to
change and align the name of the Group
with our largest operation. The name
change will help us continue to raise
our profile in the USA and establish the
strongest connection possible between
our stakeholders and our market leading
brand there.
Will the Group eventually
operate exclusively in
the USA?
The allocation of capital and other
resources to those businesses capable
of generating the best returns for
shareholders is an important principle.
Funding growth and investment in the
USA will continue to be our highest
priority because we generate the best
returns for shareholders in this market.
The plumbing and heating market in the
USA is a huge opportunity for us: it is a
large, attractive and fragmented market
with excellent growth prospects.
The Group will present
its 2017/18 financial
statements in US dollars.
How will shareholders
benefit from this?
The vast majority of our mix of trading
profit is generated in the USA so it makes
sense to report our financial results in
US dollars. Doing so will reduce volatility
in our results in terms of the translational
impact of foreign exchange and our
results will better reflect the underlying
performance of our business. We will
also give shareholders a choice between
receiving ordinary dividends in US
dollars or in pounds sterling which they
will be able to do from April next year.
Turning to strategy, last year
you set out three priorities.
How would you summarise
your progress on each?
Priority one – generate the best
profitable growth in the USA.
The business in the USA had a good
year especially when you consider the
headwinds we faced in the first half of
the year from commodity price deflation
and weak industrial markets.
* Like-for-like revenue growth and growth at
constant exchange rates are APMs, see note 2
on pages 91 and 92 for further information.
16
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Drivers of profitable growth
Fulfilling
customer wants
Attractive
growth
opportunities
Excellent
execution
Our associates responded positively
and we generated stronger growth
in the second half with the return of
modest price inflation and a recovery
in industrial end-markets. As we start
the new financial year we’re generating
good growth in all of our end-markets
and the regional picture of growth across
the USA is encouraging. At the same
time as accelerating revenue growth
we’re continuing to expand our gross
margins through driving benefits of scale
in areas such as sourcing, increasing
own label sales and better pricing
discipline. We’re also continuing to invest
in future growth by developing more
efficient operating models including
world-class e-commerce platforms,
building our brands and investing in
adjacent businesses such as Facilities
Supply. So overall, we feel that we
have made good progress in driving
profitable growth.
Priority two – execute UK turnaround
and repositioning plan.
We’re about a year into the
implementation of our transformation
plan in the UK and we expect that it
will take a further two years to complete
so it’s still early days. We’ve made good
progress this year and we are carefully
implementing the key initiatives to
ensure we minimise disruption to our
customers while continuing to execute
at pace.
Milestones next year include continuing
the reconfiguration of the branch
network, logistics and supply chain,
simplification of the product range and
the roll out of sign on glass technology.
Engaged
associates
Organic
expansion
Well trained, highly engaged
associates deliver excellent
customer service. A relentless
focus in this area drives
customer loyalty.
We want to accelerate
profitable growth through
above market revenue
growth and targeted branch
expansion.
Excellent
service ethic
Bolt-on
acquisitions
We complement our organic
growth strategy with bolt-on
acquisitions which are rapidly
integrated into our network to
deliver attractive returns.
Adjacent
opportunities
We will utilise our existing
knowledge, skills and
infrastructure to capitalise
on new market opportunities.
For example Facilities Supply
and our B2C e-commerce
businesses.
Our aim is to provide the
best customer service in the
industry, consistently across
branches and regions.
Strong sales
culture
We will continue to drive
a strong sales culture.
When our associates are
proud and confident about
our services, and have the
best tools, knowledge and
data to support them, we will
achieve the strongest results.
They engage with existing
and new customers to make
sure we are front of mind when
it comes to bids for work.
Related to the above drivers of profitable growth
Key performance indicators:
Principal risks:
Pages 26 and 27
Pages 42 to 49
Operating model
and e-commerce
development
We need to ensure that our
operating model is agile
and flexible so it can adapt
to changing customer needs
and that we are able to flex our
cost base when required.
Increasingly our customers
want to deal with us online and
we must ensure we have the
leading e-commerce platform
in each market in our industry.
Pricing
discipline
We will work constantly to
understand our customers’
needs more accurately and
structure our pricing to be fair,
consistent and transparent.
Own label
penetration
We will systematically
build upon and extend our
portfolio of private label brands
which in 2016/17 represented
6.7 per cent of Group revenue.
We have an opportunity to
offer a wider range of own label
products to our customers,
some of which attract higher
gross margins.
Ferguson plc Annual Report and Accounts 2017
17
Group Chief Executive’s review continued
Once we’ve delivered the plan we are
confident we will have built a better,
more profitable business by simplifying
our customer propositions, lowering
the cost base and optimising the supply
chain and branch network. You can read
in more detail about the transformation
plan in the UK operating review on
page 32.
Priority three – review Nordic
operational strategy and restore the
business to profitable growth.
We concluded the review of Nordic
operating strategy in March 2017,
identifying a clear and executable plan to
return the business to profitable growth.
However, there are few synergies with
the rest of the Group’s plumbing and
heating activities and we have initiated
a process to exit our building materials
business in the region which is on track.
In August 2017 we completed the sale
of Silvan, the Danish DIY chain.
Thinking about the strategy
in more detail you also
talked last year about the
importance of achieving
excellent execution in some
key areas. How are you
making progress here?
This year we have further refined our
drivers of profitable growth (see page 17)
which set out how we will win in our local
markets, outperform our competitors
and drive strong financial results.
Our businesses are not homogeneous
and they require customised strategies
and each of our business units
are prioritising them appropriately,
depending on their local market and
competitive environment.
Highlights this year include excellent
growth in our e-commerce businesses
which now generates 20 per cent of
Group revenue. We continue to see
e-commerce as an efficient way to meet
the needs of our customers using the
current branch and logistics network
without adding extra branch capacity.
We are gaining momentum in the
acceleration of own label in our
businesses and in the USA it now
represents 6.9 per cent of overall
revenues (2015/16: 5.8 per cent). We
are continuing to invest in our operating
model, including further investment in
our customer relationship management
(“CRM”) platforms, master data and order
management systems this year.
On the logistics and supply chain side we
added new market distribution centres
in Euless, Texas and San Francisco,
California this year and we have plans
for three more in 2018. We are continuing
to roll out our university training courses
in the USA to ensure we have the best
trained associates in the industry which
we believe is key to delivering world
class customer service (see page 22
for more information).
Throughout this Annual Report we have
also outlined how our strategy drives
our thinking in all aspects of how we do
business from how the Board operates
and corporate governance to KPIs,
principal risks and sustainability.
What changes have you
made in your senior team
this year?
I’d like to express my own thanks (in
addition to the Chairman’s comments) in
recognising the significant contributions
of Frank Roach and Dave Keltner who
retired this year. Both were fundamental
to the strong growth and excellent
returns shareholders have enjoyed
from the business in the USA over many
years. I’d like to wish them both well in
their retirement.
It’s great to have Mike Powell on board
as our Group CFO and Kevin Murphy
as the CEO of the USA. They are
already making a considerable impact.
Elsewhere in the senior team in the
USA we have promoted Bill Brundage
to CFO and Alex Hutcherson to COO.
Kevin Fancey has recently joined the
business as President of Canada.
I’m delighted that a majority of these
positions have been filled through
internal succession, recognising the
strong pipeline of talent developed over
many years within our core operations.
What about sustainability?
How are you building
a better business?
We established our “Better Business”
sustainability programme (see pages
34 and 35) following consultation with
shareholders two years ago and we
strive to make these issues an integral
part of how we do business.
18
Ferguson plc Annual Report and Accounts 2017
20%
E-commerce
now accounts for
20 per cent of
Group revenue
at £3 billion
This year we have made steady progress
on our sustainability programme
and further detail can be seen in the
Resource and Relationships section
(pages 22 to 25) and in the Sustainability
section (pages 34 to 37). However, I am
disappointed with the deterioration in
our injury and lost workday rates. I am
personally engaged with health and
safety specialists from our businesses to
ensure that we consider and act on their
views for best practices and opportunities
for improvement. There is also regular
review of health and safety performance
with our business leaders. We have put in
place actions to address this deterioration
and all businesses are committed to
improving our performance in this area.
What is your outlook for
2017/18?
US markets continue to be favourable,
in particular residential and commercial
markets where we generate the majority
of our revenue. Group organic revenue
growth* in the new financial year has
been about 6 per cent. Our business
is performing well, we have a strong
balance sheet to support our plans
and the Board continues to look to the
medium-term with confidence.
We remain excited about the significant
structural growth opportunities in our
markets and the potential for revenue
growth, margin improvement, and
attractive returns.
What is your message to
Ferguson associates?
It is our associates who make the
difference for our customers and
ultimately deliver value to our shareholders.
The strong performance of the Group
this year is attributable to them. I would
like to thank each and every one of
our associates for their dedication,
enthusiasm and hard work that are the
key reasons for our continued success.
John Martin
Group Chief Executive
* The increase or decrease in revenue excluding
the effect of currency exchange, acquisitions and
disposals and trading days.
Strategic report
Governance
Financials
Other information
Marketplace overview
We operate in large
fragmented markets with
strong growth characteristics
The USA continues to be our largest market with the greatest opportunities for growth.
The market for plumbing and heating distribution has strong growth characteristics
and is highly fragmented with no market dominated by any single distributor.
In each market we operate with leading market positions and significant scale.
Market characteristics and opportunities
Customers require
a basket of goods
Ferguson serves approximately one
million customers across the Group and
customers typically require a basket of
goods. In the USA the average basket
size is five products valued at circa $600.
Customers’ needs are local
The customer base is fragmented.
Professional contractors typically operate
within about 20 miles of a local branch
and may visit it several times per week.
In addition to visiting branches, they
are now using digital channels which
complement their working patterns.
Large supplier base
Ferguson distributes the products
of approximately 44,000 suppliers
across the world.
Clear need for distributors
in the supply chain
Distributors including Ferguson
bridge the gap between a fragmented
supplier base and the large and
geographically dispersed professional
customer base.
Highly fragmented industry
with no market dominated
by a single player
Our markets are typically highly
fragmented, with few large
players in the industry.
Benefits of scale
Due to scale benefits, market leaders
can perform better through the
economic cycle and customers have
quicker access to products.
Strong organic
growth opportunities
Market characteristics
support long-term organic
growth opportunities.
Bolt-on M&A
opportunities
Ferguson has a large acquisition
target database to support continued
M&A growth.
What is driving market growth?
Population growth
Population growth of more than 6 per cent
is expected in the USA in the next decade.
Source: United Nations Department of
Economic and Social Affairs.
Housing transactions
Existing single family home sales continue
to grow while remaining significantly below
the previous peak.
Source: National Association
of Realtors.
fid
Consumer confidence
In the USA, consumer confidence in July 2017
hit a 16 year high. There is a strong correlation
between consumer confidence and levels
of activities in our markets.
Source: The Conference Board.
Ageing housing stock
Increased comfort levels in homes
Disposable income
41 years
The median age of homes in the USA is
41 years. There is high demand for repairs,
maintenance and improvement in the large
installed base of existing homes.
Source: US Department of
Housing and Urban Development.
80%
of new homes in the USA have two or
more bathrooms. There is a trend towards
increasing levels of comfort in homes.
Source: US Department of
Housing and Urban Development.
No. 1
The USA has the highest levels of disposable
income per household in the OECD.
Source: Organisation for Economic
Co-operation and Development (“OECD”).
Ferguson plc Annual Report and Accounts 2017
19
Our business model
How we
create value
We are a specialist distributor adding value through our scale,
bespoke logistics network, use of technology and the expertise of
our people. We bridge the gap between 44,000 suppliers and 1 million
customers offering the widest range of products and solutions.
Resources and
relationships
Our people
Our people are dedicated
to serving our customers
Our customers
Sole traders to large
construction companies
Our suppliers
Responsible supply base manufacturing
over one million products worldwide
Channels to market
Branches, e-commerce,
showrooms and call centres
Technology
Continually investing in technology
to improve our business
Distribution network
Distribution centres, branches,
and specialist vehicle fleets
Capital
A strong balance sheet to
enable ongoing investment
20 Ferguson plc Annual Report and Accounts 2017
Distribute
Source
44,000
We have a diverse supplier
base sourcing over one
million products from 44,000
suppliers around the world,
which gives us access to
a broad range of products.
Suppliers
1 million
Our suppliers deliver over
1 million products in bulk to
our network of 22 distribution
centres, to branches or
directly to our customers.
Distribution
centres
Branches
2,310
In total, our business units operate
2,310 branches. This means our
customers typically travel fewer
than 20 miles to buy from us.
Our strategy underpins our
For detail on the structure of our business and the markets in which we operate,
For
see pages 14 and 15, 19 to 25 and 28 to 33.
see
Strategic report
Governance
Financials
Other information
Sell
How we deliver
to customers
How our
customers buy
12%
Direct from
suppliers
7%
Direct from
distribution
centres
26%
Collected from
branches
55%
Delivered
from branches
66%
Sales through
our branches
10%
Sales through
showrooms
How our
1 million
customers
buy
Customers
20%
Sales through
e-commerce
4%
Sales through
central account
management
Online
24/7
E-commerce offers an extension of our
world class service to make sure customers
can buy from the industry’s largest selection
of online products 24/7.
ability to create value
Page 17
Outcomes of
what we do
Great returns for
our shareholders
Pages 12 and 13
Engaged and
well-trained workforce
Pages 22 to 24
Loyal, satisfied customers
Page 24
Efficient branch and
logistics network
Pages 24 and 25
Reduced carbon
emissions and waste
Pages 34 to 37
Increased adoption
of “eco” products
Pages 34 to 37
Ferguson plc Annual Report and Accounts 2017
21
Key resources and relationships
How we serve
our customers
Ferguson is a specialist distributor adding value through its scale,
bespoke logistics network and its people’s expertise. We bridge the gap
between our suppliers and our customers, providing our suppliers
a cost effective route to market and customers specialist advice and
a wide range of products where and when they are required.
The goal of the programme is to increase
the speed of impact for new hires.
Various metrics will be used to measure
the participant’s added value to the
business including sales, their potential
and retention prospects.
Whilst we are committed to recruiting
and growing early career talent, we also
acquire talent with specific skills mid-
career to enhance our ability to bring
new services to the market and improve
our capabilities. Great examples of hiring
people with capabilities developed
outside our sector have enabled us to
accelerate the growth of our business.
For example, our new National Sales
Centre Director in the USA, Josh Smith,
brings expertise from over 20 years
in professional customer service
centre management.
Rewarding performance
We celebrate success and our reward
programmes are important in reinforcing
the way we do business. Over the past
year new incentive programmes have
been re-developed in each business for
branch and sales associates to ensure
that high performance is well rewarded.
We adjust measures to the type of role
or team, but typically incentivise based
on combinations of trading profit, gross
margin, gross profit, average cash-to-
cash days and net promoter score.
Talent development
This year we will welcome 400 college
graduates to our business in the USA.
Our investment in targeted talent
management and development is a
key feature of our business and we are
adopting an internal university approach
to train associates.
Sharing success and best practice is a
staple of our thriving culture. Four years
ago, the HVAC business unit in the USA
implemented a centralised “university”
training model where associates relocate
to a specific branch and follow a set
curriculum combining instructor-led
classroom, virtual instruction and on-the-
job training. Its success prompted the
Industrial and Facilities Supply business
units to launch individual universities
where graduates are trained in the
specifics of that business unit. You can
read more about the Industrial Group’s
university on page 9.
Today, this training model is being used
throughout the USA with the recent
addition of The College of Ferguson.
In July 2017, the five-month programme
was launched in seven Blended
Branches nationwide and 88 recent
college graduates participated, learning
the skills needed to prepare them for
an inside sales position.
Our people
33,000
associates
Our associates are fundamental to our
success. They deliver excellent customer
service, develop strong relationships,
maximise operational efficiencies
and accelerate the adoption of new
operating models. One of our core
values relates to our people and six
of our material sustainability issues are
focused on our talented teams.
Page 36
Leadership
Reshaping and focusing our strategy to
create an even more successful business
is dependent on the effectiveness
of our leaders and their teams.
This year has been a year of significant
change in the Executive leadership
of the Group, please see the Board
changes in the Chairman’s statement.
Additionally, we have seen a number
of internal succession appointments
within the USA to leadership positions.
These appointments have been
enhanced by the use of rigorous
assessment techniques, structured
transition and personal development
processes – the same processes that
now apply to all senior level hiring across
the Group.
Pages 13 and 18
22
Ferguson plc Annual Report and Accounts 2017
7,000
current
associates have
higher education
degrees, about
28 per cent of
the workforce
in the USA
Strategic report
Governance
Financials
Other information
Case study
Kate’s journey
Kate Bailey, Director
of Showrooms USA,
is a great testament
of how hard work and
dedication, combined
with the opportunities
Ferguson provides,
makes for an award-
winning career.
In 12 years, Kate
worked her way up
from trainee at a
branch to a highly
visible role in the
USA headquarters,
where she oversees
the strategic direction
for Ferguson’s
275 showrooms
nationwide. Kate was
recently recognised
by Supply House
Times as one of
the top women
in Industry for
her achievements.
Signature recognition programmes in our
business in the USA include President’s
Club, recognising the performance of
top outside sales associates; President’s
Circle, recognising sales associates and
sales managers who are top performers
in the marketplace; and President’s
Gallery, honouring showroom sales
associates who meet key corporate
showroom initiatives and demonstrate
exceptional leadership.
The pinnacle sales award, the Bob
Wells Leadership Award, is presented
to a remarkable sales associate who
consistently demonstrates exceptional
sales leadership and performance.
New innovative long-term incentive
programmes have been introduced
to each business to reward sustained
or improved trading profit performance
in our different businesses. For example,
over a three-year cycle critical staff
in the USA can see their initial grants
multiply by five times for exceptional
performance. Our investment in
this programme is overseen by the
Remuneration Committee.
Associate engagement
Our teams in sales, branches, contact,
logistics and distribution centres are
the local face of our business. Their
relationships with both large and small
customers are critical to our success and
their expert knowledge means they are
a key part of our customers’ workday.
It is important that our associates feel
they have a voice and that their views and
opinions are listened to. All businesses
in the Group measure engagement and
take action to identify improvements
locally, regionally and nationally. Our
winning teams depend on it.
In the USA we continue to measure
engagement regularly and the team is
proud of the degree to which current
associates would recommend Ferguson
as a place to work to a good friend.
Over the past five years our scores
have consistently exceeded 75 per cent
which is well above industry averages.
Our levels of associate engagement in
the USA remain strong although lower
than last year.
Our present recruitment practices factor
in under-represented groups and we
insist on balanced candidate lists when
using executive search firms. In the
UK, the government requires certain
businesses to declare their gender pay
gap. The UK business has a 2.38 per cent
gap in base pay compared to the UK
average 18.1 per cent. Nevertheless,
during 2017/18 we will put in place a
diversity plan in each business, building
on our present practices where, like many
businesses, we continue to identify and
remove any potential for unconscious
bias in our employment and promotion
practices. Much external research
in improving diversity highlights the
importance of role models, who inspire
others and create a different level of
expectation of the type of career that
is possible.
Health and safety
Caring for our people’s safety and
wellbeing is at the heart of the Group’s
values. Board and Executive Committee
meetings of the Group always start with
our Health and Safety report because
we want to ensure that our people return
home safely each day and thrive in
the workplace.
The main causes of injury within our
business are manual handling (leading
to sprains and strains), slips, trips and
falls, the use of mechanical handling
equipment such as forklift trucks and
being struck by unsecured products
and vehicle collisions. Our health and
safety management framework and
controls are structured to address
all health and safety risks and
compliance requirements.
We are disappointed to report a
deterioration of our Group injury rate
and Group lost workday rate in 2016/17
primarily as a result of a deterioration
in the rates in the USA. Each of our
businesses has plans in place to reverse
these trends. The Group collision
rate improved in 2016/17 following an
in-depth driver risk assessment and
control improvements.
One initiative which demonstrates
practical care for our associates is
Ferguson Fit. Ferguson Fit was originally
set up to focus on physical health given
rising medical insurance costs in the
USA and to promote the benefits of
a healthy workforce. The concept has
grown to encompass an all-around
approach to healthy living. We provide
24/7 online and telephone medical,
health and lifestyle advice and guidance
for all associates. Across the Group,
our associate assistance programmes
provide support, counselling and advice
on a range of issues for associates and
their families to help our people with
a positive work-life balance.
In our UK business, where significant
change is underway, associate
engagement survey scores have
remained constant whilst participation
has risen to over 70 per cent. A new
associate forum has been established
to help drive the transformation process
across the branch network and to help
shape parts of the programme itself.
Formal consultation processes have
run in parallel, ensuring all our affected
associates can be reassured that
when changes affect them they will be
managed openly and fairly.
Our new Canadian President, Kevin
Fancey, is taking a ground up approach
to his introduction to the Company and
in his first two months in the role he ran
engagement sessions at 25 sites with
500 associates.
Diversity and inclusion
We want access to the best talent
irrespective of gender, race, orientation
or background. The Board is now a 50:50
balance of male and females in our Non
Executive Directors and, whilst our sector
remains male dominated, we are starting
to see greater female participation at each
level in our business.
Our diversity policy statement can be
seen on page 65. In the UK business,
where we have made some significant
changes in the Leadership team, four
(40 per cent) executive positions are
occupied by women. So whilst we have
work to do there are some promising
signs of progress.
Pages 36 and 65
Ferguson plc Annual Report and Accounts 2017
23
Key resources and relationships continued
22
Distribution
centres
Leadership of Health and Safety is
key and the CEO chaired calls with
a group of highly skilled field-based
health and safety specialists from each
of our businesses in May and July
2017 to discuss the health and safety
development across the Group and
to understand how we can improve.
Whilst we benchmark as average for
our industry sector we intend to become
leaders. The observations made over
recent months are being worked on by
all leadership teams across the Group
to ensure we leverage the expertise
of our associates in this area.
One immediate action has been to
increase the number of Health and
Safety professionals and we have
begun the process to appoint a
specialist leader in the USA to drive
our improvement agenda.
Pages 25 and 36
Ethical behaviour and human rights
We are committed to comply with the
law and to operate under high ethical
standards. This is simply the right thing
to do and it protects us from business
disruption; it also strengthens our
reputation with customers, suppliers
and other stakeholders. Our Code of
Conduct is dedicated to helping each
of our associates to live our values
on a daily basis in all decisions and
interactions. Our Code of Conduct in the
USA was renewed during 2016/17 and
features Q&A sections to provide real life
examples of our values in action.
All of our businesses provide training for
relevant associates on anti-corruption,
anti-trust and modern slavery matters.
This is typically provided through online
training material and face-to-face training
is also provided. Training is provided for
new associates on induction.
Our Human Rights policy statement can
be seen on page 36. For information on
ethical behaviour in our supply chain,
please refer to page 36.
Page 36
24
Ferguson plc Annual Report and Accounts 2017
Our customers
1 million
customers
Our suppliers
44,000
suppliers
To be successful, our customers depend
on us for high levels of availability on
a broad range of products, ready for
collection or delivery on the same or
next day or an agreed time. We know our
customers also value high quality and
efficient service from our knowledgeable
people, local relationships, competitive
pricing and billing and order accuracy.
They also want flexibility in choosing the
most convenient way to do business
with us, whether in a branch, by phone
or online. We aim to deliver all of these
things through a “best-in-industry”
service offering across all channels so
our customers keep coming back.
We operate our business responsibly
so that our customers can feel confident
that we are looking after our associates,
providing safe and high-quality products,
operating efficiently and actively
contributing to the communities in
which we operate. We consult with key
customers each year to understand
their business needs and their
sustainability priorities so that we can
continually evolve our business to meet
their expectations.
Where the market demand exists, we
promote sustainable products and
provide training and advice to customers
to support growth in these new product
categories. Customers of Build.com in
the USA can filter their product search
to view products with recognised
national environmental labels. Our Dutch
and UK businesses have built large
dedicated sustainable buildings or
energy-efficiency centres that act as
showrooms for the latest products
and serve as training facilities for our
customers. The UK business provides
a series of innovative customer services
that support the UK-wide campaign
to establish a flourishing renewables
market including a free system design
service and dedicated regional
sales professionals.
Page 37
We have 44,000 reputable suppliers
manufacturing over one million products
around the world. This gives us access
to a diverse and broad range of quality
products. Our leading market positions
enable our central sourcing teams in
each region to leverage our scale and
negotiate competitive prices in return for
access to our one million customers.
We work with our suppliers to ensure
that they are reliable and ethical and
that their products are fully compliant
with the laws and regulations of the
countries in which they and we operate.
Each business assesses its suppliers
against set criteria to provide protection
to both us and our customers in the
event of a product failure or breach of
regulation in the supply chain. On the
rare occasion that a product is faulty,
customers have the confidence of
knowing that we will support them.
We conduct third party background
checks on our suppliers for unethical
or illegal behaviour (see case study
“Working with responsible suppliers”
on page 36).
Pages 36 and 37
Channels to market
2,310
branches
Our customers increasingly expect a
24/7 multi-channel approach dealing with
us through a combination of branches,
showrooms, online, call centres and
an outside sales force. The majority of
our business is still conducted through
our branches and our extensive branch
network means our customers typically
travel fewer than 20 miles to buy from us
and visit several times a week. Our multi-
channel approach allows our customers
to access products and advice 24 hours
a day, seven days a week, whenever it
is required.
Strategic report
Governance
Financials
Other information
Our estate is carefully managed to ensure
the health and safety of our associates,
customers, suppliers and any other
visitors. Regular health and safety risk
assessments and branch audits ensure
that we maintain our equipment and
product racking, safely store and move
products and provide for any potential
emergency incident. Our insurers also
support these efforts, undertaking their
own safety assessments at selected key
sites each year.
45 per cent of the Group carbon footprint
is generated in our buildings. This includes
electricity and fuels consumed for heating
or cooling. Each of our businesses
has targets to reduce carbon and the
associated costs from buildings, relative
to revenue. Building improvements during
2016/17 include the installation of LEDs and
heat curtains in some of our sites. We have
partnered with energy brokers in the USA
and UK and are developing consumption
dashboards to allow us to better target our
efforts on energy efficiency from 2017/18.
Our online sales channels, available
through any device, allow our customers
to reduce their environmental impact as
travel to our branches for product advice
or product collection is reduced.
For information about our environmental
efficiency efforts see page 37.
Page 37
For information about our health and
safety programme see pages 23 and 36.
Pages 23 and 36
Technology
£3 billion
revenue from e-commerce activities
We are continually investing in
technology to improve our business,
win new customers and retain existing
customers. E-commerce accounts for
£3 billion (20 per cent) of the Group’s
revenue and our customer facing
channels to market are mentioned
on page 24. Additional technology
investments are aimed at improving
execution and efficiency in all areas of
our business from warehousing, fleet,
inventory and customer relationship
management to back-office human
resources and financial management
and reporting systems.
As many of our competitors are small
local distributors this is a major source of
competitive advantage. We are focused
on staying ahead of the competition by
looking at every opportunity in this space
while defending against any new threats
that may enter the market.
Distribution network
6,100
fleet vehicles
Our extensive distribution network
and large fleet enable us to ensure
same or next day availability of a wide
basket of products to our customers.
Our customers rely upon us for prompt
and flexible delivery options to meet
their own needs.
Suppliers deliver in bulk to our
distribution centres, our branches
or directly to our customers.
We predominantly distribute from
distribution centres, ship hubs and
branches to customers.
The safety of our drivers is taken very
seriously and during 2016/17 an in-
depth risk assessment was conducted
into driver safety by our health and
safety experts. The assessment
took into account vehicle condition,
road hazards, loading and unloading
risks, physical health risks and driver
training. Existing controls have been
strengthened and new controls
introduced to best protect our drivers.
We monitor our collision rate monthly
for both our goods fleet and company
car fleet. Each business has targets
to reduce their collision rate and
performance is reported to the Executive
Committee each month and to the Board
every other month.
Approximately 55 per cent of our carbon
footprint is generated by transport
(including commercial vehicles, company
cars and business travel by road, rail
or air) and 43 per cent of this is from
commercial vehicles, whether our own
or that of third party hauliers that we
partner with.
To keep our distribution network running
efficiently with minimal impact on the
environment, each of our businesses
has targets to reduce carbon and the
associated costs for transport, relative
to revenue. Distribution network
improvements in 2016/17 which have
positively impacted our environmental
performance include fleet upgrades and
the installation of a telematics system
in the commercial fleet in the USA (see
case study below). Our branches also
use the distribution network to support
their waste management efforts, sending
recyclable packaging waste back to the
distribution centres for sorting, baling
and recycling.
Where possible, we work with our
suppliers to reduce their environmental
impacts. For example, we help our
suppliers to avoid unnecessary travel
by “backhauling” product from their
factories when our trucks are returning
empty to our distribution centres.
In 2016/17, we saved our suppliers in the
USA and UK from travelling 4.2 million
miles. This equates to 5,946 tonnes
of avoided carbon emissions (the
equivalent of taking 1,256 passenger
vehicles off the road for a year*).
*www.epa.gov
For information about our environmental
efficiency efforts see page 37.
Page 37
For information about our health and
safety programme see pages 23 and 36.
Pages 23 and 36
Case study
Improving driver
behaviours
A new telematics
system has been
installed in the
goods fleet of our
business in the USA.
The system allows
for monitoring of
driver behaviours
to mitigate
speeding, excessive
idling and harsh
acceleration or
braking. Besides
supporting more
efficient driving
behaviours and
optimising fuel
consumption this also
serves to increase
the safety of our
driver population.
Ferguson plc Annual Report and Accounts 2017
25
Key performance indicators
Measuring our progress
As stated in last year’s report, we have aligned our KPIs
to our strategic drivers set out in detail on page 17.
Engaged
associates
Excellent
service ethic
Strong sales
culture
Organic
expansion
Bolt-on
acquisitions
Adjacent
opportunities
Operating model
and e-commerce
development
Pricing
discipline
Own label
penetration
Key performance indicator and definition
Performance
Like-for-like revenue growth
The percentage increase or decrease in revenue year-on-year
excluding the effect of currency exchange, acquisitions and disposals,
trading days and branch openings and closures.
7.8%
6.1%
5.4%
+6.0%
6.0%
2.9%
Like-for-like revenue growth was 6.0 per cent
in 2016/17. The improved growth rate from
2015/16 was due to a strong outperformance
of the market in the USA and the headwinds
of commodity deflation and weak industrial
markets easing.
Gross margin
The ratio of gross profit, excluding exceptional items, to revenue.
Trading margin
The ratio of trading profit, excluding exceptional items, to revenue.
2013
2014
2015
2016
2017
28.0%
28.2%
27.7%
28.9%
28.5%
+0.4%
Gross margin improved by 40 basis points
compared to 2015/16 principally as a result
of the USA and UK improving their mix of
business towards higher margin channels
and product categories.
2013
2014
2015
2016
2017
6.9%
6.8%
6.9%
6.6%
6.3%
2013
2014
2015
2016
2017
+0.1%
The trading margin improved and returned
to a high of 6.9 per cent. Growth was driven
by all regions performing well and the mix of
business improving.
Average cash-to-cash days
The 12-month average number of days from payment for items of
inventory to receipt of cash from customers.
57
57
56
56
54
2 days improvement
Average cash-to-cash days improved year-
on-year to 54 days. All regions improved
their working capital with reductions in both
inventory and receivable days.
26
Ferguson plc Annual Report and Accounts 2017
2013
2014
2015
2016
2017
Strategic report
Governance
Financials
Other information
Key performance indicator and definition
Performance
Return on gross capital employed*
The ratio of trading profit to the average year-end aggregate of
shareholders’ funds, adjusted net debt and cumulative goodwill and
other acquired intangible assets written off. This is for continuing
and discontinued operations.
* Return on gross capital employed is an APM, see note 2
on pages 91 and 92 for further information.
14.3%
14.8%
19.5%
16.9%
17.2%
+2.3%
Return on gross capital employed improved
from 17.2 per cent to 19.5 per cent. This is in
line with our investment case and long-term
objective of generating attractive returns
on capital.
2013
2014
2015
2016
2017
Associate engagement, USA
Engaged associates deliver excellent customer service,
consequently we measure associate engagement in every region.
Engagement surveys are periodically sent to associates at all levels
asking: “Would you recommend Ferguson as a place to work to a
good friend?”.
84.5%
77.4%
Customer service, USA
There is a good correlation in our business between high customer
loyalty scores in a branch and better financial performance. The net
promoter score is a means of measuring customer service. The survey
asks: “How likely is it that you would recommend Ferguson to a friend
or colleague?” and customers respond with a score between zero (bad)
and 10 (exceptional). We look at the 12-month average of the proportion
of customers who scored nine or more, less those customers scoring
six or less. The methodology was changed in 2017 and prior years
restated to weight the responses by business unit revenue.
20161
2017
1.
A new methodology using an annual associate
wide survey rather than more frequent pulse
surveys, was launched in 2016.
65.2%
63.0%
61.7%
63.8%
61.8%
2013
2014
2015
2016
2017
-7.1%
The process of tracking and reporting engagement
differs by region, therefore an example is
given for the USA. Average engagement was
77.4 per cent in 2016/17, a decline compared to
2015/16 but it remains a very high score, well
above industry averages. Management believes
the lower score achieved in 2016/17 was due
to reorganisation and leadership changes
which included Business Model Improvement,
a complex nationwide change management
programme, which is now complete.
+2.0%
The process of tracking and reporting
customer service differs by region, therefore
an example is given for the USA. The average
net promoter score increased in 2016/17 to
63.8. This score is among the highest levels
in the industry.
Injury rate
Total number of injuries per 100,000 hours worked. The numbers
are based on injuries requiring an associate to leave the workplace
for medical treatment. The hours worked are calculated using
full-time equivalent associate numbers and average work days by
business and assume an eight-hour working day. This is for continuing
and discontinued operations.
1.67
1.57
1.51
1.52
1.63
2013
2014
2015
20161
2017
1.
Prior year data has been restated to reflect
improved historic data.
7.2% deterioration
Injuries requiring medical treatment per
100,000 hours worked deteriorated by
7.2 per cent compared to the previous year.
This is primarily as a result of a deterioration
of the injury rate in the USA. All businesses
have plans in place to improve the injury rate.
See the Sustainability section for more
information on pages 34 to 37.
Ferguson plc Annual Report and Accounts 2017
27
Regional performance
A more focused
geographic footprint
We are progressively focusing more resources on our business in the
USA where we generate the most attractive returns for our shareholders.
Our international operations are also important and make a significant
contribution to the Group.
USA
Key
highlights
Like-for-like
revenue growth
of 7.1 per cent
Trading margin
of 8.0 per cent
Good growth
in residential
and commercial
markets
Nine bolt-on
acquisitions
completed in
the year
Five-year performance
£m
5
11,824
4
6,615
6,898
481
530
9,288
8,176
673
761
950
2013
Revenue
2014
2015
Trading profit
2016
2017
3
1
Revenue
by market
sector
Quarterly like-for-like
revenue growth
%
4.7
4.1
5.0
3.2
4.3
6.7
8.6
8.8
2
1 Residential RMI
2 Non-residential RMI
3 Residential new construction
4 Non-residential new construction
5 Civil/Infrastructure
34%
25%
18%
16%
7%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2016
2017
28
Ferguson plc Annual Report and Accounts 2017
Business profile
The business is the market leading
distributor of plumbing and heating
products in the USA. It operates nationally
serving the residential, commercial, civil
and industrial markets. Residential end
markets represent about 50 per cent
of sales within the USA and commercial
about 35 per cent, with the remainder split
between civil/infrastructure and industrial
equally. We predominantly serve the
Repair, Maintenance and Improvement
(“RMI”) markets, with relatively low
exposure to the new construction market.
We operate seven business units in
the USA offering different categories
of plumbing and heating products and
solutions to fit the customers’ needs.
Six of the business units predominantly
serve trade customers with one serving
mainly consumers. There are no direct
competitors that operate across all of
our markets. Each business unit has its
own competitors which range from large
national companies, including trade sales
by large home improvement chains,
to small, privately owned distributors.
The business in the USA constantly
aims to strengthen its positions in
existing and adjacent markets through
bolt-on acquisitions. During the year
we completed nine bolt-on acquisitions
with acquisitions in the majority of our
business units.
At the end of the year we operated
1,423 branches serving all 50 states
with 23,986 associates. The branches
are served by 13 distribution centres,
providing same day and next day product
availability, a key competitive advantage.
Strategic report
Governance
Financials
Other information
Market trends
Macroeconomic trends
Demand in the USA business is
impacted by changes in activity in the
economy in the USA. The following
macroeconomic trends have an impact
on all of our business units.
The Gross Domestic Product (“GDP”)
is one of the primary indicators used to
gauge the health of a country’s economy.
It is equal to the total expenditure for all
final goods and services produced within
the country in a specific period of time.
GDP growth1
% Calendar year
100
95
90
85
80
75
3.8
3.3
2.4
2.0
1.4 1.2 1.5 1.8
2.0 2.1
Consumer confidence2
Q1
Q2
Q3 Q4
Q1
2015
Q2 Q3
2016
Q4
Q1 Q2
2017
1. GDP: % change compared to the same quarter
of the previous calendar year. Source: OECD.
2. Confidence: Index of results from a consumer
confidence survey that measures the level
of optimism consumers have about the
performance of the economy in the next
12 months. Source: Surveys of consumers,
University of Michigan.
GDP growth in the USA has been positive
for the last 12 months, indicating continued
expansion in the economy. The rate
of growth has sequentially increased
quarter on quarter throughout the last year
showing an increasing rate of growth.
Consumer confidence has increased
over the last 12 months to levels
consistent with Q1 2015.
The unemployment rate continues to fall,
it has sequentially decreased quarter on
quarter for over 24 months.
Specific market trends
The four end markets that Ferguson
serves have different characteristics
and as such certain market data is more
relevant to specific end markets.
Residential markets
(Approximately 50 per cent of revenue)
The Leading Indicator of Remodelling
Activity (“LIRA”) provides a short-term
outlook of national home improvement
and repair spending to owner-occupied
homes. It is designed to project the
annual rate of change in spending for
the current quarter and subsequent
four quarters. The LIRA projections
have continued to increase over the
last 12 months, indicating growth in the
market in 2017/18.
Leading Indicator of
Remodelling Activity (“LIRA”)1
$bn Calendar year
280
285 291
296
299 305 311 316
317 324
10
8
6
4
2
0
% change
Q1
Q2
Q3 Q4
Q1
2016
Q2 Q32
2017
Q42
Q12 Q22
2018
1. $bn remodelling spend and % change
compared to the same quarter of the previous
calendar year. The LIRA underwent a re-
benchmarking in April 2016. Source: The Joint
Center for Housing Studies.
2. Projection.
In addition, existing single-family home
sales is a good indicator for the strength
of the market and tends to be a driver of
remodelling spend. The number of sales
has shown steady growth over the last
12 months.
52%
of revenue
generated from
residential
markets in
the USA
Commercial
(Approximately 35 per cent of revenue)
The American Institute of Architects
(“AIA”) Billings Index – Commercial/
Industrial is a leading economic indicator
of construction activity and reflects,
with an approximate nine to 12-month lag
time, construction spending. Any score
below 50 indicates a decline in business
activity across the architecture profession,
whereas an index score above 50
indicates growth.
The index has been above 50 for the last
three quarters of 2016/17 after dipping to
49.9 in the first quarter of 2016/17.
Civil/Infrastructure
(Approximately 7.5 per cent of revenue)
The AIA Billings Index – Commercial/
Industrial is also a good indicator for the
civils market.
The non-residential construction Put In
Place survey is a further indicator of the
strength of the market, reflecting the
value spent each month on structures in
the sector. The value of spend was rising
year-on-year for the first three quarters of
2016/17 but declined in the final quarter
of 2016/17.
Industrial
(Approximately 7.5 per cent of revenue)
A good indicator of the strength of our
industrial market is the Institute of Supply
Chain Management Purchase Managers
Index. Any reading above 50 indicates
that the manufacturing economy is
generally expanding, below 50 indicates
that it is generally declining. The index has
been above 50 throughout 2016/17 and
sequentially growing through the year.
Developing e-commerce
This year we launched the new
Ferguson.com website which is the
foundation for future e-commerce
and omni-channel customer
engagement. It provides new
functionality and solutions that will
help customers run their businesses
more effectively.
This latest iteration provides
our customers with significant
improvements to functionality,
such as identifying the accessories
a customer needs to install equipment.
There are improved product lists and a
quotation centre where customers can
store their quotes, with improvements in
quote-to-order functionality. Messaging
and text updates on the status of
customer deliveries are also available.
E-commerce sales are growing rapidly
in the USA and in 2016/17 amounted
to £2.6 billion accounting for 22 per
cent of USA sales, growth of 25 per
cent. Our customers have undertaken
18.5 million “Self Service Events” during
the year, providing them with significant
“Our strategy
is to provide
our customers
with the most
comprehensive
set of
e-commerce tools
in the industry
and continue to
extend our overall
capabilities.”
Mike Brooks
Chief Marketing
Officer, USA
service benefits, and helping us to
lower the cost to serve.
We aim to have the best transactional
e-commerce capability in our industry
which is increasingly becoming a
competitive advantage over smaller
regional competitors. We have
a competitive advantage in the
deployment of technology, partly
as a result of our scale, and we
will aim to maintain and enhance
it as we continue to invest in our
technology platforms.
Ferguson plc Annual Report and Accounts 2017
29
Regional performance continued
USA continued
Business units and brands
The size and market positions of the main
businesses are below:
1st
Blended
Branches is the
number one
distributor of
plumbing and
heating products
in the USA
Market position*
Blended Branches
Waterworks standalone
B2C e-commerce
1st
1st
1st
HVAC
* Management’s estimate of market position.
3rd
5
Revenue by
business unit
4
3
2
1 Blended Branches
2 Waterworks standalone
3 B2C e-commerce
4 HVAC standalone
5 Other (Industrial, Fire and
1
60%
16%
7%
7%
Fabrication and Facilities Supply)
10%
Blended Branches like-for-like
revenue growth by region
VT
NH
ME
MA
RI
CT
NJ
DE
MD
DC
WA
OR
ID
MT
WY
NV
CA
UT
CO
ND
SD
NE
MN
IA
KS
MO
AZ
NM
OK
AK
TX
HI
AR
LA
WI
MI
OH
IL
IN
NY
PA
KY
TN
VAWV
NC
SC
MS
AL
GA
FL
Key
West +6.9%
South Central +7.2%
North Central +3.8%
East +7.1%
30
Ferguson plc Annual Report and Accounts 2017
Blended Branches
Blended Branches is the largest
business unit serving customers
across the residential and commercial
sectors for RMI and new construction.
Blended Branches mainly provides
plumbing and sanitary products as
well as heating solutions to trade
customers through a combination of
branch counters, inside and outside
sales associates and our fast growing
e-commerce channel which enables
customers to be served 24/7 through
their online account. The business also
operates 275 showrooms, serving
trade customers and consumers, which
showcase bathroom, kitchen and
lighting products and assist customers
in designing their home improvement
projects. The showroom channel
generated revenue of over £1.3 billion
in 2016/17.
In certain markets where it is more
efficient and effective we will serve
our customers through a Blended
Branches location rather than
standalone Heating, Ventilation and Air
Conditioning (“HVAC”), Waterworks or
Industrial business.
Blended Branches is the number one
distributor of plumbing and heating
products in the USA, with an estimated
market share of 17 per cent. There are
only three national competitors with
a market share above 5 per cent.
The estimated combined market
share of the top four companies is
40 per cent with the remainder of the
market consisting of mid-size regional
distributors and small, local distributors.
Blended Branches’ market share
varies significantly across the USA
from low single digit market share
in some states to high-twenties in
others. There continues to be excellent
opportunities to expand the business
geographically, particularly in large
metropolitan areas across the country.
Waterworks standalone
The Waterworks business is the largest
waterworks distributor in the USA.
It distributes PVF, hydrants, meters and
related water management products
alongside related services including
water line tapping and pipe fusion.
Waterworks sales tend to be part of
large planned projects to public and
private water sewer authorities, utility
contractors, public works/line contractors
and heavy highway contractors on
residential, commercial and municipal
projects across the water, sanitary sewer
and storm water management markets.
The Waterworks market has two
large competitors holding around
45 per cent market share, we estimate
our market share to be 24 per cent.
No other company holds greater than
5 per cent market share.
B2C e-commerce
The B2C e-commerce business sells
home improvement products directly
to consumers via a network of online
stores, the primary brand is Build.com.
The business is supported by a call
centre of product experts to provide
product advice and to assist customers
with orders. The business uses the
same distribution network as the
trade businesses.
We estimate our B2C e-commerce
business to be the largest online
supplier of plumbing and heating
products direct to consumers, and
the largest competitor is a similar size.
HVAC standalone
The HVAC business is an industry
leader in wholesale heating and
cooling distribution offering heating,
ventilation, air conditioning and
refrigeration equipment, parts and
supplies to specialist contractors.
The business predominantly serves
the residential and commercial markets
for repair and replacement in addition
to heating and air conditioning projects.
Branded Branches selling high quality
products are an important feature
for this market.
Strategic report
Governance
Financials
Other information
+8.2%
Improvement
in trading profit
at constant
exchange rates
in the USA
Operating performance
Our business in the USA grew revenue
7.1 per cent on a like-for-like basis which
included price deflation of 0.5 per cent
principally due to falling commodity
prices in the first half. In the second half
commodity deflation has subsided and
overall there were low levels of inflation
in the market.
The organic revenue growth by
customer end market was as follows:
% of USA
revenue1
Organic
revenue
growth
Residential
Commercial
Civil/Infrastructure
Industrial
~50% +9 – 10%
+7 – 8%
~35%
~7.5%
~7.5%
+4 – 5%
Flat
1.
Previously reported Municipal has now been
more accurately analysed between Residential,
Commercial and Civil/Infrastructure.
Blended Branches, Waterworks, HVAC,
Fire and Fabrication and Facilities
Supply generated good growth and
gained market share. Industrial revenues
recovered after a weak first half
which was impacted by a slowdown
in end markets. Build.com, our B2C
e-commerce business, continued to
grow strongly throughout the year.
Acquisitions contributed 2.7 per cent
of additional revenue in the year.
E-commerce accounted for over
£2.6 billion (22 per cent) of revenue
in the USA and we have continued to
prioritise investment in both our B2B
and B2C platforms. Online ordering
is a valuable sales order channel for
our customers, giving them greater
flexibility. During the year we upgraded
our technology platforms including
the delivery of a new Ferguson.com
website and a dedicated showroom
website to enable customers to prepare
for consultations. These new platforms
have added new time-saving features
and greater functionality to enhance the
customer experience.
We improved our gross margins
and operating expenses grew with
investments in technology, marketing
and fleet along with increased associate
numbers, wage inflation and expense
growth from acquisitions. Trading profit
of £950 million (2016: £761 million)
was 8.2 per cent ahead of last year at
constant exchange rates and exchange
rate movements increased trading profit
by £116 million. The US trading margin
was 8.0 per cent (2016: 8.2 per cent).
Nine acquisitions were completed during
the year with total annualised revenue of
£267 million. Since the year end we have
acquired two more B2C businesses,
AC Wholesalers and Supply.com which
generate £86 million of annualised
revenue. During the year we disposed
of Endries, a small fasteners business,
for £186 million. The business generated
revenue of £170 million and trading profit
of £16 million in the 10 months to disposal
in June 2017.
Ferguson plc Annual Report and Accounts 2017
31
We estimate our HVAC business
to be the third largest distributor
of HVAC equipment in a highly
fragmented market with the market
leader about twice the size with an
estimated 10 per cent market share.
Industrial standalone
The Industrial business is a
supplier of PVF and industrial
maintenance, repair and operations
(“IMRO”) specialising in delivering
automation, instrumentation,
engineered products and turn-key
solutions. We also provide supply
chain management solutions for a
full range of PVF and IMRO supplies
focusing on providing cost savings
across the entire supply chain.
The Industrial business distributes
products to industrial customers
across all sectors including oil and
gas, mining, chemical and power.
The industrial market is fragmented,
we estimate the market leader to
hold 10 per cent market share and
our market share to be 7 per cent.
Fire and Fabrication
The Fire and Fabrication business
caters to fire protection contractors
and engineers offering fire protection
products, fire protection systems
and bespoke fabrication services
to commercial contractors for new
construction projects.
We estimate our market share
to be 20 per cent and the two
largest competitors holding an
estimated 30 per cent market
share between them.
Facilities Supply
The Facilities Supply business
provides products, services
and solutions to enable reliable
maintenance of facilities across
multiple RMI markets including
multi-family properties, government
agencies, hospitality, education
and healthcare. The Facilities Supply
market is highly fragmented with
no competitors holding more than
5 per cent market share.
Regional performance continued
Key
highlights
Five-year performance
£m
Like-for-like
revenue growth
of 1.0 per cent
Trading margin
of 3.8 per cent
Markets remain
challenging
Transformation
plan continuing
1,769
1,853
1,987
1,996
2,012
95
96
90
74
76
2013
Revenue
2014
2015
2016
2017
Trading profit
Quarterly like-for-like
revenue growth
%
(1.1)
(2.9)
(0.4)
(2.1)
(2.9) 3.6 (0.4) 4.2
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2016
2017
5
Revenue
by market
sector
4
3
2
1 Residential RMI
2 Non-residential RMI
3 Residential new construction
4
Non-residential new construction
5 Civil infrastructure
1
50%
12%
11%
17%
10%
32
Ferguson plc Annual Report and Accounts 2017
UK
Business profile
The UK operates three businesses
under the Wolseley brand predominantly
in the trade market through 642
branches covering the whole country.
These branches are served by six
distribution centres providing same
and next day product availability, a key
service offering to our customers. The UK
business mainly serves RMI markets, and
has relatively low exposure to the new
residential construction market. At 31 July
2017, Wolseley UK had 5,900 associates.
The UK business is currently in the
first year of a major transformation
programme to improve service to
customers, performance and profitability.
Business units and
market position
The size and market positions of the
main businesses are:
Percentage
of revenue
Market
position1
Plumbing and Heating
Pipe and Climate
Infrastructure
70%
16%
14%
=1
2
=1
1.
Management’s estimate of market position.
Plumbing and Heating is the largest
business within the UK, representing
70 per cent revenue. It operates under
the Wolseley brand with a number of
smaller brands including William Wilson
and soak.com. These businesses
provide plumbing and heating products
primarily to trade customers in the
residential and commercial sectors,
for RMI purposes. The Plumbing and
Heating business also provides specialist
above ground drainage products.
The Pipe and Climate business distributes
pipes, valves and fittings as well as air
conditioning and refrigeration products to
B2B customers in the commercial sector,
mainly for non-residential new construction.
Infrastructure is a specialist in below
ground drainage. Operating under the
Burdens and Fusion brands, it serves the
civil infrastructure and utilities markets.
Market trends
The quarterly GDP growth rate has
been relatively flat for the last 12 months
averaging just under 2 per cent.
Consumer confidence has been negative
and declining for the last 12 months
indicating an expected decline in the
economy over the next 12 months.
GDP growth1
% Calendar year
2.8
2.4
1.8
1.7
1.6 1.7 2.0 1.9
2.0 1.7
10
5
0
-5
-10
Consumer confidence2
Q1
Q2
Q3 Q4
Q1
2015
Q2 Q3
2016
Q4
Q1 Q2
2017
1.
GDP: % change compared to the same quarter
of the previous calendar year. Source: OECD.
2. Confidence: Index of results from a consumer
confidence survey that measures the
level of optimism consumers have about
the performance of the economy in the
next 12 months. Source: Gfk Consumer
Confidence Index.
Operating performance
Like-for-like revenue was 1.0% ahead
including price inflation of 2.2 per cent.
Whilst new residential construction
markets grew, repairs, maintenance
and improvement markets, where we
generate the majority of our trading
profit, were flat. We continued to achieve
good growth in the small customer
segment which was offset by declining
revenue in the large customer segments.
The Pipe and Climate and Infrastructure
businesses traded well and gained
market share, though Plumbing and
Heating markets remained challenging.
We continue to invest in our B2C
business, soak.com, which traded well
and achieved good growth.
Gross margins were ahead of last year
and headcount was 2.8 per cent lower.
Trading profit of £76 million was £2 million
ahead of last year. The trading margin
grew by 10 basis points to 3.8 per cent.
During the year we remained firmly
focused on implementing the strategy
we announced in September last year.
The transformation programme is
continuing and we made progress in
simplifying our customer propositions
and optimising the supply chain and
branch network to deliver a more
efficient business. The programme
remains in the early stages. Exceptional
restructuring charges of £40 million were
partly offset by £11 million one-off credits
relating to a pension curtailment gain.
Strategic report
Governance
Financials
Other information
Canada and Central Europe
Key
highlights
Five-year performance
£m
Like-for-like
revenue growth
of 3.6 per cent
Trading margin
of 4.3 per cent
Canada markets
improving
986
905
871
862
1,042
51
45
37
37
45
2013
Revenue
2014
2015
2016
2017
Trading profit
Quarterly like-for-like
revenue growth
%
(1.3)
(1.0)
0.7
1.4
(1.5)
1.2
7.3
7.9
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2016
2017
5
4
Revenue
by market
sector
3
2
1 Residential RMI
2 Non-residential RMI
3 Residential new construction
4
Non-residential new construction
5 Civil infrastructure
1
44%
17%
21%
16%
2%
Business profile
Canada and Central Europe operates
across two countries, Canada and
the Netherlands.
Wolseley Canada operates in the
trade market serving the residential,
commercial and industrial sectors in both
RMI and new construction. Wasco in
the Netherlands predominantly serves
trade customers operating in residential
RMI and residential new-construction
markets. The businesses operate 245
branches with three distribution centres.
At the year-end Canada and Central
Europe had 2,862 associates.
Business units and
market position
The size and market positions of the
main businesses are:
Percentage
of revenue
Market
position1
Wolseley Canada
Wasco (Netherlands)
80%
20%
2
3
1.
Management’s estimate of market position.
Wolseley Canada (80 per cent of
revenue) supplies plumbing, heating,
ventilation, air conditioning and
refrigeration products to residential
and commercial contractors. It also
supplies specialist water and waste
water treatment systems to residential,
commercial and municipal contractors,
and supply PVF solutions to oil and
gas customers.
Wasco (20 per cent of revenue) is
a distributor of heating, plumbing
and related spare parts across
the Netherlands.
Market trends
Canadian GDP growth has been
increasing steadily from a low in the final
quarter of calendar 2014 to a recent high
of 2.3 per cent. Consumer confidence
has been growing with GDP and is
currently at a peak of 110.8.
GDP growth in the Netherlands has
been increasing over the last 12 months
to 2.5 per cent.
Canada GDP growth1
% Calendar year
1.9
0.7 0.8
0.4
1.3
1.1
1.5 2.0
2.3 3.7
115
110
105
100
95
90
85
Consumer confidence2
Q1
Q2
Q3 Q4
Q1
2015
Q2 Q3
2016
Q4
Q1 Q2
2017
1.
GDP: % change compared to the same quarter
of the previous calendar year. Source: OECD.
2. Confidence: Index of results from a consumer
confidence survey that measures the level
of optimism consumers have about the
performance of the economy in the next
12 months. Source: The Conference Board
of Canada.
Operating performance
In Canada and Central Europe like-
for-like revenue grew by 3.6 per cent
including price inflation of 1.7 per cent.
Acquisitions contributed 0.9 per cent of
additional growth. Canada grew well and
the Netherlands also made very good
progress. Gross margins were broadly
flat, mainly due to competitive conditions
in Western Canada.
Operating expenses were well
controlled with headcount up 1.2 per
cent. Exchange rate movements were
favourable and increased trading profit
by £6 million. Reported trading profit of
£45 million was £8 million ahead of last
year. The trading margin was maintained
at 4.3 per cent.
As previously announced the merger
of our Tobler business with Walter
Meier in Switzerland was completed on
6 April 2017 and we now own 39.2 per
cent of the combined business. For the
8 months prior to the transaction Tobler
generated £176 million of revenue and
£11 million of trading profit.
Since the year end we have acquired
three more businesses, Aircovent
in the Netherlands and Plomberium
Pierrefonds and Tackaberry in Canada,
combined they generate £23 million of
annualised revenue.
Ferguson plc Annual Report and Accounts 2017
33
Sustainability
Building a
better business
Ferguson’s “Better Business” framework comprises 13 material issues
which actively support our growth, improve associate engagement,
address our top risks and compliance requirements or are important
to our shareholders, customers and suppliers.
We strive to make these issues an
integral part of how we do business,
which is reflected in this report.
Many of the issues are described within
the key resources and relationships
section on pages 22 to 25.
Stakeholder engagement
The framework was established
following consultation with our
stakeholders. A comprehensive
review of our sustainability strategy
is conducted each year and takes into
account feedback from our investors,
suppliers, customers, associates and
third parties.
Our values
Our material issues
Our principles
Our
people
Talent management and development We are committed to people
development at every level of
All
the organisation.
Competitive pay and reward
All
We offer competitive remuneration
to our people.
Associate engagement
All
Diversity and inclusion
All
Health and safety
All
We value our associates and actively
work to improve associate engagement.
We understand, respect and value
personal and cultural differences.
We will not compromise the health or
safety of any individual.
Ethical behaviour and human rights
All
We adhere to strict Human Resources
policies and comply with our own
Code of Conduct.
We act with integrity
We conduct all our activities with
fairness, honesty and integrity.
Our
products
Product quality and integrity
Responsible sourcing
Promoting “eco” products
We work with our suppliers to maintain
excellent standards of product quality
and safety.
We expect our suppliers, contractors and
agents to adhere to our Code of Conduct
and to adopt similar standards.
We are a positive link in the sustainable
construction supply chain.
We drive for results
and improvements
We listen and respond to the needs
of our customers, then exceed their
expectations. We are not happy with
the status quo, and constantly strive
to improve.
We value our people
We understand, respect and value
personal and cultural differences;
we are open and honest in all our
dealings with our people.
34
Ferguson plc Annual Report and Accounts 2017
Our
operations
Environmental efficiency
We run efficient operations that consume
less energy and produce less waste.
Compliance with the law
We are committed to observing both
the spirit and the letter of the law.
Protecting information
We protect both digital and physical
information on behalf of our stakeholders.
Our
communities
Active corporate citizen
We voluntarily contribute our time and
our financial support to the communities
in which we work.
Strategic report
Governance
Financials
Other information
Key to drivers of profitable growth
Engaged associates
Organic expansion
Operating model and
e-commerce development
All
All nine of our drivers
of profitable growth
Excellent service ethic
Bolt-on acquisitions
Pricing discipline
Strong sales culture
Adjacent opportunities
Own label penetration
Opportunities
Risks
A multi-skilled and well trained workforce will help us
to deliver against our objectives and adapt to changing
customer needs.
Changing operating models require us to constantly
up-skill our people. A competitive marketplace puts greater
emphasis on excellent career development to attract talent.
Well structured remuneration and incentive programmes
align associate and company objectives in order to
maximise results.
An uncompetitive remuneration programme could impact
our ability to attract and retain the best people.
Motivated and engaged people deliver excellent
customer service, develop strong supplier relationships
and maximise operational efficiencies.
A diverse workforce brings with it the widest range
of knowledge, skills and experience and promotes
innovation. An inclusive environment allows our people
to feel at ease in the workplace.
A robust health and safety programme protects our
people, customers and suppliers. It also improves
productivity by reducing the number of days lost to injury.
Low associate engagement can lead to sub-optimal business
results and poor retention of our people.
In an ever-changing market a lack of diversity can limit business
progression.
Our principal risks relate to manual handling, working at height,
the use of motorised equipment and vehicle collisions. If not
mitigated, these risks can harm our associates, impact our
productivity and incur costs. See page 47, Health and safety.
A commitment to high ethical standards strengthens
our reputation with customers, suppliers and other
stakeholders.
The business is exposed to risks of bribery and fraud, which can
damage our reputation. Compliance programmes are in place
to mitigate these risks. See page 48, Government regulations.
Sourcing and supplying safe, quality products improves
our margins, enhances customer satisfaction and enables
our people in branch to devote more time to service.
Product-related litigation is recognised as one of our principal
risks. For more detail on how we are managing the risk,
see page 47.
Working with reputable suppliers gives our stakeholders
confidence in the integrity of our supply chain, including
standards around ethical labour, modern slavery, conflict
minerals and anti-bribery and corruption.
There is increasing focus on supply chain transparency
due to the risk of business interruption or reputational harm.
Where the opportunity exists, we can gain market share
by supplying eco products and offering training and
advice to our customers.
Building regulations increasingly focus on sustainable
construction. Growth opportunities can be missed if we
do not adapt to our customers’ changing product needs.
Better energy and waste management decreases
costs and improves operational efficiencies.
Compliance with legal regulations gives us a licence
to operate.
Robust systems and processes together with an
informed workforce allow us to protect our sensitive
or commercial data.
Engagement with the communities in which we operate
promotes our business and enhances people skills
and engagement.
Energy costs and increasing “green” taxes can reduce
Ferguson’s profit margins. We have reduction targets in place
to minimise these costs.
Mitigating the risk of non-compliance with increasing levels
of governmental regulations is a priority (see page 48).
Without certain licences the Company cannot operate.
Information security is one of our principal risks.
For more detail, see page 46.
Ferguson has many locally established competitors who
are active in the community. A lack of engagement with our
communities can weaken our reputation with both customers
and employees.
Sustainability and drivers
of profitable growth
The symbols above are displayed in
the table to the left to indicate which of
our strategic drivers are most directly
supported by each of the “Better Business”
programme components. The strategic
drivers are summarised on page 17.
Governance
The overall “Better Business” framework
is reviewed annually to test the ongoing
materiality of the issues identified.
The Group’s General Counsel is
responsible to the Board for the overall
programme. Objectives and, where
appropriate, quantified targets are set
for each material issue. Group-wide
KPIs have not been set for all issues
as it is not always practical to bring
distinct local methods under one
unified metric. Improved performance is
the primary goal. Business units monitor
performance throughout the year and
performance reports are submitted to
the Executive Committee and the Board
at regular intervals.
“Better Business” –
progress in 2017
The following two pages provide an
overview of our progress in the year
under review. It is referenced when
further information on these topics
can be found elsewhere in this report.
A greater level of detail is available
on the Ferguson plc website
www.fergusonplc.com.
Ferguson plc Annual Report and Accounts 2017
35
Sustainability continued
Our people
Our progress on the six people issues
is described on pages 22 to 24.
Diversity and health and safety statistics
and our human rights statement are
provided below.
All material issues relating to our people
directly affect all of our strategic drivers
on page 17. The effectiveness and
level of engagement of our people
is crucial in delivering on our strategy
and maintaining the sustainability of
the business.
Talent management
and development
Page 22
Health and safety
Ferguson had set a 2 per cent reduction
target for each of the three health
and safety metrics during the year
under review.
Injury rate
7.2% deterioration
(1.63 per 100,000
hours worked)
Lost workday
rate
8.9% deterioration
(53.75 per 100 employees)
Fleet third party
collision rate
6.0% improvement
(14.45 per 100 vehicles)
The deterioration in our injury and lost
workday rates is disappointing and is
primarily as a result of deteriorating
rates in the USA. Further information
on our key health and safety risks and
the mitigating actions being taken is
provided in the key resources and
relationship section.
Competitive pay and reward
Pages 23 to 25
Pages 22 and 23
Associate engagement
Page 23
Diversity and inclusion
Total
men
Total
women
%
women
Directors (Board)
Senior leadership1
7
78
4
16
Total associates2
31,434
9,631
36%
17%
23%
1. The Senior leadership group at Ferguson
consists of managers drawn from business units
and central functions with responsibility for
planning, directing or controlling the activities of
the Company.
2. Total associate numbers of 41,065 are reported
above (total men plus total women) including
all continuing businesses. The lower number of
33,000 reported on page 22 is the number of
Full Time Equivalent associates for the ongoing
businesses only.
Our diversity policy statement can be
seen on page 65.
Page 23
Ethical behaviour
and human rights
Page 24
Human rights
Both the United Nations Global
Compact and Universal Declaration of
Human Rights have been considered in
determining the human rights issues that
are material to Ferguson. These topics
include associate policies (covering
topics such as anti-discrimination), health
and safety and ethics and conduct.
All of these issues are managed through
policies and programmes of work and
are regularly monitored for compliance.
Business partners and suppliers are
expected to conform to Ferguson’s
Code of Conduct. The Code of Conduct
is detailed on the Ferguson plc website
www.fergusonplc.com.
Case study
Working with
responsible
suppliers
One of the steps
taken by the
Company to
assess the ethical
behaviours of
suppliers is to screen
their company names
through a third-party
risk assessment
portal. This allows
for identification
of any issues
such as adverse
media relating to
regulatory breaches
or employment
practices, sanctions,
criminal activity or
links to senior ranking
public officials.
Tens of thousands of
our suppliers have
been assessed over
the last two years.
No high risk issues
were identified.
Ethical screening
continues on higher
risk entities.
36
Ferguson plc Annual Report and Accounts 2017
Our products
Product quality and integrity
During 2016/17, we continued to embed
our quality control procedures for
sourcing from the Far East. Quality teams
in our Asian sourcing entities continue to
visit and assess our suppliers. The overall
framework for product integrity was
reviewed and strengthened and
additional resource was added to the
quality team in the UK business.
Responsible sourcing
Each business assesses its suppliers
against set criteria to provide protection
to both us and our customers in the
event of a product failure or breach
of regulation in the supply chain.
Page 24
Modern Slavery Act
The UK Modern Slavery Act 2015 (“the
Act”) requires Ferguson plc and its group
of companies (“the Group”) to make an
annual statement outlining the steps the
business is taking to identify and prevent
modern slavery within our organisation
and its supply chain.
Through its various business divisions,
the Group sources, distributes and sells
products in mature markets in North
America and Western Europe. A small
percentage of the Group’s own label
products are sourced from other regions,
principally in Asia.
It is recognised that there could be a
small risk of human trafficking or slavery
in the manufacturing, distribution and
logistics activities that are connected
with our business. Ferguson plc has zero
tolerance for such activities.
The Group is undertaking a number
of steps to minimise the risks of slavery
occurring in our business or our
supply chain.
– We built upon our existing processes
for background screening of suppliers
so that now we have screened tens
of thousands of our suppliers (see
case study to the left). No slavery
risks were identified in the process.
The businesses continue to screen
their highest risk entities (based on
spend value, geographical location
and business type).
Strategic report
Governance
Financials
Other information
“I am personally
engaged with
health and safety
specialists from
our businesses
to ensure that
we consider
and act on their
views for best
practices and
opportunities for
improvement.”
John Martin
Group
Chief Executive
(page 18)
– Training on combating modern
slavery was delivered in local
language to associates in the Group’s
sourcing operations in China in 2016.
Similar training is planned for the
Group’s Taiwanese operations
in September 2017.
– Audits and site visits of suppliers in low
cost countries are undertaken on their
appointment and periodically thereafter.
Procedures are in place for on-boarding
and evaluating such suppliers.
– The Group has maintained a
Code of Conduct and a confidential
whistleblowing line, applicable
to all Ferguson businesses, which
allow people to “speak up” in
confidence and without the fear
of any negative consequences.
This statement is made on behalf
of all subsidiaries of Ferguson plc
(www.fergusonplc.com) and is made
pursuant to section 54(1) of the Act
and constitutes our Group’s slavery
and human trafficking statement for the
financial year ending 31 July 2017.
Further information on the steps taken by
the Group’s UK subsidiary can be found
at www.wolseley.co.uk.
Promotion of “eco” products
Our businesses continue to monitor the
market for “eco” products and promote
these products where there is customer
demand. For example, customers of
our online business Build.com can filter
their product search to view products
with recognised national environmental
labels. The UK and Dutch businesses
each have a dedicated showroom to
promote renewable technologies and
publish targeted marketing material on
these products.
Page 24
Our operations
Environmental efficiency
Ferguson plc set five-year targets to
reduce carbon (-10 per cent) and waste
(-15 per cent) per £m revenue and to
increase the percentage of waste that is
recycled to 40 per cent. Each business
has set its own targets for carbon and
waste to support the achievement of the
Group goals.
Performance at the end of 2016/17, one
year into the target period, is positive
across all three performance measures.
Carbon
Total waste
3.0% improvement (26.3
tCO2e per £m revenue)
3.9% improvement (4.4
tonnes per £m revenue)
% of total waste
recycled
1.6% improvement
from 30.1% to 31.7%
Total revenue of £17,324 million (including
discontinued businesses) is used when calculating
the relative carbon and waste performance.
The lower number of £14,878 million reported on
page 12 is the revenue for the ongoing businesses.
Total carbon emissions
Tonnes of CO2 equivalent
468,322
448,966
455,144
116,234
137,815
110,697
116,257
144,190
139,472
214,273
194,079
199,416
2014/15
Scope 1
2015/16
2016/17
Scope 2
Scope 3
Total waste
Tonnes
76,201
75,026
75,397
18,902
8,573
48,726
22,611
7,313
23,865
8,657
45,102
42,876
All Scope 1 and 2 emissions and selected
Scope 3 emissions are reported.
Further detail on the data provided can
be found in the “Basis of Reporting”
document on the Ferguson plc website
www.fergusonplc.com.
Page 25
Compliance with the law
Legal and compliance teams
across the Group work with the
businesses to adhere to all legal and
regulatory requirements.
Protecting information
As our channels to market develop
so too does the technology that we
employ and the data that we hold.
We are committed to protecting the
security of our systems and information
so that customers can transact with
us safe in the knowledge that we
have the appropriate safeguards
in place. The Group operates an IT
governance framework, including a
full set of dedicated IT policies, aligned
to known security and operational risks.
A broader Group information security
policy determines how we protect all
information wherever it exists and in
whatever form (electronic or hard-copy).
2014/15
Landfilled
2015/16
Incinerated
2016/17
Recycled
Pages 46 and 60
Due to rounding of the figures in the bar charts and
tables there is not always a precise correlation with
the sub-total and total performance figures.
Inaccuracies identified in prior year numbers
resulted in immaterial adjustments to the absolute
carbon and waste totals in the charts above.
tCO2e/£m revenue
Carbon
emissions
Scope 1 and
2 emissions
Scope 3
emissions
Total
emissions
2014/15* 2015/16* 2016/17
One-
year
variance
21.6
20.4
19.6
-4%
7.1
6.7
6.7
0%
28.7
27.1
26.3
-3%
* Constant currency revenues are used in order to
remove the impact of currency fluctuations from
our performance. This has reduced the relative
carbon figures for prior years.
Our approach to measuring carbon was developed
in accordance with the Greenhouse Gas Protocol
(“GHG Protocol”). Emissions are calculated using
DEFRA and IEA carbon factors and are reported
as tonnes of CO2 equivalent (abbreviated as
tCO2e), based on the Global Warming Potential
(“GWP”) of each of the “basket of six” greenhouse
gases, as defined by the Kyoto Protocol.
Our communities
Active corporate citizen
Our businesses seek to be contributing
members to the communities in which
they operate. The Group supports
a number of charitable organisations
both at a Group and a business unit level.
In 2016/17, Ferguson plc’s businesses
contributed to a range of charities,
including support for the homeless,
scholarships for young apprentices and
provision of care for sufferers of cancer
and other illnesses.
Our people engaged in numerous
community and charity events during
the year. Further information and case
studies of the events our associates
and businesses have supported
over the last year can be found at
www.fergusonplc.com.
Ferguson plc Annual Report and Accounts 2017
37
Financial and operating review
A good trading
performance
The Group delivered a good set of results in 2016/17, primarily
driven by a strong performance in the USA. During the year,
Ferguson continued to generate excellent cash flow which enabled
us to invest in organic growth and bolt-on acquisitions, while
returning surplus cash to shareholders.
Mike Powell
Chief Financial
Officer
Key highlights of the ongoing business
Group ongoing revenue growth at constant
exchange rates of 8.6 per cent
Revenue growth in the USA of 10.4 per cent
at constant exchange rates
Gross margin expansion of 0.4 per cent,
trading profit margins up 0.1 per cent
Investment of £256 million in 11 acquisitions
In addition to a good set of results, we have also made rapid progress on
executing our strategy. Actions in the year included the business disposals
in Central Europe and the USA and restructuring activities in the UK.
In addition, the Group decided to divest all its businesses in the Nordic
region. These changes, whilst beneficial for the Group, do cause some
complexity in the financial statements.
In order to monitor performance on a consistent basis the Group uses
certain alternative performance measures which enable it to assess the
underlying performance of its businesses. The Group’s key financial
performance metric is “Trading Profit” which is operating profit before
exceptional items and the amortisation and impairment of acquired
intangible assets. The Group’s definition of exceptional items includes
costs incurred on major restructuring programmes, gains or losses on
disposal of businesses and other significant one-off items.
In accordance with IFRS 5 “Non-current Assets Held for Sale and
Discontinued Operations”, the Group’s results for its Nordic businesses
have been included as discontinued operations in the current and prior
year and are excluded from continuing operations. In addition, the Group
has disposed of a number of businesses which do not satisfy the criteria
of IFRS 5 and are therefore included in the Group’s results from continuing
operations. The results from disposed businesses included in the
Group’s continuing operations are excluded from the Group’s alternative
performance measure of “ongoing results”. Any reference to “ongoing
operations” excludes the performance of the Group’s discontinued and
disposed businesses.
See note 2 on pages 91 and 92 for further information, definitions and
reconciliations of alternative performance measures.
38
Ferguson plc Annual Report and Accounts 2017
Performance of the ongoing business
2017
£m
14,878
4,301
(3,269)
1,032
28.9%
6.9%
Restated
2016
£m
12,146
3,463
(2,636)
827
28.5%
6.8%
Growth at
constant
exchange rates
%
+8.6%
+9.8%
+10.1%
+8.7%
Growth
%
+22.5%
+24.2%
+24.0%
+24.8%
+0.4%
+0.1%
Revenue
Gross profit
Operating expenses
Trading profit
Gross margin
Trading margin
Ferguson plc delivered a good set of results driven by the USA and some
recovery in the UK and Canada. Residential and commercial markets in the
US remained strong throughout the year and Industrial markets improved
in the second half. The UK heating market remained weak and the market
in Canada improved progressively through the year.
Revenue in the ongoing business of £14,878 million (2015/16: £12,146 million)
was 6.0 per cent ahead on a like-for-like basis with a further 2.1 per cent of
growth from acquisitions, 0.4 per cent from one additional trading day and
0.1 per cent from new branches.
Gross margins were 40 basis points ahead as we continued to focus on a
better mix of higher value-added products and services and improving our
purchasing terms.
Trading profit in the ongoing business was £1,032 million (2015/16: £827 million),
8.7 per cent ahead of last year at constant exchange rates. The trading margin
in the ongoing business was 10 basis points ahead of last year at 6.9 per cent.
Favourable foreign exchange rate movements added £122 million and an
additional trading day increased trading profit by approximately £9 million.
Reconciliation between ongoing trading profit
and statutory operating profit
Ongoing trading profit is reconciled to total statutory operating profit as
shown in the table below:
Ongoing trading profit
Non-ongoing trading profit
Continuing trading profit
Amortisation of acquired intangible assets
Impairment of acquired intangible assets
Exceptional items
Statutory operating profit
2017
£m
1,032
27
1,059
(64)
–
229
1,224
Restated
2016
£m
827
30
857
(48)
(94)
(4)
711
Strategic report
Governance
Financials
Other information
Non-ongoing trading profit
During the year, the Group disposed of a small non-core Industrial business,
Endries, in the USA and its Swiss business, Tobler. These non-ongoing
businesses generated revenue of £346 million (2015/16: £403 million) and
trading profit of £27 million (2015/16: £30 million).
Discontinued operations
Discontinued operations include the results of the Nordic region
and France. The balance sheet relating to the Nordic region has
been transferred to assets and liabilities held for sale. The result from
discontinued operations is comprised as follows:
Amortisation and impairment of acquired intangible assets
Amortisation of £64 million (2015/16: £48 million) represents the normal
recurring charge of the Group’s acquired intangible assets. The Group
reviews the carrying value of its goodwill and acquired intangible assets
annually and when there is an indicator of impairment during the year.
No impairment of the continuing operations was identified as part of the
annual impairment review. Goodwill, with a carrying value of £888 million
(2015/16: £902 million), remains on the balance sheet and is supported by
the value in use calculations.
Exceptional items
Net exceptional credits totalled £229 million (2015/16: £4 million charge)
in the year, comprising £266 million gain on disposal of businesses,
£40 million restructuring charges and £3 million of other exceptional
credits. The gain on disposal of businesses was generated from the
disposal of Tobler, Endries and a property company in Austria. The gain
includes £49 million from the recycling of deferred foreign exchange
translation differences, which are included in a translation reserve until
disposal, in accordance with IAS 21 “The Effects of Changes in Foreign
Exchange Rates”. Restructuring charges were primarily in relation to
the UK turnaround strategy and principally comprised property closure
and redundancy costs. Other exceptional items include an £11 million
curtailment gain relating to the UK defined benefit pension plan.
Statutory results
The financial statements have been prepared under IFRS and the Group’s
accounting policies are set out on page 90.
Discontinued trading profit
Amortisation of acquired intangible assets
Impairment of acquired intangible assets
Finance costs
Exceptional items after tax
Tax
(Loss)/profit from discontinued operations
2017
£m
63
(4)
(102)
(4)
(58)
–
(105)
Restated
2016
£m
59
(5)
–
(2)
154
(21)
185
The impairment charge of £102 million was in relation to the Group’s
Swedish building materials business, Beijer. This resulted from the
performance of Beijer deteriorating sharply in the first half of the year,
with trading profit significantly lower than the prior year and below
management’s expectations.
Discontinued exceptional items relate to the property exit and redundancy
costs from the closure of branches across the Nordic region.
Tax
Ferguson plc is tax resident in Switzerland. The Group’s operations
are international with 89 per cent of the Group’s ongoing trading profit
generated in the USA, 7 per cent generated in the UK and 4 per cent in
other overseas territories before central costs. The Group’s profits are
therefore subject to different overseas tax rates and tax laws.
Continuing operations
Revenue
Operating profit
Finance costs
Share of result of associate
Profit before tax
Tax
Profit from continuing operations
(Loss)/profit from discontinued operations
Profit for the year
2017
£m
15,224
1,224
(43)
(1)
1,180
(292)
888
(105)
783
Profit before tax increased 74.8 per cent primarily due to the gain on
disposal of businesses of £266 million.
Finance costs
Finance costs before exceptional items were £43 million
(2015/16: £36 million). The increase is due to foreign exchange rate
movements, as the majority of the Group’s debt is held in US dollars,
and a small increase in the pension interest expense.
Restated
2016
£m
12,549
The pre intra-group financing ongoing expected weighted average tax rate
is 37.2 per cent (2015/16: 37.6 per cent) and this is reduced to a post intra-
group financing ongoing expected weighted average tax rate of 24.4 per
cent (2015/16: 25.5 per cent) as detailed in note 7.
711
(36)
–
675
(210)
465
185
650
Other than intra-group financing and the recharging of shared administration
costs, the Group currently has no significant transfer pricing arrangements.
The Group’s Tax Strategy is to maintain the highest standards of tax
compliance. We support the execution of the Ferguson business
strategy by managing our tax affairs in full compliance with local laws and
international guidelines while seeking to maximise shareholder value and
serving the interest of all our stakeholders. The Group Tax Strategy can
be found at www.fergusonplc.com.
The Group incurred a tax charge of £292 million (2015/16: £210 million)
on profit before tax of £1,180 million (2015/16: £675 million) resulting in an
effective tax rate of 24.7 per cent (2015/16: 31.1 per cent). This tax charge
includes an ongoing tax charge from ongoing operations before exceptional
items, the amortisation and impairment of acquired intangible assets and
non-recurring tax items of £277 million (2015/16: £217 million). This equates
to an ongoing effective tax rate of 28.0 per cent (2015/16: 27.4 per cent) on
the ongoing profit before tax, exceptional items and the amortisation and
impairment of intangible assets of £989 million (2015/16: £792 million).
Although the ongoing effective tax rate has remained stable over the
last few years, it is sensitive to the Group’s mix of geographical profits,
its internal financing arrangements, international tax law and rate
changes and the impact of acquisitions, disposals and restructurings.
Ferguson plc Annual Report and Accounts 2017
39
Financial and operating review continued
The ongoing effective tax rate is expected to remain at approximately
28 per cent next year although this could increase or decrease significantly
depending on the final outcome of US tax reform changes. No reliable
estimate can be made of the impact of these changes at this stage given
the lack of detail currently available, although potential changes may
decrease the ongoing effective tax rate and restrict interest deductibility.
In the medium term, potential tax reform in Switzerland could also
significantly vary the rate but, as with the US tax reform above, there is
insufficient detail currently available of the exact tax law changes to enable
management to make a reliable estimate of their impact.
The Group does not expect the ongoing effective tax rate to be influenced
significantly by international tax law changes arising from the OECD’s Base
Erosion and Profit Shifting Action Plan nor the outcome of Brexit over the
next few years.
The Group will continue to keep all external developments on the above
issues under review.
The Group paid £310 million (2015/16: £193 million) in corporation tax in the
year. The corporation tax paid in the year will typically differ to the total tax
charge in the income statement as a result of:
– non-cash deferred tax expense or income arising from accounting
requirements in IAS 12 “Income Taxes” to recognise tax which may
become payable or recoverable in future periods;
– adjustments to the current year’s tax charge in respect of the under
or over provision of tax for prior years; and
– timing differences between when tax is reflected as a charge in
the accounts and when it is paid to the tax authority as typically tax
payments relating to a particular year’s profits are paid partly in the year
and partly in the following year.
Earnings per share
Headline earnings per share increased by 23.1 per cent from 234.7 pence
to 288.9 pence. Basic earnings per share from continuing operations
were 353.4 pence and diluted earnings per share were 350.8 pence.
Total basic earnings per share, including discontinued operations, were
311.6 pence and total diluted earnings per share were 309.4 pence.
A significant proportion of these increases were due to favourable foreign
exchange translation.
Impact of foreign exchange rates
The Group reports its results in sterling. The main currency exposure
arises on the translation of overseas earnings into sterling. The Group
does not hedge this exposure as any earnings hedges have only a
temporary effect. The Group’s policy is broadly to match the currencies
in which its debt is denominated to the currencies in which its trading
profit is generated. The exchange rates used for the consolidated income
statement and balance sheet are set out on page 139. The impact of
foreign exchange rate movements on the financial statements is shown
in the table below.
US dollar
Other currencies
Total
Ongoing
revenue
£m
Ongoing
trading profit
£m
Net assets
£m
+1,419
+131
+1,550
+116
+6
+122
(16)
+36
+20
As previously announced, from 2017/18 the Group will present its
consolidated financial statements in US dollars and, as the majority
of revenue and trading profit is generated in US dollars, the impact
of foreign exchange rate movements will be reduced.
40 Ferguson plc Annual Report and Accounts 2017
Cash flow
The Group has continued to generate strong cash flows during the year
with cash generated from operations of £1,115 million (2015/16: £1,019 million)
and an excellent cash conversion ratio of cash generated from operations/
EBITDA (£1,289 million including £90 million EBITDA from discontinued
operations) of 87 per cent (2015/16: 96 per cent).
Cash generated from operations
Interest and tax
Acquisitions and capital expenditure
Disposal proceeds
Dividends
Net purchase of shares by EBT
Net proceeds from/(purchase of) Treasury shares
Foreign exchange and other items
Movement in net debt
2017
£m
1,115
(363)
(434)
267
(259)
(6)
21
61
402
2016
£m
1,019
(232)
(331)
65
(238)
(13)
(286)
(115)
(131)
Acquisitions and capital expenditure
Acquisitions are an important part of our growth model and during the year
we invested £256 million in 11 bolt-on acquisitions, principally in the USA.
The strategy of investing in the development of the Group’s
business models is supported by capital expenditure of £178 million
(2015/16: £218 million). This investment was primarily for strategic projects
to support future growth such as new distribution centres, distribution
hubs, technology, processes and network infrastructure.
As at 31 July 2017, the Group had total operating lease commitments
of £854 million (2015/16: £853 million). Management believes there
is substantial capacity for revenue growth utilising the existing branch
infrastructure and will remain cautious when considering new lease
commitments for the foreseeable future. Additional information can
be found in note 34 on page 118.
Returns to shareholders
The Group is highly cash generative and the Board has established
clear priorities for the utilisation of cash. In order of priority these are:
to re-invest in organic growth opportunities;
(i)
(ii) to fund the ordinary dividend to grow in line with the Group’s
expectations of long-term earnings growth;
(iii) to fund bolt-on acquisitions to existing businesses where we have
momentum and management bandwidth; and
(iv) if there is excess cash after these priorities, return it to
shareholders promptly.
The Group paid an interim dividend of 36.67 pence per share
(2015/16: 33.28 pence per share) amounting to £92 million. A final dividend
of 73.33 pence per share (2015/16: 66.72 pence per share), equivalent
to £185 million is proposed. This brings the total dividend for 2016/17 to
110.00 pence per share, an increase of 10 per cent.
Reflecting management’s confidence in the business and the continuing
strong cash generation of the Group, and after taking into account the
excellent opportunities to invest in organic growth and acquisitions, the
Board considers that the Group has surplus cash resources available.
The Group will now commence a £500 million share buyback programme
with the intention to complete this within the next 12 months.
Strategic report
Governance
Financials
Other information
Net debt
Net debt decreased during the year by £402 million to £534 million
at 31 July 2017. The reduction is due to strong operating cash flow
generation of £1,115 million and disposal proceeds of £267 million partially
offset by acquisition and capital investment of £434 million, dividends
of £259 million and interest and tax payments of £363 million. Net debt
was 0.45 times EBITDA before exceptional items at the end of the year
(2015/16: 0.96 times).
Liquidity
The Group maintains sufficient borrowing facilities to finance all investment
and capital expenditure included in its strategic plan with an additional
margin for contingencies. The Group aims to have a range of borrowings
from different financial institutions to ensure continuity of financing.
At 31 July 2017, the Group had total committed facilities of £2,337 million
(2015/16: £2,320 million). Of the Group’s committed facilities at 31 July 2017,
£1,398 million (2015/16: £1,159 million) was undrawn and £606 million of the
total facilities mature after more than five years.
Pensions
At 31 July 2017, the Group’s net pension liability of £21 million (2015/16:
£147 million) comprised assets of £1,501 million (2015/16: £1,558 million) and
liabilities of £1,522 million (2015/16: £1,705 million). IAS 19 (Revised) “Employee
Benefits” requires the Group to make assumptions including, but not limited
to, rates of inflation, discount rates and current and future life expectancy.
The value of the liabilities and assets could change materially if different
assumptions were used. To help understand the impact of changes in
these assumptions we have included key sensitivities as part of our pension
disclosure in note 26 (iv) on page 112.
In June 2017, the UK pension plan entered into a buy-in annuity insurance
policy with a major insurance company to cover all existing pensioner
liabilities. Measured against the long-term funding objective agreed
between Ferguson and the Trustee, entering into the annuity represented a
small funding improvement. On an IAS 19 accounting basis the annuity policy
is recorded as a plan asset amounting to £497 million as at 31 July 2017.
The UK pension plan was subject to a triennial valuation in April 2016 which
has now been finalised. As a result, the Group will fund additional employer
pension contributions of £25 million over the next two years.
Other financial matters
Supplier rebates
Supplier rebates, typically in the form of a volume-based reduction to
a supplier’s list price, are commonly used by suppliers in our industry.
Ferguson has agreements with a large number of its suppliers covering
volume-based rebates, marketing support and other discounts receivable
in connection with the purchase of goods for resale from those suppliers.
More detail about the Group’s supplier rebates is disclosed in note 37 on
page 120.
The following amounts are included in the balance sheet at the year-end
in relation to supplier rebates:
Trade receivables
Inventories
Trade payables
Net balance sheet position
2017
£m
177
(204)
–
(27)
2016
£m
182
(214)
15
(17)
Capital structure
The Group’s sources of funding currently comprise operating cash flow,
access to substantial committed bank facilities from a range of banks
and access to capital markets in the USA. The Group maintains a capital
structure appropriate for current and prospective trading and aims to
operate with investment grade credit metrics and within a through-cycle
range of net debt of 1 to 2 times EBITDA.
Interest rates
The Group’s weighted average cost of debt is 3.9 per cent. The largest
part of this is the Group’s private placement bonds, which have an
outstanding par value of £937 million and a weighted average fixed
interest rate of 3.3 per cent.
Financial risk management
The Group is exposed to risks arising from the international nature
of its operations and the financial instruments which fund them. These
instruments include cash, liquid investments and borrowing and items
such as trade receivables and trade payables which arise directly from
operations. The Group also enters into selective derivative transactions,
principally interest rate swaps and forward foreign exchange contracts,
to reduce uncertainty about the amount of future committed or forecast
cash flows. The policies to manage these risks have been applied
consistently throughout the year. It is Group policy not to undertake
trading in financial instruments or speculative transactions.
Other financial risks
The nature of the Group’s business exposes it to risks which are
partly financial in nature including counterparty and commodity risk.
Counterparty risk is the risk that banks and other financial institutions
which are contractually committed to make payments to the Group may
fail to do so. Commodity risk is the risk that the Group may have purchased
commodities which subsequently fall in value.
The Group manages counterparty risk by setting credit and settlement
limits for a panel of approved counterparties, which are approved
by the Group’s Treasury Committee and are monitored regularly.
The management of customer trade credit and commodity risk is
considered to be the responsibility of operational management and,
in respect of these risks, the Group does not prescribe a uniform
approach across the Group.
The Group’s principal risks (including strategic, operational, legal and
other risks) are shown on pages 42 to 49.
Going concern
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 the financial covenant of its bank facilities with substantial
headroom. The Directors consider it appropriate to continue to adopt the
going concern basis in preparing the financial statements.
The Directors have also assessed the Group’s prospects and viability over
a three-year period. The viability statement can be found on page 43.
Mike Powell
Chief Financial Officer
Ferguson plc Annual Report and Accounts 2017
41
Principal risks and their management
Risk management
at Ferguson
Monitoring risk throughout the Group
The Board is ultimately accountable for the system of risk management at
Ferguson. The Board, Audit Committee and Executive Committee review
risks and controls in the context of the Group’s strategic plan and objectives.
Throughout the year, information is provided directly from front line
operations, via corporate functions and independent audits.
Board, Audit Committee
and Executive Committee
Fourth level
Principal risks formally reviewed every six months
by the Board and Executive. Thresholds for
principal risks agreed.
Overall system of risk management reviewed
by the Audit Committee on behalf of the Board.
Associate
whistleblowing line
Performance reports
Risk reports in March
and September
Audit reports
throughout
the year
1. Front line business
operations and
line management
e.g. branches and
distribution centres
First level
Business operations
implement policies.
Associates act in line with
Ferguson’s Code of Conduct
and Group policies.
Corporate
functions analyse
risk and control
data, set policies
and procedures
Operations report
on risk and control
status and submit
performance
reports, e.g.
injury statistics
2. Corporate
functions
Group and subsidiary level,
e.g. risk, treasury, finance,
legal and IT
Second level
Set policies and procedures.
Monitor risks and controls.
Collate and submit risk reports.
Audit findings
inform assessments
of control
effectiveness by
Group Risk team
Reports from
Group Risk inform
audit priorities
and plans for the
coming year
3. Independent
assurance
Internal audit, external
auditors and other
independent experts
Third level
Test the design and
effectiveness of procedures
and controls.
42
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Risk analysis during the year
2016/17 risk and control assessments
Ferguson formally reviews its principal Group and business unit risks
every six months – at the half-year and at the year-end.
In January and July 2017, the Board provided its perspective on risks
relating to the Group’s strategy for 2017/18 and beyond. The Board’s
assessment was then combined with bottom-up risk reports received
from business units in February and August 2017 to produce an overall
risk profile and report for the Group.
This risk report, listing principal and “emerging” risks and how they
have changed, was reviewed, amended and finalised with the Executive
Committee in March and September 2017. The mitigation in place for each
principal risk was then reported to and reviewed by the Audit Committee.
Throughout the year, members of the Board, Audit Committee and
Executive Committee have received updates on the Group’s principal
risks, as follows:
Risk
Updates provided
A
B
C
D
New competitors
and technology
Market conditions
Pressure on margins
Information security
E
Litigation
F
Health and safety
G
Strategic change
H
Regulations
I
Talent management
and retention
Formal analysis and update provided
to the Board in September 2016.
Related risks considered by the
Board in January and July 2017 and
by the Executive team in March and
September 2017.
Monthly performance reviews with
CEO and CFO. CEO update to the
Board at each Board meeting.
Reports on the status of the Group’s
information security programme were
provided to the Executive Committee
and the Board and the Audit
Committee throughout the year.
The Group General Counsel regularly
provides updates to the Executive
Committee and the Board on changes
in legislation and any material litigation
or exposures. Reports were provided
on how the Group mitigates the risk of
product integrity and related exposure.
Performance updates were provided at
every Executive Committee and Board
meeting during the year.
Monthly performance reviews with
CEO and CFO. CEO update to the
Board at each Board meeting.
The status of the Group’s anti-bribery
programme was reported to the Audit
Committee in January 2017.
The Board, supported by the
Nominations and Audit Committees,
has received detailed updates
throughout the year from leadership
teams around the Group.
Longer-term viability of the Group
Building on this risk analysis, the Directors have assessed the Group’s
prospects and viability in light of its current financial position, strategic
plan and principal risks. The Board believes that a three-year viability
assessment period to July 2020 is appropriate as this timeframe aligns
with the Group’s planning horizon. Furthermore, the Group’s principal
risks are ongoing in nature and could materialise at any time. None are
triggered by a specific, known event that will happen beyond that three-
year timeframe. Forecasting beyond the three-year timeframe does not
therefore provide additional accuracy or risk insight.
Strategic plans have been prepared by all business units and financial
forecasts and budgets have been reviewed by the Board. The principal
risks to the Group’s strategy were formally reviewed by the Board in
January and July 2017. Consideration has also been given to the strength
of the Group’s balance sheet and its credit facilities.
Financial forecasts have been tested against an unlikely, but realistic,
worst-case scenario. This incorporates a material downturn occurring
in the Group’s major markets. The material assumptions used in this
analysis were based on a hypothetical market downturn resulting in a
20 per cent shortfall in forecast Group revenue in 2018, lasting for one
year, followed by annual growth rate of 5 per cent thereafter. The impacts
of the revenue fall have been flowed through the cash flow statement on
a line by line basis using management assumptions which have then been
tested against the historical trends experienced by the Group in the last
economic downturn of FY08 – FY10. The testing took account of a number
of mitigating cash flow actions available to the business to respond to the
market downturn – for example, a reduction in working capital, capital
expenditure and tax alongside the elimination of acquisitions.
Based on these assumptions, and considering the Group’s financial
position, strategic plans and principal risks, the Directors have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the three-year
period of their assessment.
The Directors’ statement regarding the adoption of the going concern
basis for the preparation of the financial statements can be found on
page 41.
UK referendum result – June 2016
The UK referendum result of a vote to leave the European Union continues
to produce some market uncertainties including a material weakening of
sterling against the Group’s principal trading currencies, of which the most
significant is the US dollar. The weakening of sterling has had a translation
impact on the Group’s financial statements with a beneficial impact on
results. In future years, the Company will report in US Dollars.
Since the large majority of the Group’s profit is derived from activities
outside of the UK and Europe, the Group does not, at this point in time,
envisage a material adverse impact in the future. The Group will continue
to monitor developments.
Ferguson plc Annual Report and Accounts 2017
43
Principal risks and their management continued
Heat map (before mitigating controls and actions)
The heat map below illustrates the relative positioning of our principal
risks by severity and likelihood. Severity scales are different to those
used in previous annual reports and are not directly comparable.
Principal risks
A
New
competitors
and technology
B Market
conditions
C
Pressure
on margins
D Information
security
E
F
Litigation
Health
and safety
G Strategic
change
H Regulations
I
Talent
management
and retention
Before mitigating controls or actions
H
B
C
G
A
D
E
F
h
g
H
i
i
m
u
d
e
M
y
t
i
r
e
v
e
S
w
o
L
Less likely
Likelihood
I
More likely
The materialisation of these risks could have an adverse effect on the
Group’s results or financial condition. If more than one of these risks occur,
the combined overall effect of such events may be compounded.
The chart shows management’s assessment of material risks before
mitigating controls and actions. Various strategies are employed to reduce
these inherent risks to an acceptable level. These are summarised in the
tables on the following pages.
The effectiveness of these mitigation strategies can change over time,
for example with the acquisition or disposal of businesses. Some of
these risks remain beyond the direct control of management. The risk
management programme, including risk assessments, can therefore only
provide reasonable but not absolute assurance that risks are managed to
an acceptable level.
The Group faces many other risks which, although important and subject
to regular review, have been assessed as less significant and are not
listed here. These include, for example, natural catastrophe and business
interruption risks and certain financial risks. A summary of financial risks
and their management is provided on pages 41 , 107 and 108.
Risks to the drivers of profitable growth
The symbols shown at the bottom of page 45 are displayed alongside
each risk on the following pages to indicate which of the strategic drivers
of growth are most threatened by that risk. These strategic drivers are
described on page 17.
A New competitors and technology
Inherent risk level
High
Trend
Increased
Definition and impact
Wholesale and distribution
businesses in other industry sectors
have been disrupted by the arrival
of new competitors with lower-cost
business models or new technologies
to aggregate demand away
from incumbents.
The Board is attuned to both the risks
and opportunities presented by these
changes and is actively engaged as
the Group takes action to respond.
Changes during the year
Increased resources were allocated
to the exploration and incubation
of new business models and new
technologies. The Group made
a number of acquisitions of online
businesses during the year.
A new Non Executive Director,
Nadia Shouraboura, joined the
Board, bringing experience of large
international e-commerce businesses.
Mitigation
The Group develops and invests
in new business models, including
e-commerce, to respond to changing
customer and consumer needs.
One example, online channels in our
HVAC business, is set out on page 11.
The Company remains vigilant to
the threats and opportunities in
this space. The development of
new business models in our market
place is closely evaluated – both for
investment potential and threats.
Key to risks
Risk has increased
Risk has decreased
Risk is unchanged
Risk has been added to the list
of top Group risks this year
44
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
B Market conditions
Inherent risk level
High
Trend
No change
Definition and impact
This risk relates to the Group’s
exposure to short-term
macroeconomic conditions
and market cycles in our sector
(i.e. periodic market downturns).
Some of the factors driving market
growth are beyond the Group’s
control and are difficult to forecast.
Further information on the trends in
each of our regions can be found on
pages 28 to 33.
Changes this year
The downturn seen in industrial
markets in 2015/16 has stabilised.
The UK’s vote to leave the European
Union continues to create a level
of uncertainty affecting the UK
economy, although this is not
expected to have a material impact
on the Group.
The Group has maintained a strong
balance sheet throughout the year
and other measures have been taken
to manage the cost base in line with
forecast growth.
The Group has again tested its
financial forecasts, including cash
flow projections, against the impact
of a severe market downturn.
Mitigation
The Group cannot control market
conditions but believes it has effective
measures in place to respond to
changes. Ferguson continues
to reinforce existing measures in
place, including:
– the development of our
business model;
– cost control, pricing and
gross margin management
initiatives, including a focus
on customer service and
productivity improvement;
– resource allocation processes; and
– capital expenditure controls
and procedures.
C Pressure on margins
Inherent risk level
High
Trend
No change
Definition and impact
Ferguson’s ability to maintain
attractive profit margins can be
affected by a range of factors.
These include levels of demand
and competition in our markets, the
arrival of new competitors with new
business models, the flexibility of
the Group’s cost base, changes in
the cost of commodities or goods
purchased, customer or supplier
consolidation or manufacturers
shipping directly to customers.
There is a risk that the Group may
not identify or respond effectively
to changes in these factors. If it
fails to do so, the amount of profit
generated by the Group could be
significantly reduced.
Changes during the year
Pressure on margins remained high
during the period under review,
primarily due to levels of competition.
Commodity price deflation eased
during the year.
In response, the Group has continued
to manage its cost base in line with
changes in expected growth rates.
Business unit performance, including
margins achieved, were monitored
monthly throughout the year.
Gross margins were 40 basis points
ahead of last year. This was achieved
by driving the benefits of scale in
sourcing, growing own label sales
and through good pricing discipline.
Mitigation
The Group’s strategy for tackling
this issue remains unchanged.
This includes continuous
improvements in customer service,
product availability and inventory
management. Revenues from
e-commerce and other growth
sectors continue to expand and
the Group has made acquisitions
in these areas during 2016/17.
The performance of each
business unit is closely monitored
and corrective action taken
when appropriate.
Resource allocation processes invest
capital in those businesses capable
of generating the best returns.
Key to drivers of profitable growth
Engaged associates
Organic expansion
Operating model and
e-commerce development
All
All nine of our drivers
of profitable growth
Excellent service ethic
Bolt-on acquisitions
Pricing discipline
Strong sales culture
Adjacent opportunities
Own label penetration
Ferguson plc Annual Report and Accounts 2017
45
Principal risks and their management continued
D Information security
Inherent risk level
High/medium
Trend
No change
Definition and impact
Technology systems and data
are fundamental to the future
growth and success of the Group.
These digital assets are threatened
by sophisticated security threats,
including hacking, viruses, “phishing”
or inadvertent errors.
The Group is reliant on a number of
different legacy technology systems,
some of which have been in place for
many years or have been subject to
in-house development.
Data breaches in our industry
sector and others indicate that such
events are highly likely and difficult
to prevent.
Sensitive employee, customer
or other data may be stolen and
distributed or used illegally, leading to
increased operating costs, litigation
and fines or penalties.
These technology systems, on which
our branches, distribution centres and
e-commerce businesses rely, may be
disrupted for several hours or days.
As a result, Ferguson could forego
revenue or profit margins if we are
unable to trade.
Changes during the year
This risk has remained material,
as a greater proportion of the
Group’s revenue is derived from
e-commerce. The level and
sophistication of IT security threats
is constantly developing.
Like all large corporations, the Group
continues to experience sustained
and frequent attempts to gain
unauthorised access to its technology
systems, primarily from automated,
non-directed malware.
During the year, the Group engaged
a specialist security consultancy to
benchmark its information security
capabilities. The findings, along with
improvement actions, have been
shared with the Audit Committee.
Further penetration tests have been
conducted, using both digital and
physical means, e.g. phone calls.
Improvements have been made
where necessary.
Technical IT projects continue
to deliver enhancements to the
Group’s digital security systems
and infrastructure.
The Group reviewed the adequacy of
its “cyber” insurance arrangements.
Using a database of 50,000 historical
data breaches, the Group conducted
a statistical analysis to estimate
its exposure to certain types of
cyber risks.
Briefings on the status of the Group’s
information security programme
were provided to the Board, the
Audit Committee and the Executive
Committee throughout the year.
Mitigation
The Group operates an IT
governance framework including
a set of dedicated IT policies,
procedures and standards aligned
to known security and operational
risks. These include behavioural
procedures for associates and
technical controls for IT systems.
These are reviewed annually and are
subject to continuous improvement.
The Group periodically reviews the
nature of the sensitive data it holds, its
location and the controls in place to
protect it.
The Group reviewed its approach to
obtaining assurance over the correct
operation of IT systems and controls,
some of which relate to cyber risks.
Certain of these controls are tested
by business units and the Group
IT and internal audit functions.
External specialists are also
employed as appropriate to test the
security of our technology systems,
e.g. penetration tests.
Core IT systems and data
centres for the Group’s material
businesses, including the Group’s
principal e-commerce businesses,
have documented disaster
recovery plans which are tested
annually. Crisis management
and communications plans are
regularly updated.
Insurance coverage is in place,
including coverage for “cyber” risks.
Key to risks
Risk has increased
Risk has decreased
Risk is unchanged
Risk has been added to the list
of top Group risks this year
46
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
E Litigation
Inherent risk level
Medium
Trend
No change
Definition and impact
The international nature of the
Group’s operations exposes it to the
potential for litigation from third parties
and such exposure is considered to
be greater in the USA than in Europe.
Material levels of litigation may arise
from many of the Group’s activities.
Significant levels of litigation in our
industry sector have in the past
related to products, associates or
major contracts.
Acquisitions and disposals and the
restructuring of under-performing
businesses may also give rise
to litigation.
For more information on litigation
affecting the Group and related
provisions, see pages 109 and 119.
Changes this year
During the year, there has been
no material change in the level
of litigation to which the Group
is exposed.
An improved management
information system was introduced
to improve the reporting and analysis
of actual and potential litigation.
Reviews of policies and procedures
relating to product liability were
undertaken during the year and the
findings were reported to the Board.
Particular focus is being placed
on quality control and assurance
procedures to support the successful
growth of own label sales.
The level of contractual protection
afforded to the Group under product
and employee-related contracts has
improved during the year.
Contracting procedures continue
to be improved in all businesses.
The Group’s liability insurance
programme was restructured
to provide enhanced cover.
Mitigation
Levels of litigation are monitored
by individual operating companies.
A monthly report of potential
exposures and current litigation
is submitted by all businesses
and reviewed by the Group
General Counsel.
Contracting procedures are
continuously reviewed and improved
against a “good practice” framework
used by all Ferguson businesses.
The Group periodically re-assesses
the level of product-related risk in
all business units. Due diligence
is conducted on products and
suppliers considered to be high
risk. Product testing is carried out
in certain businesses supplying
product to industrial customers.
KPIs are used to measure the level
of contractual and other protection.
In the case of claims related to
exposure to asbestos, Ferguson
continues to employ independent
professional advisers to actuarially
determine its potential gross liability.
F Health and safety
Inherent risk level
Medium
Trend
Increased
Definition and impact
The Group does not operate in a high
risk industry with regard to health
and safety.
The nature of Ferguson’s operations
can nevertheless expose its
employees, contractors, customers,
suppliers and other individuals to
health and safety risks.
Health and safety incidents can lead
to loss of life or severe injuries.
Changes this year
The risk has been elevated this year
following the deterioration in injury
and lost workday rates. The Company
is recruiting a senior leader for health
and safety in the USA. The Group
conducted in-depth driver risk
assessments and implemented
control improvements. The Group
vehicle collision rate has improved.
Page 23 provides further information.
Mitigation
Leadership of health and safety is
key. Health and safety performance
is reported to and discussed at
all Group Executive Committee
meetings and Board meetings.
The Group maintains a health and
safety policy and detailed minimum
standard, which sets out requirements
which all Ferguson businesses are
expected to meet. Branches are
audited against this standard.
Key to drivers of profitable growth
Engaged associates
Organic expansion
Operating model and
e-commerce development
All
All nine of our drivers
of profitable growth
Excellent service ethic
Bolt-on acquisitions
Pricing discipline
Strong sales culture
Adjacent opportunities
Own label penetration
Ferguson plc Annual Report and Accounts 2017
47
Principal risks and their management continued
G Strategic change
Inherent risk level
Medium
Trend
Decreased
Definition and impact
To respond to changing customer
needs the Group is changing
traditional ways of working in its
established businesses.
H Regulations
Inherent risk level
Medium
Trend
No change
These changes are underway in all
of our key markets, especially the UK,
and will continue for several years.
The Group must successfully
implement these changes without
disrupting existing operations.
The Group’s ability to successfully
execute these changes will affect its
ability to grow profitably in the future.
Definition and impact
The Group’s operations are affected
by various statutes, regulations
and standards in the countries
and markets in which it operates.
The amount of such regulation and
the penalties can vary.
While the Group is not engaged in a
highly regulated industry, it is subject
to the laws governing businesses
generally, including laws relating to
competition, product safety, timber
sourcing, data protection, labour and
employment practices, accounting
and tax standards, international trade,
fraud, bribery and corruption, land
usage, the environment, health and
safety, transportation, payment terms
and other matters.
Breach of any legal or regulatory
requirement could result in significant
fines and penalties and damage to
the Group’s reputation.
Changes during the year
During the year, we announced our
intention to dispose of our operations
in the Nordics.
In the UK, the transformation plan is
underway and we expect that it will
take a further two years to complete.
To support faster execution, greater
focus has been paid to a smaller
number of initiatives capable of
delivering the greatest value.
Mitigation
Each business unit has a clear
strategy for continuously developing
its business model and a defined
programme of work to execute
the strategy.
The Group Chief Executive and Chief
Financial Officer discuss progress
with each business unit during regular
performance reviews.
The Board reviews progress during
regular updates from the Group
Chief Executive and as part of its
six-monthly review of principal risks.
Changes during the year
There has been no major change
in the level of regulation applying
to the Group.
Anti-bribery and anti-corruption
practices in all businesses were
reviewed during the year and the
findings reported to the Executive
Committee and to the Audit
Committee. Improvements are
being implemented.
The Group reviewed its Code
of Conduct.
Further information on the Group’s
ethics and compliance programme
can be found on pages 24 and 36.
Mitigation
The Group monitors the law
across its markets to ensure the
effects of changes are minimised
and the Group complies with all
applicable laws.
The Group’s Code of Conduct sets
out the behaviours expected of
Ferguson associates. This includes
clear statements that the Group does
not permit bribery or the giving or
receiving of improper gifts, that it does
not tolerate fraud and that associates
must comply with anti-trust laws.
The Group aligns Company-wide
policies and procedures with its
key compliance requirements and
monitors their implementation.
Briefings and training on legal and
regulatory topics and compliance
requirements, including anti-trust,
anti-fraud and anti-corruption,
are undertaken.
Where appropriate, tests are
conducted to ensure that the Group
would respond appropriately to a
regulatory investigation.
Key to risks
Risk has increased
Risk has decreased
Risk is unchanged
Risk has been added to the list
of top Group risks this year
48
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
I Talent management and retention
Inherent risk level
Medium
Trend
New addition
All
Definition and impact
As the Group develops new business
models and new ways of working,
it needs to develop suitable skill-sets
within the organisation.
Furthermore, as the Group continues
to execute a number of strategic
change programmes, it is important
that existing skill-sets and talent
is retained.
Failure to do so could delay the
execution of strategic change
programmes, result in a loss of
“corporate memory” and reduce
the Group’s supply of future leaders.
Changes during the year
There has been no material change in
the level of employee turnover during
the year; however a number of senior
management changes have occurred
throughout the Group.
These have included the retirement
of the Group CEO and the CEO in
the USA, the appointment of their
successors and the appointment of
a new Group Chief Financial Officer.
Talent management procedures
were reviewed during the year.
Page 22 provides further information.
Mitigation
All of the Group’s businesses
have established performance
management and succession
planning procedures. Reward
packages for associates are designed
to attract and retain the best talent.
Organisational and talent reviews
are conducted quarterly by the Group
HR Director with each business.
The Group continues to invest in
associate development, an example
of which – our Industrial Group
University – is highlighted on page 9.
Key to drivers of profitable growth
Engaged associates
Organic expansion
Operating model and
e-commerce development
All
All nine of our drivers
of profitable growth
Excellent service ethic
Bolt-on acquisitions
Pricing discipline
Strong sales culture
Adjacent opportunities
Own label penetration
The Strategic report has been approved by the Board and signed on its behalf by:
John Martin
Group Chief Executive
Ferguson plc Annual Report and Accounts 2017
49
Governance
51
52
Governance overview
Board of Directors
54 How the Board operates
56
Ferguson’s governance structure
57 What the Board has done during the year
58
59
Evaluating the performance of the Board of Directors
Relations with shareholders
60 Audit Committee
64 Nominations Committee
66 Directors’ Report – other disclosures
69 Directors’ Remuneration Report
Drivers of profitable growth
On the following pages the symbols below indicate where the
activity of the Board and its Committees related to the drivers
for profitable growth set out in the Group Chief Executive’s
review on page 17.
Engaged associates
Operating model and
e-commerce development
Excellent service ethic
Pricing discipline
Strong sales culture
Own label penetration
All
All nine of our drivers
of profitable growth
Organic expansion
Bolt-on acquisitions
Adjacent opportunities
Compliance with the Code
Throughout the financial year ended 31 July 2017, the Company has been
in compliance with the Code provisions set out in the 2016 UK Corporate
Governance Code (the “Code”). The Company’s auditors, Deloitte LLP,
are required to review whether the above statement reflects the Company’s
compliance with the provisions of the Code specified for their review by the
Listing Rules of the UK Listing Authority and to report if it does not reflect such
compliance. No such report has been made. A copy of the Code can be found
on the Financial Reporting Council website www.frc.org.uk.
50 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Governance overview
A strong
governance culture
Gareth Davis
Gareth Davis
Chairman
Chairman
Committed to achieving high standards of corporate governance
in the boardroom and throughout the Group.
Dear Shareholder
I am pleased to present the Company’s Corporate Governance
Report for the financial year ended 31 July 2017. This report explains
how the Board operates and how our governance structure contributes
to the achievement of the Group’s long-term strategic objectives.
This section, together with the reports from the Audit, Nominations and
Remuneration Committees beginning on pages 60, 64 and 69 respectively,
provide a description of how the Group has applied the main principles and
complied with the relevant provisions of UK Corporate Governance Code
(the “Code”). We remain committed to full compliance with the Code and to
achieving high standards of corporate governance both in the boardroom and
throughout the Group. We have used the core principles of the Code as the
framework within which we explain our governance practices in this report –
please see the boxes below, which direct you to further detail. I also note with
interest the UK Government’s proposals for corporate governance reform
published in August 2017. Your Board will continue to monitor these proposed
reforms as they develop to ensure that we remain fully compliant and that our
high standards of corporate governance are maintained.
The Board remains committed to presenting a clear assessment of the
Company’s position and prospects through the information provided in this
report, through interim financial statements and other narrative and financial
reports and statements as required.
In addition to our usual programme of business, set out on page 57, the
Board has this year placed particular emphasis on succession planning and
the delivery of the Group’s three strategic priorities as set out in last year’s
report – to generate the best profitable growth in the USA, to execute the
UK turnaround and repositioning plan and to review the Nordics operational
strategy and restore the business to profitable growth. Detail of how your
Board has supported delivery of the Group’s strategic priorities is provided
in my Chairman’s statement on page 13, and later in this section on page 57.
It has also been a particularly active year for the Board in terms of succession
planning and Board appointments, more detail is provided in the Nominations
Committee report on pages 64 and 65.
The Board is responsible for determining the nature and extent of the principal
risks it is willing to take in achieving its strategic objectives and for maintaining
sound risk management and internal control systems. The effectiveness
of these systems is reviewed through the work of the Audit Committee
described on pages 60 to 63. During the year, the Board and its Committees
carried out a robust assessment of the risks facing the business and the
principal risks which the Board has focused on are set out in the Principal risks
and their management section on pages 42 to 49.
In the coming year your Board will continue to work to support the
implementation and excellent execution of the Group’s strategy. Your Board
continues to strive for improvement and the areas for further development
identified in the annual effectiveness review have been noted as priority
areas for 2017/18. Details of the effectiveness review and the Board’s
priorities for the coming year are set out on page 58. As usual, during the
year the Non Executive Directors, led by the Senior Independent Director,
conducted their annual evaluation of my performance. I also chair two
other listed companies and this is specifically taken into account in the
evaluation. The Board believes that I continue to perform effectively and to
devote sufficient time and attention to my role as Chairman of the Company.
A process to identify my successor as Chairman of William Hill PLC is
underway and I envisage that I will stand down from that role by May 2018,
once my successor has been appointed.
Ferguson’s Group-wide policies and procedures provide a framework for
governance and are underpinned by the Group’s core values and its Code
of Conduct. The Group’s core values set the expectation that all employees,
at all levels, will: place value on our people by encouraging development; act
with integrity; and drive for results and improvement.
Culture and good governance are inherently linked and your Board
recognises the fundamental importance of a corporate culture that is aligned
with and supportive of the Group’s long-term strategic objectives. However,
culture is, ultimately, an output resulting from the individual and collective
actions of the Group’s associates. The Board has oversight of the Group’s
“Better Business” framework, described in detail on pages 34 and 35, which
sets out the 13 material issues we consider essential to how we do business.
Objectives and, where appropriate, quantified targets are set for each of these
material issues and regular performance updates are submitted to the Board.
I would like to take this opportunity to thank our shareholders for their
continuing support. The Board and I will be available to respond to any
questions on this report or any of the Committee’s activities at our 2017 AGM in
November and I look forward to welcoming those shareholders able to attend.
Gareth Davis
Chairman
Leadership
Continued close focus on
strategy and its execution.
Effectiveness
A strong, open and
effective Board.
Accountability
Close scrutiny of risks
and controls.
Remuneration
Prudent oversight of
executive remuneration.
Relations with shareholders
Open engagement
with shareholders.
Pages 52 to 58, 64 and 65
Pages 52 to 58, 64 and 65
Pages 60 to 63
Pages 69 to 84
Page 59
Core principles
Ferguson plc Annual Report and Accounts 2017
51
Board of Directors
Leadership and effectiveness
A diverse and effective
leadership team
The primary role of the Board is to provide effective and entrepreneurial
leadership necessary to enable the Group’s business objectives to be met
and to review the overall strategic development of the Group as a whole.
6
10
4
11
1
2
7
3
9
5
8
Appointments and other Board and Committee members
Each Board member listed here served throughout the financial year ended 31 July 2017
with the exceptions of Mike Powell, Kevin Murphy and Nadia Shouraboura. Mr Powell was
appointed Group Chief Financial Officer with effect from 1 June 2017 and Ms Shouraboura
was appointed Non Executive Director with effect from 1 July 2017. Mr Murphy succeeded
Frank Roach as Chief Executive Officer, USA and was appointed on 1 August 2017.
Frank Roach was a Director and a member of the Executive Committee throughout the
financial year ended 31 July 2017. Mr Roach retired on 31 July 2017.
Ian Meakins served as Group Chief Executive, Chair of the Executive Committee and
a member of the Disclosure, Major Announcements and Treasury Committees for one
month during the financial year ended 31 July 2017, from the beginning of the year until
his retirement on 31 August 2016.
Gareth Davis
1
Chairman
NM
John Martin
2
Group Chief Executive
D E M T
Year of appointment
2011 (appointed Chairman)
2003 (appointed to the Board as a Non Executive Director)
Key strengths and experience
Extensive international board and general management
experience, having served on various company boards
for many years. Mr Davis spent 38 years in the tobacco
industry and was Chief Executive of Imperial Tobacco
Group plc from its incorporation in 1996 until May 2010.
Other principal appointments
Chairman of William Hill PLC and DS Smith Plc.
Year of appointment
2016 (appointed Group Chief Executive)
2010 (appointed to the Board as Group Chief
Financial Officer)
Key strengths and experience
Extensive operational and financial management
experience of running large international businesses.
Mr Martin has strong leadership capabilities and significant
experience in strategic development and driving
improvements in operational performance. He joined
the Company as Chief Financial Officer and assumed
management responsibility for the Group’s Canadian
business between 2013 and 2016. Previously he was a
partner at Alchemy Partners, the private equity group, and
prior to that was Chief Financial Officer of Travelex Group,
the international payments business and Hays Plc.
Other principal appointments
None.
52
Ferguson plc Annual Report and Accounts 2017
Throughout the financial year ended 31 July 2017, Dave Keltner served as Interim
Group Chief Financial Officer and as a member of the Disclosure, Executive, Major
Announcements and Treasury Committees. During the year, Mr Keltner also served as
Chairman of the Disclosure and Treasury Committees until the appointment of Mr Powell
on 1 June 2017. Mr Keltner was not a Director but attended all Board meetings in his
capacity as Interim Chief Financial Officer.
In addition to the members of the Major Announcements Committee identified on pages
52 and 53, Richard Shoylekov, Group General Counsel, and Mark Fearon, Group Director
of Communications and Investor Relations, are members of that Committee.
Mike Powell
3
Group Chief Financial Officer
D E M T
Year of Appointment
2017
Key strengths and experience
Considerable financial management and operational
experience. Experience of running multi-national
businesses with significant USA operations. Mr Powell, a
chartered management accountant, joined the Company
on 1 June 2017 as Group Chief Financial Officer. From July
2014 until his appointment at Ferguson Mr Powell was
Group Finance Director of BBA Aviation plc, one of the
world’s leading providers of aviation support services.
Before joining BBA he served as CFO of AZ Electronic
Materials plc and CFO of Nippon Sheet Glass, based in
Tokyo. Prior to that he spent 15 years at Pilkington plc
in a variety of operational and finance roles.
Other principal appointments
Non Executive Director of Low & Bonar plc.
Strategic report
Governance
Financials
Other information
Kevin Murphy
4
Chief Executive Officer, USA
Pilar López
7
Independent Non Executive Director
Nadia Shouraboura
10
Independent Non Executive Director
E M
Year of Appointment
2017
A N R
Year of Appointment
2013
A N R
Year of Appointment
2017
Key strengths and experience
Strong leadership skills and deep industry knowledge.
Mr Murphy has a strong track record of driving sustainable
profitable growth. In our business he is responsible
for all of the Group’s businesses based in the USA.
From 2007 until his appointment as Chief Executive
of Ferguson Enterprises on 1 August 2017, Mr Murphy
was Chief Operating Officer of Ferguson Enterprises
and a member of its senior leadership team. He joined
Ferguson Enterprises as an Operations Manager in 1999
and subsequently held several leadership positions
including three years as Vice President of the USA
Waterworks division.
Other principal appointments
None.
Key strengths and experience
Strong financial and international experience within
global businesses. Ms López was Chief Financial
Officer for Telefónica Europe from 2007 to 2014 and
Global Simplification Director for Telefónica S.A from
2014 until taking up her current position at Microsoft
Spain in March 2015. She was also Supervisory Board
member of Telefónica Czech Republic AS and Vice
Chair of Telefónica Deutschland Holding AG. She joined
Telefónica in 1999, working in a number of finance
and strategy positions across the European and Latin
American businesses. Prior to this she worked in a variety
of roles at J. P. Morgan, in Madrid, London and New York
where she became a Vice President.
Other principal appointments
Country Manager for Microsoft Spain.
Tessa Bamford
5
Independent Non Executive Director
Alan Murray
8
Independent Non Executive Director
A N R
Year of Appointment
2011
A
M
N
R
S
Year of Appointment
2013
Key strengths and experience
Extensive boardroom and City experience. Ms Bamford
has broad business experience having held senior
advisory roles in both the UK and USA across a range
of sectors. She was formerly a founder and Director
of Cantos Communications, an online corporate
communications service provider (2001 to 2011).
Previously, she was a Director of J Henry Schroder & Co,
where she worked for 12 years in a number of roles and,
prior to that, worked in corporate finance for Barclays de
Zoete Wedd.
Other principal appointments
Consultant at Spencer Stuart and a Non Executive
Director of Barratt Developments plc.
Key strengths and experience
Considerable international operational experience
and extensive executive management experience
within global businesses. Mr Murray was, from 2010
until August 2017, a Member of the Supervisory Board
of HeidelbergCement AG and was previously a Non
Executive Director of International Power plc (2007
to 2011). Prior to that, he spent 19 years at Hanson plc
and was Group Chief Executive between 2002 and
2007. From 2007 until 2008, he was a member of the
Management Board of HeidelbergCement AG. Mr Murray
is a qualified chartered management accountant.
Other principal appointments
Non Executive Director of Owens-Illinois, Inc.
John Daly
6
Independent Non Executive Director
Darren Shapland
9
Independent Non Executive Director
A N R
Year of Appointment
2014
A N R
Year of Appointment
2014
Key strengths and experience
Considerable international business and executive
management experience in a variety of senior leadership
roles within major international public companies. Mr Daly
undertook various executive leadership positions
during a 20-year career at British American Tobacco Plc
(“BAT”), running large international businesses. Mr Daly
recently stepped down as a Non Executive Director of
Reynolds American Inc., a BAT associate company in the
USA. Prior to his time with BAT, Mr Daly was Managing
Director of Rothmans International’s Japan and South
Korea businesses.
Other principal appointments
Chairman of Britvic plc and a Non Executive Director of
G4S plc.
Key strengths and experience
Considerable commercial, operational, financial
management and broad public company experience
in major retail businesses. Until September
2016 Mr Shapland was Chairman of Poundland Group
plc. He was a Non Executive Director of Ladbrokes plc
and was Chairman of its Audit Committee until 2015.
Between 2012 and 2013, he was Chief Executive Officer
of Carpetright plc. From 2005 to 2010, Mr Shapland
was Chief Financial Officer of J Sainsbury plc and from
2010 to 2011, Group Development Director. He was also
Chairman of Sainsbury’s Bank. Prior to that, Mr Shapland
held a variety of senior finance and operational positions
at Carpetright plc, Superdrug Stores plc, the Burton Group
and Arcadia.
Other principal appointments
Chairman of Maplin Electronics Limited, MOO Print
Limited, Notonthehighstreet.com and Topps Tiles Plc.
Key strengths and experience
Considerable expertise in running complex logistics
and supply chain activities, with insight in cutting edge
technology and deep knowledge of e-commerce.
Ms Shouraboura was a Vice President at Amazon.com,
Inc. where she served on the senior leadership team.
After eight years at Amazon, she founded Hointer Inc., a
consultancy that helps retailers create innovative in-store
experiences. Prior to her time at Amazon Ms Shouraboura
was Head of System Development for Trading at Exelon
Power Team, Senior Principal at Diamond Management
and Technology and Co-founder and Vice President, IT
at Starlight Multimedia Inc. in addition to other technology
and multimedia roles.
Other principal appointments
Founder and Chief Executive Officer of Hointer Inc.
and a Non Executive Director of Cimpress NV.
Jacky Simmonds
11
Independent Non Executive Director
A N R
Year of Appointment
2014
Key strengths and experience
Extensive executive remuneration and human resources
experience within large international businesses.
Ms Simmonds was Group HR Director of TUI Travel plc
from 2010 until 2015. She was also a member of the
Supervisory Board of TUI Deutschland, GmbH and
a Director of PEAK Adventure Travel Group Limited.
She was previously a divisional HR Director of First Choice
Holidays PLC until the business was merged with Tui AG in
2007 to form TUI Travel PLC. From 2007 to 2010, she was
HR Director for TUI UK.
Other principal appointments
Group People Director of easyJet plc.
Graham Middlemiss
Company Secretary
Graham was appointed Company Secretary of Ferguson
plc on 1 August 2015. He is Secretary to the Board and all
of the Committees of the Board. Graham, a solicitor, joined
the Group in August 2004 as the General Counsel of its
UK business and was Group Deputy Company Secretary
from November 2012 to July 2015.
Key to Board and Committee Membership
S Senior Independent
Director
Committee Chairman
A Audit
D Disclosure
E Executive
N Nominations
M Major Announcements
R Remuneration
T Treasury
Ferguson plc Annual Report and Accounts 2017
53
Board decision-making
The Board has a strong culture of open debate. All Directors are actively
encouraged to challenge existing assumptions and to raise challenging
questions. Certain strategic decisions and authorities of the Company
are reserved as matters for the Board with other matters, responsibilities
and authorities delegated to its Committees as detailed in the Ferguson
governance structure on page 56. A formal schedule of matters reserved
for the Board is reviewed annually in July, a summary of which can be
found at www.fergusonplc.com together with the terms of reference
of each of the Audit, Remuneration and Nominations Committees.
Individual roles
The effective working of the Board is crucial to the long-term prospects
and strategic aims of the Company. This is achieved through strong and
open working relationships between the Directors and, in particular,
the Chairman, Group Chief Executive and Senior Independent Director,
whose roles are agreed and set out in writing. A short summary of their
roles and division of responsibilities is set out below.
Chairman
Gareth Davis
Overall leadership and governance of the
Board (including induction, development and
performance evaluation)
Group Chief
Executive
John Martin
Senior
Independent
Director
Alan Murray
Provides the Board with insight into the views of the
Company’s major shareholders
Promotes a culture of challenge and debate at Board
and Committee meetings
Effective leadership of the Company, implementing
strategy and objectives agreed by the Board
Management and development of the Group’s
operations and business models
Working closely with the Group Chief Financial Officer
to ensure prudent financial controls
Developing and implementing policies integral to
improving the business, including in relation to health
and safety and sustainability
Available to investors and shareholders, where
communications through the Chairman or Executive
Directors may not seem appropriate
A sounding board for the Chairman and an intermediary
for the other Directors when necessary
Chairs the Board in the absence of the Chairman
Holds informal discussion with the Non Executive
Directors, with and without the presence of
the Chairman
Leadership and effectiveness
Scheduled Board and Committee meetings
2016/17 attendance (eligibility)
Chairman
Gareth Davis2
Executive Directors3
John Martin4
Frank Roach5
Mike Powell6
Non Executive Directors
Tessa Bamford
John Daly
Pilar López7
Alan Murray8
Darren Shapland9
Nadia Shouraboura10
Jacky Simmonds11
Board1
Committees
Audit
Rem
Nom
6 (6)
6 (6)
6 (6)
1 (1)
6 (6)
6 (6)
6 (6)
6 (6)
6 (6)
1 (1)
6 (6)
4 (4)
4 (4)
4 (4)
3 (4)
4 (4)
4 (4)
1 (1)
4 (4)
4 (4)
4 (4)
4 (4)
4 (4)
4 (4)
1 (1)
4 (4)
6 (6)
6 (6)
5 (6)
6 (6)
6 (6)
1 (1)
6 (6)
The Major Announcements Committee meets as required and was not required to meet during
the year. The members of that Committee are detailed on pages 52 and 53.
1.
In addition to the scheduled meetings two unscheduled Board meetings were convened
at short notice to deal with matters that needed to be considered before the next
scheduled meeting. These unscheduled meetings were held in February and March 2017.
The February meeting was attended by John Martin and Frank Roach and the March
meeting was attended by Alan Murray, John Martin and Frank Roach.
2. Chair of the Nominations Committee.
3. During the year, Ian Meakins served as Group Chief Executive and a member of the
Board until his retirement on 31 August 2016. No Board or Committee meetings were
held during this period.
4. Group Chief Financial Officer until 31 August 2016. Appointed as Group Chief Executive
with effect from 1 September 2016.
5. Chief Executive Officer, USA until he retired from the Board on 31 July 2017.
6. Appointed as Group Chief Financial Officer with effect from 1 June 2017.
7. Ms López was unable to attend the July Remuneration and Nominations Committee
meetings due to an unavoidable scheduling conflict.
8. Senior Independent Director.
9. Chair of the Audit Committee.
10. Appointed as a Non Executive Director on 1 July 2017.
11. Chair of the Remuneration Committee.
How the Board operates
Board and Committee meetings
The Company is registered in Jersey and is tax resident in Switzerland.
During the year, all meetings of the Board, Committees of the Board and
all other meetings requiring decisions of a strategic or substantive nature
were held outside the UK.
Each Director is required to attend all meetings of the Board and
Committees of which they are a member. In addition, senior management
from across the Group and advisers attend some of the meetings for the
discussion of specific items in greater depth.
The Board met regularly during the year, with Board and Committee
meetings scheduled over one or two-day periods. Details of Director
attendance at Board and Committee meetings during the year is set
out above.
In order to provide the Board with greater visibility of the Group’s
operations, to provide further opportunities to meet senior management
and to gain a deeper understanding of local market dynamics, the Board
aims to visit at least one of the Group’s business unit locations each year.
Details of the Board’s visit to Boston, USA in July 2017 can be found on
page 55.
54
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Board visit to the USA
In July 2017, the Board and Committee meetings were held in Boston,
Massachusetts, USA. This provided an opportunity for the Board to visit PV Sullivan,
a blended distributor operating in Massachusetts acquired during the year, and
its showroom in Burlington. During these visits the Board met with both senior
executives and local management to discuss business strategy and operational
performance, and received a presentation from local management on the
performance and plans for the New England district as a whole. The Board visited
the PV Sullivan warehouse in Boston, which allowed the Board to meet management
and associates and gain a more detailed understanding of the business and how
post-acquisition integration plans had been implemented ahead of schedule.
At the Burlington showroom Board members met staff and customers and saw how
product ranging was developing to meet the needs of customers.
Development of the Board
Upon appointment, all new Directors follow a comprehensive induction
programme, further detail on which is provided below. All Directors are
provided opportunities for further development and training following their
induction and, during the year, the Chairman discusses a development
plan with each Director. In addition to regular updates on governance, legal
and regulatory matters, the Board also receives detailed briefings from
advisers on a variety of topics that are relevant to the Group and its strategy.
The annual formal review of governance provides the Directors with an
opportunity to assess their effectiveness and that of the Board as a whole.
New Director induction programme
All new Directors appointed to the Board undertake an induction
programme aimed at ensuring they develop an understanding and
awareness of our businesses, people and processes, and of their roles
and responsibilities as a director of a public company. The programme
is structured to reflect what is regarded as best practice and includes:
– Provision of relevant current and historical information about the
Company and the Group;
– Visits to operations around the Group;
– Meetings with the Group Company Secretary and the
Company’s advisers;
– Induction briefings from Group functions; and,
– One-to-one meetings with Directors and senior executives.
During the year, Mike Powell and Nadia Shouraboura undertook induction
programmes following their appointments as Group Chief Financial Officer
and Non Executive Director respectively. The programmes were tailored
to ensure that they could familiarise themselves with the business, and the
markets in which it operates, from the ground up.
Mr Powell spent significant periods of time with the Group’s USA, UK
and Canadian business. Mr Powell met with senior regional finance and
operational executives, visited branch and showroom locations in the
USA, UK and Canada. He spent time with senior executives at the Group’s
consumer e-commerce business and time on the road with salespeople
meeting customers.
Ms Shouraboura’s induction spent several days immersed in the business
including at a branch location, a showroom location and a distribution
centre at our USA business, time with the consumer e-commerce business
and time on the road with a salesperson meeting customers.
Since the end of the 2016/17 financial year, Kevin Murphy was appointed
Chief Executive Officer, USA and a member of the Board. Given the wealth
of experience in the business Mr Murphy already possesses, his induction
was more focused on his new role and his responsibilities as a Director
and Chief Executive Officer, USA.
Information and support
In advance of each set of meetings, papers and relevant information are
delivered so that each Director is provided with the necessary resources
to fulfil their duties. The information is published via a secure web portal,
allowing remote access by Directors. Meeting support is provided by the
Company Secretariat department.
All Directors have access through a web portal to a library of relevant
information about the Company, the Group and Board procedures.
The Board has an established procedure for Directors, if necessary,
to take independent professional advice at the Company’s expense
in furtherance of their duties. This is in addition to the direct access
that every Director has to the Group Company Secretary for his advice
and services.
Board composition
As at the date of this report, the Board consists of 11 members including the
Chairman, three Executive Directors and seven Non Executive Directors.
The composition of the Board is kept under review by the Nominations
Committee to ensure an appropriate balance of skills, experience,
independence and knowledge are maintained.
The biographies of the Directors (on pages 52 and 53) demonstrate the
strong and diverse experience possessed by the members of the Board.
The Non Executive Directors play an essential role bringing a range of
skills and expertise and challenging the Board to help develop Group
strategy. Each of the Non Executive Directors and the Chairman are
considered by the Board to be independent and free of any relationship
which could materially interfere with the exercise of their independent
judgement. The Code suggests that length of tenure is a factor to consider
when determining the independence of the Non Executive Directors.
Each Non Executive Director has served for six years or less with the
exception of Tessa Bamford. Ms Bamford was reappointed for a third three-
year term from March 2017. As required by the Code, the reappointment
was subject to a particularly rigorous review, including taking into account
the need for progressive refreshing of the Board. The Board was satisfied
that Ms Bamford continued to demonstrate the high level of independence
expected of a Non Executive Director. The Board concluded that
Ms Bamford would continue to be a highly effective member of the
Board, recognising in particular her wide-ranging business experience
across a range of sectors in the UK and the USA, her expertise in senior
management succession and her deep knowledge of the Group’s
businesses. The Board is satisfied each Non Executive Director continues
to demonstrate independence of thought and expertise in meetings,
and to support the senior management in an objective manner.
Why you should vote to re-elect your Board
The Board contains a broad range of experience and skills from a variety
of industries and advisory roles, which fully complement each other.
In accordance with the Code, all Directors will stand for election or
re-election at the 2017 Annual General Meeting (“AGM”). The Directors’
biographies can be found on pages 52 and 53, and in the Notice of AGM.
Further details on the AGM can be found on page 144 and at
www.fergusonplc.com
Ferguson plc Annual Report and Accounts 2017
55
Leadership and effectiveness
Ferguson’s governance structure
Ferguson plc has a premium listing on the London Stock Exchange,
and is therefore subject to the Listing Rules of the UK Listing Authority.
Although the Company (being Jersey incorporated) is not subject to the
UK Companies Act, the Board retains its standards of governance and
corporate responsibility as if it were subject to the Act.
It continues to provide shareholder safeguards which are similar
to those that apply to a UK registered company and complies
with relevant institutional shareholder guidelines. The table below
describes the Company’s governance structure, an overview of the
key Committees of the Board and other administrative committees.
Shareholders
Board and Committees of the Board
Committees of the Board support the Board in the fulfilment of its duties. These take strategic decisions of a substantive nature.
The Board
Collectively responsible for the long-term success of the Company
Accountable to shareholders and responsible for the proper
conduct of the business
Reviewing the performance of the Board and its Committees
and ensuring effective succession planning
Ensuring effective financial reporting
Setting the overall strategic direction of the Company
Approval of key strategic projects in the best interests of the Group
Oversight of effective management of the Ferguson Group
ensuring the appropriate leadership and resources are in
place to meet its objectives
Maintaining a sound system of risk management and internal controls
Audit
Committee
Remuneration
Committee
Nominations
Committee
Oversees, monitors and makes
recommendations as appropriate in
relation to the Company’s financial
statements, accounting processes,
audit (internal and external), risk
management and internal controls
and matters relating to fraud
and whistleblowing
The Audit Committee is the body
responsible for the functions
specified by DTR 7.1.3R
Reviews and recommends to the
Board the framework and policy for
the remuneration of the Chairman,
the Executive Directors and the
Executive Committee
Takes into account the business
strategy of the Group and how the
Remuneration policy reflects and
supports that strategy
Regularly reviews the structure, size
and composition of the Board and
its Committees
Identifies and nominates suitable
candidates to be appointed to the
Board (subject to Board approval)
and considers succession generally
Page 60
Page 69
Page 64
Other Committees
Implementing strategic decisions and executive or administrative matters.
Major Announcements
Committee
Meets as required in exceptional
circumstances to consider disclosure
obligations in relation to material
information where the matter is
unexpected and non-routine
Executive Committee
Treasury Committee
Disclosure Committee
Addresses operational business issues
Responsible for implementing Group strategy and
policies, day-to-day management and monitoring
business performance
Chaired by the Group Chief Executive, Committee
membership comprises:
– Chief Executive Officer,
– Chief Executive Officer,
USA
– Group Chief
Financial Officer
– Group Chief
Information Officer
– Managing Director, UK
Nordic region
– CEO, Canada and
Central Europe
– Group HR Director
– Group General Counsel
Considers treasury policy including financial
structures and investments, tax and treasury strategy,
policies and certain transactions of the Group
Reviews performance and compliance of the tax and
treasury function
Makes recommendations to the Board in matters
such as overall financing and strategy, and
currency exposure
Meets as required to deal with all matters relating
to public announcements of the Company and
the Company’s obligations under the Listing and
Disclosure and Transparency Rules of the UK Listing
Authority and EU Market Abuse Regulation
Assists in the design, implementation and periodic
evaluation of the Company’s disclosure controls
and procedures
Biographical details for each member:
www.fergusonplc.com
Committee membership details:
www.fergusonplc.com
Committee membership details:
www.fergusonplc.com
56
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
All
What the Board has done during the year
The Board has a rolling agenda programme which ensures that items
relating to strategy, finance, operations, health and safety, product integrity,
corporate governance and compliance are covered in its meetings.
The balance of time spent by the Board on strategic, performance related
and governance issues is considered as part of the annual effectiveness
review process and adjustments are made to the Board’s agenda for the
following year. The Board receives copies of the minutes of each Board
Highlights of Board activity during 2016/17
Committee meeting and key issues covered by each Committee are also
reported to the subsequent meeting of the Board. Standing agenda items
including reviews of health and safety performance, strategic initiatives
such as acquisitions, investments and disposals and reports from the
Group CEO and Group CFO are discussed at each Board meeting and
other items are included on the agenda at relevant times throughout the
year. A brief overview of some key areas of Board activity during the year
are detailed below.
Strategy
Performance
– Regular reviews and updates on, and approval of, the Group’s
overall strategy and the strategy plans of the Group’s major
businesses (for further information on overall Group strategy and
USA, UK, Canada and Central Europe operations see pages 17
and 28 to 33)
– Annual budget review
– Reviewed 21 business acquisition and capital investment proposals,
the size or nature of which required Board-level approval
– Commencement of Nordic region disposal process approved
(for further information see page 18)
– Merger of Tobler, the Group’s Swiss business, with Walter Meier
AG approved
– Change of name from Wolseley plc to Ferguson plc approved
by the Board (and by shareholders at a General Meeting on
23 May 2017)
– Change of presentational currency to US dollars with effect from
1 August 2017 approved (for further information see page 16)
– Received regular presentations from management on the
performance of the Group’s major business units
– Review and approval of full year and half year results,
and other announcements
– Regular reviews of feedback from shareholders
Governance
– Received reports from the Nominations Committee on succession
planning and approved Board and Executive Committee
appointments (for further information see page 64)
– Regular reviews of:
– the Group’s principal risks (for further information see
pages 42 to 49); and
– progress of the “Better Business” framework (for further
information see pages 34 and 35)
– Approval of Group insurance arrangements
An overview of the Board’s 2016/17 objectives and how they have been achieved is set out below:
2016/17 objectives
Strategy
All
Regularly review and
monitor the Group’s
progress against its strategy,
including the priorities
set out by the new Group
Chief Executive in the
2016 Annual Report
Ensure there is excellent
execution of major
operational initiatives
People
Support the new Group
Chief Executive and the
Interim Group Chief Financial
Officer in their new roles
Continue to focus on
Board and senior executive
succession planning, and
on talent development in
the regions
Achievements
For more information on our strategy please see pages 16 to 18
– Review of major strategic initiatives at Board meetings and the annual Board strategy day
– Nine USA acquisitions completed, supporting the USA growth strategy. Further information on
the acquisitions completed during the year is set out in note 30 to the consolidated financial
statements on page 116
– UK transformation plan approved
– Nordic region’s operational strategy approved. Decision taken to commence disposal process
for the Nordic region’s businesses
– Approved the merger of Tobler, the Group’s Swiss business, with Walter Meier AG
– The Board received regular reports from the Group CEO and Group CFO on operational initiatives
– Post-investment reviews of acquired businesses conducted by the Board, including progress made
with integration plans
For more information on succession planning please see page 64
– The Chairman and other Non Executive Directors made themselves available to the Group CEO
and Interim Group CFO as required
– The Chairman met regularly with the Group CEO on a one-to-one basis
– The Chairman of the Audit Committee met regularly with the Interim Group CFO on a one-to-
one basis
– New Group CFO and new CEO, USA appointed. Board skills and competencies reviewed and
a new Non Executive Director with significant experience of innovative business models and USA
operations appointed. Further details are set out in the Nominations Committee report on page 64
– Review of people strategy and succession planning below Board level undertaken by the
Nominations Committee and reported to the Board
Ferguson plc Annual Report and Accounts 2017
57
Leadership and effectiveness
Evaluating the performance of the Board of Directors
The Board undertakes a formal review of its performance and that of its Committees each year, with an external evaluation every three years.
Following the external evaluation conducted in 2015, in accordance with the Code, the next externally-facilitated effectiveness review will be conducted
during the year ending 31 July 2018. Progress against the actions identified following the internal review undertaken in 2016, is outlined below:
Action point
Responsibility
Outcome
Keep under review the range of
skills and experience required at
Board level as the Group’s strategy
is implemented and its businesses
develop in the future
Board and Nominations
Committee
During the year, the Board dealt with major succession issues with the
appointment of a new Group CFO and a new CEO, USA. The opportunity
was taken to supplement and complement the skills and experiences of the
Board through the appointment of an additional Non Executive Director.
Continue to focus on succession
planning at Board and Executive level
Board and Nominations
Committee
Board and Executive succession planning was reviewed in detail by the Board
and Nominations Committee (further information is provided on page 64).
Develop further opportunities
for Board members to continue
to deepen their understanding
of and engagement with the
Group’s businesses
Board
Management presentations made to the Board on regional business
performance and progress with strategic initiatives.
Board members met with, and received presentations from, local
management during their visit to the USA for the July Board meeting.
More detail on the Board’s visit to the USA is provided on page 55.
Board and Committee effectiveness review
This year, the Board and Committee effectiveness review was facilitated
internally using an online survey. The survey included questions tailored to
address the activities and particular concerns of the Board and the Audit,
Remuneration and Nominations Committees. The questions encouraged
comment and qualitative evaluation of the effectiveness of the Board
and each Committee, the individual members and the support received
from management and advisers. Questions used in the previous year
were included, enabling the Board to monitor and evaluate progress.
Feedback from the reviewers was reported to and discussed by the
Board and by each relevant Committee. In addition, the Chairman spoke
with each Non Executive Director to discuss the results of the reviews.
All Directors, from the time of appointment, are aware of the time
commitment expected in order to discharge their responsibilities
effectively. The Chairman maintains frequent contact with all Directors
and constantly monitors whether they are able to devote sufficient time
to their respective roles, and he is satisfied that each Director has been
able to do so. The Chairman also has regular meetings, outside of Board
and Committee meetings, with the CEO and other executives to keep up
to date with material developments in the business and discussed Board
composition and succession planning at his meetings with shareholders.
During the financial year, each Director attended all scheduled Board
meetings. The Board continues to consider each of the Directors to be
effective and to demonstrate commitment to his or her role.
During the year, the Non Executive Directors, led by the Senior
Independent Director, undertook the performance evaluation of the
Chairman. The evaluation concluded that the Chairman performed
strongly and is highly effective in his role. Board meetings were considered
to be well chaired. The Chairman continued to devote sufficient time and
attention to his role and had made himself available to Directors whenever
necessary outside of Board meetings.
Key findings, improvement actions and priorities
Overall, the key findings of the internal evaluation were positive. The review
concluded that the Board was very effective and worked well together
enabling the individual Directors to discharge their respective roles
effectively. Although the composition of the Board was rated highly, the
58
Ferguson plc Annual Report and Accounts 2017
opportunity to enhance Board expertise with further digital expertise and
USA operational experience was identified as an important aspect of Board
development. The atmosphere at Board meetings was commented on
favourably and seen as encouraging equal contribution, candid discussion
and critical thinking. The support and challenge of management by
Non Executive Directors was rated highly. The review concluded that the
Board’s testing and development of strategy was strong and the Board’s
oversight of the subsequent implementation of strategic objectives was
rated highly. Performance of the Board Committees was rated very highly.
Areas identified in order to improve overall effectiveness, are
summarised below:
Actions
All
Develop further opportunities for the Board to meet with USA
management and further their understanding of the Group’s USA
operations and market environment
Continue to focus on succession planning at Board and Executive level
As at the date of this report, the Board has already begun to incorporate
these action points into its processes and procedures. An opportunity
to further enhance the skills and expertise of the Board identified
in the review has been taken with the appointment of an additional
Non Executive Director. For further commentary please see page 64.
In addition to the actions arising from the effectiveness review, the Board
priorities for 2017/18 are set out in the table below
Board priorities for 2017/18
All
Regularly review and monitor the Group’s progress against the drivers
of profitable growth set out on page 17
Ensuring continued focus on matters of succession, diversity and
talent development
Support the new Group Chief Financial Officer and Chief Executive
Officer, USA
Strategic report
Governance
Financials
Other information
Relations with shareholders
Engagement
The Board is fully committed to engaging with shareholders. During the
year, active dialogue was maintained with our shareholders through
planned communications and annual investor relations programmes.
The Group Director of Communications and Investor Relations (who
reports to the Group Chief Financial Officer and Group Chief Executive)
has day-to-day responsibility for all investor relations matters and
for contact with all shareholders, financial analysts and the media.
In interactions with shareholders, the Company ensures:
– a professional approach;
– provision of accurate data;
– timely disclosure of information to the market; and
– accessibility to both current and potential shareholders.
Communications programme
Regular dialogue with institutional shareholders and financial analysts
based in Europe and North America is maintained through:
– meetings and conversations involving the Group Chief Executive,
Group Chief Financial Officer and Investor Relations team;
– release of updates on the financial performance of the Group
incorporating revenue, profitability by region, net debt and appropriate
commentary on key business trends; and
– the Chairman regularly engaging with larger institutional shareholders
to discuss matters including the Board, strategy, remuneration and
corporate governance.
The Company engages with private shareholders in the following ways:
– periodic meetings are held with the UK Shareholders’ Association;
– responding to communications from individual shareholders;
– all documents presented at investor events are available on
www.fergusonplc.com; and
– there is a Shareholder information section on www.fergusonplc.com
and on pages 142 to 144 of this report.
Investor relations programme
The allocation of time spent in the UK, continental Europe and North
America reflects the distribution of our shareholders.
Shareholder meetings – during the year ended 31 July 2017, there were
a total of 277 meetings. John Martin and Dave Keltner, Interim Group Chief
Financial Officer (together with the Investor Relations team) attended
108 meetings, Gareth Davis (together with the Investor Relations team)
attended five meetings, members of the USA senior management team
(represented by various combinations of Frank Roach, Kevin Murphy
and Bill Brundage, the USA business’ Chief Financial Officer) attended
10 meetings and the Investor Relations team met with institutions through
a further 154 meetings, conferences and calls.
The Chairman regularly meets with the larger institutional shareholders
and ensures that the Board as a whole has an appropriate understanding
of shareholder feedback.
The Group Director of Communications and Investor Relations regularly
provides the Board with details of feedback received from institutional
shareholders and any key issues raised.
AGM
The AGM is held in Switzerland with an audio-visual link to London so that
shareholders in London are able to participate and can question the Board
during the meeting. All Directors attended the 2016 AGM. During the
AGM, the Board answered a wide range of questions from shareholders.
Details of the 2017 AGM are contained in the Notice of AGM and are
available on www.fergusonplc.com.
Additionally, in response to feedback from individual shareholders at last
year’s AGM, the Group Chief Executive and Director of Communications
and Investor Relations will make themselves available to answer questions
from individual shareholders in advance of the AGM at a meeting
hosted by the UK Shareholders’ Association at the offices of Bank of
America Merrill Lynch, 2 King Edward St, London EC1A 1HQ on Thursday
23 November 2017.
Plans for engagement in 2017/18
A similar investor relations programme will be run during the 2017/18
financial year.
Geographical breakdown of institutional shareholder base
Investor concentration
37.4%North America
47.7%United Kingdom
10.8%Europe
17.5%
Others
23.1%
Top 5
investors
3.8%Asia
Shareholders
21.0%
Rest of top
100 investors
0.3%Rest of World
38.4%
Rest of top
30 investors
Ferguson plc Annual Report and Accounts 2017
59
Audit Committee
Accountability
Darren Shapland
Audit Committee Chairman
Dear Shareholder
I am pleased to present the report of the Audit Committee for 2016/17.
This report provides an insight into the activities of the Committee during
the year and how the Committee plays a key oversight role for the
Board. I will be available at the 2017 AGM, to respond to any questions
shareholders have on this report or any of the Committee’s activities.
As at 2 October 2017, the Committee was made up of seven Non
Executive Directors as set out in the table on page 54. During the year,
Nadia Shouraboura joined the Committee following her appointment as
a Non Executive Director on 1 July 2017.
relating to independence, financial experience and sectoral competence.
The key strengths and experience of each member of the Committee are
summarised on pages 52 and 53.
In addition to the members of the Committee, the Chairman, Group Chief
Executive, Interim Group Chief Financial Officer and the Head of Internal
Audit, together with senior representatives of Deloitte LLP (“Deloitte”),
the Company’s external auditors, attended and received papers for each
meeting. Following his appointment as Group Chief Financial Officer on
1 June 2017, Mike Powell also attended and received papers for the July
Committee meeting. The Committee meets periodically with the Group
Chief Financial Officer and also meets separately with Deloitte and the
Head of Internal Audit without the presence of Executive Directors. The
Committee has a programme where the Finance Directors of the Group’s
major businesses attend and present updates on items such as regional
finance team development, finance transformation and financial systems
architecture and the base financial controls environment. Other senior
executives are also invited to attend and provide updates to the Committee,
for example the Chief Information Officer regularly attends meetings to
report on the Group’s information security programme and IT controls.
How the Committee operates
The Audit Committee met on four occasions during the financial year.
Meetings are scheduled to coincide with key dates in the financial
reporting cycle. Attendance at these meetings is set out on page 54.
The Board considers that several members of the Committee have recent
and relevant financial experience and that each member of the Committee
is independent within the definition set out in the Code. Members of the
Committee between them possess significant international, commercial,
retail, financial and human resource skills and expertise which are relevant
to an international specialist distribution company. In addition to me, Alan
Murray and Pilar López have served as Chief Financial Officers of large
businesses during their career. This provides the Board with assurance
that the Audit Committee meets the relevant regulatory requirements
Principal areas of focus
During the year, the Committee has continued to focus on maintaining the
quality and integrity of our financial reporting, and monitoring and ensuring
the appropriateness of the Company’s risk management systems and
internal control environment. In line with the assessment of the Group’s
principal risks (detailed on pages 42 to 49), and mindful of external events
which have highlighted its importance, the Committee has increased its
scrutiny of information security during the year and has reported on its activity
to the Board. The Committee has also continued to monitor the interaction
between the internal audit function and the external auditors, to monitor
and review the effectiveness of the external audit process and to ensure
that the Group’s governance standards are maintained. Further details of
the Committee’s activities during the year are set out opposite.
Audit Committee key achievements – 2016/17
An overview of the Committee’s 2016/17 objectives and how the Committee has achieved them is set out below:
2016/17 objectives
Achievements
The effective and efficient transition
of responsibilities to the Company’s
Interim Group Chief Financial Officer
Continue to review and monitor the
approach to risk management and the
level of risk driven through changes to
the operating model, industry changes
and technological developments
Continue to monitor and
review the Group’s approach
to information security
Continue to monitor finance systems
transformation
Monitor and ensure that the external
auditors and internal auditors continue
to co-ordinate their activities effectively
and that the internal audit effectiveness
review actions are completed
– Smooth handover of responsibilities to the Interim Group CFO
– Reviews undertaken in March and September of key risks and their management
– The Group’s principal risks and the adequacy of the mitigating controls in place were considered
in detail
– Feedback provided to management as part of this review process and any material
changes highlighted
– The Committee has continued to monitor information security, and has increased its focus in this area
– Information security programme updates were presented to the Committee at six-monthly intervals
and two external information security audits were conducted during the year
– Monitored preparation for the implementation of the EU General Data Protection Regulation
– Reports received from management and reviewed by the Committee as well as internal and
external audit
– The external and internal auditors reported to the Committee on the ways in which they had
continued to co-ordinate their activities effectively
– All the recommendations made in last year’s external effectiveness review have been implemented.
In particular, Deloitte identified ways in which controls processes could be further improved and the
internal audit team worked effectively to make appropriate improvements
60 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
What the Committee has done during the year
The Committee has a rolling programme of agenda items to ensure that relevant matters are properly considered. The list below summarises the key
items considered by the Committee during the year.
Control environment
Governance
– Internal audit report
– Annual plan for internal audit
– Fraud and whistleblowing reports
– Risk management report
– Anti-bribery and corruption compliance programme
– Internal controls review
– External audit plan
– Effectiveness review of the Committee
– External auditor effectiveness review
– Internal audit effectiveness review
– Consideration of non-audit engagements
– Updates on accounting and corporate governance developments
– Terms of reference review
– Review of external auditor’s fees and engagement letter
Financial results
Review items
– Full Year results and associated announcements
– Auditor’s Full Year report to the Committee
– Review of the Annual Report and Accounts
– Half Year results and associated announcements
– Auditor’s Half Year report to the Committee
– Updates from regional Finance Directors
– Finance team succession planning
– Information security updates
– IT controls reports
Financial reporting and significant financial judgements
The Committee considered the issues summarised below as significant in the context of the 2016/17 financial statements. These were discussed
and reviewed with management and the external auditors and the Committee challenged judgements and sought clarification where necessary.
The Committee received a report from the external auditors on the work they had performed to arrive at their conclusions and discussed in detail
all material findings contained within the report.
Carrying value
of goodwill and
intangible assets
(recurring item)
Completeness of
supplier rebates
(recurring item)
Inventory
valuation
(recurring item)
Audit Committee review
The Committee reviewed the carrying value of goodwill and other intangible assets for
impairment, including a detailed review of the assumptions underlying the value in use
calculations for businesses identified as cash generating units. The key assumptions
underlying the calculations are primarily the achievability of the long-term business plan,
country specific discount rates, anticipated revenue growth in the short-term and long-term
growth assumptions.
For further information please see notes 12 and 13 of the consolidated financial statements
on pages 100 and 101.
Conclusions
The Committee agreed with
management’s assessment that
an impairment charge had arisen
relating to the Swedish business,
Beijer, due to significantly
reduced expectations
of profitability.
Audit Committee review
The Committee reviewed the recognition of supplier rebates which are significant to the
Group and are an area of inherent risk due to the number and complexity of the arrangements.
In addition, the majority of the supplier rebate arrangements cover a calendar year and
therefore do not end at the same time as the Group’s accounting year-end. Where the rebate
arrangements are calculated at a flat rate there is limited judgement. However, for tiered
rebates, judgements are required to forecast the expected level of volumes purchased to
determine the appropriate rate at which a rebate is earned. This review covered the processes
and controls in place during the year and the level of adherence to the Group’s accounting
policies and procedures.
Conclusions
As a result of the review process,
which included consideration
of the external audit findings,
the Committee concluded that
the level of rebate income and
rebate receivable as at 31 July
2017 was properly reflected in the
consolidated financial statements.
For further information please see note 1 of the consolidated financial statements on page 90.
Audit Committee review
Judgement is applied in determining the appropriate values for slow-moving or obsolete
inventory. The provisions are predominantly system-generated calculations, comparing
inventory on hand against expected future sales using historic experience as the basis for
provisioning, along with the results of physical stock-counts. The Committee considered the
level of provisions and ensured the policy was consistently applied across the Group in the
current and previous financial periods. The Committee also sought the views of the auditors.
For further information please see note 1 of the consolidated financial statements on page 90.
Conclusions
Following their review, which
included consideration of the
external audit findings, the
Committee concluded that
provisions for obsolete and
slow moving inventory are
fairly stated in the consolidated
financial statements.
Ferguson plc Annual Report and Accounts 2017
61
Audit Committee continued
Accountability
Audit Committee effectiveness review
An internally facilitated review of the Committee’s effectiveness was
carried out in July 2017. The review concluded that the Committee
continued to be effective and well run and the composition of the Audit
Committee was rated highly. The review found that the work of the
internal and external auditors was well co-ordinated and that their work
continued to be effectively reviewed and assessed by the Committee.
The Committee’s monitoring and review of the status of IT controls and
information security systems was identified as an evolving area which
had seen improvements implemented during the year. The review also
highlighted several areas for improvement and these either have been
incorporated into our priorities for 2017/18, or for more minor areas will
be addressed during the year.
Audit Committee priorities for 2017/18
Continue to review and monitor the approach to risk management
and the level of risk driven through changes to the operating model,
industry changes and technological developments
Continued increase in focus on the Group’s approach to
information security
Continue to monitor finance systems transformation to ensure that the
associated projects are effectively completed
Review and assess the continued effectiveness of the Group’s control
framework and base financial controls including their continued effective
operation following the transfer of certain functions from the UK to
the USA
External audit
Auditor reappointment
Following an external tender process, Deloitte were first appointed as the
Company’s external auditor for the 2015/16 audit and have served as the
Company’s auditor for two years. Deloitte’s reappointment was approved
by shareholders at the 2016 Annual General Meeting. Ian Waller has
served as lead audit partner since Deloitte’s appointment. In line with the
Audit Practices Board Ethical Standard 3 the lead audit partner is due to be
rotated following the 2019/20 audit.
The Committee reviews the external auditor appointment and the need to
tender the audit annually. The Company confirms that it complied with the
provisions of the Code and the Competition and Markets Authority Order for
the financial year under review. For the financial year ending 31 July 2018, the
Committee has recommended to the Board that Deloitte be reappointed as
the external auditor and the Directors will be proposing the reappointment of
Deloitte at the 2017 Annual General Meeting. The Committee confirms that
the Company complied with the provisions of the Statutory Audit Services
Order 2014 during the financial year ended 31 July 2017.
External audit processes
During the year, the Group audit partner, together with other relevant and
appropriate Deloitte partners, attended all the Audit Committee meetings.
They provided the Committee with information and advice including
detailed reports on the financial statements and internal controls.
In January 2017, the Committee reviewed and approved the terms, areas
of responsibility and scope of the 2016/17 audit. During the year, Deloitte
provided external audit services for regulatory and statutory reporting.
62
Ferguson plc Annual Report and Accounts 2017
Deloitte are expected to report to the Committee any material departures
from Group accounting policies and procedures that are identified during
the course of their audit work. Deloitte’s 2016/17 external audit plan has
been successfully completed at the date of this report. No material items
were found or reported in the financial year.
Effectiveness of the audit process
Following the issue of the Company’s Annual Report, the Committee
conducts an annual review of the effectiveness of the external audit.
A survey of all the Group’s finance teams is conducted. Each team is
asked to rate the performance of the external auditor against a range of
measures, including relating to the adequacy of planning, sufficiency of
resource, thoroughness of review and testing, adequacy and application
of knowledge of the Group, usefulness of feedback and the quality of
reporting. The Committee was satisfied that Deloitte provided an effective
audit service in 2015/16. A review of the effectiveness of the audit for the
year ended 31 July 2017 will be conducted.
Auditor independence and objectivity
The Company has policies and procedures in place to ensure that the
independence and objectivity of the external auditor are not impaired.
These include restrictions on the types of services which the external
auditor can provide, in line with the Audit Practices Board Ethical Standards
on Auditing. Details of the services that the external auditors cannot be
engaged to perform are provided at www.fergusonplc.com.
Deloitte also provides specific assurance to the Committee on the
arrangements and safeguards it has in place to maintain its independence
and objectivity, including an internal process to preapprove provision
of non-audit services and the use of separate teams where non-audit
services are being provided to the Group. The Committee continues to be
satisfied with the independence and objectivity of Deloitte.
When considering the award of non-audit work to the external auditor,
an assessment is made to consider if it is more effective for the work to
be carried out by the external auditor who has existing knowledge of
the Company and all appointments are made on a case-by-case basis.
The prior consent of the Chairman of the Committee is required before
the Company’s external auditor is appointed to undertake non-audit work.
The external auditor will not be appointed to provide non-audit services
where the Committee considers it might impair their independence or
objectivity in carrying out the audit. At each meeting the Committee
reviews any new non-audit engagement of the Company’s external
auditor and reviews the level of fees for all non-audit work. During the year,
Deloitte was appointed to undertake non-audit work, the details of which
are provided below.
Audit and non-audit fees
Fees for non-audit work performed by Deloitte as a percentage of
audit fees for the year ended 31 July 2017 were 24 per cent (2016: 7 per
cent). Further disclosure of the non-audit fees incurred during the year
ended 31 July 2017, can be found in note 4 to the consolidated financial
statements on page 95.
Non-audit services related mainly to services provided to Tobler as part of
the merger with Walter Meier AG and services related to the disposal of the
Nordic businesses and the change of presentational currency for the Group
in 2017/18. In each instance it was considered to be in the best interests
of the Group to use Deloitte due to efficiencies gained from their existing
knowledge of the Company. Their continued objectivity and independence
was unaffected due to the nature and scale of the work undertaken.
Strategic report
Governance
Financials
Other information
Internal audit
The scope of activity of internal audit is monitored and reviewed at each
Committee meeting. An annual plan was agreed by the Committee in
July 2017 which covers the activities to July 2018. During the year, the
Head of Internal Audit attended all Committee meetings and provided
the Committee with a detailed report on internal audit activities which the
Committee reviewed and discussed in detail. The Committee considered
the matters raised and the adequacy of management’s response to them,
including the time taken to resolve any such matters.
In July 2017, the Committee conducted the annual review of the effectiveness
of the Group’s Internal Audit function, including its terms of reference, audit
planning process, general performance and relationship with the external
auditors. The review identified opportunities to enhance the resourcing of
the function through co-sourcing and maintaining the rigour of following
up the implementation of audit recommendations. Steps have already
been taken to implement these suggested improvements. The review was
undertaken using guidance issued by the Chartered Institute of Internal
Auditors. As part of this review the Committee was satisfied that all the
opportunities for improvement in the function’s operations which had been
identified by external consultants in last year’s effectiveness review had been
implemented. Based on its review the Committee was satisfied with the
effectiveness of the Group’s Internal Audit function.
Risk
Risk management
Risk management reports prepared by the Group Head of Risk and
Compliance were submitted to the Committee in March and September
2017. These reports summarise submissions from all areas of the business
which the Executive Committee and senior management have reviewed.
Risks relating to material joint ventures and associates are considered as
part of this process. The six-monthly reports identify the significant risks to
the Group, the controls in place and highlight the tolerance levels that the
Executive Committee and, ultimately, the Board are prepared to accept.
The Audit Committee reviewed the effectiveness of the Company’s overall
risk management framework, including the generic procedures for risk
identification, assessment, mitigation, monitoring and reporting and was
satisfied with their effectiveness.
Viability Statement
The Committee also reviewed management’s work in conducting a robust
assessment of those risks which would threaten the future performance
or liquidity of the Company, including its resilience to the threats of
viability posed by certain of those risks in severe but plausible scenarios.
This assessment included the stress testing of cash flow projections
to evaluate the impact of an unlikely, but realistic, worst-case scenario.
The Company’s Viability Statement can be found on page 43.
Internal controls
During the year, the Committee monitored and reviewed the effectiveness
of the Group’s internal control systems, accounting policies and practices,
standards of risk management and risk management procedures and
compliance controls, as well as the Company’s statements on internal
controls, before they were agreed by the Board for this Annual Report.
The Group’s internal control systems are designed to manage rather
than eliminate business risk. Such systems are necessary to safeguard
shareholders’ investment and the Company’s assets and depend on
regular evaluation of the extent of the risks to which the Company is
exposed. The Committee receives regular reports throughout the year,
including from the Finance Directors of the Group’s major businesses, to
assure itself that the Company’s systems comply with the requirements
of the Code. The Committee can confirm that the Company’s systems
have been in place for the full financial year and up to the date on which
the financial statements were approved, that they are effective and that
they are regularly reviewed by the Committee on behalf of the Board.
The Committee is of the view that the Company has a well-designed
system of internal control. These systems can only provide reasonable,
but no absolute, assurance that risks are managed to an acceptable level.
In relation to the financial reporting process, at the business level, line
management are required to implement base financial and other controls
in line with a clear set of detailed policies relating to financial reporting and
other accounting matters and act in accordance with the Group Code of
Conduct. At Group level, the Group finance function oversees through
setting the policies, requiring a self-certification from the businesses
and a bi-annual assessment of implementation by the businesses.
At a further level, assurance functions (Internal and External Audits)
test various aspects of the processes and report to the Committee.
The Chairman of the Committee reports any matters arising from the
Committee’s review to the Board following each meeting. This update
covers the way in which the risk management and internal control
processes are applied and any significant failings or weaknesses in,
or exceptions to, these processes. There were no significant failings or
weaknesses identified. These processes have been in place throughout
the year ended 31 July 2017 and have continued to the date of this report.
Further information on the Company’s risk management systems is set out
in the section on Principal risks and their management on pages 42 to 49.
Whistleblowing and fraud
The Group’s whistleblowing policy, which supports the Group-wide Code
of Conduct, is monitored by the Committee. A copy of the Group’s Code of
Conduct is available at www.fergusonplc.com. The Committee received
reports at each Committee meeting providing details of matters reported
through the Group’s international confidential telephone reporting lines and
secure website reporting facility, which are operated on its behalf by an
independent third party. All matters reported are investigated by the relevant
operating company and reported to the Committee, together with details
of any corrective action taken. The Committee also received reports at
Committee meetings providing details of fraud losses on a half yearly basis.
Fair, balanced and understandable assessment
At the request of the Board, the Committee assessed whether the content
of the 2016/17 Annual Report, taken as a whole, is fair, balanced and
understandable. In order to make this declaration, a formal process is
followed to ensure the Committee has access to all relevant information
including a paper from management detailing the approach taken in the
preparation of the Annual Report and Financial Statements and explaining
why management believes the Annual Report is, taken as a whole, fair,
balanced and understandable. The Committee and all Board members
receive drafts of the Annual Report and Financial Statements in sufficient
time to allow challenge of the disclosures where necessary. The Committee
advised the Board it was satisfied that, taken as a whole, the 2016/17 Annual
Report and Accounts is fair, balanced and understandable and provides
the necessary information for shareholders to assess the Company’s
position and performance, business model and strategy. The Directors’
responsibilities statement can be found on page 68.
Darren Shapland
on behalf of the Audit Committee
Ferguson plc Annual Report and Accounts 2017
63
Nominations Committee
Leadership and effectiveness
Gareth Davis
Nominations Committee Chairman
Dear Shareholder
Board and senior leadership succession planning is of paramount
importance to Ferguson’s continued success. It continues to be a major
priority for the Board and is something the Nominations Committee keeps
under continuous review. As I mentioned in my Chairman’s statement
on page 13, during the year, we announced three changes to the Board:
Frank Roach’s retirement and the appointment of Kevin Murphy as our new
Chief Executive Officer, USA (“CEO, USA”); the appointment of Mike Powell
as our new Group Chief Financial Officer (“CFO”); and the appointment of
Nadia Shouraboura as a Non Executive Director.
Recruitment
In accordance with our procedure for selecting and recruiting Directors,
the Committee identified the key skills and experience required for the
new appointments. The Committee retained external search advisers to
assist in the process of identifying potential candidates for nomination
to the Board. The Company does not use open advertising to search
for suitable candidates for Director positions, as we believe that the
optimal way of recruiting for these positions is to use targeted recruitment
based on the skills and experience required. Both internal and external
candidates were considered for Executive Director positions as part of
a rigorous process involving interviews and assessments.
Executive Director succession
During the year, we undertook a process to identify a successor for the
role of CFO. The criteria identified by the Committee for the CFO selection
process included strategic development abilities, functional capabilities,
relevant sector and international experience, and the ability to work
effectively in and to build high performing teams.
Following an extensive recruitment process the Committee agreed
that Mike Powell was the strongest candidate for the CFO role and
recommended his appointment to the Board. Mike’s international
background, financial skills, familiarity with the USA and operational
experience of running multi-site businesses will be important attributes
as we continue to develop the Ferguson business.
At the same time as announcing Mike’s appointment the Company also
announced that Dave Keltner, who has served as Interim Group CFO since
September 2016 would step down from the role at the end of 2016/17
following an orderly transition. I would like to thank Dave for the invaluable
support and leadership he has provided whilst standing in as Interim
Group CFO, allowing the Board ample time to enable a smooth handover
to a successor of the highest calibre. He has given outstanding service
to the Group over 23 years and I wish him well in his retirement.
In March 2017, the Company announced the retirement of Frank Roach
as CEO, USA and the appointment of Kevin Murphy as his successor.
64
Ferguson plc Annual Report and Accounts 2017
As part of the Committee’s succession planning process for the role
of CEO, USA external candidates were considered in addition to Kevin
Murphy, who was then Chief Operating Officer of our USA business.
The criteria for the selection of a successor to Frank Roach as CEO, USA
included strategic development and execution capabilities, significant
executive experience in the relevant sector, core functional capabilities
and a proven organisational leadership ability.
After a careful and thorough review, the Committee agreed that
Kevin Murphy was the most appropriate successor as CEO, USA and
recommended his appointment to the Board. Kevin joined the USA
business in 1999 and held several leadership positions before being
appointed Chief Operating Officer in 2007. Kevin has played a vital
part in our USA business’ success, and his skills, expertise and deep
understanding of the business make him the ideal person to drive future
growth in the USA. I am delighted that a candidate identified by the
Board some time ago as having significant potential, and subsequently
developed by the Company as part of the succession planning process for
senior leadership positions, has been selected to lead the Group’s largest
operating segment.
I’d like to take this opportunity to thank Frank Roach for his immense
contribution to the business and for his distinguished service. Frank has
been an outstanding Chief Executive of our USA business. Under his
leadership, the business has developed into the leading specialist
distribution business in the USA, whilst maintaining an enviable track
record of delivering superior service to customers and creating significant
shareholder value. I wish Frank well in his retirement.
Non Executive Director appointment
During the Board and Committee effectiveness review process, an
opportunity was identified to enhance the skill set of the Board through
the recruitment of an additional Non Executive Director. The criteria
identified by the Committee for the Non Executive Director recruitment
process included a proven track record as a senior leader of a USA
business, deep understanding of the evolving digital environment and
first-hand experience of disruptive business models. Following a thorough
recruitment process the Committee agreed that Nadia Shouraboura was the
most suitable candidate and recommended her appointment to the Board.
I am delighted to welcome Nadia to the Board. Her considerable expertise
in running complex logistics and supply chain activities will be invaluable
to us. E-commerce remains a significant opportunity for the Group with
almost £3 billion of revenue generated from online activities last year and
growing this channel remains an important part of our strategy.
External search advisers
External search advisers Russell Reynolds Associates and JCA Group
assisted the Nominations Committee during the year with the CFO
recruitment process. Russell Reynolds Associates also assisted the
Nominations Committee with the CEO, USA succession process.
Russell Reynolds Associates and JCA Group have no other connections
to the Company. Korn Ferry, an external search adviser, assisted the
Nominations Committee with the Non Executive Director recruitment
process. Korn Ferry has no other connections with the Company except
in relation to other senior executive search mandates.
Strategic report
Governance
Financials
Other information
Board composition and succession planning
As at 31 July 2017, the Board comprises the Chairman, three Executive
Directors and seven Non Executive Directors. The biographies of all
members of the Board, which outline the skills and experience they bring
to their roles, are set out on pages 52 and 53.
It has been a busy year for the Committee in terms of succession planning
and during the year, in addition to the three appointments, the Committee
considered the composition, skills and experience of, and the succession
plans for, the Group’s senior leaders. Succession for the Board and senior
executives will continue to be a crucial area of focus of the Committee in the
coming year and beyond to ensure that, as the Group develops, the business
has the appropriate mix of skills and experience at Board and senior levels.
Ferguson takes diversity seriously. We met the gender diversity targets set
out in Lord Davies’ report well ahead of schedule and the Committee has
noted the recommendations made by the Hampton-Alexander Review on
the gender diversity of FTSE 100 Executive Committee members and their
direct reports as well as the Parker Review Report’s recommendations for
increasing the ethnic diversity of boards. The Committee has also noted
the recommendations made by the McGregor-Smith Review of race in the
workplace and the government’s response to those recommendations.
Ferguson remains absolutely committed to equality in our employment,
promotion and pay practices and the Committee will continue to
monitor and review the Company’s progress as it continues to deliver
improvements in workforce diversity.
Diversity
One of the core values of Ferguson is that we value our people.
We believe that well trained, highly engaged associates deliver better
customer service. This is one of the Group’s drivers of profitable growth,
set out in the CEO’s review on page 17, and there are examples throughout
the report of what the Company is doing in support of this.
We aim to recruit, retain and develop a high quality, diverse workforce.
To achieve our objectives we will always appoint or hire the best candidates
available from the widest range of knowledge, skills and experience.
The diversity of our people – whether in terms of gender, race and ethnicity,
religious or political beliefs, marital status, sexual orientation, age, disability,
culture, background or any other measure – strengthens our diversity of
thought, which is vital to the growth and success of our business. We are
committed to providing our employees with an inclusive work environment
in which diversity is valued, discrimination in any form is not tolerated, and in
which all our people feel empowered to reach their full potential. Details of
our current gender diversity statistics are set out on page 36 and further
information on diversity is detailed on page 23.
We remain supportive of the voluntary approach as an effective way
to encourage companies to improve gender diversity in boardrooms.
For the last four years we have met the gender diversity recommendations
set out in Lord Davies’ original report, “Women on Boards”, and this year
36 per cent of your Board are women.
Effectiveness
The annual review of the effectiveness of the Committee was carried
out in July 2017. The review concluded that the Committee was well run
and that, overall, Committee members were satisfied with the quality
of the succession planning process for Board and Executive positions.
The review also highlighted areas for continued improvement and we have
incorporated these into our priorities for 2017/18 as set out in the table below.
Nominations Committee priorities for 2017/18
Continue to monitor Board and senior leadership succession
Continue to monitor progress on diversity at Board level and below
Gareth Davis
on behalf of the Nominations Committee
Gender diversity
Board tenure
36%
Female
Gender
of Board
64%
Male
2
6–9 years
1*
9+ years
3
0–3 years
Board
tenure
5
3–6 years
* Gareth Davis was appointed to the Board on 1 July 2003. Mr Davis was appointed
as Chairman on 20 January 2011 and was considered to be independent within the
definition as set out in the Code on appointment.
Ferguson plc Annual Report and Accounts 2017
65
Directors’ Report – other disclosures
Accountability
Articles of Association
The Company’s Articles of Association may be amended by a special
resolution of the shareholders.
Appointment and removal of Directors
The Board may exercise all powers of the Company, subject to the
limitations of the law and the Company’s Articles of Association. The Board
may appoint a person who is willing to act as a Director, either to fill a
vacancy or as an additional Director. Under the Articles of Association any
such Director shall hold office only until the next Annual General Meeting
(“AGM”) and shall then be eligible for election. In addition, the Articles
require that at each AGM at least one-third of the current Directors must
retire as Directors by rotation. All those Directors who have been in office
for three years or more since their last appointment shall retire at that AGM.
Any Director may at any AGM retire from office and stand for re-election.
However, in accordance with the provisions of the Code, the Board has
agreed that all continuing Directors will stand for annual election at the
2017 AGM.
Authority to allot shares
At the 2016 AGM, authority was given to the Directors to allot new
ordinary shares up to a nominal value of £18,194,582. The Directors
intend to propose at the 2017 AGM to seek authority to allot and grant
rights to subscribe for or to convert securities into shares up to an
aggregate nominal amount representing approximately two-thirds of the
Company’s issued share capital (excluding Treasury shares), calculated
at the latest practicable date prior to publication of the Notice of AGM,
but of that amount only one-third of the Company’s issued share capital
(excluding Treasury shares), calculated at the latest practicable date prior
to publication of the Notice of AGM, may be allotted pursuant to a fully
pre-emptive rights issue (“Allotment Authority”). If approved, the Allotment
Authority will expire at the conclusion of the 2018 AGM.
Subject to the terms of the authority noted above, the Directors will also
recommend that they be empowered to allot equity securities for cash
or to sell or transfer shares out of Treasury other than pro rata to existing
shareholders, until the 2018 AGM (“Authority to Disapply Pre-Emption”).
This authority shall be limited to the allotment of equity securities for cash
up to an aggregate nominal amount of no more than approximately 5 per
cent of the issued ordinary share capital calculated at the latest practicable
date prior to publication of the Notice of AGM as well as an additional 5
per cent, which may only be used for an acquisition or specified capital
investment which is announced contemporaneously with the issue or
which has taken place in the preceding six-month period and is disclosed
in the announcement of the issue (in accordance with the Pre-Emption
Group’s Statement of Principles).
Authority to purchase shares
At the 2016 AGM, authority was given to the Directors to purchase up
to 25,263,165 of the Company’s ordinary shares of 10 53⁄66 pence (with
such purchase being subject to minimum and maximum price conditions).
This authority to purchase the Company’s shares will expire at the
2017 AGM.
In certain circumstances, it may be advantageous for the Company to
purchase its own ordinary shares and the Company seeks authority on
an annual basis to renew the Directors’ limited authority to purchase the
Company’s ordinary shares in the market pursuant to Article 57 of the
Companies (Jersey) Law 1991. As detailed in the Chairman’s statement
on page 13, the Company intends to commence a £500 million share
repurchase programme to be executed over the 12-month period to
66
Ferguson plc Annual Report and Accounts 2017
October 2018 (the “Buyback Programme”). It is intended that a special
resolution will be proposed at the 2017 AGM to grant authority for the
Company to purchase up to approximately 10 per cent of the Company’s
issued share capital, calculated at the latest practicable date prior to
the publication of the Notice of AGM. The special resolution will set
the minimum and maximum prices which may be paid. The Directors
intend to use this authority to make share repurchases pursuant to the
Buyback Programme. The Directors will use this authority only after careful
consideration, taking into account market conditions, other investment
opportunities, appropriate gearing levels and the overall financial position
of the Company. The authority will enable the Directors to continue to
be able to respond promptly should circumstances arise in which they
consider that such a purchase would result in an increase in earnings per
share and would be in the best interests of the Company. In accordance
with the Company’s Articles of Association, the Company is allowed to
hold shares purchased by it as Treasury shares that may be cancelled,
sold for cash or used for the purpose of employee share schemes.
The Allotment Authority and Authority to Disapply Pre-Emption apply
equally to shares to be held by the Company as Treasury shares and to
the sale of Treasury shares. The Directors consider it desirable for these
general authorities to be available to provide flexibility in the management
of the Company’s capital resources.
Details of shares held by the Company that were acquired in previous
financial years are provided in note 27 to the consolidated financial
statements on page 113.
Capitalised interest
The Group does not have capitalised interest of any significance on its
balance sheet.
Change of control (significant agreements)
The Company is not party to any significant agreements that take effect,
alter or terminate upon a change of control following a takeover except for
the US$800 million USA Private Placement Bonds issued on 1 September
2015, the £800 million multi-currency revolving credit facility agreement
dated 3 June 2015, the amended US$600 million receivables facility
agreement originally entered into on 31 July 2013 and the US$438 million
USA private placement Bonds issued on 16 November 2005 which could
become repayable following a relevant change of control. There are
no agreements between the Company and any Director that would
provide compensation for loss of office or employment resulting from
a change of control following a takeover bid, except that provisions of
the Company’s share schemes may cause options and awards granted
under such schemes to vest in those circumstances. All of the Company’s
share schemes contain provisions relating to a change of control.
Outstanding options and awards would normally vest and become
exercisable for a limited period of time upon a change of control following
a takeover, reconstruction or winding up of the Company (not being
an internal reorganisation), subject at that time to rules concerning the
satisfaction of any performance conditions.
Conflicts of interest
Processes and procedures are in place which require the Directors to
identify and declare actual or potential conflicts of interest, whether
matter-specific or situational. These notifications are made by a Director
prior to or at a Board meeting, or in writing. All Directors have a continuing
duty to update any changes. The Board may authorise potential conflicts
which can be limited in scope, in accordance with the Company’s
Articles of Association. These authorisations are regularly reviewed.
Strategic report
Governance
Financials
Other information
During the year, all conflict management procedures were adhered to and
operated efficiently.
Disclosures required by Listing Rule 9.8.4R
The relevant disclosures concerning capitalised interest; the allotments
of equity securities for cash; and dividend waiver can be found on
pages 66, 126 and 84 of this Annual Report respectively. The remaining
disclosures required by the above Listing Rule are not applicable to
the Company.
Employees
The Group actively encourages employee involvement in driving our
current and future success and places particular importance on keeping
employees regularly informed about the Group’s activities and financial
performance and on matters affecting them individually and the business
generally. This can be through informal bulletins, in-house publications and
briefings, as well as via the Group’s intranet sites.
A European Works Council (“EWC”) has been operating since
1996 to provide a forum for informing and consulting employees in
Europe on such matters as significant developments in the Group’s
operations, management’s plans and organisational changes within
the Group. There are currently 11 EWC representatives, of which six are
employee representatives and five are management representatives.
Employee representatives are appointed from each European country
in which Ferguson operates.
All employees are offered a range of benefits depending on their local
environment. Where possible, they are encouraged to build a stake in the
Company through the ownership of shares through participation in the
Company’s all-employee sharesave plans.
Employment policies
Our employment policies aim to attract the very best people and we
believe that a diverse and inclusive culture is a key factor in being a
successful business. For more information on this, see pages 23 and 36.
The Group also has policies in place relating to the continuation
of employment of, and appropriate retraining for, employees who
become disabled, for giving full and fair consideration to applications
for employment by disabled persons, having regard to their particular
attributes and abilities, and for the training, career development and
promotion of disabled employees.
Indemnities and insurance
The Company indemnifies the Directors in respect of liabilities incurred
as a result of their office in accordance with its Articles of Association and
to the maximum extent permitted by Jersey law. Qualifying third-party
indemnity provisions (to the maximum extent permitted by English law)
were granted to all Directors in office by the then holding company (now
known as Wolseley Limited) and these remain in force as at the date of this
report. When Ferguson plc (registered in Jersey) became the new holding
company, additional third-party indemnity provisions were granted by the
Company, and it has granted indemnities in accordance with Jersey law to
all Directors and the Company Secretary appointed since November 2010.
There is appropriate insurance coverage in respect of legal action
against the Directors and officers. Neither the Company’s indemnities
nor insurance would provide any coverage to the extent that a Director
is proved to have acted fraudulently or dishonestly.
Independent Auditors and audit information
In respect of the consolidated financial statements for the financial year
ended 31 July 2017, the Directors in office at the date of this report confirm
that, so far as they are each aware, there is no relevant audit information of
which Deloitte LLP (“Deloitte”) are unaware and each Director has taken
all the steps that ought to have been taken as a Director to be aware of
any relevant audit information and to establish that Deloitte are aware of
that information.
Deloitte is willing to act as auditors of the Company, and resolutions
concerning their appointment and the determination of their remuneration
will be proposed at the 2017 Annual General Meeting.
Political donations
No political donations or contributions to political parties under the
Companies Act 2006 have been made during the financial year.
The Group policy is that no political donations be made or political
expenditure be incurred.
Restrictions on transfer of shares
There are no restrictions on the voting rights attached to the Company’s
ordinary shares or on the transfer of securities in the Company. No person
holds securities in the Company carrying special rights with regard to
control of the Company. The Company is not aware of any agreements
between holders of securities that may result in restrictions on the transfer
of securities or on voting rights.
Share capital and voting rights
Details of the authorised and issued share capital, together with any
movements in the issued share capital during the year, are shown
in note 27 to the consolidated financial statements on page 113.
Subject to the provisions of the Companies (Jersey) Law 1991 and without
prejudice to any rights attached to any existing shares or class of shares,
any share may be issued with such rights and restrictions as the Company
may by ordinary resolution determine or as the Board shall determine.
Copies of the Company’s Articles of Association can be obtained from
Companies Registry, Jersey, or by writing to the Group Company Secretary.
The Company also has a Level 1 American Depositary Receipt (“ADR”)
programme in the USA for which Deutsche Bank Trust Company Americas
acts as Depositary. The American Depositary Shares (“ADS”) which are
evidenced by ADRs are traded on the USA over-the-counter market,
where each ADS represents one-tenth of a Ferguson plc ordinary share.
Shareholder notifications
No notifications were received by the Company pursuant to the Financial
Conduct Authority’s (“FCA”) Disclosure Guidance and Transparency Rule
5 (“DTR5”) during the year ended 31 July 2017 or between then and the
date of this report. The following notifications, representing significant
shareholdings, were received by the Company in previous financial years.
Name of holder
BlackRock, Inc
FIL Limited
Standard Life Investments Limited
Percentage of issued voting share capital1
9.64%
4.95%
3.85%
1.
Since the disclosure date, the shareholders’ interests in the Company may have changed.
Ferguson plc Annual Report and Accounts 2017
67
Directors’ Report – other disclosures continued
Accountability
Further disclosures
Further disclosures required under the Companies Act 2006, Schedule
7 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 and the FCA’s Listing Rules and Disclosure and
Transparency Rules can be found on the following pages of this Annual
Report and are incorporated into the Directors’ Report by reference:
– provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity’s financial position and financial performance; and
– make an assessment of the Company’s ability to continue as a
going concern.
Details of the Company’s proposed final dividend payment for
the year ended 31 July 2017
Disclosures relating to exposure to price, credit, liquidity and
cash flow risks
Disclosures relating to financial risk management objectives
and policies, including our policy for hedging
Going concern statement
Viability statement
Disclosures concerning greenhouse gas emissions
The management report for the year
Information concerning post-balance sheet events
Future developments within the Group
Details of the Group’s profit for the year ended 31 July 2017
Page
40
119 to 127
119 to 127
41
43
37
1 to 68
119
1 to 49
39
Shares issued during the year
113 and 126
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors are required to prepare
the Group financial statements in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union and
Article 4 of the IAS Regulation and have elected to prepare the parent
company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law), including FRS 101 “Reduced Disclosure
Framework”. Under company law the Directors must not approve the
accounts unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for
that period.
In preparing the parent company financial statements, the Directors are
required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and accounting estimates that are reasonable
and prudent;
– state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
– prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply
with the Companies (Jersey) Law 1991. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in Jersey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors of Ferguson plc as at the date of this Annual Report are
as follows:
Gareth Davis, Chairman
John Martin, Group Chief Executive
Michael Powell, Group Chief Financial Officer
Kevin Murphy, Chief Executive Officer, USA
Alan Murray, Senior Independent Director
Tessa Bamford, Non Executive Director
John Daly, Non Executive Director
Pilar López, Non Executive Director
Darren Shapland, Non Executive Director
Nadia Shouraboura, Non Executive Director
Jacqueline Simmonds, Non Executive Director
Each Director confirms that, to the best of their knowledge:
– the financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
– the management report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face;
and
– the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company’s position and performance,
business model and strategy.
In preparing the Group financial statements, International Accounting
Standard 1 requires that Directors:
The Directors’ Report, comprising pages 13 to 84 was approved by the
Board and signed on its behalf by:
– properly select and apply accounting policies;
– present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
Graham Middlemiss
Group Company Secretary
2 October 2017
68
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Directors’ Remuneration Report
Jacky Simmonds
Remuneration Committee Chairman
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 July 2017.
The current Remuneration Policy (“Policy”), was approved at the Annual
General Meeting (AGM) in December 2015 and is due to be resubmitted
for approval in December 2018. The Committee is satisfied that this Policy
continues to be appropriate for the coming year and as such no changes
to the Policy are proposed for 2017/18.
Although the Company (being Jersey incorporated) is not subject to the
Directors’ Remuneration Regulations 2008 (“Regulations”), the Committee
recognises the importance of shareholder transparency and standards
of governance. This Directors’ Remuneration Report complies with the
Regulations as they would apply if we were a UK incorporated company.
On page 71 there is a summary of the current Policy and the full Policy
can be found on the Who We Are section of the Ferguson plc website at
www.fergusonplc.com.
In this statement I will share with you the major decisions taken by the
Committee during the year, corporate performance and incentive
outcomes for 2016/17 and our approach for 2017/18, which will continue to
be based on the reward principles we have applied since 2015:
– to provide remuneration packages that fairly reward Executive Directors
and senior executives for the contribution they make to the business,
having regard to the size and complexity of the Group’s business
operations and the need to attract, retain and motivate executives of the
highest quality;
– to have remuneration packages which comprise salary, short-term
bonuses, long-term incentives, benefits-in-kind and pension provision;
and
– to aim to provide a total cash award of base salary and bonus around
the median of the market, with the opportunity to earn a higher reward
for sustained superior financial and individual performance.
Group Chief Financial Officer succession
As announced on 1 March 2017, Mike Powell was appointed as Group
Chief Financial Officer (“Group CFO”) with effect from 1 June 2017 in
succession to John Martin who was appointed as Group Chief Executive
Officer on 1 September 2016. Mike has extensive international experience
having worked overseas in a variety of senior finance positions.
The Committee made the decision to set his salary on appointment at
£510,000, below the market median, to enable room for growth as he
develops into the role. Therefore, it is the Committee’s intention to increase
his salary by more than the average salary increase for the relevant
general workforce (subject to his performance in the role) in both August
2018 and 2019 to move him closer to the market median, consistent with
our Policy.
The Company compensated Mike for a number of awards he forfeited
from his previous employer BBA Aviation plc (“BBA”) as a result of joining
Ferguson; the replacement awards replicated as far as practicable the
structure, time horizon and fair value of the arrangements he forfeited, and
are subject to the Company’s standard malus and clawback provisions.
Further details on these buy-out awards are on pages 78 and 80.
Chief Executive Officer, USA succession
As we also announced in March 2017, Kevin Murphy was appointed as
Chief Executive Officer, USA (“CEO, USA”) on 1 August 2017, in succession
to Frank Roach who retired on 31 July 2017. Kevin has been Chief Operating
Officer of the Group’s USA business for the past 10 years and an integral
member of the senior leadership team. His appointment on a salary of
$900,000 is below the market median (and below his predecessor’s salary)
and as with the Group CFO, provides room to increase his salary by more
than the average salary increase for the relevant general workforce, subject
to his performance in the role, in both August 2018 and 2019 to move him
closer to the market median, consistent with our Policy.
The Committee agreed to exercise its discretion to treat Frank Roach as
a “good leaver” for his unvested ESOP and LTIP awards, in view of his
leaving Ferguson through retirement, and he will receive no severance
payments. His long-term incentive awards will be time pro-rated on the
basis of full years worked during the relevant performance period for
each award. Therefore, the awards granted to him in 2015/16 and 2016/17
will be subject to a reduction of one-third and two-thirds respectively.
Further details of the termination arrangements are set out on page 78
of the Annual Report on Remuneration. These are in line with our Policy.
Performance in 2016/17
Company performance for the year ended 31 July 2017 saw strong trading
performance, particularly in the USA. Canadian performance also improved in
2016/17, whilst the UK continues to progress with its transformation programme.
During the year, the Company announced the merger of its Swiss business
(Tobler) with Walter Meier AG which took place on 7 April 2017 and plans to
exit from the Nordic region, as well as the change in name to Ferguson plc.
The continued focus which the Company places on profit growth and
maintaining strong cash flow has enabled it to increase both the interim
dividend paid to shareholders in April, which was 10 per cent higher than
in 2016, and the proposed final dividend, which is 10 per cent higher
at 73.33 pence per share.
This strong trading performance and good cash flow has resulted in the
bonus payments to the Executive Directors averaging 93.1 per cent of their
maximum levels.
In the three years to 31 July 2017, annualised Total Shareholder Return
(“TSR”) was 16.5 per cent, and as a result the Company achieved a TSR
ranking of 24th against our FTSE 100 comparator group and therefore
71.6 per cent of the shares awarded under the 2012 LTIP in 2014 will vest.
The Company’s consolidated financial statements for the year ended
31 July 2017 have been restated to present the Nordic business as
discontinued operations under IFRS 5. The performance of the Nordic
business declined over the periods covered by long-term incentive
awards made in 2014, 2015 and 2016. The Committee therefore decided
that the EPS calculation used to measure performance under the
Company’s long-term incentive plans should include the Nordic business
to more accurately reflect management’s performance in relation to all of
the businesses under its control throughout the relevant period for long-
term incentive awards made in 2014, 2015 and 2016.
Ferguson plc Annual Report and Accounts 2017
69
Directors’ Remuneration Report continued
Remuneration
At a glance
2016/17 performance summary
Group gross profit*
Group trading profit*
£4,651.9m
+8.0%
£1,044.9m
+7.5%
Group cash-to-cash days*
Adjusted headline EPS**
48.6 days
1.5 days improvement
270.5p
EPS growth over
UK inflation (3 years)
+32.1%
* Figures adjusted for exceptional items and include non-ongoing operations and the
Nordic business. The calculations use Company budgeted foreign exchange rates.
** Adjusted to remove the benefit to management of currency movements during
2016/17 and to include the Nordic business as detailed in the Committee Chair’s
statement, opposite.
Ferguson 3-year TSR performance vs the FTSE 100
150
140
130
120
110
100
90
July 2014
July 2015
July 2016
July 2017
Ferguson Return Index
FTSE 100 Return Index
Following the Brexit vote on 23 June 2016, foreign exchange rates moved
rapidly and significantly. This has had a significant favourable impact on
EPS growth in the year ended 31 July 2017. Given the scale of movement
in foreign exchange rates during the financial year the Committee has
also adjusted the EPS calculation used to determine the extent to which
the Group has met this performance condition downwards to remove any
benefit to management accruing as a result of factors beyond its control.
Adjusted headline earnings per share (“EPS”) for the three years ended
31 July 2017 reflected strong trading profit growth, contributing to a
headline increase in EPS of 38.7 per cent to 270.5 pence. As a result,
ESOP awards granted in 2014 will vest in full in November 2017.
Looking ahead to the year ending 31 July 2018
For the financial year ending 31 July 2018, the remuneration arrangements
which were approved in December 2015 will continue to apply. It is intended
that awards under the 2015 LTIP will be made to Executive Directors during
2017/18. The weighting of the performance measures for the share awards
under the 2015 LTIP (TSR, EPS and Operating Cash Flow) will continue to be
applied in equal proportions of one-third as they were in 2016/17.
In line with our Policy, the Committee undertook an annual review of the
Executive Directors’ base salaries. For the Group CFO and CEO, USA,
as detailed above, their salaries will not be reviewed until 1 August 2018.
For the Group Chief Executive Officer (“Group CEO”) his salary will be
increased by 2.0 per cent from 1 August 2017 in line with the general level
of increase awarded to other employees in the Group.
As a Committee we continue to monitor developments in corporate
governance and remuneration and, where we consider it appropriate to
do so, based on the best interests of Ferguson and its shareholders, we
would propose to adopt them.
As announced on 28 March 2017 and detailed in the Chairman’s statement
on page 13 the Company changed its presentational currency from sterling
to US dollars with effect from 1 August 2017. To align with this change,
the Committee has restated the base years for EPS and the targets for
operating cash flow for the LTIP awards granted in 2015/16 and 2016/17
from sterling to US dollars. The revised operating cash flow targets are
detailed on page 79. The performance targets for all future awards will
be set, and performance measured, in US dollars. For LTIP awards to be
granted in 2017/18, targets for real growth in EPS will be set in US dollars
relative to US CPI, to align with our presentational currency going forward.
The Committee is satisfied that achieving 3-year real growth in EPS of 9
per cent to 30 per cent is not materially more or less difficult in US dollars
than sterling, and performance will be less susceptible to foreign exchange
movements when measured in US dollars due to the high proportion of
our business transacted in US dollars.
In line with the Remuneration Report Regulations we have commenced
our review of the Policy, which we will be sharing and discussing with our
key shareholders over the coming months.
On behalf of the Committee, I thank you for your continued support and
trust that you find the Directors’ Remuneration Report informative. I very
much hope that we will receive your support at the 2017 AGM and I will
be available at the meeting to respond to your questions on any aspect
of this Report.
Jacky Simmonds
Chair of the Remuneration Committee
70
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Link to strategy
Support recruitment
and retention of high-
calibre individuals.
Linking pay to
Ferguson’s strategic
financial and
operational priorities.
Incentivising long-term
sustainable business
growth.
Base salary
Annual bonus
LTIP
Alignment with
shareholder interests.
Shareholding
guidelines
Ferguson’s Remuneration Policy
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
*
3
2
0
2
Key features of the Policy
How we implement the Policy
Set at mid-market level against a
comparator group. Any increases
made are broadly in line with
wider workforce.
Maximum bonus opportunity
allowed is 150% base salary, paid
in cash. Malus and clawback
provisions apply.
Maximum award level allowed is
350% base salary. Awards granted
annually, typically as nil cost
options or conditional shares.
Minimum three-year performance
period. Malus and clawback
provisions apply for five years after
the grant date. Shares or awards
must be retained for two years
post vesting if shareholding target
has not been met.
New Group CFO and CEO, USA
salaries set at below market median
and predecessors’. 2% salary
increase for Group CEO, in line
with salary increases in the Group.
At least 80% of bonus targets
based on financial performance
(20% cash-to-cash days; 30%
trading profit; 30% gross profit)
and not more than 20% based on
personal strategic objectives.
Award levels for 2017/18 set at
300%, 240% and 250% of base
salary for the Group CEO, Group
CFO and CEO, USA respectively.
Three key performance measures:
TSR relative to FTSE 100
comparator group; EPS growth;
and operating cash flow (“OpCF”).
Each element is equally weighted.
Five years from appointment
or promotion date to
meet shareholding target.
Shareholding targets set as
a multiple of base salary.
In 2016/17 all Directors have met
their shareholding guideline targets.
Targets for the new Group CFO,
CEO, USA and NED were set on
1 August 2017.
Performance period
Holding period
Malus/Clawback period
* Please note that the years used by way of example only relate to awards made in the
2016/17 financial year.
Rewarding 2016/17 performance
For 2016/17 Executive Directors received:
– base salary which was set at the same level as his predecessor for
the Group CEO, below market median for the new Group CFO and
increased in line with average USA employee salary increase for the
CEO, USA;
– taxable benefits and pension benefits;
– annual bonus awards which achieved between
84.6 and 97.8 per cent of the maximum opportunity;
– LTIP awards vesting at 71.6 per cent of the awards after longer-term
performance measured against its FTSE 100 comparator group; and
– ESOP awards vesting at 100 per cent of the awards after longer-term
performance measured against headline EPS growth.
The graph opposite shows total remuneration for Executive Directors
in post on 31 July 2017. Mike Powell was appointed Group CFO on
1 June 2017 and his remuneration reflects the two months served
during the 2016/17 financial year.
The “single figure” of total remuneration for each Executive Director
who served during the year is set out on page 76.
Rewarding performance
£000
1,894.1
3,458.2
N/A
200.8
2,600.6
3,675.3
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2015/16
2016/17
John Martin
Fixed pay Variable pay made up of:
2015/16
2016/17
Mike Powell
2015/16
2016/17
Frank Roach
Bonus
ESOP
LTIP
Ferguson plc Annual Report and Accounts 2017
71
Directors’ Remuneration Report continued
Remuneration
Information
For the purposes of this Annual Report on Remuneration:
1
2
any payments made in US dollars have been converted to sterling.
The calculations are made based on the average exchange rate for the
year ended 31 July 2017 of $1.2667:£1 (for the year ended 31 July 2016
of $1.4603:£1); and
any estimated share values are determined using a share price of
4,822 pence, being the average closing mid-market quotation for
Ferguson plc shares for the three-month period ended 31 July 2017.
Remuneration Policy
The Policy was approved by shareholders at the AGM on 1 December
2015 and can be found on our website at www.fergusonplc.com.
The Policy took effect from this date and may operate for up to
three years.
The Policy remains unchanged and all remuneration and all
recruitment or loss of office payments are consistent with the Policy.
For convenience we include Policy Extracts on pages 82 and 83.
These extracts from the Policy provide the context within which
individual remuneration decisions have been made during the year.
Implementation of Policy for the year ending 31 July 2018
Executive Directors
Base salary
In line with the Policy, the Remuneration Committee undertook an
annual review of the Executive Directors’ base salaries in July 2017.
The Committee agreed to an increase to the base salary level of the
Group CEO of 2.0 per cent with effect from 1 August 2017. Therefore,
the Group CEO’s annualised base salary is £877,200 for the year ending
31 July 2018 (£860,000 for the year ended 31 July 2017). This is in line with
the general level of increase awarded to other employees in the Group.
The Committee agreed that the salaries of the Group CFO and CEO, USA,
who took up their positions on 1 June 2017 and 1 August 2017 respectively,
would not be reviewed until 1 August 2018.
On appointment, the Group CFO and CEO, USA’s salaries were set below
market median and below those of their predecessors. As detailed in
the Remuneration Committee Chair’s statement on page 69 it is the
Committee’s intention to increase both the Group CFO and CEO, USA’s
salaries by more than the average salary increase for the relevant general
workforce (subject to their performance in the respective roles) in both
August 2018 and 2019 to bring them into line with the market median.
This approach is consistent with the Policy.
Pension and benefits
UK-based Executive Directors receive a salary supplement in lieu of
membership of the Group pension scheme, being 30 per cent of base
salary for John Martin and 25 per cent for Mike Powell. USA-based
Executive Director Kevin Murphy participates in the Ferguson defined
contribution pension arrangement and receives a Company contribution
of 16 per cent of base salary. Kevin Murphy’s current year pension
benefits include a 401k plan and Ferguson Executive Retirement Plan
arrangements. These plans have normal retirement ages of 59 1⁄2 and 55
respectively. Bonus payments are not included in the calculation of the
Company pension contributions. Benefits provided to Executive Directors
are detailed in the Remuneration table on page 76.
Annual bonus
When considering the objectives for the Executive Directors and other
members of the Executive Committee, the Remuneration Committee
takes into account whether specific attention should be given to
environmental, social and governance matters. Directors take such
matters into account when considering any investment proposal or
operational matters and management is expected to meet performance
targets which include compliance with any environmental, social
or governance-related standards that have been set. The overall
performance of the businesses and of management is reviewed at the
end of the year when considering the award of bonuses and whether
operational and personal objectives have been met.
The threshold, target and maximum bonus opportunities for each of the
Executive Directors are set out in the table below:
J Martin (Group CEO)
M Powell (Group CFO)
K Murphy (CEO, USA)1
Threshold
Target
Maximum
As % of salary
80%
70%
80%
100%
90%
100%
120%
110%
120%1
1.
Award levels for Kevin Murphy as CEO, USA are lower than the award made to his
predecessor in 2016/17.
Performance targets are set as 80 per cent of bonus opportunity on
financial performance (20 per cent is based on cash-to-cash days, 30 per
cent on trading profit and 30 per cent on gross profit) and 20 per cent of
bonus opportunity on personal strategic objectives. Specific individual
objectives were set at the beginning of the 2017/18 financial year.
For the 2017/18 financial year, the threshold for bonus payments in relation
to ongoing trading profit will be set at or above the outturn trading profit for
the 2016/17 financial year on a constant currency basis.
The Board considers that the performance targets for 2017/18 are
commercially sensitive and they are not included for this reason.
The Committee intends to disclose the targets and performance against
them in the Annual Report on Remuneration next year depending on
considerations of commercial sensitivity at that time.
72
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Long-term incentives
LTIP awards will be made during the 2017/18 financial year at the levels set
out in the table below:
J Martin (Group CEO)
M Powell (Group CFO)
K Murphy (CEO, USA)1
LTIP
(award value as % of salary)
300%
240%
250%
1.
Award levels for Kevin Murphy as CEO, USA are lower than the award made to his
predecessor in 2016/17.
The extent to which the LTIP awards (proposed to be granted during
2017/18) vest will be dependent on the following performance targets each
with a weighting of one-third of award opportunity: comparative TSR; EPS
growth; and OpCF.
Comparative TSR
The TSR element of the award will vest as set out in the table below
(comprising one-third of the total award opportunity):
Ferguson’s TSR position in comparator group1
Upper quartile
Between median and upper quartile
At median
Below median
Percentage of award subject
to TSR which will vest2
100%
25%-100%
25%
0%
1.
Full constituent members of the FTSE 100 Index at the beginning of the performance
period, with no additions or exclusions.
2. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.
The TSR measure is considered appropriate as it ensures that the interests
of the Executive Directors are closely aligned with those of the Company’s
shareholders over the long term and incentivises outperformance of
the Company relative to its peers. The TSR performance condition
supports the achievement of profit growth, cash generation, maximising
shareholder value and relative outperformance of its peer group.
EPS growth
The EPS1 element of the award will vest as set out in the table below
(comprising one-third of the total award opportunity):
30% and above
Between 9% and 30%
9%
Below 9%
100%
25%-100%
25%
0%
1.
Headline EPS as presented in the audited Ferguson plc Annual Report and Accounts
(subject to such adjustments as the Committee deems appropriate to ensure it reflects
underlying business performance).
2. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.
As set out in the introduction to this Report on page 70, EPS growth for
LTIP awards to be granted in 2017/18 will be measured relative to US CPI.
For EPS growth targets, the Committee sets the EPS growth range having
due regard to the Group’s budget and strategic business plan every year
as well as market expectations, the Group’s trading environment and the
consensus of analysts’ forecast trading profit.
The EPS targets are considered appropriate as they require substantial
improvement in the Group’s financial performance and EPS is a key metric
used by investors to assess the Group’s performance.
Operating cash flow (“OpCF”)
In line with the Company’s change in presentational currency to US dollars
OpCF targets for LTIP awards to be made in the year ending 31 July 2018
have been set in US dollars.
The OpCF element of the award will vest as set out in the table below
(comprising one-third of the total award opportunity):
Operating cash flow1,3
$4.90 billion
Between $4.40 billion and $4.90 billion
$4.40 billion
Below $4.40 billion
Percentage of award subject
to operating cash flow which
will vest2
100%
25%-100%
25%
0%
1.
Cash generated from operations (before interest and tax) as presented in the audited
Group cash flow statement in the Ferguson plc Annual Report and Accounts (subject to
such adjustments as the Committee deems appropriate to ensure it reflects underlying
business performance, and specifically would be adjusted downwards to reflect the
impact on operating cash flow following the expected disposal of the Nordic business).
2. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.
3. The cumulative three-year figure for OpCF as taken from the Company’s Annual Report
and Accounts translated at the average exchange rate for each applicable year for the last
three years equals $4.36 billion.
For OpCF generation, the Committee sets the cumulative OpCF target
having due regard to the Group’s budget and strategic plan every year
as well as market expectations and the Group’s trading environment.
The OpCF measure is considered appropriate as it encourages long-term
generation of cash to fund investment and returns to shareholders.
Non Executive Directors and Chairman
The Company’s policy on Non Executive Directors’ remuneration is
set by the Board with account taken of the time and responsibility
involved in each role, including where applicable the Chairmanship
of Board Committees.
A summary of current fees is as follows:
Chairman’s fee
Non Executive Director base fee1
Senior Independent Director
Chairman of Audit Committee
Chairman of Remuneration Committee
2017/18
(£000)
383.0
66.7
13.1
19.3
16.3
2016/17
(£000)
375.4
65.3
12.8
18.9
15.9
1.
All increases to Non Executive Director/Chairman fees were broadly in line with Executive
increases to base salary.
Ferguson plc Annual Report and Accounts 2017
73
Total margin of EPS growth over US inflation (“CPI”)
after three years
Percentage of award subject
to EPS which will vest2
Additional fees:
Directors’ Remuneration Report continued
Remuneration
Report for the year ended 31 July 2017
Remuneration Committee
The Committee met regularly during the year. There were six meetings in
total and details of attendance are shown in the table on page 54.
The activities of the Committee are governed by their terms of reference
which were reviewed in May 2017 and can be found on the Ferguson plc
website at www.fergusonplc.com.
During the year, the members of the Remuneration Committee were Jacky
Simmonds (Chair), Tessa Bamford, John Daly, Pilar López, Alan Murray,
Darren Shapland and, from 1 July 2017, Nadia Shouraboura.
The annual review of the effectiveness of the Committee was conducted
during the year and considered at the May 2017 meeting. The review
concluded that the Committee was working effectively and minor
recommendations to improve effectiveness were acted upon.
Allocation of time spent during the year
During 2016/17, the Committee considered the items detailed below at
its meetings, as well as other issues as required.
Governance
– Approval of Directors’ Remuneration Report 2015/16
– Annual governance and compliance review
– Appointment of new remuneration advisers
Salary and fees review
– Review of executive pay
– Remuneration proposals for new and existing Executive Directors
and Executive Committee
– Buy out award for new Group Chief Financial Officer
– Review of Chairman’s fees
– Approval of the remuneration package of a senior executive,
below Board level, who was changing roles
Annual bonus
– Assessment of performance against 2015/16 targets and
objectives for 2016/17 targets
– Review of bonus structure for financial year 2017/18
Discretionary share plans and all-employee plans
– Agree discretionary share plan awards for 2016/17
– Confirmation of vesting of discretionary share plan awards
granted in 2013
– Agree process for 2016/17 grants under all-employee
sharesave plans
Annual reviews
– Remuneration adviser performance
– Share headroom in accordance with Investment
Association guidelines
– Committee effectiveness
– Directors’ shareholding guidelines
– Committee’s terms of reference
74
Ferguson plc Annual Report and Accounts 2017
Advisers to the Committee
During the year, the Committee received advice and/or services from
various parties. Details are set out below.
In March 2017, Kepler (a brand of Mercer, which is part of the MMC
group of companies) was appointed as the Committee’s independent
remuneration consultant following a competitive tender process led by
the Chair of the Committee. Kepler is a founding member and signatory
to the UK Remuneration Consultants Group Code of Conduct which
governs standards in the areas of transparency, integrity, objectivity,
confidentiality, competence and due care. Kepler adheres to this Code of
Conduct. The Committee has established arrangements to ensure that
the advice received from Kepler is independent of the advice provided to
the Company. Kepler is appointed by the Committee and its performance
will be reviewed on an annual basis. The Committee will review the
performance of, and advice provided by, Kepler in November 2017.
Kepler also provided remuneration consultancy services to the Company
during the year. Fees are charged predominantly on a “time spent” basis
and the total fees paid to Kepler for the advice provided to the Committee
during the year was £41,400. Fees paid to Kepler for other pay-related
services to the Company during the year were £28,800.
From the beginning of the 2016/17 financial year until the appointment of
Kepler in March 2017, New Bridge Street (a trading name of Aon Hewitt
Limited and part of Aon plc) (“NBS”) was the Committee’s independent
remuneration consultant. NBS is a member of the Remuneration
Consultants’ Group and also adheres to the Code of Conduct referred to
above. Throughout the period the Committee operated arrangements
to ensure that the advice received from NBS was independent of advice
provided to the Company. NBS was appointed by the Committee and its
performance reviewed on an annual basis. The Committee was satisfied
that the advice received was objective and independent. NBS also provided
remuneration consultancy services to the Company during the year.
Fees are charged predominantly on a “time spent” basis and the total fees
paid to NBS for the advice provided to the Committee during the year was
£31,582. Fees paid to NBS for other pay-related services to the Company
during the year were £11,500.
Alithos Limited (“Alithos”) provided information to the Committee for the
testing of the TSR performance conditions for the LTIP awards and also
provided the TSR performance graphs for the Directors’ Remuneration
Report. They received total fixed fees of £10,500. Fees were charged as a
fixed annual rate. Alithos was appointed by the Company for both services
as it was considered to have the relevant expertise and experience.
Alithos did not provide any other advice or services during the year and
so the Committee considers Alithos to be objective and independent.
Freshfields Bruckhaus Deringer LLP (“Freshfields”) provided legal advice
to the Committee during the year in connection with retirements from and
appointments to the Board and the Company’s Remuneration Report.
Fees are charged predominantly on a “time spent” basis and the total
fees paid to Freshfields for the advice provided to the Committee during
the year were £42,073. Freshfields was appointed by the Company and
provided other services to the Company during the year. The Committee
is satisfied that the services provided to it by Freshfields are of a technical
nature and did not create any conflict of interest and therefore the advice
received from them was objective and independent. If a conflict of interest
were to arise, the Committee would appoint separate legal advisers from
those used by the Company.
The Committee also seeks internal support from the Group HR Director
and the Group Chief Executive together with other senior Group
employees as necessary. Those who attend by invitation do not participate
in discussions that relate to the details of their own remuneration.
Strategic report
Governance
Financials
Other information
Statement of shareholder voting
The following table shows the results of the full details of the voting outcomes for the Remuneration Report resolution at the AGM on 29 November 2016
and the Remuneration Policy at the AGM on 1 December 2015:
Remuneration Report
29 November 2016
193,161,428
Remuneration Policy
1 December 2015
195,566,771
Date of vote
Votes for
For %
98.11
97.79
Votes against
Against %
Total
Votes withheld
(abstentions)
3,722,912
4,428,909
1.89
2.21
196,884,340
9,634,381
199,995,680
961,949
Board appointments and service agreements/letters of appointment
All Executive Directors are appointed to the Board from the relevant effective date of appointment set out in their service agreements.
Appointment dates for all of the Non Executive Directors are set out in their letters of appointment. Further details are shown in the table below.
Board appointments
Director1
Chairman
G Davis
Executive Directors2
J Martin
M Powell
K Murphy
Non Executive Directors
T Bamford
J Daly
P López
A Murray
D Shapland
N Shouraboura
J Simmonds
Date of service agreement/
letter of appointment
Effective date
of appointment
Expiry of
current term
29 May 2003
1 July 2003
20 January 2011 (as Chairman)
20 January 2020
31 August 2016
1 April 2010
1 September 2016 (as Group CEO)
28 February 2017
17 July 2017
22 March 2011
21 May 2014
18 December 2012
11 December 2012
3 April 2014
7 June 2017
21 May 2014
1 June 2017
1 August 2017
22 March 2011
21 May 2014
1 January 2013
1 January 2013
3 April 2014
1 July 2017
21 May 2014
22 March 2020
21 May 2020
1 January 2019
1 January 2019
1 May 2020
1 July 2020
21 May 2020
1.
Details of all Directors can be found on pages 52 and 53. It remains the Board’s policy that Non Executive Directors are appointed for an initial term of three years, which is then reviewed
and, if appropriate, extended for a further three-year period. All Directors are proposed for re-election annually in accordance with the UK Corporate Governance Code (“the Code”).
2. During the year, Frank Roach served as CEO, USA and a Director. Mr Roach retired on 31 July 2017.
Availability of documents
Copies of service agreements and letters of appointment are available for review upon request at the Company’s registered office in Jersey. They are
also available at the Corporate Head Office in Switzerland and the Group Services Office in the UK, and will be available for inspection at the 2017 AGM.
Ferguson plc Annual Report and Accounts 2017
75
Directors’ Remuneration Report continued
Remuneration
Remuneration table (showing single total figure of pay for year) (Audited)
The table below sets out in a single figure the total amount of remuneration, including each element, earned by each of the Executive Directors for the
year ended 31 July 2017.
Executive Directors
J Martin1
M Powell2
F Roach
Past Directors
I Meakins3
Total
Year
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
Salary
(£000)
832.6
531.0
85.0
–
881.2
749.4
71.7
859.8
1,870.5
2,140.2
1.
John Martin was promoted to Group CEO with effect from 1 September 2016 having
previously served as Group CFO. During the year, Mr Martin received one month’s salary
at an annualised level of £531,000 and pension contributions of 25 per cent base salary
for his services as Group CFO and 11 months’ salary at an annualised level of £860,000
with pension contributions of 30 per cent base salary for his services as Group CEO.
2. Mike Powell was appointed as Group Chief Financial Officer on 1 June 2017.
During 2016/17, Mr Powell received two months’ salary, taxable benefits, pension benefits
and annual bonus payment.
3. Ian Meakins retired as Group Chief Executive on 31 August 2016. During 2016/17, Mr
Meakins received one month’s salary, taxable benefits and pension benefits. The majority
of Mr Meakins taxable benefits for the period related to tax gross up arrangements.
Mr Meakins did not receive an annual bonus payment in 2016/17. The value of Mr Meakins
LTI award vesting in November 2017 is pro-rated on the basis of full financial years served
during the relevant performance condition testing period for each award as described in
the section detailing the Committee’s exercise of discretion on page 66 of the Company’s
2016 Annual Report. The value of LTI vesting chart, opposite, reflects this pro-ration.
4. These are pre-tax figures. Benefits comprise private health insurance, car benefit
(car allowance, car, driver), tax and financial advice and tax gross up arrangements.
The majority of Frank Roach’s benefits relate to medical insurance and a car allowance.
5. The ESOP and LTIP grants were made in November 2014. The ESOP awards will vest at
100 per cent in November 2017 and the LTIP awards will vest at 71.6 per cent in November
2017. See page 78 for further information on the treatment of Frank Roach’s LTI awards.
6. The figure for total remuneration includes share price appreciation for the value of LTI
vesting and the value of dividend equivalents on vested LTIP awards. As the ESOP and
LTIP grants made in November 2014 will not vest until November 2017, the values of
long-term incentive awards vesting in the graph opposite include share price appreciation
determined using the share price of 4,822 pence noted on page 72 under the heading
“Information”.
Taxable
benefits4
(£000)
50.6
53.7
3.1
–
86.9
106.5
24.3
65.3
164.9
225.5
Bonuses
(£000)
915.2
378.8
91.4
–
1,044.3
712.5
–
567.9
2,050.9
1,659.2
Value of LTI
vesting5,6,7
(£000)
Pension
benefits8
(£000)
Total
remuneration6
(£000)
1,412.2
797.9
–
–
1,460.2
864.0
1,904.1
1,607.1
4,776.5
3,269.0
247.6
132.7
21.3
–
202.7
168.2
22.9
275.1
494.5
576.0
3,458.2
1,894.1
200.8
–
3,675.3
2,600.6
2,023.0
3,375.2
9,357.3
7,869.9
Value of LTI vesting (2017)
£000
1,904.2
1,412.2
1,460.2
Ian Meakins
John Martin
Frank Roach
LTIP original value
LTIP share price gain
ESOP share price gain
7. Value shown for 2016/17 represents estimated value of share awards granted in 2014 that
are expected to vest in November 2017. The estimate assumes 100 per cent vesting of
ESOP awards and 71.6 per cent vesting of LTIP awards using the three-month average
share price for the period ended 31 July 2016 of 4,822 pence. Value shown for 2015/16
represents the actual vesting of the ESOP and LTIP awards which vested in November
2016, using the share price of 4,199 pence (7 November 2016).
8. Frank Roach participated in the defined contribution pension arrangements of Ferguson
Enterprises, Inc. receiving contributions of 23 per cent of base salary from Ferguson
Enterprises Inc. The cost of employer’s contributions during the year was £202,687
($256,744). For the year ended 31 July 2016, the cost was £168,200 ($245,571). During the
year ended 31 July 2017, John Martin, Mike Powell and Ian Meakins received salary
supplements in lieu of Group pension scheme membership. Mr Powell and Mr Meakins
only received salary supplements for their periods of service during the year.
The table below sets out in a single figure the total amount of remuneration received by each of the Chairman and the Non Executive Directors who
served during the year ended 31 July 2017.
Chairman and Non Executive Directors
G Davis
Non Executive Directors (current as at the date of this report)
T Bamford
J Daly
P López
A Murray
D Shapland
N Shouraboura
J Simmonds
Total remuneration
76
Ferguson plc Annual Report and Accounts 2017
Fees (£000)
2016/17
Fees (£000)
2015/16
375.4
368.0
65.3
65.3
65.3
78.1
84.2
5.4
81.2
820.2
64.0
64.0
64.0
76.5
82.5
–
79.5
798.5
Strategic report
Governance
Financials
Other information
Additional disclosures in respect of the Remuneration table (Audited)
Annual bonus
The annual bonuses awarded to Executive Directors for the year ended 31 July 2017 are shown in the Remuneration table on page 76 and the bonuses
are calculated as follows:
Director
Measure
Threshold
Target
Maximum
Actual
Performance1
Threshold
Target
Maximum
Target Performance
Actual performance (as % of salary)
J Martin Group trading profit
£968.6m £1,009.0m £1,049.4m £1,044.9m
Group gross profit
£4,456.0m £4,570.3m £4,684.5m £4,651.9m
Group cash-to-cash days (average)
Personal objectives2,6
51.5
1⁄20
51.0
–
50.5
20⁄20
48.6
19⁄20
Maximum
opportunity
(% of salary)
36.00%
36.00%
35.33%
34.29%
24.00%
24.00%
22.80%
24.00%
Total Achieved: 116.42%
120.00%
M Powell³ Group trading profit
£968.6m £1,009.0m £1,049.4m £1,044.9m
Group gross profit
£4,456.0m £4,570.3m £4,684.5m £4,651.9m
Group cash-to-cash days (average)
Personal objectives4,6
51.5
1⁄20
51.0
–
50.5
20⁄20
48.6
20⁄20
32.33%
31.29%
33.00%
33.00%
22.00%
22.00%
22.00%
22.00%
Total Achieved: 107.62%
110.00%
F Roach Group trading profit
£968.6m £1,009.0m £1,049.4m £1,044.9m
USA trading profit
Group gross profit
USA gross profit
Group cash-to-cash days (average)
USA cash-to-cash days (average)
Personal objectives5,6
£818.3m
£884.6m
£951.0m
£889.3m
£4,456.0m £4,570.3m £4,684.5m £4,651.9m
£3,143.9m £3,257.9m £3,371.9m £3,353.2m
51.5
61.1
1⁄20
51.0
60.6
–
50.5
60.1
20⁄20
48.6
56.4
10⁄20
8.20%
28.00%
7.89%
8.40%
33.60%
8.40%
32.40%
33.60%
5.60%
5.60%
22.40%
22.40%
14.00%
Total Achieved: 118.49%
28.00%
140.00%
1.
Figures adjusted for exceptional items and include non-ongoing operations. Group figures also include the Nordic business. All calculations use Company budgeted foreign
exchange rates.
2. John Martin’s personal objectives were based on growth in the USA business, the UK strategy review and the Nordic strategy review and implementation plan.
3. Mike Powell was appointed Group Chief Financial Officer on 1 June 2017 and received two months’ annual bonus for the year ended 31 July 2017.
4. Mike Powell’s personal objectives were based on the year-end audit clearance meetings, 2017/18 budget reviews and the completion of his induction programme.
5. Frank Roach’s personal objectives were based on improvements in the USA customer service measures and development of the USA CMRO business against agreed targets.
6. The specific targets set for personal objectives are considered to be commercially sensitive as they relate to internal operational and strategic measures which could be used by
competitors to gain an advantage if disclosed. The Committee will consider disclosing the information if these sensitivities fall away in future periods.
Following a review, the Committee considers that Executive Directors’ personal objectives for 2015/16 are no longer commercially sensitive and has
approved their disclosure.
Ian Meakins’ objectives were to: (a) accelerate profitable top line growth and market share gains with specific focus on: improving customer service levels;
implementing differentiated customer propositions; and improving execution by the sales force; and (b) deliver strategic and budget plans for increases
in e-commerce revenues in Canada, DT Group and the UK business, and for USA operational expenditure growth to be lower than budget. Mr Meakins
achieved an overall score of 14⁄20.
John Martin’s objectives were to: (a) complete the development of Group finance systems; (b) implement Hyperion Financial Management at Group level;
and (c) deliver strategic and budget plans in Canada for: an increase in e-commerce revenues; improvements in sales management against quarterly
non-financial milestones; and meeting quarterly milestones for the implementation of a new reporting system and opening a new distribution centre.
Mr Martin achieved an overall score of 14⁄20.
Frank Roach’s objectives were to: (a) improve profitable top line growth and market share gains in the USA business with specific focus on: improving
customer service levels; implementing differentiated customer propositions; and improving execution by the sales force; and (b) deliver strategic and
budget plans for: the completion of the Business Model Improvement programme in the USA; USA operational expenditure growth to be lower than
budget; and quarterly e-commerce, customer and operational targets. Mr Roach achieved an overall score of 14⁄20.
The Committee also approved the disclosure of the 2014/15 objectives on the Company’s website at www.fergusonplc.com.
Ferguson plc Annual Report and Accounts 2017
77
Directors’ Remuneration Report continued
Remuneration
Long-term incentives
Long-term incentives awarded to Executive Directors under the ESOP
and LTIP in November 2014 will vest in November 2017. The vesting of
both awards is subject to the performance conditions shown in the tables
that follow.
The Committee decided to adjust the EPS measure used to calculate the
level of awards made under the ESOP and 2012 LTIP that are due to vest
in 2017/18 to neutralise the effect of currency movements during 2016/17
that would have rewarded management for factors beyond its control and
to include the results of the Nordic business, the performance of which
declined over the performance period. This adjustment is explained in
more detail in the Committee Chair’s statement on pages 69 and 70.
Executive Director changes
Frank Roach
Under the rules of the ESOP, 2012 LTIP and 2015 LTIP, when an employee
ceases to be employed by the Group unvested awards will lapse unless
the participant is treated as a “good leaver”. In the case of retirement,
the Remuneration Committee has the discretion under the rules to treat
a participant as a “good leaver” by determining that the employee left
“for any other reason at the discretion of the Committee”.
For “good leavers”, the rules provide that awards will vest on the original
vesting date, subject to satisfaction of performance conditions, and
will be pro-rated to the date of cessation of employment. Although the
performance conditions for the awards are measured from 1 August
in the year in which awards were granted, pro-ration under the rules
is calculated using the three-year period commencing on the date
of grant. The Remuneration Committee has discretion to base any
pro-ration for a “good leaver” to reflect completed financial years
during a performance period.
Frank Roach retired as Chief Executive, USA on 31 July 2017. In light
of Mr Roach’s outstanding contribution to the Company’s success,
the Remuneration Committee agreed to exercise its discretion:
– to treat him as a “good leaver” for his unvested awards granted under
the ESOP, 2012 LTIP and 2015 LTIP;
– to allow awards to vest on the original vesting dates (subject to
satisfaction of the performance conditions); and
– to time pro-rate his awards granted in 2014/15, 2015/16 and 2016/17 on
the basis of full financial years worked by Mr Roach during the relevant
performance period for each award. Therefore, the 2014/15 award
will vest in full and the 2015/16 and 2016/17 awards will be subject
to a reduction of one-third and two-thirds respectively.
Mike Powell
Mike Powell joined the Company as Group Chief Financial Officer on
1 June 2017. As a result of joining Ferguson, Mr Powell forfeited awards
he held under the BBA Deferred Share Plan and the BBA LTIP. Due to
these unusual circumstances and in line with the approved Remuneration
Policy, the Committee agreed it was appropriate to broadly replicate the
structure and fair value of unvested long-term incentive awards forfeited
by Mr Powell as a result of joining Ferguson and approved the grant of
three Restricted Share Buy Out Awards (RSBO) to replace awards forfeited
under the BBA Deferred Share Plan and one Performance Based Buy Out
Award (PBBO) to replace awards forfeited under the BBA LTIP. Mr Powell
first became eligible to participate in these arrangements on 1 June 2017.
The RSBO and PBBO awards were granted to Mr Powell on 21 June
2017. The RSBO awards were granted as conditional share awards.
No consideration is payable on grant or on vesting of these awards.
78
Ferguson plc Annual Report and Accounts 2017
These awards are not subject to performance conditions and will vest
subject to continued employment. The PBBO award was granted as a
conditional share award. The PBBO award will only vest if certain Company
corporate performance conditions are satisfied. These performance
conditions are measured over a three-year period and are the same as
those applied to awards granted to Executive Directors on 1 November
2016 under the 2015 LTIP. The PBBO award will normally vest subject to
continued employment and the satisfaction of the performance conditions.
Further details of the RSBO and PBBO awards granted to Mr Powell on
21 June 2017, including the performance conditions applicable, are set out
under the Scheme interests awarded during the financial year heading on
page 80. The number of shares awarded for each of the RSBO and PBBO
awards detailed in the table under that heading are the maximum awards
under the RSBO and PBBO.
ESOP
Vested awards
The ESOP awards granted on 7 November 2014 are the last such awards
to have been granted by the Company. Vesting of awards under the ESOP
are subject to performance targets based on growth in the Company’s
headline EPS above UK RPI over a three-year period. The ESOP plan
rules set out the EPS performance conditions that apply to awards and
are shown in the table below. The Committee has discretion to set more
challenging EPS targets than those contained in the ESOP plan rules.
Value of shares under option as a
multiple of salary
Performance conditions
detailed in plan rules
Total margin of EPS growth over UK inflation after three years (“RPI”)
Performance conditions
applied to awards
granted in 2014/15
First 50% of salary
Next 150% of salary
Next 50% of salary
9%
12%
15%
Greater than 250% of salary
15%-21%
9%
18%
30%
N/A
Adjusted headline EPS was 270.5 pence in 2016/17 (288.9 pence prior
to adjustment). Adjusted headline EPS in 2013/14 was 195.0 pence
(173.2 pence prior to adjustment), this represents growth of 38.7 per cent.
Over the same three-year period, RPI growth was 6.6 per cent. The growth
above RPI in the period was therefore 32.1 per cent and accordingly all
performance targets have been achieved, as set out below:
Performance level
Value of shares under
option as a multiple of salary
First 50% of salary
Next 150% of salary
Next 50% of salary
Total margin of EPS growth
Over UK inflation after three years (“RPI”)
Performance
required
Target
achieved
9%
18%
30%
Yes
Yes
Yes
Accordingly, the total percentage of executive options vesting is
set out below:
Value of shares
under option as a
multiple of salary
Total number of
shares subject
to option
Percentage
of award
vesting
Number
of shares
vesting
Value of
shares vesting
(£000)2
J Martin
F Roach
I Meakins1
35,113
33,842
41,994
100%
100%
100%
35,113
33,842
41,994
512.6
494.1
613.1
1.
As detailed on page 66 of the Company’s 2016 Annual Report, Ian Meakins’ awards reflect
the completed financial years served prior to his retirement on 31 August 2016, in line with
the Committee’s exercise of discretion. His original award grant was 62,992 share options.
2. Value determined using the share price noted on page 72 under the heading
“Information” less exercise price of 3,362 pence.
Strategic report
Governance
Financials
Other information
LTIP
Vested awards – 2012 LTIP
The performance condition which applied to the awards made in
November 2014 ended on 31 July 2017 and actual performance achieved
is detailed below.
2016/17 award
Operating cash flow1
$4.495 billion
Between $3.875 billion and $4.495 billion
TSR relative to FTSE 100 at date of grant
Performance
required
% of total
award vesting
$3.875 billion
Below $3.875 billion
Percentage of award subject
to operating cash flow which will vest2
100%
25%-100%
25%
0%
Performance level
Below threshold
Threshold
Between threshold and stretch
Stretch or above
Actual TSR rank achieved
Below median
Median
Between median
and top decile
Top decile
24th
0%
25%
25%-100%
100%
71.6%
Accordingly, the total percentage of shares vesting is set out below:
Value of shares
under option as a
multiple of salary
Total number
of shares
granted
Percentage
of award
vesting
J Martin
F Roach
I Meakins1
24,527
26,341
35,201
71.6%
71.6%
71.6%
Number
of shares
vesting
17,561
18,860
25,204
Value of
shares vesting
(£000)2,3
899.6
966.1
1,291.1
Year of award
1.
As detailed on page 66 of the Company’s 2016 Annual Report, Ian Meakins’ awards reflect
the completed financial years served prior to his retirement on 31 August 2016, in line with
the Committee’s exercise of discretion. His original award was 52,802 nil cost options.
2. Value determined using the share price noted on page 72 under the heading “Information”.
3. Dividend equivalents have accrued on the 2014 share awards and will be paid out in cash
2015/16
2016/17
1.
Cash generated from operations (before interest and tax) as presented in the audited
annual Group cash flow statement in the Company’s Annual Report and Accounts
(subject to such adjustments as the Committee deems appropriate to ensure it reflects
underlying business performance, and specifically would be adjusted downwards to
reflect the impact on operating cash flow following the expected disposal of the Nordic
business). As described on page 70, these targets have been restated into US dollars.
The exchange rate used for this calculation was £1:$1.55 being the average exchange
rate for the three-year period preceding the grant of the 2016/17 award.
2. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.
Calculations for TSR are independently carried out and verified before
being approved by the Committee. Calculations for EPS and OpCF are
checked and verified internally.
The following table sets out the indicative vesting percentage of the
comparative TSR element of the awards based on performance as at
31 July 2017:
Year of
vesting
Indicative vesting percentage
based on performance as at
31 July 2017
2018/19
68.8
(Performance at 24 months)
2019/20
62.5
(Performance at 12 months)
after vesting of the awards. The value above includes the cash payment.
Unvested awards – 2015 LTIP
The performance conditions for comparative TSR set out in the table on
page 73 and the more challenging performance conditions for EPS set
out in the table on page 78 apply for unvested share awards made under
the 2015 LTIP. The following tables set out the performance conditions
for OpCF which apply for unvested awards under the 2015 LTIP made in
2015/16 and 2016/17 respectively.
2015/16 award
Operating cash flow1
$4.213 billion
Between $3.577 billion and $4.213 billion
$3.577 billion
Below $3.577 billion
Percentage of award subject
to operating cash flow which will vest2
100%
25%-100%
25%
0%
1.
Cash generated from operations (before interest and tax) as presented in the audited
annual Group cash flow statement in the Company’s Annual Report and Accounts
(subject to such adjustments as the Committee deems appropriate to ensure it reflects
underlying business performance, and specifically would be adjusted downwards to
reflect the impact on operating cash flow following the expected disposal of the Nordic
business). As described on page 70, these targets have been restated into US dollars.
The exchange rate used for this calculation was £1:$1.59 being the average exchange rate
for the three-year period preceding the grant of the 2015/16 award.
2. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.
Share awards exercised during the year
Details of the share awards exercised during the year are set out below:
Director
J Martin
F Roach
The following table sets out the indicative vesting percentage of the EPS
growth element of the awards based on performance as at 31 July 2017:
Year of award
2015/16
2016/17
Year of
vesting
Indicative vesting percentage
based on performance as at
31 July 2017
2018/19
0.0
(Performance at 24 months)
2019/20
25.0
(Performance at 12 months)
The following table sets out the indicative vesting percentage of the OpCF
element of the awards based on performance as at 31 July 2017:
Year of award
2015/16
2016/17
Year of
vesting
Indicative vesting percentage
based on performance as at
31 July 2017
2018/19
100.0
(Performance at 24 months)
2019/20
100.0
(Performance at 12 months)
Sharesave
–
90
LTIP
11,000
12,403
ESOP
34,913
35,329
Total1,2
45,913
47,822
1. The aggregate gain made on the exercise of options during the year by John Martin and Frank Roach was £308,500 and £313,700 respectively.
2. The aggregate value of assets received or receivable by John Martin and Frank Roach under long-term incentive plans during the year was £461,900 and £520,800 respectively.
Ferguson plc Annual Report and Accounts 2017
79
Directors’ Remuneration Report continued
Remuneration
Directors’ shareholdings (Audited)
All Directors are required to hold shares equivalent in value to a minimum percentage of their salary or fees as set out in the table below. The Directors’
interests in the Company’s shares (both held individually and by their connected persons) as at 31 July 2017 are set out below and there has been no
change in interests since that date and up to the date of this Report.
Shares
beneficially
owned as at
31 July 2017
Shareholding
guideline
(as a multiple
of salary/fees)1,2
Vested
(unexercised)
share awards3,4
With performance conditions Without performance conditions
LTIP5
ESOP5
PBBO5
RSBO5
Sharesave5
Unvested share awards
Executive Directors
J Martin
F Roach
M Powell
Chairman and Non Executive Directors
G Davis
T Bamford
J Daly
P López
A Murray
D Shapland
N Shouraboura
J Simmonds
90,574
60,179
–
15,346
2,048
2,050
2,602
2,500
2,100
–
2,000
2.5
2
2
1
1
1
1
1
1
1
1
–
38,014
121,232
135,135
35,113
33,842
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,859
22,160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
957
–
–
–
–
–
–
–
–
–
–
1.
All Directors have a five-year time period from the date of appointment or promotion to meet the shareholding target. If not met within that timeframe the individual Director would discuss
plans with the Committee to ensure that the target is met over an acceptable timeframe. Under the Policy, Executive Directors would defer amounts in excess of target bonus into shares
under the Deferred Bonus Plan. Beneficially owned shares count towards the guideline whilst unvested awards of shares or share options do not. Vested share awards do not count
towards the guideline until exercised.
2. All Directors met their shareholding guideline targets set for 2016/17. Shareholding guideline targets for Mike Powell, Kevin Murphy and Nadia Shouraboura were set on 1 August 2017 and
as such they had no targets to meet as at the end of the 2016/17 financial year. Shareholding guideline targets are first set by reference to the salary or fees of a Director as at 1 August in the
financial year following appointment to the Board and calculated using the average share price for the two months ended 31 July of the financial year in which the appointment was made
and are re-tested annually until met. Once met, the target is only increased annually in line with base salary or fee increases, if any.
3. There were no vested (unexercised) awards under the Sharesave. There was an award under the ESOP held by Frank Roach who had 38,014 conditional shares vested but unexercised.
4. Details of share awards exercised in the year are detailed in the Share awards exercised during the year table at the bottom of page 79.
5. LTIP, ESOP and PBBO awards are subject to performance conditions but RSBO and Sharesave awards are not. LTIP awards are awarded in the form of nil cost options to John Martin and
in the form of conditional share awards to Frank Roach. PBBO and RSBO awards were awarded to Mike Powell in the form of conditional share awards. Further details of the performance
conditions which apply to the LTIP and PBBO awards are set out on pages 78 and 79.
Scheme interests awarded during the financial year (Audited)
Awards under the 2015 LTIP were made on 1 November 2016. Awards are based on a percentage of salary determined by the Committee.
The Committee considers annually the size of each grant, determined by individual performance, the ability of each individual to contribute to the
achievement of the performance conditions, and market levels of remuneration. The maximum vesting is 100 per cent of the award granted. Details of
performance conditions for awards which were granted during the year are set out on pages 78 and 79. Further information on the buy-out awards
granted to Mike Powell is provided on page 78.
The scheme interests awarded during 2016/17 are summarised below:
Director
Award
Type of award
Number
of shares1
Face value2,3
of award
(£000)
Performance criteria period
Threshold
performance
Performance conditions
J Martin
F Roach
LTIP
LTIP
Nil cost options
58,858
2,579.7
Conditional shares
51,493
2,256.9
1 August 2016 – 31 July 2019
M Powell
PBBO
Conditional shares
M Powell
RSBO
Conditional shares
M Powell
RSBO
Conditional shares
M Powell
RSBO
Conditional shares
18,859
14,026
5,695
2,439
932.5
693.5 21 June 2017 – 28 March 2018 N/A
281.6 21 June 2017 – 27 March 2019 N/A
120.6 21 June 2017 – 1 April 2020
N/A
N/A
N/A
N/A
25% of award
vesting
Growth in EPS above RPI target
Comparator TSR target against FTSE100
Cumulative operating cash flow growth
1.
John Martin and Frank Roach’s awards during the financial year were based on a percentage of salary as follows: John Martin (300 per cent); and Frank Roach (275 per cent). Following his
appointment as Group Chief Financial Officer on 1 June 2017 buy out awards were granted to Mike Powell that broadly replicate the structure and fair value of unvested long-term incentive
awards forfeited by Mr Powell as a result of joining Ferguson.
2. The share price used to calculate the face value of the LTIP share awards granted on 1 November 2016 was 4,383 pence which was the average share price over a 10-dealing day period
immediately preceding the date of grant. The LTIP award made to John Martin was in the form of nil cost options. At vesting, the exercise price per share will be nil. The LTIP award made to
Frank Roach was a conditional share award and there is no exercise price. The share price used to calculate the face value of the PBBO and RSBO share awards granted on 21 June 2017 was
4,944.6 pence which was the average share price over a five-dealing day period preceding 28 February 2017. The PBBO and RSBO awards made to Mike Powell were conditional share awards
and there is no exercise price. Face value is calculated as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (“Regulations”) as the
maximum number of shares at full vesting multiplied by either the share price at date of grant or the average share price used to determine the number of shares awarded. Dividend equivalents
also accrue on the LTIP and PBBO awards and the amount which may be due to an Executive Director is not included in the calculation of face value.
3. The maximum dilution which may arise through issue of shares to satisfy the entitlement to these LTIP, PBBO and RSBO scheme interests would be 0.00057 per cent calculated as
at 31 July 2017.
80 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Ferguson TSR performance and Group CEO remuneration comparison
The graph opposite shows Ferguson’s TSR
performance against the performance of the
FTSE 100 Index from the creation of the new
holding company (formerly known as Wolseley plc),
which was created at the time of the redomiciliation
to Switzerland in November 2010, to 31 July 2017.
The FTSE 100 Index has been chosen as being a
broad equity market index consisting of companies
comparable in size and complexity to Ferguson.
200
300
250
150
The table below shows the total remuneration
of the Group Chief Executive1 for the eight-year
period from 1 August 2009 to 31 July 2017.
100
50
Nov 2010
July 2011
July 2012
July 2013
July 2014
July 2015
July 2016
July 2017
Ferguson return index
FTSE 100 return index
Single figure of total remuneration (£000)2
Annual bonus award rates against
maximum opportunity
Long-term incentive vesting rates against
maximum opportunity
Group CEO
I Meakins
J Martin
I Meakins
J Martin
LTIP
I Meakins ESOP
LTIP
J Martin
ESOP
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
1,943
–
96%
–
0%
0%
–
–
2,011
5,603
5,109
5,890
3,901
3,3753
–
98%
–
0%
0%
–
–
–
85%
–
76%
100%
–
–
–
84%
–
100%
100%
–
–
–
97%
–
88%
100%
–
–
–
85%
–
75%
100%
–
–
–
55%
–
47%
100%
–
–
2,023
3,458
–
97%
72%
100%
72%
100%
1.
During the eight-year period, Ian Meakins was the Group Chief Executive until his retirement on 31 August 2016. Since 1 September 2016, John Martin has served as Group Chief
Executive. The single figure total shown for Mr Martin in the 2016/17 financial year includes one month’s pay as Group Chief Financial Officer.
2. The single figure for all eight years is calculated on the same basis as that used in the Remuneration table on page 76.
3. The single figure for the year ended 31 July 2016 has been adjusted from the value of £3,114 million estimated in that year’s report to reflect the actual value of LTI at the dates of vesting
in November 2016.
Payments for loss of office and to past Directors
(Audited)
No payments for loss of office were made during the financial year.
Ian Meakins served as Group Chief Executive Officer for one month
during the year until his retirement on 31 August 2016. Payments made to
Mr Meakins are set out in the Remuneration table on page 76. Additionally,
detail on ESOP and LTIP awards granted to Mr Meakins that vested during
the year are disclosed on pages 78 and 79. No other payments have
been made to past Directors that have not already been included in the
Remuneration table.
Change in Group Chief Executive pay for the year
compared to that of Ferguson employees
The table below shows the percentage year-on-year change in base
salary, benefits and annual bonus between the year ended 31 July 2017
and the previous financial year for the Group Chief Executive compared
to the average for UK-based employees1.
Chairman and Non Executive Directors
Group Chief Executive3,4
Average for all UK-based employees
% change in
salary
% change in
benefits
% change in
annual bonus2
0.0%
+3.5%
+56.4%
+53.3%
+9.7%
+140.8%
Relative importance of spend on pay
The following table sets out the amounts and percentage change in total
employee remuneration costs, dividends and returns of capital for the year
ended 31 July 2017 compared to the year ended 31 July 2016.
Total employee remuneration costs1
Ordinary dividends paid2
Share buyback3
Year ended
31 July 2017
£m
Year ended
31 July 2016
£m
Percentage
change
2,140
259
–
1,766
238
300
+21.2%
+8.8%
–
1.
Further details on employee remuneration can be found in note 11 of the consolidated
financial statements on page 99.
2. Further details of dividends paid can be found in note 9 of the consolidated financial
statements on page 98.
3. Further details of the share buyback programme can be found in note 27 of the
consolidated financial statements on page 113. Details of the share buyback
programme to be commenced in 2017/18 are not included as no shares were
purchased during 2016/17.
1.
Although the Group Chief Executive has a global role and responsibilities, UK-based
employees were chosen as a suitable comparator group as he is based in the UK
(except to attend Board and Committee meetings in Switzerland or other worldwide
locations outside of the UK). Also pay structures and changes to pay vary widely across
the Group, depending on the local market conditions.
2. The Group Chief Executive’s bonus is determined by both his performance and the
performance of the whole of the Ferguson Group, whereas employees’ bonuses are
based on their performance and the performance of the businesses in the countries in
which they work. The percentage change in annual bonus for UK-based employees is
based on the best available estimates at time of publication.
3. During the year ended 31 July 2017, John Martin replaced Ian Meakins as Group CEO on
1 September 2016. Changes in Group Chief Executive pay have been calculated using the
sum of Mr Meakins and Mr Martin’s salary, benefits and bonus for their respective one and
11 months of service as Group CEO during 2016/17. Mr Meakins did not receive an annual
bonus for the year ended 31 July 2017.
4. The change in benefits for the Group Chief Executive, includes a tax gross up payment
made to Ian Meakins in August that relates to the previous tax year and a tax gross
up payment made to John Martin in September that relates to the previous tax year.
The change in benefits without this duplication would have been 9.0 per cent.
Ferguson plc Annual Report and Accounts 2017
81
Directors’ Remuneration Report continued
Remuneration
Policy extracts
Ferguson’s Remuneration Policy remains unchanged from that approved
by shareholders at the AGM on 1 December 2015. For convenience,
some extracts from the Policy are included below to provide the context
within which individual remuneration decisions have been made during
the year. The full Policy can be found on the Ferguson plc website at
www.fergusonplc.com.
In these extracts, the following definitions apply:
DBP
OSP
Deferred Bonus Plan
Ordinary Share Plan
Recruitment policy
Executive Directors
As noted earlier, the Committee will consider the need to attract the best
talent whilst aiming to pay no more than is appropriate or necessary in
the circumstances. In determining each element of pay and the package
as a whole upon recruitment, the Committee will take into account all
relevant factors including, but not limited to, the skills and experience of
the individual, the market rate for an individual of that experience, as well
as the importance of securing the best person for the role.
Fixed pay (base salary, benefits, pension)
A newly appointed Executive Director will be offered a base salary,
benefits and pension package in line with the Policy. The Committee
retains the flexibility to review and decide on a case-by-case basis
whether it is appropriate to award increases to allow a newly appointed
Executive Director whose base salary has been set below the mid-market
level to progress quickly to or around that mid-market level once expertise
and performance has been proven. This decision would take into account
all relevant factors noted above.
Variable pay (annual bonus and long-term incentive awards)
A newly appointed Executive Director will be offered an annual bonus
and long-term incentives in line with the Policy. The maximum level of
variable remuneration (annual bonus and 2015 LTIP awards) which may
be awarded to new Executive Directors is limited to 500 per cent of base
salary excluding any buy out awards, the policy for which is set out below.
The Committee retains the flexibility to vary the weighting between annual
bonus and 2015 LTIP up to the approved Policy maxima.
Depending on the timing of the appointment, the Committee may
set different annual bonus performance criteria for the first year of
appointment. Where an appointment is an internal promotion, any
variable pay element awarded in respect of the individual’s previous
role would continue on the original grant terms. In addition, any other
ongoing remuneration (including pension) obligations existing prior to
the appointment would be able to continue.
One-off “buy out” cash or share award
Where an Executive Director is appointed from outside the Group, the
Committee may make a one-off award to the new Executive Director to
“buy out” incentives and other remuneration opportunities forfeited on
leaving his or her previous employer. The Committee retains the flexibility
to make such additional payments in the form of cash and/or shares.
When making such an award, the Committee will, as far as practicable,
replicate the structure of the arrangements being forfeited and in doing so
will take into account relevant factors including the delivery mechanism,
time horizons, attributed expected value and performance conditions of
the forfeited award. The Committee will endeavour not to pay more than
the value of the forfeited award.
82
Ferguson plc Annual Report and Accounts 2017
The Committee will, where possible, facilitate such awards through the
Company’s current incentive plans, but it may be necessary to use the
exemption permitted within the Listing Rules.
Policy on loss of office
All Directors
In the event of termination of a service contract or letter of appointment
of a Director, contractual obligations will be honoured in accordance with
the service contract and terms of incentive plans or letter of appointment.
The Committee will take into consideration the circumstances and reasons
for departure, health, length of service, performance and the duty (where
applicable) for Directors to mitigate their own loss. Under this Policy the
Committee may make any statutory payments it is required to make and/
or settle claims brought against the Company in relation to a termination.
In addition, the Committee may agree to payment of outplacement
counselling costs and disbursements (such as legal costs) if considered
to be appropriate and dependent on the circumstances of departure.
It is the Company’s policy for the period of notice from the Company to
the Executive Directors not to exceed 12 months and for Non Executive
Directors to the Company not to exceed six months.
There are no pre-determined contractual provisions for Directors regarding
compensation in the event of loss of office except those listed in the
table below:
Chairman and Non
Executive Directors
Six months’ notice
by either party.
Fees and expenses
accrued up to the
termination date only.
Details of
provision
Notice
period
Termination
payment
Executive Directors
– 12 months’ notice from
the Company.
– Six months’ notice from
the Executive.
The Company may terminate
an Executive Director’s service
contract by making a payment
in lieu of notice equal to:
– 12 months’ base salary and
benefits; and
– 12 months’ pension contributions
or cash pension supplement.
The Company would seek to
ensure that any termination
payment is mitigated in the event
that the Executive Director starts
alternative employment within
the notice period.
In the case of the UK-based Executive
Directors, the Company may pay a
lump sum in respect of six months and
the remaining six months in monthly
instalments subject to reductions if
the Executive Director commences
alternative employment with a base
salary/fee of at least £20,000.
No payment will be made to
Executive Directors in the event
of gross misconduct.
Post-
termination
covenants
Non-compete and non-solicitation
covenants apply for a period
of 12 months after the termination date.
Not applicable.
The policy on loss of office and contractual provisions above would be
applied to any new Director’s service contract or letter of appointment.
Strategic report
Governance
Financials
Other information
Discretion, flexibility and judgement of the Committee
The Committee operates the annual bonus plan, DBP, LTI plans and all-
employee plans, according to their respective rules and in accordance with
tax authorities’ rules where relevant. To ensure the efficient administration
of those plans, the Committee may apply certain operational discretions.
These include the following:
– selecting the participants in the plans on an annual basis;
– determining the timing of grants of awards and/or payment;
– determining the quantum of awards and/or payments (within the limits
set out in the Policy table above);
– determining the extent of vesting based on the assessment
of performance;
– making the appropriate adjustments required in certain circumstances
(e.g. change of control, changes to accounting rules, rights issues,
corporate restructuring events, and special dividends);
– determining “good leaver” status for the purposes of the LTI plans and
applying the appropriate treatment; and
– undertaking the annual review of performance measures and weighting
between them (within the limits set out in the Policy table), and setting
targets for the annual bonus plan and LTI plans from year to year.
If an event occurs which results in the performance conditions and/or
targets of the annual bonus plan or LTI plans being deemed no longer
appropriate (e.g. a material acquisition or divestment), the Committee will
have the ability to adjust appropriately the measures and/or targets and
alter weightings, provided that the revised conditions or targets are not
materially less difficult to satisfy. The use of the discretions referred to in
the Future policy table and above will be explained as appropriate in the
Annual report on remuneration and may, as appropriate, be the subject
of consultation with major shareholders.
Executive Directors
On loss of office, there is no automatic entitlement to a bonus.
Executive Directors may receive a bonus in respect of the year of
cessation of employment based on, and subject to, performance
conditions and pro-rated to reflect the actual period of service in the
year of cessation (except pro-ration may not be applied in exceptional
circumstances such as death in service or ill health). The Committee
will take into account the reason for the Executive Director’s departure
and any other relevant factors when considering a bonus payment
of a departing Executive Director.
The treatment of leavers under the 2012 LTIP and 2012 ESOP plans
as approved under the 2014 Remuneration Policy and the 2015 LTIP
(together the “LTI plans”), together with awards under all-employee plans
and, if applicable the DBP, would be determined by the relevant leaver
provisions in accordance with the plan rules.
Under the LTI plans, any unvested awards will lapse at cessation unless
the individual has “good leaver” status (namely for reasons of death,
redundancy, injury, disability, ill-health, employing business or company
sold out of the Group and any other reason at the discretion of the
Committee). The Committee retains the discretion to determine when the
awards should vest and performance conditions be tested, for example,
at the date of cessation or at the usual vesting date. In the event of a
change of control or takeover, all long-term incentive awards will vest
subject to performance conditions being met. In relation to the LTI plans,
awards would generally be pro-rated to reflect the period of service of the
Executive Director; although, if the Committee considers it appropriate,
the Committee has the discretion set out in the plan rules not to pro-rate.
Under the all-employee plans, any unvested awards will lapse at cessation
unless the individual has a “good leaver” status – for UK Executive
Directors this will be specifically as prescribed by HMRC in the SAYE
appendix of the relevant plan rules and for Executive Directors in other
jurisdictions as set out in the relevant section of the applicable plan rules.
Under the DBP, any unvested awards will be forfeited if an Executive
Director ceases to be an employee of the Group by reason of misconduct
or if the Company becomes aware, after termination, of facts or
circumstances which would have entitled it to dismiss the Executive
Director for misconduct. If an Executive Director ceases to be an employee
for any other reason, an award shall vest in full at the end of the deferral
period unless the reason for cessation is death or other circumstances
which the Committee considers sufficiently exceptional, the award shall
vest in full at the date of death or cessation of employment.
Ferguson plc Annual Report and Accounts 2017
83
Directors’ Remuneration Report continued
Remuneration
Further information
External Directorships
Executive Directors are permitted to take on external Non Executive
Directorships. In order to avoid any conflicts of interest, all such
appointments are subject to the approval of the Nominations Committee.
The Nominations Committee believes that taking up an external non
executive appointment helps bring a wider perspective to the Company
and also assists in the development of business skills and experience.
During the year, and until his retirement as Group CEO on 31 August
2016, Ian Meakins was a Non Executive Director and Senior Independent
Director of Centrica plc and received an annualised fee of £92,500 for
his services (2015/16: £89,375). During the year, and until his retirement
as Group CEO on 31 August 2016, Mr Meakins also served as a Non
Executive Director of Rexel SA. The annualised fee for his service was
set at €40,000 per annum (2015/16: €40,000). The Company allowed
Mr Meakins to retain the fees paid to him during the year.
During the year, and from the date of appointment as Group CFO of
Ferguson plc on 1 June 2017, Mike Powell was a Non Executive Director
and Audit Committee Chairman of Low & Bonar plc and received an
annualised fee of £47,000 per annum for his services. The Company
allowed Mr Powell to retain the fees paid to him during the year.
Detail of Employee Benefit Trusts
The Ferguson plc 2011 Employee Benefit Trust (“Jersey Trust”) and
Ferguson plc US Trust (“US Trust”) (together, “the Trusts”) were established
in connection with the obligation to satisfy historical and future share
awards under the LTI plans and OSP and any other employee incentive
schemes (“Share Awards”).
The trustees of each of the Trusts have waived their rights to receive
dividends on any shares held by them. As at 31 July 2017, the Jersey Trust
held 379,154 ordinary shares of 1053⁄66 pence and £1,942 in cash; and the
US Trust held 1,056,001 ordinary shares of 1053⁄66 pence. The number of
shares held by the Trusts represented 0.54 per cent of the Company’s
issued share capital at 31 July 2017.
On 7 November 2016, shares were purchased by the US Trust to
ensure that it continues to have sufficient shares to satisfy share awards.
The US Trust purchased 142,000 ordinary shares of 1053⁄66 pence and
paid £5.96 million. The Company provided funds to the US Trust to enable
it to make the purchase. The number of shares purchased represented
0.05 per cent of the Company’s issued share capital at that date.
Detail of all-employee sharesave plans
The Company operates two all-employee sharesave plans which
Executive Directors can participate in. In the USA and Canada, the
Employee Share Purchase Plan (“ESPP”) operates as a one-year savings
contract plan. In all other business units, employees may participate in
the International Sharesave Plan (“ISP”) saving for a period of three or
five years.
Dilution
Awards under the LTI plans and all-employee plans may be met by the
issue of new shares when options are exercised, by the use of Treasury
Shares or by market purchase. Awards under the OSP are met by market
purchase of shares or from the Trusts. The Company monitors the number
of shares issued under the Plans and any impact on dilution limits.
Compared to the limits set by the Investment Association in respect of new
share issues to satisfy options granted for all share plans (10 per cent in any
rolling 10-year period) and executive share plans (5 per cent in any rolling
10-year period) as at 31 July 2017 the Company’s headroom was 5.02 per
cent and 1.94 per cent respectively.
Executive share plans
Actual
Limit
All share plans
Actual
Limit
3.06%
5%
4.98%
10%
This Report has been approved by the Board and is signed on its behalf by
the Chair of the Remuneration Committee.
On behalf of the Board
Jacky Simmonds
Chair of the Remuneration Committee
2 October 2017
This Report, approved by the Board, has been prepared in
accordance with the requirements of the Listing Rules of the
Financial Conduct Authority and the Remuneration Reporting
Regulations. Furthermore, the Board has also applied the principles
of good governance relating to Directors’ remuneration contained
within the UK Corporate Governance Code updated in April 2016.
The Remuneration Committee confirms that throughout the financial
year the Company has complied with these governance rules and best
practice provisions.
84
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Financials
86 Group income statement
87 Group statement of comprehensive income
87 Group statement of changes in equity
88 Group balance sheet
89 Group cash flow statement
90 Notes to the consolidated financial statements
128 Independent auditor’s report to the members of Ferguson plc
134 Company profit and loss account
134 Company statement of changes in equity
135 Company balance sheet
136 Notes to the Company financial statements
Ferguson plc Annual Report and Accounts 2017
85
Group income statement
Year ended 31 July 2017
Revenue
Cost of sales
Gross profit
Operating costs:
amortisation of acquired intangible assets
impairment of goodwill and acquired intangible assets
other
Operating costs
Operating profit
Finance costs
Share of result of associate
Profit before tax
Tax
Profit from continuing operations
(Loss)/profit from discontinued operations
Profit for the year
Attributable to:
Shareholders of the Company
Non-controlling interests
Earnings per share
Continuing operations and discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations only
Basic earnings per share
Diluted earnings per share
Alternative performance measures
Trading profit from ongoing operations
Trading profit from non-ongoing operations
Trading profit from continuing operations
EBITDA before exceptional items
Headline earnings per share
Restated*
2016
Total
£m
12,549
(8,957)
3,592
(48)
(94)
(2,739)
(2,881)
711
(36)
–
675
(210)
465
185
650
659
(9)
650
256.4p
254.8p
183.4p
182.3p
2017
Total
£m
15,224
(10,816)
4,408
(64)
–
(3,120)
(3,184)
1,224
(43)
(1)
1,180
(292)
888
(105)
783
783
–
783
311.6p
309.4p
353.4p
350.8p
2017
Exceptional
items
(note 5)
£m
–
(2)
(2)
–
–
231
231
229
–
–
229
(22)
207
(58)
149
149
–
149
Notes
3
2017
Before
exceptional
items
£m
15,224
(10,814)
4,410
(64)
–
(3,351)
(3,415)
995
(43)
(1)
951
(270)
681
(47)
634
634
–
634
3, 4
6
15
7
8
10
2, 3
2, 3
2, 3
2
2, 10
1,032
27
1,059
1,199
288.9p
2016
Before
exceptional
items
£m
2016
Exceptional
items
(note 5)
£m
–
(1)
(1)
–
–
(3)
(3)
(4)
–
–
(4)
1
(3)
154
151
151
–
151
12,549
(8,956)
3,593
(48)
(94)
(2,736)
(2,878)
715
(36)
–
679
(211)
468
31
499
508
(9)
499
827
30
857
971
234.7p
* Restated to present the Nordic businesses as discontinued operations in accordance with IFRS 5.
86
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Group statement of comprehensive income
Year ended 31 July 2017
Profit for the year
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Exchange gain on translation of overseas operations(a)
Exchange loss on translation of borrowings and derivatives designated as hedges of overseas operations(a)
Cumulative currency translation differences on disposals(a)
Tax credit/(charge) on items that may be reclassified to profit or loss(b)
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on retirement benefit plans(b)
Tax (charge)/credit on items that will not be reclassified to profit or loss(b)
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Total comprehensive income/(expense) attributable to:
Continuing operations
Discontinued operations
Total comprehensive income for the year
(a) Impacting the translation reserve.
(b) Impacting retained earnings.
Group statement of changes in equity
Notes
7
26
7, 26
2017
£m
783
26
(6)
(49)
1
(1)
(1)
(30)
753
850
(97)
753
Restated
2016
£m
650
495
(107)
(125)
(7)
(120)
25
161
811
744
67
811
At 1 August 2015
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Purchase of own shares by Employee Benefit Trusts
Issue of own shares by Employee Benefit Trusts
Credit to equity for share-based payments
Purchase of Treasury shares
Disposal of Treasury shares
Dividends paid
At 31 July 2016
Profit for the year
Other comprehensive expense
Total comprehensive (expense)/income
Purchase of own shares by Employee Benefit Trusts
Issue of own shares by Employee Benefit Trusts
Credit to equity for share-based payments
Tax relating to share-based payments
Disposal of Treasury shares
Dividends paid
At 31 July 2017
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Treasury
shares
£m
Own
shares
£m
Retained
earnings
£m
Notes
Non-
controlling
interest
£m
Total
equity
£m
29
42
117
(240)
(63)
2,715
7
2,607
Reserves
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
263
263
–
–
–
–
–
–
–
–
–
–
–
–
(300)
24
–
–
–
–
(14)
20
–
–
–
–
659
(102)
557
–
(19)
20
–
(10)
(238)
(9)
–
(9)
–
–
–
–
–
–
650
161
811
(14)
1
20
(300)
14
(238)
29
42
380
(516)
(57)
3,025
(2)
2,901
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(29)
(29)
–
–
–
–
–
–
–
–
–
–
–
–
–
31
–
–
–
–
(6)
15
–
–
–
–
783
(1)
782
–
(15)
22
4
(10)
(259)
–
–
–
–
–
–
–
–
–
783
(30)
753
(6)
–
22
4
21
(259)
29
42
351
(485)
(48)
3,549
(2) 3,436
27
27
28
27
27
9
27
27
28
7
27
9
Ferguson plc Annual Report and Accounts 2017
87
Group balance sheet
As at 31 July 2017
Assets
Non-current assets
Intangible assets: goodwill
Intangible assets: other
Property, plant and equipment
Interests in associates
Financial assets
Retirement benefit assets
Deferred tax assets
Trade and other receivables
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Current tax receivable
Derivative financial assets
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax payable
Bank loans and overdrafts
Obligations under finance leases
Provisions
Retirement benefit obligations
Non-current liabilities
Trade and other payables
Bank loans
Obligations under finance leases
Deferred tax liabilities
Provisions
Retirement benefit obligations
Liabilities held for sale
Total liabilities
Net assets
Equity
Share capital
Share premium
Reserves
Equity attributable to shareholders of the Company
Non-controlling interest
Total equity
Notes
2017
£m
2016
£m
12
13
14
15
26
16
17
18
17
18
19
20
21
22
24
25
26
21
22
24
16
25
26
20
27
888
182
808
124
11
3
121
226
15
902
202
1,434
–
23
–
127
212
20
2,378
2,920
1,816
2,093
2
5
1,911
5,827
1,298
9,503
2,279
88
1,627
3
81
8
2,017
2,207
–
11
940
5,175
56
8,151
2,634
101
701
4
88
9
4,086
3,537
180
831
4
9
120
16
1,160
821
6,067
3,436
29
42
3,367
3,438
(2)
3,436
163
1,175
27
65
133
138
1,701
12
5,250
2,901
29
42
2,832
2,903
(2)
2,901
The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements on pages 86 to 127 were
approved and authorised for issue by the Board of Directors on 2 October 2017 and were signed on its behalf by:
John Martin
Group Chief Executive
Mike Powell
Chief Financial Officer
88
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Group cash flow statement
Year ended 31 July 2017
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of businesses (net of cash acquired)
Disposals of businesses (net of cash disposed of)
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment and assets held for sale
Purchases of intangible assets
Disposals of financial assets
Net cash used in investing activities
Cash flows from financing activities
Purchase of own shares by Employee Benefit Trusts
Purchase of Treasury shares
Proceeds from the sale of shares by Employee Benefit Trusts
Proceeds from the sale of Treasury shares
Proceeds from borrowings and derivatives
Repayments of borrowings
Finance lease capital payments
Dividends paid to shareholders
Net cash used by financing activities
Net cash generated/(used)
Effects of exchange rate changes
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at the beginning of the year
Cash, cash equivalents and bank overdrafts at the end of the year
Cash, cash equivalents and bank overdrafts at the end of the year in the Group balance sheet
Cash, cash equivalents and bank overdrafts in assets held for sale
Cash, cash equivalents and bank overdrafts at the end of the year
Notes
29
30
31
27
27
27
27
9
32
20
2017
£m
1,115
3
(56)
(310)
752
(256)
231
(153)
19
(25)
17
(167)
(6)
–
–
21
339
(464)
(5)
(259)
(374)
211
(15)
196
248
444
2017
£m
411
33
444
2016
£m
1,019
2
(41)
(193)
787
(113)
9
(187)
56
(31)
–
(266)
(14)
(300)
1
14
585
(591)
(4)
(238)
(547)
(26)
18
(8)
256
248
2016
£m
248
–
248
Ferguson plc Annual Report and Accounts 2017
89
Notes to the consolidated financial statements
Year ended 31 July 2017
1 – Accounting policies and critical estimates and judgements
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the
European Union, including interpretations issued by the International Accounting Standards Board (“IASB”) and its committees.
Ferguson plc is a public company limited by shares incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland.
The Company changed its name from Wolseley plc to Ferguson plc on 31 July 2017.
The consolidated financial statements have been prepared on a going concern basis (see page 41) and under the historical cost convention as modified
by the revaluation of financial assets and liabilities held for trading.
The consolidated financial statements are presented in sterling, which is the presentational currency of the Group. The Group’s presentational currency
will change from sterling to US dollars from 1 August 2017.
The Nordic businesses have been reclassified as discontinued operations in accordance with IFRS 5 “Non-current Assets Held for Sale and
Discontinued Operations” and the consolidated financial statements and affected notes for the year ended 31 July 2016 have been restated to reflect this.
Accounting developments and changes
At the time of this report a number of accounting standards have been published, but not yet applied.
IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” are effective for the Group from the year ending 31 July 2019.
The Group has completed an initial assessment of the impact of IFRS 9 and IFRS 15 and it is expected adoption will not have a material impact on the
Group’s consolidated financial results.
IFRS 16 “Leases”, which is yet to be endorsed by the EU, is effective for the Group for the year ending 31 July 2020. IFRS 16 represents a significant
change for the treatment of leases in the lessee’s financial results. Lessees will be required to apply a single model to recognise a lease liability and asset
for all leases, including those classified as operating leases under current accounting standards (note 34), unless the underlying asset has a low value or
the lease term is 12 months or less.
On adoption of IFRS 16 there will be a significant change to the financial statements, as each lease will give rise to a right of use asset, which will be
depreciated on a straight-line basis, and a lease liability, with the related interest charge. This will replace existing lease balances on the balance sheet
and charges to the income statement.
The Group continues to assess the full impact of IFRS 16, however the impact will depend on the transition approach and the contracts in effect at the
time of adoption. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the Group’s consolidated financial results.
Choices permitted by IFRS
The Group has elected to apply hedge accounting to some of its financial instruments.
Accounting policies
Note 37 details the principal accounting policies applied in the preparation of the consolidated financial statements.
Critical accounting judgements
Exceptional Items
Note 2 provides a definition of exceptional items. The classification of exceptional items requires significant management judgement to determine the
nature and intentions of a transaction. Note 5 provides further details on current year exceptional items.
Pensions and other post-retirement benefits
The Group operates defined benefit pension plans in the UK and in a number of overseas locations that are accounted for using methods that rely on
actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. The Group takes advice from independent actuaries relating
to the appropriateness of the assumptions.
The cost of providing benefits is determined annually using the Projected Unit Credit Method, which includes actuarial assumptions for discount rates,
expected salary and pension increases, inflation and life expectancy and are disclosed in note 26. The discount rate used is the yield at the valuation
date on high quality corporate bonds that have a maturity approximating to the terms of the pension obligations. Significant judgement is required when
setting the criteria from which the yield curve is derived.
Sources of estimation uncertainty
In applying the Group’s accounting policies, various transactions and balances are valued using estimates or assumptions. Should these estimates or
assumptions prove incorrect there may be an impact on the following year’s financial statements. The Group believes that the estimates and assumptions
that have been applied would not give rise to a material impact within the next financial year.
90 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
2 – Alternative performance measures
The Group uses alternative performance measures (“APMs”), which are not defined or specified under IFRS. The Group believes that 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.
The Group reports some financial measures net of businesses or branches that have been disposed of, closed or classified as held for sale and uses the
following terminology:
Non-ongoing operations: businesses and groups of branches, 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. In 2017, the Group’s
Swiss business, Tobler, and a small Industrial business in the USA, Endries, have been classified as non-ongoing.
Ongoing operations: continuing operations excluding non-ongoing operations.
A reconciliation between ongoing and continuing operations is shown below.
Ongoing operations
Non-ongoing operations
Continuing operations
Discontinued operations
Revenue
Restated
2016
£m
12,146
403
12,549
2,136
2017
£m
14,878
346
15,224
2,100
Trading profit
Restated
2016
£m
827
30
857
59
2017
£m
1,032
27
1,059
63
Constant exchange rates
The Group measures some financial metrics on both a reported basis and at constant exchange rates. The constant exchange rate basis re-translates the
prior year at the current year exchange rate to eliminate the effect of exchange rate fluctuations when comparing information year-on-year.
Reported 2016 at 2016 exchange rates
Impact of exchange rates
Reported 2016 at 2017 exchange rates
Constant currency growth
Reported 2017
Ongoing revenue
Ongoing trading profit
£m
%
12,146
1,550
13,696
1,182
14,878
8.6
£m
827
122
949
83
1,032
%
8.7
Like-for-like revenue growth
Management uses like-for-like revenue growth as it provides a consistent measure of the percentage increase/decrease in revenue year-on-year,
excluding the effect of currency exchange, acquisitions and disposals, trading days and branch openings and closures.
Reported 2016 at 2017 exchange rates
Like-for-like revenue growth
Opened and closed branches
Trading days
Acquisitions and divestments
Reported 2017
Ongoing revenue
%
6.0
£m
13,696
818
10
60
294
14,878
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 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:
– material restructuring costs within a segment 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.
– costs or credits arising as a result of material regulatory and litigation matters.
If provisions have been made for exceptional items in previous years, then any reversal of these provisions is treated as exceptional.
Exceptional items for the current and prior year are disclosed in note 5.
Ferguson plc Annual Report and Accounts 2017
91
Notes to the consolidated financial statements continued
Year ended 31 July 2017
2 – Alternative performance measures continued
Gross margin
The ratio of gross profit, excluding exceptional items, to revenue. This is presented for both ongoing operations and continuing operations. Gross margin
is used by management for assessing business unit performance and it is a key performance indicator for the Group (see page 26).
Trading profit
Trading profit is defined as operating profit before exceptional items and the amortisation 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.
Operating profit
Amortisation and impairment of acquired intangible assets
Exceptional items
Trading profit
Ongoing
Restated
2016
£m
675
142
10
827
2017
£m
931
64
37
1,032
Continuing
Restated
2016
£m
711
142
4
857
2017
£m
1,224
64
(229)
1,059
Ongoing trading margin
The ratio of ongoing trading profit to ongoing revenue is used to assess business unit profitability and is a key performance indicator for the Group
(see page 26).
EBITDA before exceptional items
The profit before charges/credits relating to interest, tax, depreciation, amortisation and exceptional items. EBITDA before exceptional items is used in the
net debt to EBITDA ratio to assess the appropriateness of the Group’s financial gearing.
Trading profit
Depreciation, amortisation and impairment of property, plant and equipment and software
excluding exceptional items in operating profit
EBITDA before exceptional items
2017
£m
1,059
140
1,199
Restated
2016
£m
857
114
971
Ongoing effective tax rate
The ongoing effective tax rate is the ratio of the ongoing tax expense to ongoing profit before tax and is used as a measure of the tax rate of the ongoing
business. See reconciliation in note 7.
Headline profit after tax and headline earnings per share
Headline profit after tax is calculated as the profit from continuing operations after tax, before charges for amortisation and impairment of acquired
intangible assets net of tax, exceptional items net of tax and non-recurring tax relating to changes in tax rates.
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 executive directors and other senior executives. See reconciliation in note 10.
Net debt and adjusted net debt
Net debt comprises cash and cash equivalents, bank overdrafts, bank loans, derivative financial instruments and obligations under finance leases. Net debt
is a good indicator of the strength of the Group’s balance sheet position and is widely used by credit rating agencies. See note 32 for a reconciliation.
Adjusted net debt is net debt after the year-end working capital adjustment used in the return on gross capital employed calculation below.
Return on gross capital employed
Return on gross capital employed is the ratio of the Group’s total trading profit to the average year-end aggregate of shareholders’ equity, adjusted net debt
and cumulative goodwill and other acquired intangible assets written off. Return on gross capital employed is a key performance indicator (see page 27).
Net debt (a)
Year-end working capital adjustment
Adjusted net debt
Cumulative goodwill and other acquired intangibles written off (b)
Shareholders’ equity
(a) Includes £46 million in assets and liabilities held for sale.
(b) Includes amounts in assets held for sale.
(c) Includes continuing and discontinued operations.
92
Ferguson plc Annual Report and Accounts 2017
Gross capital
employed
2017
£m
Gross capital
employed
2016
£m
Average
capital
employed
£m
Trading
profit (c)
£m
Return
on gross
capital
employed
580
–
580
1,868
3,438
5,886
936
120
1,056
1,646
2,903
5,605
5,746
1,122
19.5%
Strategic report
Governance
Financials
Other information
3 – Segmental analysis
The Group’s reportable segments are the operating businesses overseen by distinct divisional management teams responsible for their performance.
All reportable segments derive their revenue from a single business activity, the distribution of plumbing and heating products.
The Group’s business is not highly seasonal and the Group’s customer base is highly diversified, with no individually significant customer.
In the year ended 31 July 2017, the Nordic businesses have been reclassified into discontinued operations and all comparatives have been restated
for consistency and comparability.
The changes in revenue and trading profit for continuing operations between the years ended 31 July 2016 and 31 July 2017 include changes in
exchange rates, disposals, acquisitions 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.
Revenue by reportable segment for continuing operations is as follows:
Analysis of change in revenue
USA
UK
Canada and Central Europe
Group
Restated
2016
£m
9,456
1,996
1,097
12,549
Exchange
£m
Disposals
£m
Acquisitions
£m
1,445
–
164
1,609
(35)
–
(85)
(120)
285
–
9
294
Trading profit/(loss) (note 2) by reportable segment for continuing operations is as follows:
Analysis of change in trading profit/(loss) (note 2)
USA
UK
Canada and Central Europe
Central and other costs
Group
Restated
2016
£m
775
74
53
(45)
857
Exchange
£m
Disposals
£m
Acquisitions
£m
118
–
8
–
126
(4)
–
(5)
–
(9)
33
–
1
–
34
Organic
change
£m
843
16
33
892
Organic
change
£m
44
2
(1)
6
51
2017
£m
11,994
2,012
1,218
15,224
2017
£m
966
76
56
(39)
1,059
The reconciliation between trading profit/(loss) (note 2) and operating profit/(loss) by reportable segment for continuing operations is as follows:
Trading
profit/(loss)
£m
Exceptional
items
£m
966
76
56
(39)
1,059
94
(28)
170
(7)
229
Amortisation
and impairment
of acquired
intangible
assets
£m
(62)
–
(2)
–
(64)
2017
Operating
profit/(loss)
£m
Trading
profit/(loss)
£m
Exceptional
items
£m
Amortisation
and impairment
of acquired
intangible
assets
£m
Restated
2016
Operating
profit/(loss)
£m
998
48
224
(46)
1,224
(43)
(1)
1,180
775
74
53
(45)
857
2
(9)
–
3
(4)
(34)
(106)
(2)
–
(142)
743
(41)
51
(42)
711
(36)
–
675
USA
UK
Canada and Central Europe
Central and other costs
Group
Finance costs
Share of after tax loss of associate
Profit before tax
Ferguson plc Annual Report and Accounts 2017
93
Notes to the consolidated financial statements continued
Year ended 31 July 2017
3 – Segmental analysis continued
In 2016 and 2017, a number of Group businesses or groups of branches have been disposed of, closed or are classified as held for sale. The revenue and
trading profit of the Group’s segments excluding those businesses and branches (“ongoing operations”) are analysed in the following table. These are
alternative performance measures.
Ongoing operations
USA
UK
Canada and Central Europe
Central and other costs
Total ongoing operations
Non-ongoing operations
Continuing operations
Other information on assets and liabilities by segment is set out in the tables below:
Segment assets and liabilities
USA
UK
Canada and Central Europe (a)
Central and other costs
Discontinued
Total
Tax assets and liabilities
Net cash/(debt)
Group assets/(liabilities)
(a) 2017 segmental assets includes £124 million relating to interest in associate.
Segment
assets
£m
4,681
850
598
16
1,304
7,449
123
1,931
9,503
Segment
liabilities
£m
(1,872)
(492)
(195)
(95)
(851)
(3,505)
(97)
(2,465)
(6,067)
2017
Revenue
Restated
2016
£m
9,288
1,996
862
–
12,146
403
12,549
Segment
assets
£m
4,268
856
599
18
1,312
7,053
127
971
8,151
2017
£m
11,824
2,012
1,042
–
14,878
346
15,224
2017
Segment
net assets/
(liabilities)
£m
2,809
358
403
(79)
453
3,944
26
(534)
3,436
2017
£m
950
76
45
(39)
1,032
27
1,059
Segment
liabilities
£m
(1,645)
(508)
(265)
(103)
(656)
(3,177)
(166)
(1,907)
(5,250)
Trading profit
Restated
2016
£m
761
74
37
(45)
827
30
857
Restated
2016
Segment
net assets/
(liabilities)
£m
2,623
348
334
(85)
656
3,876
(39)
(936)
2,901
Restated
2016
Additions
to other
acquired
intangible
assets
£m
Additions to
non-acquired
intangible
assets
£m
Additions to
property,
plant and
equipment
£m
Additions
to other
acquired
intangible
assets
£m
Additions to
non-acquired
intangible
assets
£m
Additions to
property,
plant and
equipment
£m
Additions
to goodwill
£m
80
–
–
–
1
81
11
8
3
1
2
25
81
21
9
–
46
157
34
–
6
–
–
40
25
–
3
–
–
28
17
5
2
1
6
31
123
15
18
1
33
190
Additions
to goodwill
£m
136
–
–
–
3
139
USA
UK
Canada and Central Europe
Central and other costs
Discontinued
Group
94
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
3 – Segmental analysis continued
Impairment
of goodwill
and other
acquired
intangible
assets
£m
Amortisation
of other
acquired
intangible
assets
£m
Amortisation
and impairment
of non-
acquired
intangible
assets
£m
–
–
–
–
102
102
62
–
2
–
4
68
11
5
2
3
3
24
2017
Depreciation
and
impairment
of property,
plant and
equipment
£m
92
17
8
2
24
143
USA
UK
Canada and Central Europe
Central and other costs
Discontinued
Group
4 – Operating profit
Amounts charged/(credited) in arriving at operating profit include:
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Gain on disposal and closure of businesses
Loss on disposal of property, plant and equipment and assets held for sale
Staff costs
Amortisation of non-acquired intangible assets
Amortisation of acquired intangible assets
Impairment of non-acquired intangible assets
Impairment of goodwill and acquired intangible assets
Operating lease rentals: land and buildings
Operating lease rentals: plant and machinery
Impairment
of goodwill
and other
acquired
intangible
assets
£m
Amortisation
of other
acquired
intangible
assets
£m
Amortisation
and impairment
of non-
acquired
intangible
assets
£m
–
94
–
–
–
94
34
12
2
–
5
53
Notes
14
14
31
11
13
13
13
12, 13
7
5
1
1
1
15
2017
£m
118
1
(266)
–
2,140
19
64
2
–
187
59
Restated
2016
Depreciation
and
impairment
of property,
plant and
equipment
£m
72
17
9
2
25
125
Restated
2016
£m
99
1
(6)
1
1,766
14
48
–
94
161
49
Amounts included in costs of goods sold with respect to inventory
10,758
8,806
Trade receivables impairment
During the year, the Group obtained the following services from the Company’s auditor and its associates:
Fees for the audit of the parent company and consolidated financial statements
Fees for the audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Audit related assurance services
Other assurance services
Other services
Total non-audit fees
Total fees payable to the auditor
10
2017
£m
0.9
2.5
3.4
0.5
0.1
0.2
0.8
4.2
9
2016
£m
0.9
2.0
2.9
0.2
–
–
0.2
3.1
Details of the Company’s policy on the use of the auditor for non-audit services, the reasons why the auditor was used and how the auditor’s
independence and objectivity was safeguarded are set out in the Audit Committee Report on page 62. No services were provided pursuant to
contingent fee arrangements.
Ferguson plc Annual Report and Accounts 2017
95
Notes to the consolidated financial statements continued
Year ended 31 July 2017
5 – Exceptional items
Exceptional items included in operating profit from continuing operations are analysed by purpose as follows:
Gain on disposal of businesses (note 31)
Business restructuring
Other exceptional items
Total included in operating profit
2017
£m
266
(40)
3
229
Restated
2016
£m
6
(10)
–
(4)
For the year to 31 July 2017, business restructuring comprises costs incurred in the UK in respect of its business transformation strategy and includes
£2 million charged to cost of sales for inventory write downs.
Other exceptional items include an £11 million one-off credit relating to the UK defined benefit pension plan which arose as a result of a change in future
earnings assumptions.
The net cash outflow from exceptional items, excluding the gain on disposal of businesses, was £20 million (2016: £6 million). The net inflow of cash
in respect of the disposal of businesses is detailed in note 31.
Exceptional items relating to discontinued operations are disclosed in note 8.
6 – Finance costs
Interest payable
– Bank loans and overdrafts
– Unwind of fair value adjustment to senior unsecured loan notes
– Finance lease charges
Net interest expense/(income) on defined benefit obligation (note 26)
Valuation gains on financial instruments
– Derivatives held at fair value through profit and loss
Total finance costs
Finance costs relating to discontinued operations are detailed in note 8.
7 – Tax
The tax charge for the year comprises:
Current year tax charge
Adjustments to tax charge in respect of prior years
Total current tax charge
Deferred tax credit: origination and reversal of temporary differences
Total tax charge
2017
£m
Restated
2016
£m
48
(8)
1
2
–
43
2017
£m
294
1
295
(3)
292
45
(9)
2
(1)
(1)
36
Restated
2016
£m
225
(13)
212
(2)
210
An exceptional tax charge of £22 million was recorded against exceptional items (2016: credit £1 million). The deferred tax credit of £3 million (2016: credit
£2 million) includes a charge of £10 million (2016: charge £5 million) resulting from changes in tax rates.
Tax on items credited/(charged) to the statement of other comprehensive income:
Deferred tax (charge)/credit on actuarial loss on retirement benefits
Current tax credit on actuarial loss on retirement benefits
Deferred tax credit/(charge) on losses
Total tax on items credited to the statement of other comprehensive income
2017
£m
(3)
2
1
–
2016
£m
25
–
(7)
18
In 2017, there is no tax in the statement of other comprehensive income which relates to changes in tax rates. In 2016, £1 million of the £18 million credit
related to changes in tax rates.
96
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
7 – Tax continued
Tax on items credited/(charged) to equity:
Current tax credit on share-based payments
Deferred tax credit/(charge) on share-based payments
Total tax on items credited to equity
Tax reconciliation:
Profit before tax
Expected tax at weighted average tax rate (a)
Adjusted for the effects of:
(under)/over provisions in respect of prior periods (b)
exceptional items which are non-taxable/(non-tax deductible) (d)
current year increase in uncertain tax provisions (e)
tax credits and incentives
non-taxable income
other non-tax deductible expenditure (f)
other
effect of UK tax rate changes (g)
Tax charge/effective tax rate
Tax reconciliation:
Profit/(loss) before tax
Expected tax at weighted average tax rate (a)
Adjusted for the effects of:
over provisions in respect of prior periods (b)
non-tax deductible amortisation/impairment of acquired intangible assets (c)
exceptional items which are non-taxable/(non-tax deductible) (d)
current year increase in uncertain tax provisions (e)
tax credits and incentives
non-taxable income
other non-tax deductible expenditure (f)
other
effect of UK tax rate changes (g)
Tax (charge)/credit/effective tax rate
2017
£m
3
1
4
2016
£m
6
(6)
–
2017
Ongoing profit/tax (h)
Non-ongoing and
other profit/tax (i)
Total profit/tax from
continuing operations
£m
989
(241)
(5)
–
(25)
3
8
(9)
2
(10)
%
24.4
0.5
–
2.5
(0.3)
(0.8)
0.9
(0.2)
1.0
£m
191
(52)
11
26
–
–
–
–
–
–
%
27.2
(5.7)
(13.6)
–
–
–
–
–
–
£m
1,180
(293)
6
26
(25)
3
8
(9)
2
(10)
(277)
28.0
(15)
7.9
(292)
%
24.8
(0.5)
(2.2)
2.1
(0.2)
(0.7)
0.8
(0.2)
0.8
24.7
Restated
2016
Ongoing profit/tax (h)
Non-ongoing and
other loss/tax (i)
Total profit/tax from
continuing operations
£m
792
(202)
18
–
–
(31)
3
4
(6)
(3)
–
(217)
%
25.5
(2.3)
–
–
3.9
(0.4)
(0.5)
0.8
0.4
–
27.4
£m
(117)
26
–
(15)
1
–
–
–
–
–
(5)
7
%
22.2
–
(12.8)
0.9
–
–
–
–
–
(4.3)
6.0
£m
675
(176)
18
(15)
1
(31)
3
4
(6)
(3)
(5)
(210)
%
26.1
(2.7)
2.2
(0.1)
4.6
(0.4)
(0.6)
0.9
0.4
0.7
31.1
(a) 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 37.2 per cent (2016: 37.6 per cent) and this is reduced to a post intra-group financing ongoing expected weighted average tax rate of
24.4 per cent (2016: 25.5 per cent). The 1.1 per cent decrease in the post intra-group financing ongoing expected weighted average tax rate is primarily due to a change in profit mix.
(b) 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 accounts. The non-ongoing and other credit of £11 million relates primarily to a one-off settlement of tax enquiries in the UK.
(c) In 2016, this relates primarily to non-tax deductible impairment of goodwill in the UK.
(d) In 2017, this relates primarily to non-taxable disposals of businesses.
(e) This reflects management’s assessment of the potential tax liability for the current year in relation to open tax issues and audits.
(f) This relates to certain expenditure for which no tax relief is available such as disallowable business entertaining costs.
(g) This relates to the reduction in the UK standard rate of corporation tax from 20 per cent to 19 per cent from 1 April 2017 and to 17 per cent from 1 April 2020. The rate change was considered
exceptional in 2016 on the grounds that it was only announced at the end of the 2015 financial year and could not be foreseen in the Group’s forecast ongoing effective tax rate for the
2016 financial year.
(h) Ongoing profit means profit before tax, exceptional items and the amortisation and impairment of acquired intangible assets for ongoing operations as defined in note 2. Ongoing tax is the
tax expense arising on ongoing profit.
(i) Non-ongoing and other profit or loss is profit or loss from non-ongoing operations as defined in note 2 and from the amortisation and impairment of acquired intangible assets and
exceptional items. Non-ongoing and other tax is the tax expense or credit arising on the non-ongoing and other profit or loss.
Ferguson plc Annual Report and Accounts 2017
97
Notes to the consolidated financial statements continued
Year ended 31 July 2017
8 – Discontinued operations
The Group is in the process of selling its business and property assets (the “disposal group”) in the Nordic region and, in accordance with IFRS 5
“Non-current Assets Held for Sale and Discontinued Operations”, the disposal group has been classified as discontinued and prior periods have
been restated to reflect this.
As at 31 July 2017, the sales process for the remaining French property assets is in progress and these are classified as discontinued.
The results from discontinued operations, which have been included in the Group income statement, are set out below.
Revenue
Cost of sales
Gross profit
Operating costs:
gain on disposal of businesses
amortisation of acquired intangible assets
impairment of goodwill and acquired intangible assets
other
Operating costs
Operating (loss)/profit
Finance (costs)/income
(Loss)/profit before tax
Attributable tax
(Loss)/profit from discontinued operations
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Before
exceptional
items
£m
Exceptional
items
£m
2,100
(1,565)
535
–
(4)
(102)
(472)
(578)
(43)
(4)
(47)
–
(47)
–
(8)
(8)
–
–
–
(60)
(60)
(68)
8
(60)
2
(58)
2017
Total
£m
2,100
(1,573)
527
–
(4)
(102)
(532)
(638)
(111)
4
(107)
2
(105)
(18.7)p
(18.5)p
(23.1)p
(22.9)p
(41.8)p
(41.4)p
Before
exceptional
items
£m
Exceptional
items
£m
Restated
2016
Total
£m
2,136
(1,573)
563
139
(5)
–
(488)
(354)
209
2
211
(26)
185
–
–
–
139
–
–
16
155
155
4
159
(5)
154
60.7p
60.4p
73.0p
72.5p
2,136
(1,573)
563
–
(5)
–
(504)
(509)
54
(2)
52
(21)
31
12.3p
12.1p
The discontinued exceptional items in 2017 relate predominantly to restructuring activities in the Nordic region.
During the year, discontinued operations generated cash of £51 million (2016: £51 million) in respect of operating activities, used £28 million
(2016: generated £17 million) in respect of investing activities and used £54 million (2016: generated £26 million) in respect of financing activities.
9 – Dividends
Amounts recognised as distributions to equity shareholders:
Final dividend for the year ended 31 July 2015
Interim dividend for the year ended 31 July 2016
Final dividend for the year ended 31 July 2016
Interim dividend for the year ended 31 July 2017
Dividends paid
2017
Pence per
share
–
–
66.72p
36.67p
£m
–
–
167
92
259
2016
Pence per
share
60.50p
33.28p
–
–
£m
154
84
–
–
238
Since the end of the financial year, the Directors have proposed a final ordinary dividend of £185 million (73.33 pence per share). 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 31 July 2017.
98
Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
10 – Earnings per share
Headline profit after tax from continuing operations
Exceptional items (net of tax)
Amortisation and impairment of acquired intangible assets
(net of tax)
Non-recurring tax charge relating to changes in tax rates
Profit from continuing operations
(Loss)/profit from discontinued operations
Profit from continuing and discontinued operations
Earnings
£m
726
207
(45)
–
888
(105)
783
Basic
earnings
per share
pence
288.9
82.4
(17.9)
–
353.4
(41.8)
311.6
2017
Diluted
earnings
per share
pence
350.8
(41.4)
309.4
Earnings
£m
595
(3)
(122)
(5)
465
185
650
Basic
earnings
per share
pence
234.7
(1.2)
(48.1)
(2.0)
183.4
73.0
256.4
Restated
2016
Diluted
earnings
per share
pence
182.3
72.5
254.8
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 251.3 million (2016: 253.5 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 253.1 million (2016: 255.1 million).
11 – Employee information and Directors’ remuneration
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Pension (credit)/costs – defined benefit plans (note 26)
Share-based payments (note 28)
Total staff costs
The total staff costs, including discontinued operations, was £2,451 million (2016: £2,071 million).
Average number of employees
USA
UK
Canada and Central Europe
Central and other
Group
2017
£m
1,936
134
57
(7)
20
Restated
2016
£m
1,585
111
48
5
17
2,140
1,766
2017
24,086
6,064
3,257
104
33,511
Restated
2016
22,468
6,208
3,489
104
32,269
The average number of employees including discontinued operations was 39,205 (2016: 39,717).
Further details of Directors’ remuneration and share options are set out in the Remuneration Report on pages 69 to 84, which form part of these financial
statements. The aggregate emoluments for all key management are set out in the following table:
Key management personnel compensation (including Directors)
Salaries, bonuses and other short-term employee benefits
Termination and post-employment benefits
Share-based payments
Total compensation
2017
£m
11
–
4
15
2016
£m
8
1
4
13
Ferguson plc Annual Report and Accounts 2017
99
Notes to the consolidated financial statements continued
Year ended 31 July 2017
12 – Intangible assets – goodwill
Cost
At 1 August
Exchange rate adjustment
Acquisitions
Adjustment to fair value on prior year acquisitions
Disposal of businesses
Reclassification as held for sale
At 31 July
Accumulated impairment losses
At 1 August
Exchange rate adjustment
Impairment charge for the year
Disposal of businesses
Reclassification as held for sale
At 31 July
Net book amount at 31 July
2017
£m
1,711
54
139
–
(65)
(871)
968
809
48
82
(3)
(856)
80
888
2016
£m
1,404
266
40
1
–
–
1,711
588
135
86
–
–
809
902
The impairment charge for the year includes £82 million (2016: £nil) in respect of discontinued operations.
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 31 July 2017.
Long-term
growth rate
%
Post-tax
discount rate
%
Pre-tax
discount rate
%
2.3
2.0
2.0
n/a
n/a
9.3
8.1
8.7
n/a
n/a
15.2
10.0
11.9
n/a
n/a
2017
Goodwill
£m
327
199
128
110
764
32
92
–
–
888
Long-term
growth rate
%
Post-tax
discount rate
%
Pre-tax
discount rate
%
2.2
2.0
2.0
1.0
2.2
8.2
8.2
8.0
6.6
7.5
13.4
10.2
10.8
8.4
9.7
2016
Goodwill
£m
314
89
127
113
643
32
88
48
91
902
Blended Branches
B2C
Waterworks
Rest of USA
USA
UK
Canada
Central Europe
Nordic (held for sale)
Total
The relevant inputs to the value in use calculations of each CGU were:
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 the 30-year long-term growth rate by country, as published by the IMF in April 2017.
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.
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 testing identified no reasonably possible changes in key assumptions that would cause the
carrying amount of any CGU to exceed its recoverable amount.
100 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
12 – Intangible assets – goodwill continued
Nordic
During the period, the performance of our Swedish building materials business, Beijer, deteriorated sharply with trading profit significantly lower
compared with the corresponding period last year and below management’s expectations. This generated a trigger event for management to reassess
the recoverability of its associated goodwill and acquired intangible assets. This assessment resulted in an impairment charge, as follows:
CGU
Beijer
Goodwill
£m
82
Acquired
intangible
assets
£m
20
Total
£m
102
Impairment
£m
Remaining
balance
£m
Post-tax
discount rate
%
Pre-tax
discount rate
%
(102)
–
7.5
9.6
As at 31 July 2017, the Nordic businesses have been classified as held for sale (note 20) and discontinued operations (note 8).
13 – Intangible assets – other
Cost
At 1 August 2015
Exchange rate adjustment
Acquisitions
Additions
Disposals and transfers
At 31 July 2016
Exchange rate adjustment
Acquisitions
Additions
Disposals and transfers
Disposal of businesses
Reclassification as held for sale
At 31 July 2017
Accumulated amortisation and impairment losses
At 1 August 2015
Exchange rate adjustment
Amortisation charge for the year
Impairment charge for the year
Disposals and transfers
At 31 July 2016
Exchange rate adjustment
Amortisation charge for the year
Impairment charge for the year
Disposals and transfers
Disposal of businesses
Reclassification as held for sale
At 31 July 2017
Net book amount at 31 July 2017
Net book amount at 31 July 2016
Acquired intangible assets
Software
£m
Trade names
and brands
£m
Customer
relationships
£m
Other
£m
125
15
–
31
(19)
152
1
–
25
(7)
(13)
(11)
147
82
10
15
–
(14)
93
–
22
2
(7)
(10)
(5)
95
52
59
264
51
7
–
–
322
17
46
–
–
(2)
(289)
94
234
45
8
2
–
289
15
13
13
–
(1)
(286)
43
51
33
481
86
16
–
(2)
581
14
25
–
–
(20)
(251)
349
383
72
40
6
(2)
499
15
36
7
–
(18)
(250)
289
60
82
61
11
5
–
–
77
–
10
–
–
(4)
–
83
37
7
5
–
–
49
–
19
–
–
(4)
–
64
19
28
Total
£m
931
163
28
31
(21)
1,132
32
81
25
(7)
(39)
(551)
673
736
134
68
8
(16)
930
30
90
22
(7)
(33)
(541)
491
182
202
The amortisation charge includes £7 million (2016: £6 million) in respect of discontinued operations of which £3 million relates to software (2016: £1 million).
The impairment charge includes £20 million (2016: £nil) in respect of discontinued operations of which £nil relates to software.
Ferguson plc Annual Report and Accounts 2017
101
Notes to the consolidated financial statements continued
Year ended 31 July 2017
14 – Property, plant and equipment
Land and buildings
Freehold
£m
Finance
leases
£m
Operating
leasehold
improvements
£m
Plant
machinery and
equipment
£m
Cost
At 1 August 2015
Exchange rate adjustment
Acquisitions
Additions
Disposals and transfers
Reclassification as held for sale
At 31 July 2016
Exchange rate adjustment
Acquisitions
Additions
Disposal of businesses
Disposals and transfers
Reclassification as held for sale
At 31 July 2017
Accumulated depreciation
At 1 August 2015
Exchange rate adjustment
Depreciation charge for the year
Impairment charge for the year
Disposals and transfers
Reclassification as held for sale
At 31 July 2016
Exchange rate adjustment
Depreciation charge for the year
Impairment charge for the year
Disposal of businesses
Disposals and transfers
Reclassification as held for sale
At 31 July 2017
Owned assets
Assets under finance leases
Net book amount at 31 July 2017
Owned assets
Assets under finance leases
Net book amount at 31 July 2016
1,076
28
278
193
9
85
(1)
(3)
1,359
43
12
55
(11)
(7)
(745)
706
219
42
30
2
–
(1)
292
6
35
1
(1)
(2)
(142)
189
517
–
517
1,067
–
1,067
4
–
1
(1)
–
32
–
–
–
(24)
(6)
–
2
7
–
1
–
–
–
8
–
–
–
(3)
(5)
–
–
–
2
2
–
24
24
43
–
12
(7)
–
326
1
–
25
(1)
(22)
(7)
322
182
28
20
–
(7)
–
223
2
24
–
(2)
(8)
(6)
233
89
–
89
103
–
103
637
91
2
92
(39)
–
783
8
14
77
(44)
(65)
(96)
677
447
63
72
–
(39)
–
543
3
83
–
(34)
(61)
(57)
477
194
6
200
232
8
240
Total
£m
2,019
331
11
190
(48)
(3)
2,500
52
26
157
(80)
(100)
(848)
1,707
855
133
123
2
(46)
(1)
1,066
11
142
1
(40)
(76)
(205)
899
800
8
808
1,402
32
1,434
At 31 July 2017, the book value of property, plant and equipment that had been pledged as security for liabilities was £12 million (2016: £591 million).
In addition, £179 million of property, plant and equipment included in assets held for sale (note 20) had been pledged as security for liabilities at
31 July 2017.
The depreciation charge and impairment charge for the year include £24 million (2016: £24 million) and £nil (2016: £1 million) respectively relating
to discontinued operations.
102 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
15 – Associates
In April 2017, the Group acquired a 39.21% share in Walter Meier AG, a trading company whose principal place of business is Switzerland and which is
engaged in the distribution and maintenance of heating and air conditioning systems.
The investment in Walter Meier AG is accounted for as an associate using the equity method. Walter Meier AG prepares accounts under Swiss GAAP
FER with a year-end of 31 December. The Group’s accounts have been prepared based on Walter Meier AG’s half year accounts ended 30 June 2017.
There were no significant transactions between that date and 31 July 2017 and no material differences would arise if the accounts were prepared
under IFRS.
Summarised financial information from Walter Meier AG’s half year accounts ended 30 June 2017 is set out below. Trading results are from the date
of acquisition.
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Revenue
Loss from continuing operations
Other comprehensive income attributable to the owners of the company
Total comprehensive income
The amount recognised in the Group’s consolidated financial statements is as follows:
Share of result of associate
39.21%
There were no dividends received from the associate in the year.
The reconciliation of associate net assets to the carrying amount recognised in the Group’s consolidated financial statements is as follows:
Net assets of associate
Proportion of the Group’s ownership interest in the associate
Goodwill
Carrying amount of the Group’s interest in the associate
%
39.21
2017
£m
138
244
(149)
(96)
137
109
(3)
–
(3)
(1)
2017
£m
137
54
70
124
Ferguson plc Annual Report and Accounts 2017
103
Notes to the consolidated financial statements continued
Year ended 31 July 2017
16 – Deferred tax assets and liabilities
The deferred tax assets and liabilities shown in the balance sheet are analysed as follows:
Deferred tax
Deferred tax assets
Deferred tax liabilities
2017
£m
121
(9)
112
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior
reporting year:
At 31 July 2015
Credit/(charge) to income
Credit/(charge) to other
comprehensive income
Charge to equity
Acquisitions
Exchange rate adjustment
At 31 July 2016
Credit/(charge) to income
(Charge)/credit to other
comprehensive income
Credit to equity
Acquisitions
Disposals of businesses
Transferred to held for sale
Transfers between categories
Exchange rate adjustment
At 31 July 2017
Goodwill and
intangible
assets
£m
Share-based
payments
£m
Property,
plant and
equipment
£m
Retirement
benefit
obligations
£m
Inventory
£m
Tax losses
£m
(47)
5
–
–
(2)
(8)
(52)
7
–
–
(6)
–
2
–
–
(49)
21
–
–
(6)
–
3
18
(1)
–
1
–
–
(1)
–
–
17
16
(13)
–
–
–
(10)
(7)
(4)
–
–
(3)
1
61
–
(1)
47
45
2
25
–
–
12
84
(3)
(3)
–
–
(1)
(3)
–
1
75
(75)
9
–
–
–
(12)
(78)
(4)
–
–
–
2
(4)
–
–
(84)
58
(2)
(7)
–
–
2
51
21
1
–
–
–
(6)
(7)
–
60
Other
£m
44
(5)
–
–
–
7
46
(9)
–
–
–
–
2
7
–
2016
£m
127
(65)
62
Total
£m
62
(4)
18
(6)
(2)
(6)
62
7
(2)
1
(9)
2
51
–
–
46
112
Legislation has been enacted in the UK to reduce the standard rate of UK corporation tax from 20 per cent to 19 per cent with effect from 1 April 2017 and
to 17 per cent with effect from 1 April 2020. Accordingly, the UK deferred tax assets and liabilities have predominantly been calculated based on a 17 per
cent tax rate which materially reflects the rate for the period in which the deferred tax assets and liabilities are expected to reverse.
Net deferred tax assets have been recognised on the basis that sufficient taxable profits are forecast to be available in the future to enable them to
be utilised.
In addition, the Group has unrecognised gross tax losses totalling £328 million (2016: £68 million) that have not been recognised on the basis that their
future economic benefit is uncertain. These losses have no expiry date and relate predominantly to capital losses.
No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries. However, tax may arise
on £284 million (2016: £253 million) of temporary differences but the Group is in a position to control the timing of their reversal and it is probable that
such differences will not reverse in the foreseeable future.
104 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
17 – Trade and other receivables
Current
Trade receivables
Less: provision for impairment
Net trade receivables
Other receivables
Prepayments
Non-current
Other receivables
2017
£m
1,795
(24)
1,771
92
230
2,093
2016
£m
1,933
(39)
1,894
81
232
2,207
226
212
Included in prepayments is £177 million (2016: £182 million) due in relation to Supplier Rebates where there is no right to offset against trade
payable balances.
Movements in the provision for impairment of trade receivables are as follows:
At 1 August
Net charge for the year
Utilised in the year
Disposal of businesses and reclassified as held for sale
Exchange rate adjustment
At 31 July
2017
£m
39
13
(17)
(11)
–
24
2016
£m
35
14
(14)
–
4
39
Provisions for impairment of receivables have two components comprising a provision for amounts that have been individually determined not to be
collectable in full, because of known financial difficulties of the debtor or evidence of default or delinquency in payment, amounting to £13 million at
31 July 2017 (2016: £16 million); and a provision based on historic experience of non-collectability of receivables, amounting to £11 million at 31 July 2017
(2016: £23 million).
Trade receivables have been aged with respect to the payment terms specified in the terms and conditions established with customers as follows:
Amounts not yet due and less than one month past due
Past due more than one month
2017
£m
1,620
175
1,795
2016
£m
1,452
481
1,933
18 – Derivative financial instruments
The Group uses interest rate swaps to manage its exposure to interest rate movements on its borrowings and foreign exchange swaps to hedge cash
flows in respect of committed transactions or to hedge its investment in overseas operations. The fair values of derivative financial instruments are
as follows:
Derivative financial instrument type
Interest rate swaps
Foreign exchange swaps
Assets
£m
Liabilities
£m
20
–
20
–
–
–
2017
Total
£m
20
–
20
Assets
£m
Liabilities
£m
29
2
31
–
–
–
2016
Total
£m
29
2
31
The current element of derivative financial assets is £5 million (2016: £11 million) and the non-current element is £15 million (2016: £20 million).
The Group’s accounting and risk management policies, and further information about the derivative financial instruments that it uses, are set out
on pages 123 to 126.
Ferguson plc Annual Report and Accounts 2017
105
Notes to the consolidated financial statements continued
Year ended 31 July 2017
19 – Cash and cash equivalents
Cash and cash equivalents
2017
£m
1,911
2016
£m
940
Included in the balance at 31 July 2017 is an amount of £1,420 million (2016: £606 million) which is part of the Group’s cash pooling arrangements where
there is an equal and opposite balance included within bank overdrafts (note 22). These amounts are subject to a master netting arrangement.
At 31 July 2017, cash and cash equivalents included £64 million (2016: £60 million) which is used to collateralise letters of credit on behalf of Wolseley
Insurance Limited.
Restricted cash held by the Group at the balance sheet date amounted to £17 million (2016: £3 million) and is recorded in other receivables.
20 – Assets and liabilities held for sale
Properties awaiting disposal
Assets of disposal groups held for sale
Assets held for sale
Liabilities of disposal groups held for sale
2017
£m
66
1,232
1,298
821
2016
£m
10
46
56
12
During the year ended 31 July 2017, the Group announced its decision to sell its Nordic businesses and subsequently classified these as held for sale.
At 31 July 2017, the sales process for the remaining French property assets was progressing and accordingly these properties have been reclassified
as properties awaiting disposal.
The assets and liabilities of disposal groups held for sale consist of:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Tax receivables
Cash and cash equivalents
Bank loans
Trade and other payables
Provisions and retirement benefit obligations
Tax payables
21 – Trade and other payables
Current
Trade payables
Tax and social security
Other payables
Accruals
Deferred income
Non-current
Other payables
2017
£m
25
615
274
256
29
33
(79)
(598)
(73)
(71)
411
2017
£m
1,767
66
90
354
2
2016
£m
–
42
–
4
–
–
–
(7)
(1)
(4)
34
2016
£m
2,121
88
71
346
8
2,279
2,634
180
163
Trade payables are stated net of £nil (2016: £15 million) due from suppliers with respect to Supplier Rebates where an agreement exists that allows these
to be net settled.
106 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
22 – Bank loans and overdrafts
Bank overdrafts
Bank and other loans
Senior unsecured loan notes
Total bank loans and overdrafts
Current
£m
1,500
2
125
1,627
Non-current
£m
–
4
827
831
2017
Total
£m
1,500
6
952
2,458
Current
£m
692
1
8
701
Non-current
£m
–
224
951
1,175
2016
Total
£m
692
225
959
1,876
Included in bank overdrafts at 31 July 2017 is an amount of £1,420 million (2016: £606 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 (note 19). These amounts are subject to a master
netting arrangement.
£2 million of bank loans are secured against the Group’s freehold property (2016: £130 million). In addition, £79 million of bank loans included in liabilities
held for sale (note 20) are secured against freehold property included in assets held for sale. No bank loans were secured against trade receivables at
31 July 2017 (2016: £nil) as the trade receivables facility of £454 million was undrawn as at 31 July 2017.
Non-current loans are repayable as follows:
Due in one to two years
Due in two to three years
Due in three to four years
Due in four to five years
Due in over five years
Total
2017
£m
6
4
214
1
606
831
2016
£m
124
4
4
215
828
1,175
The carrying value of the senior unsecured loan notes of £952 million comprises a par value of £937 million and a fair value adjustment of £15 million
(2016: £959 million, £936 million and £23 million respectively). The fair value adjustment arose before 30 November 2011 when the loan notes were
hedged by a series of interest rate swaps. From 30 November 2011, the hedge relationship was de-designated and the fair value adjustment is being
released to the income statement on an amortised cost basis and the fair value hedge is based on a recalculated effective interest rate at the date
when hedge accounting was discontinued. The adjustment will be fully amortised at the point the unsecured loan notes mature. Finance costs are
disclosed in note 6.
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.
These policies are summarised on pages 123 to 126.
23 – Financial instruments and financial risk management
Capital structure
To assess the appropriateness of its capital structure based on current and forecast trading, the Group’s principal measure of financial gearing is the ratio
of net debt to EBITDA before exceptional items. The Group aims to operate with investment grade credit metrics and ensure this ratio remains within 1
to 2 times. The Group’s main borrowing facilities contain a financial covenant limiting the ratio of net debt to EBITDA before exceptional items to 3.5:1.
The reconciliation of opening to closing net debt is detailed in note 32.
In order to maintain or adjust the capital structure, the Group may return capital to shareholders, repurchase its own shares, issue new shares or sell
assets to reduce debt.
Liquidity
During the year ended 31 July 2017, the Group’s US$600 million revolving credit facility has been extended by one year and matures in December 2019.
The Group also entered into a US$190 million bilateral revolving credit facility agreement maturing in December 2017. As at 31 July 2017, all of the Group’s
revolving credit facilities were undrawn. The maturity profile of the Group’s undrawn facilities is as follows:
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Greater than five years
Total
2017
£m
144
–
454
–
800
–
1,398
2016
£m
–
–
454
–
–
705
1,159
Ferguson plc Annual Report and Accounts 2017
107
Notes to the consolidated financial statements continued
Year ended 31 July 2017
23 – Financial instruments and financial risk management continued
Foreign currency
Net debt by currency was as follows:
As at 31 July 2017
Pounds sterling
US dollars
Euro, Danish kroner and Swedish kronor
Other currencies
Total
As at 31 July 2016
Pounds sterling
US dollars
Euro, Danish kroner and Swedish kronor
Other currencies
Total
Interest
rate swaps
£m
Finance
lease
obligations
£m
Cash,
overdrafts and
bank loans
£m
Currency
(sold)/bought
forward
£m
–
20
–
–
20
(3)
(4)
–
–
(7)
62
(604)
6
(11)
(547)
(7)
7
–
–
–
Interest
rate swaps
£m
Finance
lease
obligations
£m
Cash,
overdrafts and
bank loans
£m
Currency
bought/(sold)
forward
£m
–
29
–
–
29
(3)
(6)
–
(22)
(31)
(60)
(789)
(102)
15
(936)
65
(151)
88
–
2
Total
£m
52
(581)
6
(11)
(534)
Total
£m
2
(917)
(14)
(7)
(936)
Currency bought/(sold) forward comprises short-term foreign exchange swaps which were designated and effective as hedges of overseas operations.
Interest rates
The interest rate profile of the Group’s net debt including the effect of interest rate swaps is set out in the following tables:
As at 31 July
Pounds sterling
US dollars
Euro, Danish kroner and Swedish kronor
Other currencies
Total
Floating
£m
55
360
6
(11)
410
Fixed
£m
(3)
(941)
–
–
(944)
2017
Total
£m
52
(581)
6
(11)
(534)
Floating
£m
5
48
113
15
181
Fixed
£m
(3)
(965)
(127)
(22)
(1,117)
2016
Total
£m
2
(917)
(14)
(7)
(936)
Fixed rate borrowings at 31 July 2017 carried a weighted average interest rate of 3.3 per cent fixed for a weighted average duration of 6.5 years (31 July
2016: 3.2 per cent for 7.6 years). The Group had no floating rate borrowings at 31 July 2017 (31 July 2016: floating rate borrowings carried a weighted
average interest rate of 0.9 per cent).
24 – Obligations under finance leases
Due within one year
Due in one to five years
Due in over five years
Less: future finance charges
Present value of finance lease obligations
Current
Non-current
Total obligations under finance leases
Gross
2017
£m
Gross
2016
£m
Net
2017
£m
Net
2016
£m
4
3
4
11
(4)
7
5
10
25
40
(9)
31
3
3
1
7
3
4
7
4
7
20
31
4
27
31
It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. Finance lease obligations included above are secured
against the assets concerned.
108 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
25 – Provisions
At 31 July 2015
Utilised in the year
Amortisation of discount
Charge for the year
Disposal of businesses and reclassified as held for sale
Exchange rate adjustment
At 31 July 2016
Utilised in the year
Changes in discount rate
Charge for the year
Disposal of businesses and reclassified as held for sale
Exchange rate adjustment
At 31 July 2017
Provisions have been analysed between current and non-current as follows:
At 31 July 2017
Current
Non-current
Total provisions
At 31 July 2016
Current
Non-current
Total provisions
Environmental
and legal
£m
Wolseley
Insurance
£m
Restructuring
£m
Other
provisions
£m
70
(7)
3
5
(7)
11
75
(11)
(10)
7
(3)
1
59
41
(12)
–
18
–
6
53
(13)
–
14
–
–
54
32
(12)
–
8
(1)
1
28
(23)
–
50
(10)
–
45
63
(4)
–
7
(11)
10
65
(4)
–
5
(24)
1
43
Environmental
and legal
£m
Wolseley
Insurance
£m
Restructuring
£m
Other
provisions
£m
10
49
59
18
36
54
28
17
45
25
18
43
Environmental
and legal
£m
Wolseley
Insurance
£m
Restructuring
£m
Other
provisions
£m
23
52
75
14
39
53
16
12
28
35
30
65
Total
£m
206
(35)
3
38
(19)
28
221
(51)
(10)
76
(37)
2
201
Total
£m
81
120
201
Total
£m
88
133
221
The environmental and legal provision includes £52 million (2016: £61 million) for the estimated liability for asbestos litigation on a discounted basis
using a long-term discount rate of 2.3 per cent (2016: 1.5 per cent). This amount has been actuarially determined as at 31 July 2017 based on advice from
independent professional advisers. The Group has insurance that it believes is sufficient cover for the estimated liability and accordingly an equivalent
insurance receivable has been recorded in other receivables. Based on current estimates, the amount of performing insurance cover significantly
exceeds the expected level of future claims and no material profit or cash flow impact is therefore expected to arise in the foreseeable future. Due to the
nature of these provisions, the timing of any settlements is uncertain.
Wolseley Insurance provisions represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims
incurred but not reported on certain risks retained by the Group (principally USA casualty and global property damage). Due to the nature of these
provisions, the timing of any settlements is uncertain.
Restructuring provisions include provisions for staff redundancy costs and future lease rentals on closed branches. In determining the provision for
onerous leases, the cash flows have been discounted on a pre-tax basis using appropriate government bond rates. The weighted average maturity
of these obligations is approximately three years.
Other provisions include warranty costs relating to businesses disposed of, rental commitments on vacant properties and dilapidations on leased
properties. The weighted average maturity of these obligations is approximately three years.
Ferguson plc Annual Report and Accounts 2017
109
Notes to the consolidated financial statements continued
Year ended 31 July 2017
26 – Retirement benefit obligations
(i) Long-term benefit plans provided by the Group
The Group has a defined benefit pension plan for certain of its UK employees. This plan was closed for future service accrual in December 2013 and
during October 2016 the plan was closed for future non-inflationary salary accrual. The Group operates a number of smaller plans in other jurisdictions,
providing pensions or other long-term benefits such as long service or termination awards. More information about the plans operated by the Group is
set out on page 126.
During the year, the Group secured a buy-in insurance policy with Pension Insurance Corporation (PIC) for the UK pension plan. This policy covered all
of the pensioner members of the plan and exactly matches the benefits provided by the plan. This has led to the recognition of an asset in respect of this
policy exactly equal to the insured liabilities at 31 July 2017. The difference between the premium paid and the asset recognised in respect of this policy
has been recognised as an actuarial movement in other comprehensive income.
(ii) Financial impact of plans
As disclosed in the Group balance sheet
Non-current asset
Current liability
Non-current liability
Total liability
Net liability
Analysis of Group balance sheet net asset/(liability)
Fair value of plan assets
Present value of defined benefit obligation
Net asset/(liability)
Analysis of total (income)/expense recognised in the Group income statement
Current service cost
Administration costs
Exceptional past service gain (note 5)
Past service gain from settlements
(Credited)/charged to operating costs (a)
Charged to finance costs (note 6) (b)
Total (income)/expense recognised in the Group income statement
(a) Includes a charge of £2 million (2016: £nil) relating to discontinued operations.
(b) Includes a charge of £1 million (2016: £1 million) relating to discontinued operations.
UK
£m
1,337
(1,334)
3
Non-UK
£m
164
(188)
(24)
2017
Total
£m
1,501
(1,522)
(21)
UK
£m
1,308
(1,336)
(28)
2017
£m
3
(8)
(16)
(24)
(21)
Non-UK
£m
250
(369)
(119)
2017
£m
5
3
(11)
(2)
(5)
3
(2)
2016
£m
–
(9)
(138)
(147)
(147)
2016
Total
£m
1,558
(1,705)
(147)
2016
£m
7
2
–
(4)
5
–
5
Expected employer contributions to the defined benefit plans for the year ending 31 July 2018 are £14 million. The remeasurement of the defined benefit
net liability is included in the Group statement of comprehensive income.
Analysis of amount recognised in the Group statement of comprehensive income
The return on plan assets (excluding amounts included in net interest expense)
Actuarial gain arising from changes in demographic assumptions
Actuarial loss arising from changes in financial assumptions
Actuarial gain arising from experience adjustments
Tax
Total amount recognised in the Group statement of comprehensive income
2017
£m
5
32
(78)
40
(1)
(2)
2016
£m
40
17
(200)
23
25
(95)
The cumulative amount of actuarial losses recognised in the Group statement of comprehensive income is £370 million (2016: £369 million).
110 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Employer’s contributions included special funding contributions of £55 million (2016: £nil).
At 31 July 2017, the plan assets were invested in a diversified portfolio comprised of:
26 – Retirement benefit obligations continued
(ii) Financial impact of plans continued
The fair value of plan assets is as follows:
Fair value of plan assets
At 1 August
Interest income
Employer’s contributions
Participants’ contributions
Benefit payments
Settlement payments
Disposal of businesses
Reclassification as held for sale
Remeasurement gain/(loss):
Return on plan assets (excluding amounts included
in net interest expense)
Currency translation
At 31 July
Actual return on plan assets
quoted
quoted
quoted
Value at 31 July
Equity type assets
Government bonds
Corporate bonds
Real estate
Cash
Insurance policies
Other
Total market value of assets
Present value of defined benefit obligation
At 1 August
Current service cost (including administrative costs)
Past service gain
Interest cost
Benefit payments
Settlement and curtailment payments
Participants’ contributions
Remeasurement (gain)/loss:
Actuarial gain arising from changes in demographic assumptions
Actuarial loss/(gain) arising from changes in financial assumptions
Actuarial (gain)/loss arising from experience adjustments
Disposal of businesses
Reclassified as held for sale
Currency translation
At 31 July
UK
£m
Non-UK
£m
2017
Total
£m
1,308
250
1,558
UK
£m
1,262
Non-UK
£m
215
45
2
–
(45)
–
–
–
44
–
1,308
89
UK
£m
663
356
147
4
12
–
126
1,308
6
7
3
(15)
–
–
–
(4)
38
250
2
Non-UK
£m
85
22
75
24
10
17
17
250
1,558
31
37
–
(46)
–
–
–
7
–
1,337
38
5
30
2
(14)
(3)
(102)
(8)
(2)
6
164
3
UK
£m
406
255
31
40
35
505
65
1,337
Non-UK
£m
53
36
56
–
8
–
11
164
UK
£m
Non-UK
£m
36
67
2
(60)
(3)
(102)
(8)
5
6
1,501
41
2017
Total
£m
459
291
87
40
43
505
76
1,501
2017
Total
£m
UK
£m
1,206
Non-UK
£m
286
1,336
369
1,705
2
(11)
31
(46)
–
–
(31)
91
(38)
–
–
–
1,334
6
(2)
8
(14)
(5)
2
(1)
(13)
(2)
(120)
(49)
9
188
8
(13)
39
(60)
(5)
2
(32)
78
(40)
(120)
(49)
9
2
(2)
41
(45)
–
–
(14)
174
(26)
–
–
–
1,522
1,336
7
(2)
10
(15)
–
3
(3)
26
3
–
–
54
369
Ferguson plc Annual Report and Accounts 2017
111
2016
Total
£m
1,477
51
9
3
(60)
–
–
–
40
38
1,558
91
2016
Total
£m
748
378
222
28
22
17
143
2016
Total
£m
1,492
9
(4)
51
(60)
–
3
(17)
200
(23)
–
–
54
1,705
Notes to the consolidated financial statements continued
Year ended 31 July 2017
26 – Retirement benefit obligations continued
(ii) Financial impact of plans continued
Analysis of present value of defined benefit obligation
Amounts arising from wholly unfunded plans
Amounts arising from plans that are wholly or partly funded
(iii) Valuation assumptions
The financial assumptions used to estimate defined benefit obligations are:
Discount rate
Inflation rate
Increase to deferred benefits during deferment
Increases to pensions in payment
Salary increases
The life expectancy assumptions used to estimate defined benefit obligations are:
Current pensioners (at age 65) – male
Current pensioners (at age 65) – female
Future pensioners (at age 65) – male
Future pensioners (at age 65) – female
2017
£m
3
1,519
1,522
UK
2.4%
2.8%
1.7%
2.5%
1.7%
UK
Years
22
24
25
27
2016
£m
44
1,661
1,705
2016
Non-UK
2.2%
1.4%
1.8%
1.8%
1.8%
2016
Non-UK
Years
22
24
24
26
UK
2.6%
3.2%
2.1%
2.9%
2.1%
UK
Years
22
24
24
26
2017
Non-UK
3.6%
2.5%
n/a
2.0%
2.5%
2017
Non-UK
Years
21
24
23
25
The weighted average duration of the defined benefit obligation is 20.4 years (2016: 21.2 years).
(iv) Sensitivity analysis
The Group considers that the most sensitive assumptions are the discount rate, inflation and life expectancy. The table below shows the impact of the
sensitivities on the Group’s defined benefit plan net liability.
Discount rate
Inflation
Life expectancy
Change
+0.25%
(0.25)%
+0.25%
(0.25)%
+1 year
UK
£m
69
(75)
(65)
63
52
2017
Non-UK
£m
4
(4)
–
–
6
Change
+0.25%
(0.25)%
+0.25%
(0.25)%
+1 year
2016
Non-UK
£m
13
(14)
(2)
2
9
UK
£m
68
(71)
(61)
52
57
112 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
27 – Share capital
(i) Ordinary shares in issue
Number of ordinary 10 53⁄66 pence shares in the Company (million)
Nominal value of ordinary 10 53⁄66 pence shares in the Company (£ million)
Authorised numbers
Allotted and issued numbers
2017
463
50
2016
463
50
2017
267
29
2016
267
29
All the allotted and issued shares, including those held by Employee Benefit Trusts and in Treasury, are fully paid or credited as fully paid.
A summary of the movements in the year is detailed in the following table:
Number of ordinary shares 10 53⁄66 pence ordinary shares in the Company in issue at 1 August
New shares issued to settle share options
Number of 10 53⁄66 pence ordinary shares in the Company in issue at 31 July
2017
2016
266,636,106
266,592,678
–
43,428
266,636,106
266,636,106
Consideration received, net of transaction costs, in respect of shares issued to participants in the long term incentive plans and all-employee sharesave
plans amounted to £nil (2016: £nil).
(ii) Treasury shares
The shares purchased under the Group’s buyback programme have been retained in issue as Treasury shares and represent a deduction from equity
attributable to owners of the parent.
A summary of the movements in Treasury shares in the year is detailed in the following table:
Treasury shares
As at 1 August
Treasury shares purchased
Disposal of Treasury shares to settle share options
As at 31 July
Number of
shares
14,259,276
–
(876,696)
2017
Cost
£m
516
–
(31)
Number of
shares
7,105,842
7,862,836
(709,402)
13,382,580
485
14,259,276
2016
Cost
£m
240
300
(24)
516
Consideration received in respect of shares transferred to participants in the long term incentive plans and all-employee sharesave plans amounted
to £21 million (2016: £14 million). After the reporting date the Directors proposed a further share buyback programme of up to £500 million.
(iii) Own shares
Two Employee Benefit Trusts have been established in connection with the Company’s discretionary share option plans and long term incentive plans.
A summary of the movements in own shares held in Employee Benefit Trusts is detailed in the following table below:
Own shares
As at 1 August
New shares purchased
Exercise of share options
As at 31 July
Number of
shares
1,762,657
142,000
(469,502)
1,435,155
2017
Cost
£m
57
6
(15)
48
Number of
shares
2,019,377
368,441
(625,161)
1,762,657
2016
Cost
£m
63
14
(20)
57
Consideration received in respect of shares transferred to participants in the discretionary share option plans and long term incentive plans amounted
to £nil (2016: £1 million). At 31 July 2017, the shares held in the trusts had a market value of £65 million (2016: £74 million).
Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the provisions of the trust deeds.
Ferguson plc Annual Report and Accounts 2017
113
Notes to the consolidated financial statements continued
Year ended 31 July 2017
28 – Share-based payments
Analysis of charge to income statement
Executive share option plans
Ordinary share plans
All-employee sharesave plans
Long term incentive plans
2017
£m
–
15
2
3
20
Restated
2016
£m
2
12
1
2
17
The total share-based payments charge including discontinued operations was £22 million (2016: £20 million).
The number and weighted average exercise price of outstanding and exercisable share options and share awards are detailed below:
Outstanding at 1 August
Granted
Options exercised or shares vested
Surrendered or expired
Outstanding at 31 July
Exercisable at 31 July
Weighted average fair value per share/option granted during the year (£)
2017
2016
Number of
shares/options
000’s
Weighted average
exercise price
£
Number of
shares/options
000’s
Weighted average
exercise price
£
3,728
1,282
(1,350)
(401)
3,259
353
13.21
8.60
15.61
9.99
10.80
18.80
4,423
1,022
(1,438)
(279)
3,728
696
2017
32.95
13.91
9.80
11.89
18.65
13.21
18.35
2016
24.28
At 31 July 2017 and 31 July 2016, all of the shares and options outstanding had an exercise price which was below the market price. The market price at
31 July 2017 was £45.27 (2016: £42.09) and the average share price in the year to 31 July 2017 was £47.28 (2016: £38.30). For executive share option plans
and all-employee sharesave plans, the range of exercise prices for shares and options outstanding at 31 July 2017 was £12.69 to £42.96 (2016: £7.01 to
£33.62). For the ordinary share plan and long term incentive plans, all share options outstanding at 31 July 2017 had an exercise price of £nil (2016: £nil).
For shares and options outstanding at 31 July 2017, the weighted average remaining contractual life was three years (2016: four years).
The fair value at the date of grant of options awarded during the year has been estimated using the binomial methodology for all plans except the portion
of the grants awarded under the long term incentive plan that are subject to a relative Total Shareholder Return (“TSR”) performance condition, for which
a Monte Carlo simulation was used.
The fair value of shares granted under the ordinary share plan was calculated as the market price of the shares at the date of grant reduced by the
present value of dividends expected to be paid over the vesting period.
The principal assumptions required by these methodologies were:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected life
Ordinary share plans
All-employee sharesave plans
Long term incentive plans
2017
0.3%
2.7%
22%
2016
0.7%
3.0%
23%
2017
0.1%
2.4%
22%
2016
0.6%
2.7%
25%
2017
0.3%
0.0%
22%
2016
0.7%
2.2%
23%
1–3 years
3 years
1–6 years
1–6 years
3 years
3 years
There were no executive share options granted in the period.
Expected volatility has been estimated on the basis of historical volatility over the expected term, excluding the effect of extraordinary volatility due
to the Group’s capital reorganisation and rights issue in 2009. Expected life has been estimated on the basis of historical data on the exercise pattern.
Additional information on share-based payment plans operated by the Group is provided on page 127.
114 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
29 – Reconciliation of profit to cash generated from operations
Profit for the year is reconciled to cash generated from continuing and discontinued operations as follows:
Profit for the year
Net finance costs
Share of result of associate
Tax expense
Gain on disposal and closure of businesses and revaluation of assets held for sale
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of non-acquired intangible assets
Amortisation and impairment of goodwill and acquired intangible assets
Loss/(profit) on disposal of property, plant and equipment and assets held for sale
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
(Decrease)/increase in provisions and other liabilities
Share-based payments
Cash generated from operations
Trading profit is reconciled to cash generated from continuing and discontinued operations as follows:
Trading profit
Exceptional items in operating profit
Gain on disposal and closure of businesses and revaluation of assets held for sale
Operating (loss)/profit from discontinued operations before the amortisation and impairment of goodwill and acquired
intangible assets (note 8)
Depreciation and impairment of property, plant and equipment
Amortisation and impairment of non-acquired intangible assets
Loss/(profit) on disposal of property, plant and equipment and assets held for sale
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
(Decrease)/increase in provisions and other liabilities
Share-based payments
Cash generated from operations
2017
£m
783
39
1
290
(256)
143
24
170
9
(97)
(211)
231
(33)
22
2016
£m
650
34
–
236
(147)
125
15
147
(18)
(36)
(21)
13
1
20
1,115
1,019
2017
£m
1,059
229
(256)
(5)
143
24
9
(97)
(211)
231
(33)
22
Restated
2016
£m
857
(4)
(147)
214
125
15
(18)
(36)
(21)
13
1
20
1,115
1,019
Ferguson plc Annual Report and Accounts 2017
115
Notes to the consolidated financial statements continued
Year ended 31 July 2017
30 – Acquisitions
The Group acquired the following 11 businesses in the year ended 31 July 2017. All these businesses are engaged in the distribution of plumbing and
heating products and building materials. All transactions have been accounted for by the purchase method of accounting. The Group also acquired a
share of Walter Meier AG (see note 15), which has been accounted for as an associate.
Name
Clawfoot Supply LLC (t/a Signature Hardware)
Westfield Lighting Co., Inc.
Mölnlycke Trä AB
Berners Tunga Fordon Fastighet AB
Ramapo Wholesalers Inc.
The Plumbing Source Co., Inc.
Underground Pipe & Valve, Incorporated
Matera Paper Company, Inc.
P.V. Sullivan Supply Co., Inc.
Custom Lighting Incorporated and Custom Hardware and Accessories, Inc.
Lighting Unlimited, LLC
Date of acquisition
Country of
incorporation
Shares/asset
deal
% acquired
August 2016
August 2016
October 2016
October 2016
October 2016
October 2016
November 2016
December 2016
February 2017
February 2017
February 2017
USA
USA
Sweden
Sweden
USA
USA
USA
USA
USA
USA
USA
Shares
Asset
Shares
Shares
Asset
Shares
Asset
Shares
Asset
Asset
Asset
100
100
100
100
100
100
100
100
100
100
100
The assets and liabilities acquired and the consideration for all acquisitions in the period are as follows:
Book values
acquired
£m
Fair value
adjustments
£m
Provisional fair
values acquired
£m
Intangible assets
– Customer relationships
– Trade names and brands
– Other
Property, plant and equipment
Inventories
Receivables
Cash, cash equivalents and bank overdrafts
Payables
Deferred tax
Total
Goodwill arising
Consideration
Satisfied by:
Cash
Deferred consideration
Total consideration
–
–
–
25
47
23
8
(14)
–
89
25
46
10
1
(9)
–
–
–
(9)
64
25
46
10
26
38
23
8
(14)
(9)
153
139
292
254
38
292
The fair value adjustments are provisional figures, being the best estimates currently available. Further adjustments may be necessary when additional
information is available for some of the judgemental areas.
The goodwill arising on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which the Group
has gained access and additional profitability and operating efficiencies available in respect of existing markets.
The acquisitions contributed £214 million to revenue, £29 million to trading profit and £12 million to the Group’s operating profit for the period between
the date of acquisition and the balance sheet date. It is not practicable to disclose profit before and after tax, as the Group manages its borrowings
as a portfolio and cannot attribute an effective borrowing rate to an individual acquisition.
If each acquisition had been completed on the first day of the financial year, Group revenue would have been £15,277 million and Group trading profit
would have been £1,062 million. It is not practicable to disclose profit before tax or profit attributable to equity shareholders, as stated above. It is also not
practicable to disclose operating profit as the Group cannot estimate the amount of intangible assets that would have been acquired at a date other than
the acquisition date.
116 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
30 – Acquisitions continued
The net outflow of cash in respect of the purchase of businesses is as follows:
Purchase consideration
Deferred and contingent consideration in respect of prior year acquisitions
Cash consideration
Cash acquired
Net cash outflow in respect of the purchase of businesses
31 – Disposals
In the year ended 31 July 2017, the Group disposed of the following businesses:
Name
HR Sandvold AS
Tobler Haustechnik AG
Endries International Inc.
Endries International Canada Inc.
Endries International de Mexico SA de C.V.
Wolseley Liegenschaftsverwaltung GmbH
Country
Norway
Switzerland
USA
Canada
Mexico
Austria
The Group recognised a total gain on current year disposals of £266 million.
Consideration received
Net assets disposed of
Disposal costs
Recycling of deferred foreign exchange gains
Gain on disposal
Details of assets and liabilities at the date of disposal are provided in the following table:
Goodwill and intangible assets
Property, plant and equipment
Inventories
Receivables
Payables
Provisions
Pensions
Current and deferred tax
Net debt
Total net assets disposed of
The net inflow/(outflow) of cash in respect of the disposal of businesses is as follows:
Cash consideration received for current year disposals (net of cash disposed of)
Cash paid in respect of prior year disposals
Disposal costs paid
Net cash inflow/(outflow)
2017
£m
254
10
264
(8)
256
2016
£m
94
21
115
(2)
113
Date of disposal
Shares/asset deal
March 2017
April 2017
June 2017
June 2017
June 2017
June 2017
Continuing
operations
£m
Discontinued
operations
£m
408
(166)
(25)
49
266
–
–
–
–
–
Continuing
operations
£m
Discontinued
operations
£m
68
40
78
71
(63)
(2)
(18)
(4)
(4)
166
–
–
1
–
(1)
–
–
–
–
–
Continuing
operations
£m
Discontinued
operations
£m
257
–
(25)
232
–
(1)
–
(1)
Shares
Shares
Shares
Shares
Shares
Shares
Group
2017
£m
408
(166)
(25)
49
266
Group
2017
£m
68
40
79
71
(64)
(2)
(18)
(4)
(4)
166
Group
2017
£m
257
(1)
(25)
231
Ferguson plc Annual Report and Accounts 2017
117
Notes to the consolidated financial statements continued
Year ended 31 July 2017
32 – Reconciliation of opening to closing net debt
For the year ended 31 July 2017
Cash and cash equivalents
Bank overdrafts
Derivative financial instruments
Bank and other loans
Obligations under finance leases
Net debt
For the year ended 31 July 2016
Cash and cash equivalents
Bank overdrafts
Derivative financial instruments
Bank and other loans
Obligations under finance leases
Net debt
At
1 August
2016
£m
Cash
flows
£m
Acquisitions
and new
finance leases
£m
Disposal of
businesses
£m
Fair value
and other
adjustments
£m
Held for sale
movements
£m
Exchange
movement
£m
940
(692)
248
31
(1,184)
(31)
(936)
228
(9)
134
5
358
8
–
–
(3)
5
(25)
–
7
22
4
–
–
8
–
8
(33)
–
79
–
46
At
1 August
2015
£m
Cash
flows
£m
Acquisitions
and new
finance leases
£m
Disposal of
businesses
£m
Fair value
and other
adjustments
£m
Held for sale
movements
£m
Exchange
movement
£m
1,105
(848)
257
33
(1,066)
(29)
(805)
(28)
(10)
16
4
(18)
2
–
–
(2)
–
–
–
27
–
27
–
1
9
–
10
(1)
–
–
–
(1)
(15)
(2)
(2)
–
(19)
(534)
At
31 July
2017
£m
1,911
(1,500)
411
20
(958)
(7)
At
31 July
2016
£m
940
(692)
248
31
18
7
(170)
(1,184)
(4)
(149)
(31)
(936)
33 – Related party transactions
There are no related party transactions requiring disclosure under IAS 24 “Related Party Disclosures” other than the compensation of key management
personnel which is set out in note 11.
34 – Operating lease commitments
Future minimum lease payments under non-cancellable operating leases for the following periods are:
Within one year
Later than one year and less than five years
After five years
Total operating lease commitments
2017
£m
260
461
133
854
2016
£m
253
457
143
853
Operating lease payments mainly represent rents payable for properties. Some of the Group’s operating lease arrangements have renewal options and
rental escalation clauses. No arrangements have been entered into for contingent rental payments.
The commitments shown above include commitments for onerous leases which have already been provided for. At 31 July 2017, provisions include an
amount of £27 million (2016: £25 million) in respect of minimum lease payments for such onerous leases net of sublease income expected to be received.
The total minimum sublease income expected to be received under non-cancellable subleases at 31 July 2017 is £7 million (2016: £8 million).
The commitments above include £91 million operating lease commitments (2016: £102 million) for discontinued operations.
118 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
35 – Contingent liabilities
Group companies are, from time to time, subject to certain claims and
litigation arising in the normal course of business in relation to, among
other things, the products that they supply, contractual and commercial
disputes and disputes with employees. Provision is made if, on the basis of
current information and professional advice, liabilities are considered likely
to arise. In the case of unfavourable outcomes, the Group may benefit from
applicable insurance protection.
Warranties and indemnities in relation to business disposals
Over the past few years, the Group has disposed of a number of non-core
businesses and various Group companies have provided certain standard
warranties and indemnities to acquirers and other third parties. Provision is
made where the Group considers that a liability is likely to crystallise,
though it is possible that claims in respect of which no provision has been
made could crystallise in the future. Group companies have also made
contractual commitments for certain property and other obligations which
could be called upon in an event of default. As at the date of this report,
there are no significant outstanding claims in relation to business disposals.
Environmental liabilities
The operations of certain Group companies are subject to specific
environmental regulations. From time to time, the Group conducts
preliminary investigations through third parties to assess potential risks
including potential soil or groundwater contamination of sites. Where an
obligation to remediate contamination arises then this is provided for,
though future liabilities could arise from sites for which no provision
is made.
Outcome of claims and litigation
The outcome of claims and litigation to which Group companies are
party cannot readily be foreseen as, in some cases, the facts are unclear,
further time is needed to assess properly the merits of the case, or they
are part of continuing legal proceedings. However, based on information
currently available, the Directors consider that the cost to the Group of an
unfavourable outcome arising from such litigation is not expected to have
a material adverse effect on the financial position of the Group.
36 – Post-balance sheet events
Since the year-end, the Group has acquired five businesses, two in the
USA and three in Canada and Central Europe with a combined annual
revenue of £109 million. As at the date of this report, the accounting for
these transactions has not been finalised.
On 31 August 2017, the Group disposed of Silvan, its DIY business
in Denmark.
37 – Additional information
(i) Group accounting policies
A summary of the principal accounting policies applied by the Group in
the preparation of the consolidated financial statements is set out below.
The accounting policies have been applied consistently throughout the
current and preceding year.
Consolidation
The consolidated financial information includes the results of the
parent company and entities controlled by the Company (its subsidiary
undertakings and controlling interests) and its share of the results of
its associate drawn up to 31 July 2017.
The trading results of business operations are included in profit from
continuing operations from the date of acquisition or up to the date of sale.
Intra-group transactions and balances and any unrealised gains and losses
arising from intra-group transactions are eliminated on consolidation,
with the exception of gains or losses required under relevant IFRS
accounting standards.
Discontinued operations
When the Group has disposed of or intends to dispose of a business
component that represents a separate major line of business or
geographical area of operations, it classifies such operations as
discontinued. The post-tax profit or loss of the discontinued operations
is shown as a single line on the face of the income statement, separate
from the other results of the Group.
Foreign currencies
Items included in the financial statements of each of the Group’s subsidiary
undertakings are measured using the currency of the primary economic
environment in which the subsidiary undertaking operates (the “functional
currency”). The consolidated financial statements are presented in sterling,
which is the presentational currency of the Group and the functional
currency of the parent company.
The trading results of overseas subsidiary undertakings are translated
into sterling using the average rates of exchange ruling during the relevant
financial period. The balance sheets of overseas subsidiary undertakings
are translated into sterling at the rates of exchange ruling at the period end.
Exchange differences arising between the translation into sterling of the
net assets of these subsidiary undertakings are recognised in the currency
translation reserve (as are exchange differences on foreign currency
borrowings to the extent that they are used to finance or provide a hedge
against foreign currency net assets).
Changes in the fair value of derivative financial instruments, entered into to
hedge foreign currency net assets and that satisfy the hedging conditions
of IAS 39, are recognised in the currency translation reserve (see the
separate accounting policy on derivative financial instruments).
In the event that a subsidiary undertaking which has a non-sterling
functional currency is disposed of, the gain or loss on disposal recognised
in the income statement is determined after taking into account the
cumulative currency translation differences that are attributable to
the subsidiary undertaking concerned.
Foreign currency transactions entered into during the year are translated
into sterling at the rates of exchange ruling on the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are
retranslated at the rate of exchange ruling at the balance sheet date.
All currency translation differences are taken to the income statement with
the exception of differences on foreign currency net borrowings to the
extent that they are used to finance or provide a hedge against foreign
currency net assets as detailed above.
Business combinations
The cost of an acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at the date
of exchange. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any non-
controlling interest. Acquisition-related costs are expensed as incurred.
The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as goodwill. If the
cost of acquisition is less than the fair value of the Group’s share of the net
assets of the subsidiary acquired, the difference is recognised directly in
the income statement.
Non-controlling interests
Non-controlling interests in subsidiaries are identified separately from the
equity attributable to shareholders of the Company. The interests of non-
controlling shareholders are initially measured at fair value. Subsequent to
acquisition, the carrying amount of non-controlling interests is the amount
of those interests at initial recognition plus the non-controlling interests’
share of subsequent changes in equity.
Total comprehensive income is attributed to non-controlling interests even
if this results in the non-controlling interests showing a deficit balance.
Ferguson plc Annual Report and Accounts 2017
119
Notes to the consolidated financial statements continued
Year ended 31 July 2017
37 – Additional information continued
(i) Group accounting policies continued
Interests in associates
Investments in companies where significant influence is exercised
are accounted for as interests in associates using the equity method
of accounting from the date the investee becomes an associate.
The investment is initially recognised at cost and adjusted thereafter for
changes in the Group’s share in the net assets of the investee. The Group’s
share of profit or loss after tax is recognised in the Group income
statement and share of other comprehensive income or expense is
recognised in the Group statement of other comprehensive income.
On acquisition of the investment in an associate, any excess of the cost
of the investment over the Group’s share of the net assets of the investee
is recognised as goodwill, which is included within the carrying amount
of the investment. The requirements of IAS 36 are applied to determine
whether it is necessary to recognise any impairment loss with respect to
the Group’s investment in an associate.
Revenue
Revenue is the amount receivable for the provision of goods and services
falling within the Group’s ordinary activities, excluding intra-group sales,
estimated and actual sales returns, trade and early settlement discounts,
value added tax and similar sales taxes.
The Group acts as principal for direct sales which are delivered directly
to the customer by the supplier.
Revenue from the provision of goods is recognised when the risks and
rewards of ownership of goods have been transferred to the customer.
The risks and rewards of ownership of goods are deemed to have been
transferred when the goods are shipped to, or picked up by, the customer.
Revenue from services is recognised when the service provided to the
customer has been completed.
Customer loyalty credits are accounted for as a separate component
of the sales transaction in which they are granted. A portion of the fair
value of the consideration received is allocated to the loyalty credits
and recognised in the period that loyalty credits are redeemed.
Revenue from the provision of goods and services is only recognised
when the amounts to be recognised are fixed or determinable and
collectability is reasonably assured.
Cost of sales
Cost of sales includes purchased goods, the cost of bringing inventory
to its present location and condition and labour and overheads attributable
to assembly and construction services.
Supplier rebates
In line with industry practice, the Group has agreements (“Supplier
Rebates”) with a number of its suppliers whereby volume-based rebates,
marketing support and other discounts are received in connection with
the purchase of goods for resale from those suppliers. Rebates relating to
the purchase of goods for resale are accrued as earned and are recorded
initially as a deduction in inventory with a subsequent reduction in cost of
sales when the related product is sold.
Volume-based rebates
The majority of volume-based rebates are determined by reference to
guaranteed rates of rebate. These are calculated through a mechanical
process with minimal judgement required to determine the amount
recorded in the income statement.
120 Ferguson plc Annual Report and Accounts 2017
A small proportion of volume-based rebates are subject to stepped
targets where the rebate percentage increases as volumes purchased
reach agreed targets within a set period of time. The majority of rebate
agreements apply to purchases in a calendar year and therefore, for
stepped rebates, judgement is required to estimate the rebate amount
recorded in the income statement at the end of the period. The Group
assesses the probability that targeted volumes will be achieved in the
year based on forecasts which are informed by historical trading patterns,
current performance and trends. This judgement is exercised consistently
with historically insignificant true ups at the end of the period.
An amount due in respect of Supplier Rebates is not recognised within
the income statement until all the relevant performance criteria, where
applicable, have been met and the goods have been sold to a third party.
Marketing support
Marketing support, which represents a smaller element of the Group’s
overall Supplier Rebates, is recognised in the income statement when
all performance conditions have been fulfilled.
Supplier Rebates receivable
Where Supplier Rebates are netted off the amounts owing to that
supplier, any outstanding amount at the balance sheet date is included
within trade payables. Where the Supplier Rebates are not offset against
amounts owing to a supplier, the outstanding amount is included within
prepayments. The carrying value of inventory is reduced by the relevant
amount where the inventory has not been sold by the balance sheet date.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of the net identifiable assets of the
acquired subsidiary undertaking at the date of acquisition. Goodwill on
acquisitions of subsidiary undertakings is included within intangible assets.
Goodwill is allocated to cash generating units or aggregations of cash
generating units (together “CGUs”) where synergy benefits are expected.
CGUs are independent sources of income streams and represent
the lowest level within the Group at which the associated goodwill is
monitored for management purposes. The Group considers that a CGU
is a business unit because independent cash flows cannot be identified
below this level.
Goodwill is not amortised but is tested annually for impairment and
carried at cost less accumulated impairment losses. For goodwill
impairment testing purposes, no CGU is larger than the reporting
segments determined in accordance with IFRS 8 “Operating Segments”.
The recoverable amount of goodwill and acquired intangible assets is
assessed on the basis of the value in use estimate for CGUs to which they
are attributed. Where carrying value exceeds the recoverable amount a
provision for the impairment is established with a charge included in the
income statement.
Gains and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.
Other intangible assets
An intangible asset, which is an identifiable non-monetary asset without
physical substance, is recognised to the extent that it is probable that the
expected future economic benefits attributable to the asset will flow to
the Group and that its cost can be measured reliably. The asset is deemed
to be identifiable when it is separable or when it arises from contractual or
other legal rights.
Intangible assets, primarily brands, trade names and customer
relationships, acquired as part of a business combination are capitalised
separately from goodwill and are carried at cost less accumulated
amortisation and accumulated impairment losses. Amortisation is
calculated using the reducing balance method for customer relationships
and the straight-line method for other intangible assets.
Strategic report
Governance
Financials
Other information
37 – Additional information continued
(i) Group accounting policies continued
The cost of the intangible assets is amortised and charged to operating
costs in the income statement over their estimated useful lives as follows:
Customer relationships
Trade names and brands
Other
4–25 years
1–15 years
1–4 years
Computer software that is not integral to an item of property, plant and
equipment is recognised separately as an intangible asset and is carried
at cost less accumulated amortisation and accumulated impairment
losses. Costs include software licences and external and internal costs
directly attributable to the development, design and implementation of the
computer software. Costs in respect of training and data conversion are
expensed as incurred. Amortisation is calculated using the straight-line
method so as to charge the cost of the computer software to operating
costs in the income statement over its estimated useful life of between
three and five years.
Property, plant and equipment (“PPE”)
PPE is carried at cost less accumulated depreciation and accumulated
impairment losses, except for land and assets in the course of
construction, which are not depreciated and are carried at cost less
accumulated impairment losses. Cost includes expenditure that is directly
attributable to the acquisition of the items. In addition, subsequent costs
are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of
the item can be measured reliably. All other repairs and maintenance costs
are charged to the income statement during the financial period in which
they are incurred.
Assets are depreciated to their estimated residual value using the
straight-line method over their useful lives as follows:
Freehold buildings and long leaseholds 20–50 years
Operating leasehold improvements
over the period of the lease
Plant and machinery
Computer hardware
Fixtures and fittings
Motor vehicles
7–10 years
3–5 years
5–7 years
4 years
The residual values and useful lives of PPE are reviewed and adjusted
if appropriate at each balance sheet date.
Borrowing costs directly attributable to the long-term construction or
production of an asset are capitalised as part of the cost of the asset.
Leased assets
Assets held under finance leases, which are leases where substantially
all the risks and rewards of ownership of the asset have transferred to
the Group, are capitalised in the balance sheet and depreciated over
the shorter of the lease term or their useful lives. The asset is recorded
at the lower of its fair value and the present value of the minimum
lease payments at the inception of the lease. The capital elements of
future obligations under finance leases are included in liabilities in the
balance sheet and analysed between current and non-current amounts.
The interest elements of future obligations under finance leases are
charged to the income statement over the periods of the leases and
represent a constant proportion of the balance of capital repayments
outstanding in accordance with the effective interest rate method.
Leases where the lessor retains substantially all the risks and rewards of
ownership are classified as operating leases. The cost of operating leases
(net of any incentives received from the lessor) is charged to the income
statement on a straight-line basis over the period of the leases.
Assets and disposal groups held for sale
Assets are classified as held for sale if their carrying amount will be
recovered by sale rather than by continuing use in the business.
Where a group of assets and their directly associated liabilities are to be
disposed of in a single transaction, such disposal groups are also classified
as held for sale. For this to be the case, the asset or disposal group must
be available for immediate sale in its present condition and management
must be committed to and have initiated a plan to sell the asset or disposal
group which, when initiated, was expected to result in a completed
sale within 12 months. Assets that are classified as held for sale are not
depreciated. Assets or disposal groups that are classified as held for sale
are measured at the lower of their carrying amount and fair value less
costs to sell.
Inventories
Inventories, which comprise goods purchased for resale, are stated at the
lower of cost and net realisable value. Cost is determined using the first-in,
first-out (“FIFO”) method or the average cost method as appropriate to the
nature of the transactions in those items of inventory. The cost of goods
purchased for resale includes import and custom duties, transport and
handling costs, freight and packing costs and other attributable costs less
trade discounts, rebates and other subsidies. It excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses.
Provisions are made against slow-moving, obsolete and damaged
inventories for which the net realisable value is estimated to be less than
the cost. The risk of obsolescence of slow-moving inventory is assessed
by comparing the level of inventory held to estimated future sales on the
basis of historical experience.
Trade receivables
Trade receivables are recognised initially at fair value and measured
subsequently at amortised cost using the effective interest method, less
provision for impairment. A provision for impairment of trade receivables
is established when there is objective evidence that the Group will not
be able to collect all amounts due according to the original terms of the
receivables. The amount of the loss is recognised in the income statement.
Trade receivables are written off against the provision when recoverability
is assessed as being remote. Subsequent recoveries of amounts
previously written off are credited to the income statement.
Provisions
Provisions for self-insured risks, legal claims, environmental restoration
and onerous leases are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is more likely than not
that an outflow of resources will be required to settle the obligation and
the amount can be reliably estimated. Such provisions are measured at the
present value of management’s best estimate of the expenditure required
to settle the present obligation at the balance sheet date. The discount rate
used to determine the present value reflects current market assessments
of the time value of money. Provisions are not recognised for future
operating losses.
Retirement benefit obligations
Contributions to defined contribution pension plans and other post-
retirement benefits are charged to the income statement as incurred.
For defined benefit pension plans and other retirement benefits, the
cost of providing benefits is determined annually using the Projected
Unit Credit Method by independent qualified actuaries. The current
service cost of defined benefit plans is recorded within operating profit.
Past service costs are recognised immediately in income.
Ferguson plc Annual Report and Accounts 2017
121
Notes to the consolidated financial statements continued
Year ended 31 July 2017
37 – Additional information continued
(i) Group accounting policies continued
The net interest amount is calculated by applying the discount rate used
to measure the defined benefit net asset or liability at the beginning of
the period. The pension plan net interest is presented as finance income
or expense.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity in other
comprehensive income in the period in which they arise. The liability/asset
recognised in the balance sheet in respect of defined benefit pension
plans is the fair value of plan assets less the present value of the defined
benefit obligation at the end of the reporting period.
Tax
Current tax represents the expected tax payable (or recoverable) on
the taxable income (or losses) for the year using tax rates enacted or
substantively enacted at the balance sheet date and taking into account
any adjustments arising from prior years.
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax
is not accounted for if it arises from initial recognition of an asset or liability
in a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss.
Deferred tax is determined using tax rates (and laws) that have been
enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised or
the deferred tax liability is settled. Deferred tax assets are recognised
to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on investments
in subsidiaries except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
Tax provisions
The Group is subject to income taxes in numerous jurisdictions.
Judgement is sometimes required in determining the worldwide provision
for income taxes. There may be transactions and calculations for which
the ultimate tax determination is uncertain and may be challenged by the
tax authorities. The Group recognises liabilities for anticipated or actual tax
audit issues based on estimates of whether additional taxes will be due.
Where an outflow of funds to a tax authority is considered probable and
the Group can make a reliable estimate of the outcome of the dispute,
management calculates the provision using the single best estimate
of likely outcome approach. In assessing its uncertain tax provisions,
management takes into account the specific facts of each dispute, the
likelihood of settlement and the advice from its in-house tax specialists
and professional advisers. Where the ultimate liability in a dispute varies
from the amounts provided, such differences could impact the current and
deferred income tax assets and liabilities in the period in which the dispute
is concluded.
The Group believes that it has made adequate provision for the liabilities
likely to arise from open audits and assessments. At 31 July 2017, the
Group has recognised provisions of £162 million in respect of its uncertain
tax positions (2016: £166 million). The total provision has decreased by
£4 million in the year due to the settlement of various open tax issues in
the UK. The remaining open significant tax issues relate predominantly
to cross border transfer pricing risks. Given the uncertainty regarding
the timing of the resolution of these matters, it is difficult for the Group
to estimate whether there will be a material change in its estimate of
uncertain tax provisions within the next 12 months.
122 Ferguson plc Annual Report and Accounts 2017
Share capital
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction from the proceeds, net of tax.
Where any Group company purchases the Company’s equity share capital
(Treasury shares), the consideration paid, including any directly attributable
incremental costs (net of tax), is deducted from equity attributable to
the Company’s equity holders until the shares are cancelled, reissued
or disposed of. Where such shares are subsequently sold or reissued,
any consideration received, net of any directly attributable incremental
transaction costs and the related tax effects, is included in equity
attributable to the Company’s equity holders.
Share-based payments
Share-based incentives are provided to employees under the Group’s
executive share option plan, long term incentive plan, all-employee
sharesave plan, ordinary share plan, performance ordinary share plan
and revised ordinary share plan. The Group recognises a compensation
cost in respect of these plans that is based on the fair value of the awards,
measured using Binomial and Monte Carlo valuation methodologies.
For equity-settled plans, the fair value is determined at the date of
grant (including the impact of any non-vesting conditions such as a
requirement for employees to save) and is not subsequently remeasured
unless the conditions on which the award were granted are modified.
For cash-settled plans, the fair value is determined at the date of grant
and is remeasured at each balance sheet date until the liability is settled.
Generally, the compensation cost is recognised on a straight-line basis
over the vesting period. Adjustments are made to reflect expected and
actual forfeitures during the vesting period due to the failure to satisfy
service conditions or non-market performance conditions.
Dividends payable
Dividends on ordinary shares are recognised in the Group’s financial
statements in the period in which the dividends are approved by the
shareholders of the Company or paid.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities
of three months or less and bank overdrafts. Bank overdrafts are shown
within borrowings in current liabilities on the balance sheet to the extent
that there is no legal right of offset and no practice of net settlement with
cash balances.
Cash which is not freely available to the Group is disclosed as
restricted cash.
Derivative financial instruments
Derivative financial instruments, in particular interest rate swaps and
foreign exchange swaps, are used to manage the financial risks arising
from the business activities of the Group and the financing of those
activities. There is no trading activity in derivative financial instruments.
At the inception of a hedging transaction involving the use of derivative
financial instruments, the Group documents the relationship between
the hedged item and the hedging instrument together with its risk
management objective and the strategy underlying the proposed
transaction. The Group also documents its assessment, both at the
inception of the hedging relationship and subsequently on an ongoing
basis, of the effectiveness of the hedge in offsetting movements in the
fair values or cash flows of the hedged items.
Derivative financial instruments are recognised as assets and liabilities
measured at their fair values at the balance sheet date. Where derivative
financial instruments do not fulfil the criteria for hedge accounting
contained in IAS 39, changes in their fair values are recognised in the
income statement. When hedge accounting is used, the relevant hedging
relationships are classified as fair value hedges, cash flow hedges or net
investment hedges.
Strategic report
Governance
Financials
Other information
37 – Additional information continued
(ii) Additional information about financial instruments
Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the increase or
decrease in its fair value attributable to the hedged risk and the resulting gain or loss is recognised in the income statement where, to the extent that
the hedge is effective, it will be offset by the change in the fair value of the hedging instrument. If the hedge no longer meets the criteria for hedge
accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the
period to maturity. Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent the hedge is effective,
changes in the fair value of the hedging instrument arising from the hedged risk are recognised directly in equity.
When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in equity are either recycled to the
income statement or, if the hedged item results in a non-financial asset, are recognised as adjustments to its initial carrying amount. When a hedging
instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that
time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is
no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
Borrowings
Borrowings are recognised initially at the fair value of the consideration received net of transaction costs incurred. Borrowings are subsequently stated
at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income
statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Financial instruments by measurement basis
The carrying amount of financial instruments by category as defined by IAS 39 “Financial Instruments: Recognition and Measurement” is as follows:
Financial assets
Financial assets at fair value through profit and loss
Loans and receivables
Financial liabilities
Financial liabilities at amortised cost
2017
£m
2016
£m
20
2,277
31
2,392
4,596
4,403
Financial instruments in the category “fair value through profit and loss” are measured in the balance sheet at fair value. Fair value measurements
can be classified in the following hierarchy:
– quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
– inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and
– inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following tables present the Group’s assets and liabilities that are measured at fair value at 31 July 2017 and 31 July 2016:
Derivatives at fair value through profit and loss
Level 1
£m
–
Level 2
£m
20
Level 3
£m
–
2017
Total
£m
20
Level 1
£m
–
Level 2
£m
31
Level 3
£m
–
2016
Total
£m
31
As at 31 July 2017 and 31 July 2016, there were no derivative liabilities held at fair value through profit and loss. No transfers between levels occurred
during the current or prior year.
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial
instruments that are not traded in an active market (such as over-the-counter derivatives) is determined by using valuation techniques. The Group’s other
financial instruments are measured on bases other than fair value. Other receivables include an amount of £50 million (2016: £60 million) which has been
discounted at a rate of 2.3 per cent (2016: 1.5 per cent) due to the long-term nature of the receivable. Other current assets and liabilities are either of short
maturity or bear floating rate interest and their fair values approximate to book values. The only non-current financial assets or liabilities for which fair value
does not approximate to book value are the senior unsecured loan notes, which had a book value of £952 million (2016: £959 million) and a fair value
(level 2) of £991 million (2016: £1,027 million).
Ferguson plc Annual Report and Accounts 2017
123
Notes to the consolidated financial statements continued
Year ended 31 July 2017
37 – Additional information continued
(ii) Additional information about financial instruments continued
Financial instruments: disclosure of offsetting arrangements
The financial instruments that have been offset in the financial statements are disclosed below:
At 31 July 2017
Financial assets
Non-current assets
Derivative financial assets
Current assets
Derivative financial assets
Cash and cash equivalents
Financial liabilities
Current liabilities
Derivative financial liabilities
Bank loans and overdrafts
Finance leases
Non-current liabilities
Derivative financial liabilities
Bank loans
Finance leases
Closing net debt
At 31 July 2016
Financial assets
Non-current assets
Derivative financial assets
Current assets
Derivative financial assets
Cash and cash equivalents
Financial liabilities
Current liabilities
Derivative financial liabilities
Bank loans and overdrafts
Finance leases
Non-current liabilities
Derivative financial liabilities
Bank loans
Finance leases
Closing net debt
Gross
balances (a)
£m
Offset
amounts (b)
Financial
statements (c)
Cash pooling
amounts (d)
£m
£m
£m
Net total (e)
£m
Notes
18
18
19
18
22
24
18
22
24
32
39
17
1,911
1,967
12
1,627
3
24
831
4
2,501
(534)
(24)
(12)
–
(36)
(12)
–
–
(24)
–
–
(36)
–
15
5
1,911
1,931
–
–
(1,420)
(1,420)
–
1,627
–
(1,420)
3
–
831
4
2,465
(534)
–
–
–
–
(1,420)
–
15
5
491
511
–
207
3
–
831
4
1,045
(534)
Gross
balances (a)
£m
Offset
amounts (b)
£m
Financial
statements (c)
Cash pooling
amounts (d)
£m
£m
Net total (e)
£m
Notes
18
18
19
18
22
24
18
22
24
32
51
24
940
1,015
13
701
4
31
1,175
27
1,951
(936)
(31)
(13)
–
(44)
(13)
–
–
(31)
–
–
(44)
–
20
11
940
971
–
701
4
–
1,175
27
1,907
(936)
–
–
(606)
(606)
–
(606)
–
–
–
–
(606)
–
20
11
334
365
–
95
4
–
1,175
27
1,301
(936)
(a) The gross amounts of the recognised financial assets and liabilities under a master netting agreement, or similar arrangement.
(b) The amounts offset in accordance with the criteria in IAS 32.
(c) The net amounts presented in the Group balance sheet.
(d) The amounts subject to a master netting arrangement, or similar arrangement, not included in (c).
(e) The net amount after deducting the amounts in (d) from the amounts in (c).
124 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
37 – Additional information continued
(ii) Additional information about financial instruments continued
Financial instruments: risk management policies
The Group is exposed to market risks arising from its international operations and the financial instruments which fund them. The main risks arising from
the Group’s financial instruments are foreign currency risk, interest rate risk and liquidity risk. The Group has well-defined policies for the management of
interest rate, liquidity, foreign exchange and counterparty exposures, which have been consistently applied during the financial years ended 31 July 2017
and 31 July 2016. By the nature of its business, the Group also has trade credit and commodity price exposures, the management of which is delegated
to the operating businesses. There has been no change since the previous year in the major financial risks faced by the Group.
Policies for managing each of these risks are regularly reviewed and are summarised below. When the Group enters into derivative transactions
(principally interest rate swaps and foreign exchange contracts), the purpose of such transactions is to hedge certain interest rate and currency risks
arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading
in financial instruments or speculative transactions be undertaken.
Capital risk management
The Group’s sources of funding currently comprise cash flows generated by operations, equity contributed by shareholders and borrowings from banks
and other financial institutions. In order to maintain or adjust the capital structure, the Group may pay a special dividend, return capital to shareholders,
repurchase its own shares, issue new shares or sell assets to reduce debt.
Liquidity risk
The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and capital expenditure included in its strategic plan,
with an additional contingent safety margin.
The Group has estimated its anticipated contractual cash outflows (excluding interest income and income from derivatives) including interest payable
in respect of its trade and other payables and bank borrowings on an undiscounted basis. The principal assumptions are that floating rate interest is
calculated using the prevailing interest rate at the balance sheet date and cash flows in foreign currency are translated using spot rates at the balance
sheet date. These cash flows can be analysed by maturity as follows:
As at 31 July
Due in less than one year
Due in one to two years
Due in two to three years
Due in three to four years
Due in four to five years
Due in over five years
Total
Trade and
other
payables
£m
1,935
20
21
10
9
120
2,115
2017
Total
£m
2,100
61
56
257
37
792
Interest
on debt
£m
40
37
34
34
27
66
238
3,303
Trade and
other
payables
£m
2,280
19
12
14
8
110
2,443
Debt
£m
125
4
1
213
1
606
950
Debt
£m
5
122
2
1
215
847
1,192
Interest
on debt
£m
44
40
37
37
31
116
305
2016
Total
£m
2,329
181
51
52
254
1,073
3,940
Foreign currency risk
The Group has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations
are located. Approximately 79 per cent of the Group’s revenue is in US dollars. Within each country it operates, the Group does not have significant
transactional foreign currency cash flow exposures. However, those that do arise may be hedged with either forward contracts or currency options.
The Group does not normally hedge profit translation exposure since such hedges have only a temporary effect.
The Group’s policy is to adjust the currencies in which its net debt is denominated materially to match the currencies in which its trading profit is
generated. Details of average exchange rates used in the translation of overseas earnings and of year-end exchange rates used in the translation
of overseas balance sheets for the principal currencies used by the Group are shown in the five-year summary on page 139. The net effect of
currency translation was to increase revenue by £1,609 million (2016 restated: increase by £548 million) and to increase trading profit by £126 million
(2016 restated: increase by £46 million). These currency effects primarily reflect a movement of the average sterling exchange rate against US dollars,
euro and Canadian dollars as follows:
US dollars
Euro
Canadian dollars
2017
Weakening
of sterling
2016
(Weakening)/
strengthening
of sterling
(15.3%)
(13.5%)
(15.5%)
(6.8%)
(0.8%)
4.1%
The Group has net financial liabilities denominated in foreign currencies which have been designated as hedges of the net investment in its overseas
subsidiaries. The principal value of those financial liabilities designated as hedges at the balance sheet date was £1,528 million (2016: £1,636 million).
The loss on translation of these financial instruments into sterling of £6 million (2016: £107 million) has been taken to the translation reserve.
Ferguson plc Annual Report and Accounts 2017
125
Notes to the consolidated financial statements continued
Year ended 31 July 2017
37 – Additional information continued
(ii) Additional information about financial instruments continued
Net investment hedging
Exchange differences arising from the translation of the net investment in
foreign operations are recognised directly in equity. Gains and losses on
those hedging instruments designated as hedges of the net investments
in foreign operations are recognised in equity to the extent that the
hedging relationship is effective; these amounts are included in exchange
differences on translation of foreign operations as stated in the Group
statement of comprehensive income. Gains and losses relating to hedge
ineffectiveness are recognised immediately in the income statement
for the period. Gains and losses accumulated in the translation reserve
are included in the income statement when the foreign operation is
disposed of.
Interest rate risk
At 31 July 2017, 100 per cent of loans were at fixed rates. The Group
borrows in the desired currencies principally at rates determined by
reference to short-term benchmark rates applicable to the relevant
currency or market, such as LIBOR. Rates which reset at least every
12 months are regarded as floating rates and the Group then,
if appropriate, considers interest rate swaps to generate the
desired interest rate profile.
The Group reviews deposits and borrowings by currency at Treasury
Committee and Board meetings. The Treasury Committee gives prior
approval to any variations from floating rate arrangements.
During November 2011, the Group entered into interest rate swap
contracts comprising fixed interest payable on US$729 million of notional
principal. The residual contracts of US$438 million expire between
November 2017 and November 2020 and the fixed interest rates range
between 2.06 per cent and 2.94 per cent (2016: 2.06 per cent and 2.94
per cent). These contracts have been held since inception at fair value
through profit and loss. With effect from 1 December 2011, interest rate
swap contracts comprising fixed interest receivable on an original notional
principal of US$729 million and as at 31 July 2017, residual contracts of
US$438 million have been classified as held at fair value through profit and
loss. The contracts expire between November 2017 and November 2020
and the fixed interest rates range between 5.18 per cent and 5.32 per cent
(2016: 5.18 per cent and 5.32 per cent).
The table below shows the income statement movement on interest rate
swaps at fair value through profit and loss.
At fair value through profit and loss
(hedge accounting not applied)
At 1 August
Settled
Valuation gain credited to income statement
Exchange
At 31 July
2017
£m
29
(9)
–
–
20
2016
£m
34
(11)
1
5
29
There are no fixed rate interest borrowings that form part of a hedge
relationship.
Monitoring interest rate and foreign currency risk
The Group monitors its interest rate and foreign currency risk by reviewing
the effect on financial instruments over various periods of a range of
possible changes in interest rates and exchange rates. The Group has
estimated that an increase of one percentage point in the principal
floating interest rates to which it is exposed would result in a charge to
the income statement of £nil (2016: £1 million). The Group has estimated
that a weakening of sterling by 10 per cent against gross borrowings
denominated in foreign currency in which the Group does business
would result in a charge to equity of £156 million (2016: £177 million).
126 Ferguson plc Annual Report and Accounts 2017
The Group does not require operating businesses to adhere to a
formalised risk management policy in respect of trade credit risk or
commodity price risk and does not consider that there is a useful way
of quantifying the Group’s exposure to any of the macroeconomic
variables that might affect the collectability of receivables or the prices
of commodities.
Credit risk
The Group provides sales on credit terms to most of its customers.
There is an associated risk that customers may not be able to pay
outstanding balances. At 31 July 2017, the maximum exposure to credit
risk was £2,022 million (2016: £2,187 million).
Each of the Group’s businesses have established procedures in place to
review and collect outstanding receivables. Significant outstanding and
overdue balances are reviewed on a regular basis and resulting actions
are put in place on a timely basis. In some cases, protection is provided
through credit insurance arrangements. All of the major businesses
use professional, dedicated credit teams, in some cases field-based.
Appropriate provisions are made for debts that may be impaired on a
timely basis. Concentration of credit risk in trade receivables is limited as
the Group’s customer base is large and unrelated. Accordingly, the Group
considers that there is no further credit risk provision required above the
current provision for impairment.
The Group has cash balances deposited for short periods with financial
institutions and enters into certain contracts (such as interest rate swaps)
which entitle the Group to receive future cash flows from financial
institutions. These transactions give rise to credit risk on amounts
due from counterparties with a maximum exposure of £424 million
(2016: £237 million). This risk is managed by setting credit and settlement
limits for a panel of approved counterparties. The limits are approved
by the Treasury Committee and ratings are monitored regularly.
(iii) Additional information on the allotment of equity
securities for cash
During the year, the Company did not issue any ordinary shares
to participants in the long term incentive plans and all-employee
sharesave plans (2016: issued 43,428 ordinary shares with a nominal
value of 10 53/66 pence per share).
(iv) Additional information about pensions and other long-term
employee benefits
Description of plans
The principal UK defined benefit plan is the Wolseley Group Retirement
Benefits Plan which provides benefits based on final pensionable
salaries. This plan was closed to new entrants in 2009. The assets are
held in separate trustee administered funds. The Group contribution rate
is calculated on the Projected Unit Credit Method and agreed with an
independent consulting actuary. The Group Retirement Benefits Plan
was closed to future service accrual in December 2013 and was replaced
by a defined contribution plan. During October 2016, the plan was closed
for future non-inflationary salary accrual.
The principal plans operated for USA employees are defined contribution
plans, which are established in accordance with USA 401k rules.
Companies contribute to both employee compensation deferral and profit
sharing plans. The Group also operates two defined benefit plans in the
USA which are closed to new entrants. One of the plans is funded and the
majority of assets are held in trustee administered funds independent of
the assets of the companies. The closed plans now provide a minimum
pension guarantee in conjunction with a defined contribution plan.
The contribution rate is calculated on the Projected Unit Credit Method
as agreed with independent consulting actuaries.
In Canada, defined benefit plans and a defined contribution plan are
operated. Most of the Canadian defined benefit plans are funded.
Strategic report
Governance
Financials
Other information
For historical awards granted under the long term incentive plan (“LTIP
2012”), senior executives were awarded a variable number of shares
depending on the level of total shareholder return over a three-year
period relative to that of the FTSE 100. The maximum award under the LTIP
2012 was determined at grant date and then adjusted at vesting date in
accordance with the market performance condition. The vesting period
is three years.
For awards granted under the new long term incentive plan (“LTIP 2015”)
senior executives are awarded a variable number of shares depending
on three equally weighted conditions of: (1) level of total shareholder return
over a three-year period relative to that of the FTSE 100; (2) growth in
headline earnings per share over a period of three consecutive financial
years, which must exceed the growth in the UK Retail Price Index over the
same period by at least 9 per cent; and (3) a cumulative three-year figure
of operating cash flow measured against the agreed three-year target.
The vesting period is three years.
For awards granted to eligible employees (excluding Executive Directors)
under the ordinary share plan, such employees may be granted a variable
number of awards in any form or combination of options, restricted
share awards, conditional share awards or phantom share awards up to
a maximum of 100 per cent of their current salary. The vesting period is
typically three years and there are no performance measures other than
retained employment.
For awards granted to eligible employees (excluding Executive Directors)
under the performance ordinary share plan, such employees may be
granted a variable number of awards in any form or combination of
options, restricted share awards, conditional share awards or phantom
share awards with a maximum amount typically set at 5 times salary.
The vesting period is typically three years and the performance period
relating to the relevant operating business’ performance is typically over a
three-year period.
For awards granted to eligible employees (excluding Executive Directors)
under the revised ordinary share plan, such employees may be granted
a variable number of awards in any form or combination of options,
restricted share awards, conditional share awards with a maximum amount
typically set at 3 times salary. The vesting period is typically three years
and the performance period relating to the relevant operating business’
performance is typically over a one-year performance period.
Awards granted under the all-employee sharesave plans vest over periods
ranging from three to seven years, except for awards granted under the
Employee Share Purchase Plan (“ESPP”) in the USA and Canada, which
vest over a one-year period.
(vi) Additional information about the parent company of the Group
The Company is incorporated in Jersey under the Companies (Jersey) Law
1991 and is headquartered in Switzerland. 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 Group’s subsidiary undertakings are set out on pages 140 and 141.
37 – Additional information continued
(iv) Additional information about pensions and other long-term
employee benefits continued
The contribution rate is calculated on the Projected Unit Credit Method
as agreed with independent consulting actuaries.
In Europe, both defined contribution and defined benefit plans are
operated. Liabilities arising under defined benefit plans are calculated
in accordance with actuarial advice.
Investment policy
The Group’s investment strategy for its funded post-employment plans
is decided locally and, if relevant, by the trustees of the plan and takes
account of the relevant statutory requirements. The Group’s objective for
the investment strategy is to achieve a target rate of return in excess of the
increase in the liabilities, while taking an acceptable amount of investment
risk relative to the liabilities.
This objective is implemented by using specific allocations to a variety
of asset classes that are expected over the long term to deliver the target
rate of return. Most investment strategies have significant allocations to
equities, with the intention that this will result in the ongoing cost to the
Group of the post-employment plans being lower over the long-term
and within acceptable boundaries of risk.
For the UK plan, the buy-in insurance policy represents approximately
40 per cent of the plan assets. For the remaining assets, the strategy is to
invest predominantly in growth assets including equities and diversified
growth assets. The investment strategy is subject to regular review by
the plan trustees in consultation with the Company. For the overseas
plans, the investment strategy involves the investment in defined levels of
predominantly equities with the remainder of the assets being invested in
cash and bonds.
Investment risk
The present value of the UK defined benefit plan liability is calculated using
a discount rate determined by reference to high quality corporate bond
yields; if the actual return on plan assets is below this rate, it will decrease
a net surplus or increase a net pension liability. Currently, the plan has a
relatively balanced investment in equity securities, debt instruments and
property. Due to the long-term nature of the plan liabilities, the trustees of
the pension plan consider it appropriate that a reasonable portion of the
plan assets should be invested in equity securities to leverage the return
generated by the fund.
Interest risk
A decrease in the bond interest rate will increase the UK plan liability
and this will be partially offset by an increase in the value of the plan’s
debt investments.
Longevity risk
The present value of the defined benefit obligation is calculated by
reference to the best estimate of the mortality of the UK plan participants
both during and after their employment. An increase in the life expectancy
of the plan participants will increase the plan’s liability.
(v) Additional information about share-based payment plans
The Group currently operates five types of discretionary plans and
two types of all-employee sharesave plans.
Historical awards granted under the executive share option plans are
subject to a condition such that they may not be exercised unless the
growth in headline earnings per share over a period of three consecutive
financial years exceeds the growth in the UK Retail Price Index over the
same period by at least 9 per cent and consequently vest over a period
of three years.
Ferguson plc Annual Report and Accounts 2017
127
Independent auditor’s report to the members of Ferguson plc
Report on the audit of the financial statements
Opinion
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 July 2017 and of the Group’s
and the parent company’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union;
– the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
– the financial statements have been properly prepared in accordance with the Companies (Jersey) Law, 1991.
We have audited the financial statements of Ferguson plc (the “parent company”) and its subsidiaries (the “Group”) which comprise:
– the Group Income Statement;
– the Group Statement of Comprehensive Income;
– the Parent Company Profit and Loss Account;
– the Group and Parent Company Balance Sheets;
– the Group Cash Flow Statement;
– the Group and Parent Company Statements of Changes in Equity;
– the notes to the Group financial statements 1 to 37; and
– the notes to the Parent Company financial statements 1 to 15.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted
by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted
Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
While the parent company is not a public interest entity as defined by European Regulation 537/2014, the Directors have decided that the parent
company should follow the same requirements as if that Regulation applied to the parent company.
Summary of our audit approach
Key audit matters
The key risks that we identified in the current year were:
– Appropriateness of supplier rebates;
– Inventory provision for slow-moving and obsolete inventory; and
– Accounting for restructuring costs.
Materiality
Scoping
Significant changes
in our approach
The materiality that we used in the current year was £45m (2016: £40m) which was determined on the basis of approximately 5% of profit
before tax excluding exceptional items.
We performed full audits on the three key regions of continuing businesses, Head office entities and the consolidation process,
representing 97% (2016: 96%) of revenue, 99% (2016: 86%) of profit before tax and 98% (2016: 99%) of net assets.
Our approach is consistent with the previous year with the exception of:
– the inclusion of an additional key audit matter relating to the accounting for restructuring costs. This relates to the disposal of
the Nordic region businesses and the restructuring in the UK where judgements are made over the costs categorised as exceptional.
– the exclusion of the key audit matter relating to goodwill and intangible asset carrying values. Following the impairment charge
recognised for Beijer and the proposed sale of the Nordic businesses, the judgement over the carrying value of goodwill and
intangible assets reduced; and
– our planned audit scope has changed, taking into consideration changes in the Group structure as a result of completed and
planned disposals. The Nordic regions (Denmark, Sweden, Finland and Norway) and Switzerland were subject to full scope audits in
the previous year. This year the scope has been reduced to analytical procedures.
128 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Conclusions related to principal risks, going concern and viability statement
We have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of accounting contained within note 1 to the
Financial Statements and the Directors’ statement on the longer-term viability of the Group contained within the principal risks and their management
section on page 43.
We are required to state whether we have anything material to add or draw attention to in relation to:
– the disclosures on pages 42-49 that describe the principal risks and explain how they are being managed or mitigated;
– the Directors’ confirmation on page 51 that they have carried out a robust assessment of the principal risks facing the Group, including those that
would threaten its business model, future performance, solvency or liquidity;
– the Directors’ statement in note 1 to the Financial Statements about whether they considered it appropriate to adopt the going concern basis
of accounting in preparing them and their identification of any material uncertainties to the Group and the parent company’s ability to continue
to do so over a period of at least 12 months from the date of approval of the financial statements;
– the Directors’ explanation on page 43 as to how they have assessed the prospects of the Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions; or
– whether the Directors’ statements relating to going concern and the prospects of the Company required in accordance with Listing Rule 9.8.6R(3)
are materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to add or draw attention to in respect of these matters.
We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However,
because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Appropriateness of supplier rebates
Key audit matter
description
How the scope of our
audit responded to
the key audit matter
As described in the Audit Committee report on page 61 as a significant judgement and the Accounting Policies in note 37 to the
Financial Statements, the Group recognises a reduction in cost of sales as a result of amounts receivable from suppliers in the form of
rebate arrangements. Where the rebate arrangements are non-tiered arrangements (flat rate), there is limited judgement. However,
a proportion of the rebate arrangements comprise annual volume rebates, for which the end of the period is often non coterminous
with the Group’s year-end. Additionally, in some cases the rebate rises as a portion of purchases, as higher quantities or values of the
purchases are made.
There is complexity in supplier rebates which give rise to management judgement and scope for fraud and error in accounting for
this income.
Judgement is required in estimating the expected level of rebates for the rebate year, driven by the forecast purchase volumes.
This requires a detailed understanding of the specific contractual arrangements themselves as well as complete and accurate source
data to apply the arrangements to.
We assessed the design and implementation of manual and automated controls over the recording of supplier rebate income.
Our procedures on supplier rebates included:
– evaluating the design and implementation of key controls operating across the Group over the appropriateness of supplier rebates;
– in certain components, testing the operating effectiveness of the controls relating to supplier rebates;
– interviewing a sample of Ferguson’s internal buyers to supplement our understanding of the key contractual rebate arrangements;
– testing the accuracy of the amounts recognised by agreeing a sample to individual supplier agreements;
– circularising a sample of suppliers to test whether the arrangements recorded were complete;
– testing the completeness and accuracy of the inputs to the calculations for recording supplier rebates by agreement to supporting
evidence, including historical volume data. We challenged the assumptions underlying management’s estimates of purchase
volumes including looking at the historical accuracy of previous estimates and historical purchase trends and recalculation of rebates
for a sample of suppliers;
– consider the adequacy of rebate related disclosure within the Group’s financial statement;
– holding discussions with management to understand if there has been any whistleblowing; and
– testing post year-end cash receipts, where relevant, to test the recoverability of amounts recorded.
Key observations
We consider the Group’s estimation methodology to be prudent based on a number of factors, including a look back at historical cash
receipts. However, the methodology is consistently applied year-on-year and the understatement of rebate income is not material to the
financial position or the reported financial result as at 31 July 2017.
Ferguson plc Annual Report and Accounts 2017
129
Independent auditor’s report to the members of Ferguson plc continued
Inventory provision for slow-moving and obsolete inventory
Key audit matter
description
The Group had inventory of £1,816m at 31 July 2017, held in distribution centres, warehouses and numerous branches, and across
multiple product lines. Details of its valuation are included in the Audit Committee report on page 61 and the Accounting policies in note
37 to the Financial Statements.
Inventories are carried at the lower of cost and net realisable value. As a result, the Directors apply judgement in determining the
appropriate values for slow-moving or obsolete items. Inventory is net of a provision of £113m which is primarily driven by comparing
the level of inventory held to future projected sales.
The provision is calculated within the Group’s accounting systems using an automated process.
We consider the assessment of inventory provisions to require judgement based on the size of the inventory balance held at year-end
and the manual intervention required in the calculation. There is risk that inappropriate management override and/or error may occur.
How the scope of our
audit responded to
the key audit matter
We challenged the appropriateness of management’s assumptions applied in calculating the value of the inventory provisions by:
– evaluating the design and implementation of key inventory provision controls operating across the Group, including those at a
sample of distribution centres, warehouses and branches;
– evaluating the design and implementation of key system controls around the provision calculation and their operating effectiveness;
– comparing the net realisable value, obtained through a detailed review of sales subsequent to the year-end, to the cost price
of a sample of inventories and comparison to the associated provision to assess whether inventory provisions are complete;
– reviewing the historical accuracy of inventory provisioning, and the level of inventory write-offs during the year; and
– challenging the completeness of inventory provisions through assessing actual and forecast sales of inventory lines to assess
whether provisions for slow moving or obsolete stock are valid and complete.
Key observations
We consider the Group’s provisioning methodology to be prudent when compared with historical levels of inventory write-offs.
However, the methodology is consistently applied year-on-year and our estimate of the potential overstatement of the provision is not
material to the financial position or the reported result as at 31 July 2017.
Accounting for restructuring costs
Key audit matter
description
As described in notes 5 and 8 to the Financial Statements, the Group has announced a restructuring plan for the UK business and the
disposal of the Nordic region businesses.
The key judgements related to this risk lie in the estimation of the restructuring costs where they may differ from the future obligations.
By nature, the provision is difficult to estimate and includes many variables. There is a risk that the provision could be underestimated by
management to minimise the liabilities. Additionally, depending on timing there is a risk that costs could be provided inappropriately that
are not yet committed.
The impact of strategic reviews within the business and other future events gives rise to a source of estimation uncertainty. The Group
has recognised a cost of £40m in the year in respect of the UK restructuring, which is reported as an exceptional item in note 5, and
an additional amount related to the Nordic region businesses, which is shown within discontinued exceptional items (note 8). There is
a judgement required in determining whether disclosure as an exceptional item is appropriate. The UK business is in phase 2 of the
restructuring and given the branch closures and expected job losses, there is judgement around the estimated costs.
How the scope of our
audit responded to
the key audit matter
Our procedures on restructuring costs included:
– challenging the key judgements made by management including evaluating the positions taken on which costs were provided for;
– determining whether what is disclosed as exceptional directly related to the restructuring was incremental;
– checking the consistency of items included year-on-year and assessing adherence to IFRS requirements and latest Financial
Reporting Council (“FRC”) guidance;
– holding discussions with the finance teams on the provision recorded;
– testing the provision in place by agreeing it to documentation to assess appropriateness of the level of provisioning; and
– understanding if any aspects of the restructuring could result in items to be classified as impaired.
Key observations
We consider the restructuring charge recorded in the year to have been appropriately calculated.
130 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results
of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
£45m (2016: £40m)
Basis for determining
materiality
Approximately 5% of profit before tax excluding exceptional items.
The profit before tax excluding exceptional items was £951m, which is £229m lower than the statutory profit of £1,180m.
The exceptional items we excluded from our determination are non-recurring in nature and explained further in note 5.
Rationale for the
benchmark applied
Profit before tax is a key metric for users of the financial statements and adjusting for exceptional items is to reflect the manner in which
business performance is reported and assessed by external users of the financial statements.
£951m
£45m
PBT excluding exceptionals
Group materiality
Group materiality £45m
Component materiality range £23m to £36m
Audit Committee reporting threshold £2m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £2m (2016: £1m), as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds. This is a change from the prior year where we reported all
misstatements above £1m. This reflects the continued growth in the business.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks
of material misstatement at the Group level. In addition, the understanding gained in our first year audit was utilised in scoping our second year audit.
Based on that assessment we focused our Group audit scope primarily on the audit work at the three key regions of continuing businesses (USA,
UK and Canada). Full audits were performed in these locations. At the Group level we also tested Head office entities and the consolidation process.
Of continuing results, this provided coverage of 97% of revenue, 99% of the profit before tax and 98% of the net assets.
In 2016, Switzerland (Tobler) and the Nordic regions (Denmark, Sweden, Norway and Finland) were in full audit scope. Following changes to the Group
structure as a result of completed and planned disposals, Switzerland and the Nordic regions are subject to analytical procedures in the current year,
which is consistent with the remaining entities in the Group.
Full audit scope
Analytical procedures
Revenue
97%
3%
Profit before tax
99%
1%
Net assets
98%
2%
The Group team is responsible for the Head Office entities in the UK and Switzerland and the consolidation. The Group team carried out analytical
procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining
components not subject to audit.
The component teams in the USA, UK and Canada perform audit work and report into the Group team.
The Group audit team continued to follow a programme of planned visits that has been designed so that a senior member of the Group audit team visits
each of the most significant locations where the Group audit scope was focused every year, being the USA, UK and Canada. Senior members of the
Group team also visited Denmark. In years when we do not visit a significant component we will include the component audit partner in our team briefing,
send detailed instructions to our component audit teams, discuss their risk assessment, and review documentation of the findings from their work.
For all components we attend the local close meetings.
Ferguson plc Annual Report and Accounts 2017
131
Independent auditor’s report to the members of Ferguson plc continued
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the
financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our auditor’s report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement
in the financial statements or a material misstatement of other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where
we conclude that:
– Fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report and Financial Statements taken as
a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business
model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
– Audit Committee reporting – the section describing the work of the Audit Committee does not appropriately address matters communicated by us to
the audit committee; or
– Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’ statement relating to the Company’s
compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
We have nothing to report in respect of these matters.
Responsibilities of the Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend
to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for the audit for the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991. Our audit work has
been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those
further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
132 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Report on other legal and regulatory requirements
Opinions on other matters prescribed by our engagement letter
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions of the UK
Companies Act 2006 as if that Act had applied to the Company.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
– the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the parent company and their environment obtained in the course of the audit,
we have not identified any material misstatements in the strategic report or the Directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
– the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
We are also required to report, under the Companies Act 2006 (as if that Act had applied to the Company) if in our opinion certain disclosures of
Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report arising from these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Company on 12 November 2015 to audit the financial statements
for the year ending 31 July 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is two years, covering periods from our appointment to 31 July 2017.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
Ian Waller
For and on behalf of Deloitte LLP
Recognized Auditor
London, UK
2 October 2017
Ferguson plc Annual Report and Accounts 2017
133
Company profit and loss account
Year ended 31 July 2017
Administrative expenses
Operating loss
Income from shares in Group undertakings
Profit on ordinary activities before interest
Interest payable and similar charges
Profit before tax
Tax
Profit for the financial year
Company statement of changes in equity
At 1 August 2015
Profit for the year
Purchase of own shares by Employee Benefit Trusts
Issue of own shares by Employee Benefit Trusts
Credit to equity for share-based payments
Purchase of Treasury shares
Disposal of Treasury shares
Dividends paid
At 31 July 2016
Profit for the year
Purchase of own shares by Employee Benefit Trusts
Issue of own shares by Employee Benefit Trusts
Credit to equity for share-based payments
Disposal of Treasury shares
Dividends paid
At 31 July 2017
Called up
share capital
£m
Share
premium
£m
Notes
Treasury
shares
reserve
£m
Own shares
reserve
£m
9
10
8
8
9
10
8
29
42
(240)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(300)
24
–
29
42
(516)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31
–
(63)
–
(14)
20
–
–
–
–
(57)
–
(6)
15
–
–
–
29
42
(485)
(48)
2017
£m
(11)
(11)
466
455
(8)
447
–
447
2016
£m
(11)
(11)
600
589
(12)
577
–
577
Retained
earnings
£m
7,469
577
–
(19)
20
–
(10)
(238)
7,799
447
–
(15)
22
(10)
(259)
7,984
Total
shareholders’
equity
£m
7,237
577
(14)
1
20
(300)
14
(238)
7,297
447
(6)
–
22
21
(259)
7,522
134 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Company balance sheet
Year ended 31 July 2017
Fixed assets
Investments in subsidiaries
Current assets
Debtors: amounts falling due within one year
Current liabilities
Creditors: amounts falling due within one year
Net current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium
Treasury shares reserve
Own shares reserve
Retained earnings
Total shareholders’ equity
Notes
2017
£m
2016
£m
3
4
5
6
7
8
9
8,309
8,309
7,945
7,945
1
2
(788)
(787)
7,522
29
42
(485)
(48)
7,984
7,522
(650)
(648)
7,297
29
42
(516)
(57)
7,799
7,297
The accompanying notes are an integral part of these Company financial statements.
The Company financial statements on pages 134 to 137 were approved by the Board of Directors on 2 October 2017 and were signed on its behalf by:
John Martin
Group Chief Executive
Mike Powell
Chief Financial Officer
Ferguson plc Annual Report and Accounts 2017
135
Notes to the Company financial statements
Year ended 31 July 2017
1 – Corporate information
Ferguson plc (the “Company”) was incorporated and registered in
Jersey on 28 September 2010 under the Jersey Companies Law as
a public company limited by shares under the name Ferguson plc with
registered number 106605. The principal legislation under which the
Company operates is the Companies (Jersey) Law 1991, as amended,
and regulations made thereunder. The address of its registered
office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands.
It is headquartered in Switzerland.
The principal activity of the Company is to act as the ultimate holding
company of the Ferguson Group of companies.
The Company changed its name from Wolseley plc to Ferguson plc
on 31 July 2017.
2 – Company accounting policies
Basis of accounting
The Company meets the definition of a qualifying entity under FRS 100
(Financial Reporting Standard 100) issued by the Financial Reporting
Council (“FRC”). Accordingly, the financial statements have been prepared
in accordance with FRS 101 (Financial Reporting Standard 101) “Reduced
Disclosure Framework” as issued by the FRC.
As permitted by FRS 101, the Company has taken advantage of the
disclosure exemptions available under that standard in relation to share-
based payments, financial instruments, capital management, presentation
of comparative information in respect of certain assets, presentation of a
cash flow statement, standards not yet effective, impairment of assets and
related party transactions.
The financial statements have been prepared on the historical cost basis
and on the going concern basis.
Note 4 (Operating profit) on page 95, note 9 (Dividends) on page 98,
note 27 (Share capital) on page 113, note 28 (Share-based payments)
on page 114 and note 36 (Post-balance sheet events) on page 119 of
the Ferguson plc consolidated financial statements form part of these
financial statements.
Foreign currencies
The financial statements are presented in sterling which was the functional
currency of the Company at 31 July 2017.
The cost of the Company’s investments in overseas subsidiary
undertakings is translated into sterling at the rate ruling at the date
of investment.
Foreign currency transactions entered into during the year are
translated into sterling at the rates of exchange ruling on the dates of
the transactions. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance
sheet date. All currency translation differences are charged or credited
to retained earnings.
Cash at bank and in-hand
Cash at bank and in-hand includes cash in-hand and deposits held
with banks which are readily convertible to known amounts of cash.
Bank overdrafts are shown within borrowings in current liabilities on the
balance sheet to the extent there is no right of offset or intention to net
settle with cash balances.
Share capital
The Company has one class of shares, ordinary shares, which are
classified as equity. Incremental costs directly attributable to the issue
of new shares or options are shown in equity as a deduction from the
proceeds, net of tax.
Where the Company or one of the Company’s trusts purchases the
Company’s equity share capital, the consideration paid, including any
directly attributable incremental costs (net of tax), is deducted from equity
attributable to the Company’s equity holders until the shares are cancelled,
reissued or disposed of. Where such shares are subsequently disposed
or reissued, any consideration received, net of any directly attributable
incremental transaction costs and the related tax effects, is included in
equity attributable to the Company’s equity holders.
Share-based payments
Share-based incentives are provided to employees under the Company’s
executive share option, long term incentive and share purchase and
ordinary share plans. The Company recognises a compensation cost
in respect of these plans that is based on the fair value of the awards,
measured using Binomial and Monte Carlo valuation methodologies.
For equity-settled plans, the fair value is determined at the date of grant
(including the impact of non-vesting conditions such as requirement
for employees to save) and is not subsequently remeasured unless the
conditions on which the award was granted are modified. Generally, the
compensation cost is recognised on a straight-line basis over the vesting
period. Adjustments are made to reflect expected and actual forfeitures
during the vesting period due to the failure to satisfy service conditions
or achieve non-market performance conditions.
Dividends payable
Dividends on ordinary shares are recognised in the Company’s financial
statements in the period in which the dividends are paid or approved by
the shareholders of the Company.
Tax
Ferguson plc is taxed as a holding company in Switzerland so no tax is
due at cantonal or communal level. The tax charge is therefore made
up of federal tax and capital tax. Federal tax is levied on profits in the
year subject to any participation exemption for qualifying dividends from
subsidiaries. Capital tax is based on the value of the Company’s assets,
primarily its investment in Wolseley Limited and Ferguson Holdings
(Switzerland) AG.
3 – Fixed asset investments
Investments in subsidiaries
Fixed asset investments are recorded at cost less provision for impairment.
The Company assesses at each balance sheet date whether there
is objective evidence that an investment or a group of investments
is impaired.
At 1 August 2016
Additions
At 31 July 2017
All of the above investments are in unlisted shares. The Directors believe
that the carrying value of the investments is supported by the recoverable
amount of their underlying assets.
136 Ferguson plc Annual Report and Accounts 2017
Cost
£m
7,945
364
8,309
Strategic report
Governance
Financials
Other information
3 – Fixed asset investments continued
The Company’s direct holdings in subsidiary undertakings as at 31 July
2017 were as follows:
Company
Country of registration
and operation
Principal activity
Wolseley Limited
England and Wales
Investment
Ferguson de Puerto
Rico, Inc.
Commonwealth of
Puerto Rico
Distributor of
industrial products
Ferguson Holdings
(Switzerland) AG
Switzerland
Investment
Percentage
of ordinary
shares held
100%
100%
100%
Details of the subsidiary undertakings of the Company, including those
that are held indirectly, are listed on pages 140 and 141 of the Ferguson plc
Annual Report.
10 – Share-based payments
Details of share awards granted by Group companies to employees, and
that remain outstanding over the Company’s shares are set out in note
28 on page 114 to the Ferguson plc consolidated financial statements.
The net profit and loss charge to the Company for equity-settled share-
based payments was £nil (2016: £nil). The Company charged the full
amount incurred for equity-settled share-based payments of £22 million
(2016: £20 million) to its subsidiary undertakings.
11 – Contingent liabilities
Provision is made for the Directors’ best estimate of known claims and
legal actions in progress. The Company takes legal advice as to the
likelihood of success of claims and actions and no provision is made where
the Directors consider, based on that advice, that the action is unlikely to
succeed or a sufficiently reliable estimate of the potential obligation cannot
be made.
4 – Debtors: amounts falling due within one year
Other debtors
Total
2017
£m
1
1
2016
£m
2
2
In addition, the Company has given certain banks and lenders authority
to transfer at any time any sum outstanding to its credit against or towards
satisfaction of its liability to those banks of certain subsidiary undertakings.
The Company has also given indemnities and warranties to the purchasers
of businesses from the Company and certain Group companies in respect
of which no material liabilities are expected to arise.
The fair value of amounts included in debtors approximates to book value.
5 – Creditors: amounts falling due within one year
The Company acts as a guarantor for the Group’s UK defined benefit
pension plan, which is disclosed in note 26 on pages 110 to 112 to the
Ferguson plc consolidated financial statements.
Bank overdrafts
Other creditors
Amounts owed to Group companies
Total
2017
£m
787
1
–
788
2016
£m
–
3
647
650
The fair value of amounts included in creditors approximates to book
value. Bank overdrafts are interest bearing, carrying an interest rate
of 2.0 per cent and are payable on demand. Amounts owed to Group
companies in 2016 were interest bearing, carrying an interest rate of
1.2 per cent and were payable on demand.
12 – Employees, employee costs and
auditor’s remuneration
The average number of employees of the Company in the year ended
31 July 2017 was one (2016: one). Other employees of Group companies
were seconded or assigned to the Company in the period in order to
fulfil their duties or to carry out the work of the Company. Each of the Non
Executive Directors of the Company has an appointment letter with the
Company. The Executive Directors and certain other senior managers
of the Group have assignment letters in place with the Company.
Total employment costs of the Company for the period, including
Non Executive Directors and seconded employees, were £2 million
(2016: £2 million).
6 – Share capital
Details of the Company’s share capital are set out in note 27 on page 113
to the Ferguson plc consolidated financial statements.
Fees payable to the auditor for the audit of the Company’s financial
statements are set out in note 4 on page 95 to the Ferguson plc
consolidated financial statements.
7 – Share premium account
Details of new share capital subscribed are set out in note 27 on page 113
to the Ferguson plc consolidated financial statements.
13 – Dividends
Details of the Company’s dividends are set out in note 9 on page 98 to the
Ferguson plc consolidated financial statements.
8 – Treasury shares
Details on Treasury shares are set out in note 27 on page 113 to the
Ferguson plc consolidated financial statements.
9 – Own shares reserve
During the year, the Company contributed £6 million (2016: £11 million)
of cash to its USA Employee Benefit Trust and £nil (2016: £3 million) to
its Jersey Employee Benefit Trust to purchase shares. The Treasury
shares held by both of these Trusts have been consolidated within the
Company’s balance sheet as at 31 July 2017 and amount to £48 million
(2016: £57 million).
14 – Related party transactions
The Company is exempt under the terms of FRS 101 from disclosing
related party transactions with entities that are 100 per cent owned
by Ferguson plc.
15 – Post-balance sheet events
Details of post-balance sheet events are given in note 36 on page 119
of the Ferguson plc consolidated financial statements.
Ferguson plc Annual Report and Accounts 2017
137
2017
£m
2016
£m
2015
£m
2014
£m
11,994
2,012
1,218
15,224
9,456
1,996
1,097
12,549
8,343
1,987
1,138
11,468
7,070
1,853
1,413
10,336
966
76
56
(39)
1,059
(64)
–
229
1,224
(43)
(1)
1,180
(292)
888
(105)
783
(259)
–
(259)
1,070
808
2,094
3,972
29
42
351
3,016
3,438
534
3,972
775
74
53
(45)
857
(48)
(94)
(4)
711
(36)
–
675
(210)
465
185
650
(238)
–
(238)
1,104
1,434
1,301
3,839
29
42
380
2,452
2,903
936
3,839
681
90
55
(43)
783
(41)
(4)
(2)
736
(43)
–
693
(215)
478
(265)
213
(222)
–
(222)
1,011
1,164
1,230
3,405
29
42
117
2,412
2,600
805
3,405
546
96
72
(35)
679
(15)
–
27
691
(24)
–
667
(199)
468
36
504
(191)
(298)
(489)
1,198
1,226
1,173
3,597
29
41
127
2,689
2,886
711
3,597
Restated
2013
£m
6,785
1,769
1,568
10,122
492
95
80
(42)
625
(20)
(10)
(13)
582
(25)
–
557
(185)
372
(76)
296
(173)
(348)
(521)
1,246
1,263
955
3,464
28
27
402
2,596
3,053
411
3,464
Five-year summary(a)
Revenue
USA
UK
Canada and Central Europe
Group
Trading profit
USA
UK
Canada and Central Europe
Central and other costs
Group
Amortisation of acquired intangible assets
Impairment of goodwill and acquired intangible assets
Exceptional items
Operating profit
Finance costs
Share of result of associate
Profit before tax
Tax
Profit from continuing operations
(Loss)/profit from discontinued operations
Profit attributable to equity shareholders
Ordinary dividends
Special dividend
Total dividends
Net assets employed
Intangible fixed assets
Property, plant and equipment
Other net assets, excluding liquid funds
Financed by
Share capital
Share premium
Translation reserve
Retained earnings and other reserves
Equity attributable to shareholders of the Company
Net debt
Net assets employed
138 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Continuing operations (unless otherwise stated)
Like-for-like revenue growth
Gross margin
Trading margin
Headline earnings per share
Basic earnings per share from continuing and discontinued operations
Dividends per share (in respect of the financial year)
Special dividend per share
Cover for ordinary dividends
Net tangible assets per ordinary share
Return on gross capital employed
Average number of employees
Number of shares in issue at year-end (million)
Number of branches at year-end
Continuing operations
Discontinued operations
Total branches
US dollar translation rate
Income statement/profit and loss
Balance sheet
Euro translation rate
Income statement/profit and loss
Balance sheet
Canadian dollar translation rate
Income statement/profit and loss
Balance sheet
2017
5.8%
29.0%
7.0%
288.9p
311.6p
110.0p
–
2.6
886.9p
19.6%
33,511
267
2,310
380
2,690
1.27
1.32
1.16
1.12
1.68
1.65
2016
2.7%
28.6%
6.8%
234.7p
256.4p
100.0p
–
2.3
673.8p
17.2%
32,269
267
2,498
256
2,754
1.46
1.32
1.31
1.18
1.94
1.72
2015
7.1%
28.3%
6.8%
206.7p
82.1p
90.75p
–
2.3
595.1p
16.9%
31,033
267
2,480
427
2,907
1.56
1.56
1.33
1.42
1.86
2.04
2014
5.2%
28.1%
6.6%
173.2p
189.8p
82.5p
110.0p
2.1
632.1p
14.8%
29,596
267
2,444
436
2,880
1.64
1.69
1.21
1.26
1.76
1.84
Restated
2013
5.8%
27.7%
6.2%
154.5p
107.4p
66.0p
122.0p
2.3
659.9p
14.3%
28,990
274
2,470
558
3,028
1.56
1.52
1.20
1.14
1.57
1.56
(a) for an extract of the five-year summary presented in US dollars please visit www.fergusonplc.com
Ferguson plc Annual Report and Accounts 2017
139
Group companies
The Ferguson Group comprises a large number of companies. This list includes only those subsidiaries which in the Directors’ opinion principally affect
the figures shown in the consolidated financial statements. A full list of subsidiary undertakings is detailed in the second list below and on the next page.
Principal subsidiary undertakings
Company name
Beijer Byggmaterial AB
Capstone Global Solutions AG
DT Finland Oy
Ferguson Enterprises Inc
Ferguson Finance (Switzerland) AG
Principal activity
Operating company
Operating company
Operating company
Operating company
Financing company
Ferguson Holdings (Switzerland) AG*
Investment company
Ferguson Group Services Limited
Neumann Bygg AS
Stark Group Holdings A/S
Wasco Holding B.V.
Wolseley Canada Inc.
Wolseley UK Limited
Wolseley Capital, Inc.
Wolseley Insurance Limited
Wolseley Investments North America, Inc.
Wolseley Limited *
Service company
Operating company
Operating company
Operating company
Operating company
Operating company
Financing company
Operating company
Investment company
Investment company
Country of incorporation
Sweden
Switzerland
Finland
USA
Switzerland
Switzerland
England and Wales
Norway
Denmark
The Netherlands
Canada
England and Wales
USA
Isle of Man
USA
England and Wales
(1) Shareholdings in companies marked * are held 100 per cent directly by Ferguson plc. The proportion of the voting rights in the subsidiary undertakings held directly by Ferguson plc do not
differ from the proportion of the ordinary shares held. All other shareholdings in the above mentioned companies are held by intermediate subsidiary undertakings.
(2) All shareholdings in the above subsidiary undertakings are of ordinary shares or equity capital.
(3) All subsidiary undertakings have been included in the consolidation.
Full list of subsidiary undertakings
A full list of subsidiaries, joint ventures, companies in which a Ferguson Group company has a controlling interest and associated undertakings
as at 31 July 2017. The country of incorporation and the effective percentage of equity owned (if less than 100 per cent) is also detailed below.
Unless otherwise noted, the share capital comprises ordinary shares which are indirectly held by Ferguson plc.
Fully owned subsidiaries
893111 Canada Inc. (Canada)(x)(11)
A C Electrical Holdings Limited (England)(ix)(30)
A C Electrical Wholesale Limited (England)(iii)(30)
A C Ferguson Limited (Scotland)(ii)(iii)(20)
Advancechief Limited (England)(ii)(iii)(2)
B Holding SAS (France)(iii)(7)
B Participations SAS (France)(iii)(7)
Beijer Byggmaterial AB (Sweden)(iii)(14)
Beijer Byggmaterial i Uppsaala AB (Sweden)(iii)(14)
British Fittings Central Limited (England)(ii)(iii)(2)
British Fittings Company (North Eastern) Limited
(England)(ii)(ix)(2)
British Fittings Group Limited (England)(ii)(iii)(2)
British Fittings Limited (England)(ii)(iii)(2)
Broughton’s Limited (England)(ii)(iii)(2)
Build Center Limited (England)(ii)(iii)(2)
Build.com, Inc.(US)(ix)(3)
Builder Center Limited (England)(ii)(iii)(2)
Building & Engineering Plastics Limited
(England)(ii)(iii)(2)
Capstone Global Solutions AG (Switzerland)(iii)(1)
Caselco Limited (England)(ii)(iii)(2)
Clawfoot Supply, LLC (US)(xii)(3)
Clayton International, LLC (US)(xii)(3)
Controls Center Limited (England)(ii)(ix)(2)
Crew-Davis Limited (England)(ii)(iii)(2)
140 Ferguson plc Annual Report and Accounts 2017
Davidson Group Leasing Co. LLC (US)(xii)(3)
Drain Center Limited (England)(ii)(iii)(2)
DT Finland Oy (Finland)(iii)(21)
DT Holding (Sweden) AB (Sweden)(iii)(14)
DT Holding 1 AS (Denmark)(iii)(17)
Electro Energy A/S (Denmark)(iii)(16)
Energy & Process Corporation (US)(x)(3)
Ferguson Enterprises Inc (US)(x)(3)
Ferguson Enterprises Real Estate, Inc (US)(iii)(3)
Ferguson Finance (Switzerland) AG
(Switzerland)(iii)(1)
Ferguson Fire & Fabrication Inc. (US)(iii)(5)
Ferguson Group Services Limited (England)(iii)(2)
Ferguson Holdings (Switzerland) AG
(Switzerland)(i)(iii)(1)
Ferguson Panama, S.A. (Panama)(x)(4)
Ferguson Receivables, LLC. (US)(x)(3)
Ferguson Sourcing (Switzerland) AG
(Switzerland)(iii)(1)
Fusion Provida Holdco Limited (England)(iii)(30)
Fusion Provida UK Limited (England)(iii)(30)
G. L. Headley Limited (England)(ii)(iii)(2)
Glegg & Thomson Limited (Scotland)(ii)(iii)(20)
H.P. Products Corporation (US)(x)(3)
Hall & Co. Limited (England)(ii)(iii)(30)
Health Equipment Hire Limited (England)(ii)(iii)(2)
Heating Replacement Parts & Controls
Limited (England)(ii)(iii)(2)
Heatmerchants Limited (England)(ii)(iii)(2)
Het Onderdeel BV (Netherlands)(iii)(24)
Hobro Ny Trælast A/S (Denmark)(iii)(26)
Home Outlet Online Limited (England)(iii)(30)
HP Logistics, Inc. (US)(x)(3)
Huggjärnet 6 Kommanditbolag (Sweden)(xiii)(14)
Improvement Brand Holdings, Inc. (US)(x)(3)
Julise Limited (England)(ii)(iii)(2)
King & Company (1744) Limited (England)(ii)(iii)(2)
Kommanditbolaget Näringen 8:4 (Sweden)(xiii)(14)
Living Direct, Inc. (US)(x)(3)
M. A. Ray & Sons Limited (England)(ii)(iii)(2)
Matera Paper Company, Inc. (US)(x)(3)
Melanie Limited (England)(ii)(iii)(2)
Mölnlycke Trä AB (Sweden)(iii)(14)
MPS Builders Merchants Limited (England)(iii)(30)
Neumann Bygg AS (Norway)(iii)(29)
Nevill Long Limited (England)(iii)(30)
Ningbo Capstone Service Solutions Company
Limited (China)(iii)(27)
Northern Heating Limited (Scotland)(ii)(iii)(20)
Northern Heating Supplies Limited
(Scotland)(ii)(iii)(20)
Strategic report
Governance
Financials
Other information
Wolseley Centers Limited (England)(ii)(iii)(2)
Wolseley Centres Limited (England)(ii)(iii)(2)
Wolseley de Puerto Rico, Inc. (Puerto Rico)(i)(x)(3)
Wolseley Developments Limited (England)(ii)(iii)(2)
Wolseley Directors Limited (England)(ii)(iii)(2)
Wolseley ECD Limited (Northern Ireland)(ii)(iii)(9)
Wolseley Engineering Limited (England)(ii)(iii)(2)
Wolseley Europe Limited (England)(iii)(2)
Wolseley Finance (Isle of Man) Limited
(Isle of Man)(ii)(ix)(xiv)(8)
Wolseley Finance (Thames) Limited
(England)(ii)(iii)(2)
Wolseley Finance (Theale) Limited (England)(ii)(vii)(2)
WFBM SNC (France)(iii)(7)
Wolseley Green Deal Services Limited
(England)(iii)(30)
Wolseley Group Holdings Limited (England)(iii)(2)
Wolseley Haworth Limited (England)(iii)(30)
Wolseley Holding A/S (Denmark)(iii)(17)
Wolseley Holdings (Ireland)
(Republic of Ireland)(ii)(iii)(xiv)(6)
Wolseley Holdings Canada Inc. (Canada)(xi)(11)
Wolseley Industrial Canada Inc. (Canada)(iii)(11)
Wolseley Insurance Limited (Isle of Man)(ix)(31)
Wolseley Integrated de Mexico, S.A. de C.V.
(Mexico)(iv)(33)
Wolseley Integrated Services Inc. (Canada)(x)(11)
Wolseley Investments Limited (England)(ii)(iii)(2)
Wolseley Investments North America,
Inc. (US)(iii)(3)
Wolseley Investments, Inc. (US)(iii)(3)
Wolseley Limited (England)(i)(iii)(2)
Wolseley NA Construction Services, LLC (US)(xii)(3)
Wolseley Nordic Holdings AB (Sweden)(iii)(14)
Wolseley North America, Inc. (US)(ii)(iii)(3)
Wolseley Overseas Limited (England)(iii)(2)
Wolseley Pension Trustees Limited
(England)(ii)(iii)(2)
Wolseley Properties Limited (England)(ii)(iii)(2)
Wolseley QUEST Limited (England)(ii)(iii)(2)
Wolseley Trinidad Ltd (Trinidad and Tobago)(iii)(15)
Wolseley UK Directors Limited (England)(iii)(30)
Wolseley UK Finance Limited (Guernsey)(ii)(iii)(xiv)(18)
Wolseley UK Limited (England)(ix)(30)
Wolseley Utilities Limited (England)(iii)(30)
Wolseley-Hughes Limited (England)(ii)(iii)(2)
Wolseley-Hughes Merchants Limited
(England)(ii)(iii)(2)
Wright (Bedford) Limited (England)(ii)(iii)(2)
Yorkshire Heating Supplies Limited
(England)(ii)(iii)(2)
Fully owned subsidiaries (continued)
Nu-Way Heating Plants Limited (England)(ii)(iii)(2)
O.B.C. Limited (England)(ii)(iii)(2)
O.B.C. Limited (Northern Ireland)(ii)(iii)(9)
Oil Burner Components Limited (England)(ii)(iii)(2)
P.D.M. (Plumbers Merchants) Limited
(Scotland)(ii)(iii)(20)
Parts Center Limited (England)(ii)(iii)(2)
Pat Murphy Industrial (Sales & Service) Limited
(Republic of Ireland)(iii)(6)
Pipeline Controls Limited (England)(ii)(iii)(2)
Plumb-Center Limited (England)(ii)(iii)(2)
Power Equipment Direct Inc. (US)(x)(3)
Promandis Limited (England)(ii)(iii)(2)
Reay Electrical Distributors Limited (England)(ii)(iii)(2)
Rosco Industrial Limited (Scotland)(ii)(iii)(20)
Sellers of Leeds (Group Services) Limited
(England)(ii)(iii)(2)
Sellers of Leeds International Limited
(England)(ii)(iii)(2)
Sellers of Leeds Limited (England)(ix)(30)
SEMSCO Barbados, LLC (US)(ii)(x)(12)
Soak B.V. (Netherlands)(ii)(iii)(32)
St. Nicholas Finance Limited (England)(ii)(ix)(2)
STARK Føroyar PF (Denmark)(iii)(19)
Stark Group A/S (Denmark)(iii)(17)
Stark Group Holdings A/S (Denmark)(iii)(17)
Stark Kalaallit Nunaat A/S (Greenland)(iii)(22)
Starkki Property Oy (Finland)(iii)(21)
Stock Loan Services LLC (US)(xii)(3)
Sundsvall Vagnen 1 Fastighets AB
(Sweden)(ii)(iii)(14)
T & R Electrical Wholesalers Ltd (England)(iii)(30)
Tellum Construction, LLC (US)(xii)(3)
Thames Finance Company Limited
(England)(ii)(iii)(2)
Thomson Brothers Limited (Scotland)(iii)(20)
Uni-Rents Limited (England)(ii)(iii)(2)
Utility Power Systems Limited (England)(vi)(30)
Wasco Distributiecentrum B.V. (Netherlands)(iii)(24)
Wasco Energie Centrum B.V. (Netherlands)(iii)(24)
Wasco Groothandelsgroep B.V.
(Netherlands)(iii)(24)
Wasco Holding B.V. (Netherlands)(iii)(24)
Wasco Twello B.V. (Netherlands)(iii)(23)
Wholesale Group Operations, Inc. (US)(x)(3)
Wholesale Supplies (C.I.) Ltd (Jersey)(iii)(v)(10)
William Wilson & Co. (Aberdeen) Limited
(Scotland)(ii)(iii)(20)
William Wilson & Company (Glasgow) Limited
(Scotland)(ii)(iii)(20)
William Wilson (Rugby) Limited (England)(ii)(iii)(2)
William Wilson Holdings Limited (Scotland)(iii)(vi)(20)
William Wilson Ltd (Scotland)(iii)(20)
WM. C. Yuille & Company Limited (Scotland)(ii)(iii)(20)
Wolseley (Barbados) Ltd (Barbados)(iii)(3)
Wolseley Bristol Limited (England)(ii)(iii)(2)
Wolseley Canada Inc (Canada)(x)(11)
Wolseley Capital, Inc. (US)(x)(3)
Joint ventures
Brabyggare Sverige AB (Sweden)(iii)(25)
Controlling interests
Luxury for Less Limited (England, 68%)(viii)(13)
SCI de Lhoumaille (France, 53%)(iii)(7)
Shanghai Du De International Trading Company
(China)(iii)(xv)(28)
Associated undertakings
Walter Meier AG (Switzerland, 39%)(iii)(34)
Notes:
(i) Directly owned by Ferguson plc
(ii) Dormant
(iii) Ownership held in ordinary shares
(iv) Ownership held in class of A shares
(v) Ownership held in class of B Shares
(vi) Ownership held in classes of A and B shares
(vii) Ownership held in classes of A, B, C and D shares
(viii) Ownership held in classes of A1, A2, B, C, D, E, G shares
(ix) Ownership held in ordinary and preference shares
(x) Ownership held in common stock
(xi) Ownership held in common stock and preferred stock
(xii) Ownership held as membership interests
(xiii) Ownership held as partnership interests
(xiv) Companies controlled by the Group based
on management’s assessment
(xv) Ownership held 100% by Luxury for Less Limited
Registered office addresses:
(1) Grafenauweg 10, CH-6301, Zug, Switzerland
(2)
Parkview 1220, Arlington Business Park, Theale,
Reading, RG7 4GA, United Kingdom
12500 Jefferson Avenue, Newport News VA 23602,
United States
140 Commerce Road, Boynton Beach, FL 33426,
Panama
18825 San Jose, City of Industry CA, United States
25/28 North Wall Quay, Dublin 1, Ireland
3 avenue de l’Opera, 75001, Paris, France
33-37 Athol Street, Douglas, IM1 1LB, Isle of Man
42-46 Fountain Street, Belfast, Northern Ireland,
BT1 5EF, United Kingdom
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10) 47 Esplanade, St Helier, Jersey, JE1 0BD, Jersey
(11)
(12) 9501 Highway, 92 East, Tampa FL FL 33610,
880 Laurentian Drive, Burlington ON L7N 3V6, Canada
United States
(13) Attleborough House, Townsend Drive, Attleborough
Fields Industrial Estate, Nuneaton, Warwickshire,
CV11 6RU, United Kingdom
(14) Box 798, S-19127, Sollentuna, Sweden
(15) Building no 6, Fernandes Industrial Centre, Eastern
Main Road, Laventille, Port of Spain, Trinidad
and Tobago
(16) GI Landevej 2, POB 1499, DK-2600, Glostrup, Denmark
(17) Gladsaxe Møllevej 5, 2860, Søborg, Denmark
(18) Glategny Court, Glategny Esplanade, St Peter Port,
GY1 1WR, Guernsey
(19) Gulsteinsvegur 3, Saltangara, Færøerne, Denmark,
FO-600, Faroe Islands
(20) Hareness Road, Altens Industrial Estate, Aberdeen,
AB12 3QA, United Kingdom
(21) Helsingintie 50, Lahti, 15100, Finland
(22) Industrivej 16, Nuuk, 3900, Greenland
(23) Koppelstraat 9, 7391 AK, Twello, Netherlands
(24) Leigraaf 54, 7391 AL Twello, Twello, Netherlands
(25) Lindingo, Stureplan 6, 4tr, 114 35, Stockholm, Sweden
(26) Lucernevej 2, DK-9500 Hobro, Denmark
(27) Room 1203, Building 1 (Beilun Financial Building),
527 Baoshan Road, Xinqi, Beliun District, Ningbo, China
(28) Room 306-1 Building 2, 3000 Yixian Road, Baoshan
district, Shanghai, China
(29) Sandviksboder 58, Postboks 705, Bergen, NO-5807,
Norway
(30) The Wolseley Center, Harrison Way, Leamington Spa,
CV31 3HH, United Kingdom
(31) Tower House, Loch Promenade, Douglas, Isle of Man,
IM1 2LZ, Isle of Man
(32) Bergpoortstraat 71, 7411 cl Deventer, Netherlands
(33) Carretera a General Cepeda 8395, Derramadero,
Coahuila, 25300, Mexico
(34) Bahnstrasse 24, 8603 Scherzenbach, Switzerland
Ferguson plc Annual Report and Accounts 2017
141
Shareholder information
This section provides shareholders with key information to assist in the management of their shareholding. If you have any questions which are not
answered below or on the Ferguson plc website www.fergusonplc.com, you can contact Equiniti (our registrar) or Ferguson’s Investor Relations
department at investor@fergusonplc.com.
Financial calendar
Key dates for 2017/18 are set out below. Please note that such dates are based on current expectations and all future dates should be considered
as provisional and subject to change.
28 November 2017, 2.00pm Swiss time
1 December 2017
5 December 2017
27 March 2018
27 April 2018
19 June 2018
31 July 2018
2 October 2018
Ferguson plc 2017 Annual General Meeting
2017 final dividend payment date
Interim Management Statement released
Announcement of Half Year results for the period ending 31 January 2018
2018 proposed interim dividend payment date
Interim Management Statement released
End of financial year 2017/18
Final results for the year ending 31 July 2018
Ferguson shares
Share price history
Set out below is a graph showing the performance of Ferguson’s share price (using normalised share price data) compared to the FTSE 100 Index during
the financial year.
FTSE 100 Index – Ferguson and FTSE 100
31 July 2017
120
110
100
90
29 July 2016
Aug 2016
Sept 2016
Oct 2016
Nov 2016
Dec 2016
Jan 2017
Feb 2017
Mar 2017
Apr 2017
May 2017
June 2017
July 2017
Aug 2017
Ferguson plc
FTSE 100 Index
Recent share capital history
Since 2009, there have been four events affecting the share capital of Ferguson plc:
2013 – Special dividend, share consolidation and consequential redenomination of shares as 10 53⁄66 pence.
2012 – Special dividend, share consolidation and consequential redenomination of shares as 10 5⁄11 pence.
2010 – Scheme of arrangement and redomiciliation.
2009 – Share capitalisation and rights issue.
Further details can be found on the Ferguson plc website www.fergusonplc.com.
Ordinary shares and ADRs
Ferguson shares are listed on the London Stock Exchange using code “FERG”.
Ferguson also has an ADR programme which trades under the symbol “FERGY”. The ADRs are listed on the premier tier of the over-the-counter market
“OTCQX”. For further information please contact the ADR Depositary:
Deutsche Bank Trust Company Americas
Transfer agent: American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
Email enquiries: DB@astfinancial.com
Telephone: Within the USA toll free: 866 249 2593
International: +1 718 921 8124
Website: www.adr.db.com
142 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Dividend
Proposed final dividend
73.33 pence per share
The Directors have recommended a final dividend of 73.33 pence per share. Payment of this dividend is subject to approval at the 2017 AGM.
On 1 August 2017, the Company changed its reporting currency from sterling to US dollars. For the financial year ending 31 July 2018 onwards dividends
will be declared in US dollars and shareholders will be able to choose between payment in US dollars or sterling.
Key dates for this dividend
Ex-dividend date
Record date
DRIP election date
AGM (to approve final dividend)
Payment date
DRIP certificates posted/CREST accounts credited
26 October 2017
27 October 2017
10 November 2017
28 November 2017
1 December 2017
6 December 2017
Dividend history
Details of dividends paid in the financial years 2015/16 and 2016/17 are set out below. For details of other historical payments, please refer to the
Ferguson plc website www.fergusonplc.com under “Dividends” in the “Shareholder centre” section.
Financial year
Dividend period
2016/17
2015/16
2015/16
Interim 2017
Final 2016
Interim 2016
Dividend payment methods
Dividend amount
(pence per share)
36.67
66.72
33.28
Record date
7 April 2017
Payment date
28 April 2017
28 October 2016
1 December 2016
1 April 2016
29 April 2016
DRIP share price
£49.3796
£46.5923
£38.7674
1. Direct payment to your bank: You are encouraged to receive your dividends directly to your bank or building society account. This is more
convenient and helps reduce the risk of cheques becoming lost or delayed in the post. The associated dividend confirmation will still be sent
direct to your registered address. To switch to this method of payment you can download a dividend mandate form from the Shareview website
(www.shareview.co.uk). Alternatively, you can contact Equiniti by telephone who will also be able to assist with any questions you may have.
2. Overseas payment service: If you live overseas, Equiniti offers an Overseas Payment Service which is available in certain countries. This may make
it possible to receive dividends direct into your bank account in your local currency*. Further information can be found on the Ferguson plc website,
Shareview website or you can contact Equiniti by telephone.
3. Dividend Reinvestment Plan (“DRIP”): The Company offers a DRIP which gives shareholders the opportunity to use their dividend to purchase
further Ferguson shares. Instead of receiving cash, shareholders receive as many whole shares as can be bought with their dividend, taking into
account related purchase costs. Any residual cash will be carried forward and added to their next dividend.
If you wish to join the DRIP, you can download copies of the DRIP terms and conditions and the DRIP mandate form from the Shareview website.
Simply complete the DRIP mandate form and return it to Equiniti. Should you have any questions on the DRIP or wish for a paper mandate form to be
sent to you, please contact Equiniti on 0371 384 2934. Please note that if you wish to join the DRIP in time for the 2017 final dividend, our Registrars,
Equiniti, must have received the instruction by 10 November 2017. Instructions received by Equiniti after this date will be applied to the next dividend.
* Please note that a payment charge would be deducted from each individual payment before conversion into your local currency.
Ferguson plc Annual Report and Accounts 2017
143
Shareholder information continued
Shareholder communications
Annual General Meeting (“AGM”)
The 2017 AGM will be held on Tuesday, 28 November 2017 at Parkhotel,
Industriestrasse 14, CH-6300, Zug, Switzerland and will commence at
2.00pm, Swiss time. An audio visual link to the meeting is proposed
to be available at the offices of Freshfields Bruckhaus Deringer LLP,
26-28 Tudor Street, London EC4Y 0BQ, United Kingdom, commencing
at 1.00pm (UK time).
The AGM provides an opportunity each year for shareholders
to ask questions about the business in the Notice of AGM and to raise
matters about the business of Ferguson. Full details of the AGM can be
found in the Notice of AGM. Venue location maps are provided below.
Zug: AGM venue
Dam mstrasse
Albisstrasse
Gubelstrasse
Metallstrasse
Bärenplatz
Zug Bahnhof
Rail station
Zug Bahnhofplatz
e
s
s
a
r
t
s
r
e
r
a
a
B
Kino
Gotthard
Parkhotel
e
s
s
a
r
t
s
e
i
r
t
s
u
d
n
I
Metalliplatz
London: audio visual link venue
Fleet St
W
h
i
t
e
f
r
i
a
r
s
Freshfields
Bruckhaus
Deringer LLP
D
o
r
s
e
t
R
i
s
e
City Thameslink
N
e
w
B
r
i
d
g
e
S
t
B
o
u
v
e
r
i
e
S
t
l
T
e
m
p
e
A
v
e
Inner
Temple
Inner Temple
Gardens
Embankment
River Thames
Tudor St
B
r
i
d
g
e
l
B
a
c
k
f
r
i
a
r
s
Website
See the inside front cover for further details about the Ferguson plc website.
Annual report
Ferguson publishes an annual report every year. It is sent to shareholders through
the post as a printed document unless the shareholder has chosen to receive
e-communications (see below).
E-communications
The Company offers shareholders the opportunity to access shareholder documents,
such as annual reports and notices of AGM, via e-communications rather than receiving
printed documents in the post. You will be notified by email as soon as shareholder
documents are available on the website.
Managing your shares
Share registration enquiries
To manage your shareholding, please contact Equiniti. They will be able
to assist you in various matters including:
– changing your registered name and address;
– consolidating share certificates;
– managing your dividend payments;
– notifying the death of a shareholder;
– registering a lost share certificate and obtaining a replacement;
– registering for electronic communications; and
– transferring your shares.
You can contact Equiniti in writing, by telephone or online. Further contact
details are set out below. Please use your shareholder reference number
when contacting Equiniti. This can be found on your share certificate or
dividend confirmation.
If you are not already registered to view your shareholding online, you will
need to register via Equiniti’s Shareview website.
Equiniti
Address: Equiniti (Jersey) Limited, c/o Equiniti (8063)
PO Box 75
26 New Street
St Helier
Jersey JE4 8PP
Channel Islands
Telephone: 0371 384 2934 and from outside the UK
+44 (0)121 415 7011
Website: www.equiniti.com
Shareview website: www.shareview.co.uk/myportfolio
Blackfriars
Share dealing
If you wish to buy or sell Ferguson shares and hold a share certificate,
you can do this:
– by using the services of a stockbroker or high street bank; or
– through telephone or online services.
Equiniti also offer a share dealing service to UK-based shareholders.
Further details of their telephone, internet and postal dealing services can
be obtained from their Shareview website (www.shareview.co.uk) or by
calling 03456 037 037.
144 Ferguson plc Annual Report and Accounts 2017
Strategic report
Governance
Financials
Other information
Company contacts
Investor relations (investor@fergusonplc.com)
Group Director of Communications and Investor Relations
Mark Fearon
Company secretariat
Group Company Secretary
Graham Middlemiss
Company advisers
Auditor
Deloitte LLP
Public relations
Brunswick
Corporate brokers
Bank of America Merrill Lynch
Barclays
Solicitor
Freshfields Bruckhaus Deringer LLP
Group information
Company details
Registered Office
Ferguson plc
26 New Street
St Helier
Jersey
JE2 3RA
Channel Islands
Registration No. 106605 Jersey
Ferguson Corporate Head Office
Ferguson plc
Grafenauweg 10
CH-6301
Zug
Switzerland
Telephone: +41 (0) 41 723 2230
Fax: +41 (0) 41 723 2231
Ferguson Group Services Office
Parkview 1220
Arlington Business Park
Theale
Reading RG7 4GA
Telephone: +44 (0) 118 929 8700
Fax: +44 (0) 118 929 8701
Website
www.fergusonplc.com
Stay informed
Main corporate site
www.fergusonplc.com
Shareholder information section
Key sections include Our businesses, Investors and
media and Sustainability. There is also information
on our strategy and links to our business unit
websites. Site tools include information pack
download, alert services and an option to receive
content feeds.
Visit our Investor and media centre on our
corporate website to stay up to date on Ferguson’s
results, financial calendar and latest press releases.
Within the Investor and media centre you will
find the Shareholder centre where you will find
information on the AGM, dividends, electronic
communications, share price and managing
your shares.
Ferguson plc Annual Report and Accounts 2017
145
Forward-looking statements
Certain information included in this Annual Report and Accounts
is forward-looking and involves risks, assumptions and uncertainties that
could cause actual results to differ materially from those expressed or
implied by forward-looking statements. Forward-looking statements 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,
expected expenditures and divestments, risks associated with changes
in market conditions and pressures on margins, changes in the level
of litigation, employee motivation, the performance and resilience of the
Company’s systems and infrastructure, the level of government regulation
and financial risks (such as fluctuations in exchange and interest rates).
Forward-looking statements can be identified by the use of forward-
looking terminology, including terms such as “believes”, “estimates”,
“anticipates”, “expects”, “forecasts”, “intends”, “plans”, “projects”, “goal”,
“target”, “aim”, “may”, “will”, “would”, “could” or “should” or, in each
case, their negative or other variations or comparable terminology.
Forward-looking statements are not guarantees of future performance.
All forward-looking statements in this Annual Report and Accounts are
based upon information known to the Company on the date of this Annual
Report and Accounts. Accordingly, no assurance can be given that any
particular expectation will be met and readers are cautioned not to place
undue reliance on forward-looking statements, which speak only at their
respective dates.
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 its legal or regulatory
obligations (including under the UK Listing Rules, the Prospectus Rules,
the Disclosure Rules and the Transparency Rules of the Financial Conduct
Authority), the Company undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Nothing in this Annual Report and
Accounts shall exclude any liability under applicable laws that cannot be
excluded in accordance with such laws.
146 Ferguson plc Annual Report and Accounts 2017
Credits
Designed and produced by Radley Yeldar
www.ry.com
Photography: Andy Wilson
Paper
This report is printed on Revive 50 Silk paper and cover
board, with Revive 100 offset used in the financial section.
Revive 50 Silk is made from 25 per cent de-inked post-
consumer waste, 25 per cent unprinted pre-consumer
waste and 50 per cent virgin fibre.
Revive 100 offset is made from 100 per cent de-inked
post consumer waste. Both products are fully biodegradable
and recyclable and produced in mills which hold IS0 9001
and ISO 14001 accreditation.
Printing
Printed by Pureprint Group. The printing inks are made with non-
hazardous vegetable oil from renewable sources. Over 95 per
cent of solvents and developers are recycled for further use and
recycling initiatives are in place for all other waste associated with
this production. Pureprint Group is FSC® with strict procedures in
place to safeguard the environment through all processes.
The greenhouse gas emissions from the production and
distribution of this Annual Report and Accounts have been
neutralised through The Gold Standard Basa Magogo offsetting
project in South Africa.
The first Gold Standard project of its kind in the world, this
innovative behaviour-change programme teaches local
communities in South Africa to burn coal differently in order
to be more fuel efficient, thereby reducing carbon emissions.
The technique, called Basa Magogo, means “Light it up!
Grandmother” in Zulu. In addition to the emission reductions,
the Basa Magogo technique also improves visibility and reduces
health risks by producing less smoke.
Ferguson plc
Registered Office
26 New Street
St Helier
Jersey
JE2 3RA
Channel Islands
Registration No. 106605 Jersey
Corporate Headquarters
Grafenauweg 10
CH-6301
Zug
Switzerland
Telephone +41 (0)41 723 2230
Fax +41 (0)41 723 2231
www.fergusonplc.com
Follow us on Twitter
@ferguson_plc