Ferguson Annual Report 2020

FY2020 Annual Report · Ferguson

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Ferguson plc
Annual Report and Accounts 2020

Better

with
Ferguson

Welcome to Ferguson

Ferguson plc is a leading value added distributor
of plumbing and heating products.

07
Group Chief Executive’s Q&A
Kevin Murphy, our new Group Chief
Executive, discusses his views on strategy
and Ferguson’s response to COVID-19.

04
Chairman’s statement
Geoff Drabble reflects on a
year of substantial progress and
considerable challenges.

26–29
Financial review
Mike Powell, CFO, assesses the Group’s
strong and resilient performance this year
and continued financial strength.

IFC–59
Strategic report

60–112
Governance

IFC Welcome to Ferguson

20 Key resources and relationships

Governance overview

Stakeholder engagement

62 Board of Directors

IFC Contents

Ferguson at a glance

Chairman’s statement

Financial highlights

Group Chief Executive’s Q&A

15 Market overview

Key performance indicators
(“KPIs”)

18 Our business model

Financial review

Regional performance

Sustainability

Principal risks and
their management

59 Non-financial

information statement

The Board’s focus
during the year

66 How the Board engages
with stakeholders

67 Division of responsibilities

69 Composition, succession

and evaluation

Nominations Committee

Audit, risk and internal control

Directors’ Remuneration Report

Remuneration at a glance

86 Annual report on remuneration

2019 Remuneration Policy –
for information only

109 Directors’ Report –

other disclosures

Ferguson plc Annual Report and Accounts 202001

Better with Ferguson

Our purpose is to act as a trusted supplier and partner
to our customers, providing innovative products
and solutions to make their projects better. We offer
excellent service, advice and a broad range of
specialist plumbing and heating products delivered
where and when our customers need them.

The emergence of COVID-19 this year has
demonstrated more than ever how our customers
rely on us every day to help them deliver critical
infrastructure spanning almost every stage of
residential, commercial, industrial and municipal
development. Whatever the future challenges, we
will continue to partner with our customers to keep
millions of homes and businesses operating while
helping them to run their business more efficiently.

For more information on our values and people

Page 20

113–167
Financials

168–176
Other information

114 Group income statement

158 Independent auditor’s report

168 Five-year summary

115 Group statement of

to the members of Ferguson plc

comprehensive income

164 Company income statement

116 Group statement of

changes in equity

164 Company statement
of changes in equity

117 Group balance sheet

165 Company balance sheet

170 Group companies

172 Shareholder information

175 Group information

176 Forward-looking statements

118 Group cash flow statement

119 Notes to the consolidated
financial statements

166 Notes to the Company
financial statements

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report02

Ferguson at a glance

Value added
distributor

We serve nine customer groups
in the USA providing a broad
range of plumbing and heating
products and solutions.

These are delivered through specialist sales
associates, counter service, showroom
consultants and e-commerce.

Our business is organized by customer
requirements for strategic planning
purposes. In certain markets where it is more
efficient to do so, we serve our customers
through a Blended Branches location
rather than a dedicated standalone branch.
Blended Branches mainly comprises three
principal customer groups: Residential Trade,
Residential Showroom and Commercial.

For more information on our customer groups

Pages 30 to 45

For more information on our markets

Page 15

Ferguson plc is a leading, value added distributor of
plumbing and heating products. Our business serves
customers principally in North America, predominantly
serving the repair, maintenance and improvement
(“RMI”) markets.

Residential Showroom
Operates a national network of 256 showrooms,
serving consumers and trade customers.
Showrooms display bathroom, kitchen and
lighting products and assist customers by
providing advice and project management
services for their home improvement projects.

15%

of total US revenue

Residential Trade
Serves the residential RMI and new construction
sectors with a large proportion of sales through the
branch counters. It provides plumbing and sanitary
supplies, tools, repair parts and bathroom fixtures
to plumbing contractors.

19%

of total US revenue

eBusiness
Sells home improvement products directly to
consumers and trade customers online through
various websites. The primary brand is Build.com
and the business creates synergies by using the
same distribution network as the trade businesses.

HVAC
Distributes heating, ventilation, air conditioning
(“HVAC”) and refrigeration equipment, parts
and supplies to specialist contractors in the
residential and commercial end markets for repair
and replacement.

of total US revenue

10%

of total US revenue

Group

Canada
5%

UK
9%

USA
86%

Canada
2%

UK
1%

USA
97%

Revenue

Underlying
trading proﬁt1

1. This is an Alternative Performance Measure ("APM"); 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 124 to 127. Underlying trading profit refers to continuing operations unless otherwise stated.

Ferguson plc Annual Report and Accounts 2020
03

Commercial
Provides commercial plumbing and mechanical
contractors with products and services including
bidding and tendering support and timeline
planning to assist with their construction projects.

14%

of total US revenue

Facilities Supply
Provides products, services and solutions to enable
reliable maintenance of commercial facilities across
multiple RMI markets including multi-family properties,
government agencies, hospitality, education
and healthcare.

of total US revenue

Fire and Fabrication
Fabricates and supplies fire protection products,
fire protection systems and bespoke fabrication
services to commercial contractors for new
construction projects.

of total US revenue

Waterworks
Distributes pipe, valves and fittings (“PVF”),
hydrants, meters and related water management
products alongside related services including
water line tapping and pipe fusion often to civil or
municipal organizations.

Industrial
Supplies PVF and industrial maintenance, repair
and operations (“MRO”) specializing in delivering
automation, instrumentation, engineered products
and turn-key solutions. Also provides supply chain
management solutions.

18%

of total US revenue

USA
$18,857m

Revenue
(2018/19: $18,358m)

8.4%

Underlying trading margin2
(2018/19: 8.2%)

Canada
$1,083m

Revenue
(2018/19: $1,191m)³

4.0%

Underlying trading margin2
(2018/19: 5.6%)³

UK (non-ongoing)
$1,879m

Revenue
(2018/19: $2,222m)⁴

0.4%

Underlying trading margin2
(2018/19: 3.1%)⁴

2. See note 3 on pages 128 and 130 for further information on segmental metrics. The underlying trading

margin is calculated as the underlying trading profit divided by revenue.

3. Excludes Central European businesses, the last of which was sold in January 2019.
4. Excludes soak.com, which was sold in March 2019.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report04

Chairman’s statement

Navigating
exceptional
times while
protecting
the business
for the
long term

I am delighted to have been given the
opportunity to join the Board of Ferguson
as Chairman and what an extraordinary
time to have started in this role. As I joined
last May I was struck by many qualities
about the business with its very strong
customer-centric culture, the energy and
commitment of the Ferguson associates
and the excellent leadership team focused
on driving performance.

The rapid, effective and caring response
to the COVID-19 pandemic, the impact
of which began to be felt in March,
has shone a light more than ever on these
qualities. Above all else this year,
I have been struck by the unwavering
commitment of Ferguson’s 34,000
associates, who despite the challenges
of the virus have steadfastly committed
to keeping our customers running,
many of whom provide critical services
keeping millions of homes and businesses
functioning. On behalf of the Board I would
like to express our sincere thanks to them
and recognize their outstanding contribution
to our success.

Over the past six months the ongoing
impact of COVID-19 has been significant
and has had a profound impact on all our
lives and will do so for some time to come.

As for all organizations, the pandemic
has caused a significant shift in the way
Ferguson operates and brings into play
significant risks and challenges. We have
an experienced management team that
has a strong track record of dealing with
incidents and to tackle this crisis they have
set up response teams to ensure we keep
the core business operating and protect
the health and wellbeing of our colleagues
and customers.

The Board receives regular updates from
the Executive team on the provision of
core services, how we are supporting
colleagues and the community, and the
mitigation of the risks to our business.
You can read more about our response to
the COVID-19 pandemic in Kevin Murphy’s
Chief Executive’s review. The Board has
also carefully considered and monitored
the potential economic impacts of
COVID-19, in particular financing and
liquidity. Ferguson has a proven cash
generative business model and entered
this period of high uncertainty with a strong
balance sheet and significant liquidity
headroom. Mike Powell provides a detailed
overview of this in his Financial review on
pages 26 to 29. Additional detail also can
be found in our viability statement on pages
54 to 55 and our principal risks on pages
53 to 59.

“ Above all else this year, I have been struck by the
unwavering commitment of Ferguson’s 34,000
associates, who despite the challenges of the virus
have steadfastly committed to keeping our customers
running, many of whom provide critical services
keeping millions of homes and businesses functioning.”

Geoff Drabble
Chairman

Ferguson plc Annual Report and Accounts 202005

Financial performance
and strategy
2019/20 has been a year of substantial
progress under the stewardship of Kevin
Murphy in his first year as Group Chief
Executive, despite the impact of COVID-19.
The Group has delivered a strong and
resilient trading performance in particularly
challenging markets in the second half.
As you will read in his Chief Executive’s
Q&A on pages 7 to 14, Kevin has provided
fresh impetus to the rapid execution of our
strategy, in particular prioritizing investment
and focus on our largest growth opportunity
in the USA.

The Group generated ongoing revenue¹
growth of 2.0 per cent to $19,940 million
(2018/19: $19,549 million). Headline earnings
per share¹ was 1.1 per cent lower at 511.6
cents mainly due to a higher effective
tax rate from previously announced tax
reform. Total basic earnings per share of
427.5 cents was 11.2 per cent lower than
last year due to increased exceptional
and amortization charges in the year and
exceptional discontinued disposal gains in
the prior year. We delivered an excellent
cash performance over the period which,
at a time of great focus on the impact of the
pandemic on the health of company balance
sheets, underlines the strength of our
business model.

Shareholder returns
Since 2009, Ferguson’s investment
priorities have remained firmly focused on
investing in the business and consistently
generating above market organic growth.
We also set out to maintain and grow the
ordinary dividend in line with earnings
through the cycle and selectively invest
in bolt-on acquisitions that meet our
investment criteria. Any surplus cash after
meeting these investment needs was
returned to shareholders promptly and we
have returned over $4 billion in share buy
backs and special dividends over the past
eight years.

Given the uncertainty of COVID-19 our
strong balance sheet has been a source
of great strength as we have guided the
business through the early challenges of the
pandemic. Initially we took prompt actions
to optimize cash flow, reducing capital
expenditure and operating costs, and further
improve our liquidity position. This included
suspending the $500 million share buy back
announced on February 4, 2020, pausing
M&A activity, and after careful consideration
withdrawal of the interim dividend due for
payment in April 2020.

However, we stated at the time that the
Board recognized the importance of
dividends to shareholders and, as such,
intended to consider the appropriateness,
quantum and timing of future dividends
when the Board had a clearer view
of the effects of COVID-19 on the
Company’s business.

Taking into account the Group’s prospects
and financial position; the Board has
decided to propose a final dividend for the
year ended July 31, 2020 of 208.2 cents
which effectively reinstates the previously
withdrawn interim dividend and is in line
with last year’s total dividend (2018/19: 208.2
cents per share). The dividend will be paid
on December 11, 2020 to shareholders
on the register at November 13, 2020.
Dividend payments in 2020/21 will revert
back to the normal one-third: two-
thirds split between an interim and final
dividend. The Group’s dividend policy
remains unchanged.

We now intend to resume our focused
M&A program, funding selective bolt-
on acquisitions to improve our market
leadership positions or expand the
capabilities of our existing business models.

While Ferguson remains in a strong financial
position, in the light of continued economic
uncertainty the Board believes that it is
appropriate to preserve prudent levels
of funding and liquidity. As a result, the
previously announced $500 million share
buy back program remains suspended
and will continue to be assessed as we
gain further clarity on economic conditions.
At the point at which the share buy back was
suspended in April 2020 the Company had
completed $101 million of the program.

Financial highlights

Statutory financial results
$21,819m
Revenue
(0.9%)
(2018/19: $22,010m)

$1,261m
Profit before tax
(4.8%)
(2018/19: $1,324m)

427.5c
Total basic earnings
per share
(11.2%)
(2018/19: 481.3c)

208.2c
Total ordinary dividend
per share
In line with last year
(2018/19: 208.2c)

Alternative performance measures
$19,940m
Ongoing revenue1
+2.0%
(2018/19: $19,549m)

30.0%
Ongoing gross margin1
In line with last year
(2018/19: 30.0%)

$1,595m
Ongoing underlying
trading profit1
+4.1%
(2018/19: $1,532m)

511.6c
Headline EPS1
(1.1%)
(2018/19: 517.4c)

1. 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. For further information on APMs, including a description of our policy, purpose,
definitions and reconciliations to equivalent IFRS statutory measures, see notes 2 and 3 on pages 124 to 130.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report06

Chairman’s statement (continued)

Board changes
I was pleased to join Ferguson as a Non
Executive Director on May 22, 2019 and to
succeed Gareth Davis as Chairman from
November 21, 2019. On behalf of the Board
I would like to thank Gareth for his strong
leadership and commitment over the last
16 years. He successfully oversaw a huge
amount of positive change over that period
and I am personally grateful to Gareth
for the time and invaluable support he
generously gave to me during my induction.

John Martin stepped down as Chief
Executive on November 19, 2019. John’s
contribution to Ferguson has been
outstanding for nearly a decade and he
left the business in great shape. The Board
wishes him well for the future. Kevin Murphy
succeeded John as Chief Executive in
November. Kevin, a US national, was
appointed CEO of Ferguson Enterprises
in the USA and joined the Board in August
2017. He has a strong track record of
operational delivery having previously
served as Chief Operating Officer of
Ferguson Enterprises for 10 years after
joining the business through an acquisition
of his family’s waterworks business Midwest
Pipe and Supply in 1999.

Mike Powell will step down as Chief
Financial Officer (CFO) on October 31,
2020 in order to take up a role as Group
CFO of Mondi plc. As CFO for several
years Mike also played a critical role in
the Group’s transformation to focus the
business on its attractive North American
markets, and we wish him all the very best.
Mike will be succeeded by Bill Brundage on
November 1, 2020. Bill is currently CFO of
Ferguson Enterprises and has over 17 year’s
experience in a variety of senior finance
roles with the Company. In searching for
Mike’s successor, we conducted a rigorous
review of potential internal and external
candidates and we were fortunate to have
an internal candidate of such high caliber
and experience in Bill. I would like to
congratulate him on his appointment.

Darren Shapland also stepped down as
a Non Executive Director on November
21, 2019. The Board thanks him for his
significant contribution to the Group over
the last six years. Darren’s responsibilities
as Chairman of the Audit Committee
were taken on by Alan Murray, the Senior
Independent Director. Alan, a US resident,
is a chartered management accountant
with considerable financial, operational
and international experience within global
businesses including 19 years at Hanson
plc, with five years as CEO.

From my early interactions with the Board
this year, it is evident that the Board and
Committees function well with high levels
of engagement from all members and an
appropriate level of challenge and support.
Details of the Board’s work, including the
various Board Committees, is included in
the Governance report on pages 60 to 112.

UK demerger
In September 2019, the Board announced
its intention to separate its Wolseley UK
operations by way of a demerger into an
independent UK listed company, subject
to shareholder approval. The timing of this
remains uncertain in the current economic
environment and consequently the Board
is assessing other separation options in
parallel with progress towards the demerger
to facilitate the exit of the Wolseley
UK business.

Listing structure
Ferguson has been listed in London
since 1986. During this time the Group
has benefited from a strong and diverse
shareholder base that in recent years
has been supportive of the Group’s
growing focus on attractive opportunities
in North America. This strategy has led
to an increasing proportion of revenues
being generated from North America over
time. The Board has therefore kept listing
structure under review over several years,
as the business has evolved.

Following the UK separation, Ferguson’s
Group CEO, CFO and operational
management team will be based in North
America and the entirety of the Group’s
revenue and profit will be generated there.
In addition, there is a comparable set of
peer companies listed in the USA, some
of whom compete directly with Ferguson.
These companies have a large domestic
investor following and are typically covered
by a broad range of North American equity
analysts. Therefore, during the last year
the Board, taking into account the views
of shareholders and advisers, assessed
a range of options and the associated
costs and benefits of amending its listing
structure to allow greater access to North
American domestic capital.

Following this assessment, the Board
concluded that the USA is now the natural
long-term listing location for Ferguson. A US
listing will provide Ferguson with access to
significant incremental pools of capital in the
largest domestic investment market in the
world and is fully aligned with the long-term
strategy and focus for the business.

In February 2020 we announced a formal
consultation with institutional shareholders
on two potential listing structures which
would aim to facilitate greater North
American domestic investment in Ferguson.
Option 1 was to seek shareholder approval
for a secondary listing of ordinary shares in
the USA, with the primary listing remaining
in London, and Option 2 was to seek
shareholder approval for a primary listing in
the USA and demotion of the London listing.
Throughout this process the Board has
been mindful of the importance of acting
in the interests of shareholders as a whole,
many of whom, in the event of a primary US
listing, have mandates restricting continued
long-term ownership.

Following the consultation, the Board,
together with its advisers, carefully
considered the feedback received and in
July 2020 sought shareholder approval
for Option 1 to implement a secondary
listing of ordinary shares in the USA. At the
same time the Board also set out that in
due course its intention is to put forward a
further resolution to Ferguson shareholders
to relocate Ferguson’s primary listing to
the USA.

We were very pleased that shareholders
voted in favor of the resolution and it
received over 99 per cent support,
significantly above the required 75 per cent
threshold. We expect the new listing to
become effective in the first half of calendar
year 2021. We believe that this two-step
process to transition to a full US primary
listing provides an appropriate period
during which some Ferguson shareholders
who have mandates which may restrict their
long-term ownership in Ferguson could sell
their holdings in an orderly manner.

On behalf of the Board I would like to thank
shareholders for their feedback and support
in this matter and in the coming years I
have no doubt that Ferguson will benefit
from having direct access to this significant
incremental pool of capital in the USA.

Looking ahead
Ferguson has made excellent progress this
year on many fronts despite considerable
challenges. The Board is confident that the
Group has the right strategy, leadership
and culture to deliver on its full potential.
Our consistent strong performance,
together with continued rapid execution of
our strategy, ensures the Board continues to
look to the future with confidence.

Geoff Drabble
Chairman

Ferguson plc Annual Report and Accounts 2020Group Chief Executive’s Q&A

I am incredibly proud to be a part of this great Company
through what has certainly been an extraordinary first year
as Ferguson’s Group Chief Executive.

The COVID-19 pandemic has undoubtedly had a dramatic impact and continues
to affect almost every aspect of our business and personal lives. I want to start by
recognizing all of our extraordinary associates who have steadfastly continued to
support our customers and make their projects more successful, in often very difficult
circumstances this year. From our fabricators, technicians and drivers, to our showroom
consultants and sales representatives to those working tirelessly on our counters,
and in our warehouses and distribution centers, not to mention the many thousands
of associates now asked to perform their jobs remotely; they have all risen to the
challenge. During these extraordinary times we are incredibly thankful and proud of
what they continue to accomplish.

The Group
has delivered
a strong
and resilient
performance
despite the
significant
challenges
we’ve all
faced during
the year

Q
You’ve had to wrestle
with significant
challenges this
year including the
outbreak of COVID-19
in the second half.
How did the Group
perform this year?

Kevin Murphy
Group Chief Executive Officer

A
The Group delivered a strong and resilient
performance in 2019/20 which was
particularly important given the challenges
of COVID-19 this year. Ongoing revenue
of $19,940 million was 2.0 per cent ahead
of last year (2018/19: $19,549 million)
and 0.1 per cent behind on an organic
basis. Ongoing gross margins were in
line with last year, which was a good
performance given the adverse product
mix challenges of COVID-19 in the second
half as we temporarily closed our branch
and showroom networks. The Group’s
operating expenses were well controlled,
particularly in the second half, as we
acted swiftly to lower our expense base in
line with the rapidly changing marketing
conditions. Ongoing underlying trading
profit was 4.1 per cent ahead of last year
at $1,595 million (2018/19: $1,532 million),
which under the circumstances was an
excellent performance.

Profit before tax decreased to $1,261 million
(2018/19: $1,324 million) as a result of
slightly higher amortization, impairments
and exceptional charges in the current year
while cash performance has been excellent
in the year.

Read more about our financial performance

Pages 16 to 17 and 26 to 29

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report08

Group Chief Executive’s Q&A (continued)

Q
Ferguson has
continued to operate
its businesses in the
USA, Canada and
the UK throughout
the COVID-19
pandemic. Why has
this been important?

Ferguson is an essential business –
essential to the health and safety in each
of the countries we operate in. Our trade
customers maintain heating, ventilation
and air conditioning (HVAC), clean and
wastewater services to millions of homes
and businesses. We keep key residential,
commercial, industrial and public sector
facilities running and we also support the
major public utilities with the products
they need for repair and maintenance of
their networks. It has been critical to try
to support our customers and play our
part in keeping these important parts of
our economy running. This was widely
recognized by the relevant authorities and
in all 50 states in the USA, Ferguson was
recognized as an essential service.

Q
How have you
safeguarded your
associates and kept
your customers safe?

Q
What have you done
to support the wider
communities in which
you operate?

This was particularly important as we are
uniquely positioned to make a contribution
to our local communities and we are playing
our part to directly support the health impact
of the crisis. We have participated in more
than 50 temporary hospital projects across
the USA and have worked on similar projects
in the UK and Canada. These projects
have created more than 12,000 additional
patient beds in the USA in often challenging
environments including pop-up tents in
parking lots, parks and convention centers.

In New York, where there was a high
concentration of cases early in the pandemic,
we created a 24/7 emergency one-hour
pick-up counter focused on servicing
local hospitals in the New York metro
area. In addition, as hospitals and health
departments responded to the surge in
COVID-19 patients, Ferguson has donated
approximately 70,000 N95 face masks
to healthcare organizations in the USA.
Deliveries of masks have gone to hospitals
across the USA from California to Virginia.
It has been a phenomenal effort so far and
we are really proud of how our people have
risen to the challenges and supported our
customers and communities (see case
study opposite).

Protecting the health and wellbeing of our
associates and customers has always been
our first consideration and throughout the
COVID-19 pandemic this was no different.
Given the challenges of COVID-19 we
had to quickly figure out a new way of
operating safely and we rapidly implemented
new precautions across our business
in adherence with relevant authorities
including the Centers for Disease Control
and Prevention (CDC) guidelines in the USA.
Cleaning protocols at all sites were enhanced
and we ensured that social distancing
was practiced at all locations. In the early
weeks of the pandemic our branches
moved to pick-up and delivery only with
customers encouraged to order ahead with
pick-up in store or at the curbside. We also
implemented new processes and protocols
to keep our drivers safe including touchless
signature at the point of delivery or pick-up
location. At the peak of the pandemic about
14,000 US associates were working remotely,
supported by technology.

As lockdown restrictions were lifted locally
from late May/early June we started
reopening our physical counter locations.
These were adapted with physical safeguards
including safety screens and new signage to
help reinforce the necessary social distancing
measures required and always in line with
local governmental guidance.

All our bricks and mortar showroom sites
were also initially closed (though virtual
consultations continued) and later in
the spring we reopened to scheduled
appointments ensuring these visits
were safe.

Ferguson plc Annual Report and Accounts 202009

Q
Has anything
changed in terms
of how business is
being done in this
new COVID-19 era?
Anything you think will
change when life gets
back to normal?

A
On the trade side of our business we’ve
been very encouraged by the overall
adoption rate of our e-commerce tools
during the crisis. Since it started, an
additional 44,000 customers have signed
on to use our digital tools. Activity levels
through our mobile experience have
doubled over the same timeframe,
signaling that customers are embracing our
site and appreciating our digital offering.
We have continued to see accelerated
growth in our mobile platforms for our
trade customers. Mobile will be critical in
creating the frictionless experience that
allows our customers to be more efficient
and our associates more productive, which
is central to our strategy. We continue to
roll out version updates with additional
functionality, but customers can now
seamlessly do the following:

– Buy online pick-up at store – we’ve created a
“contactless process” for our customers and
associates to transact.

– Use the “Ferguson SKU App” on their mobile

phone to scan product barcodes to seamlessly
create a shopping cart for Ferguson.com.

– Track their delivery truck in real-time after we

embedded truck delivery tracking software into
our platform.

– Search for products by job versus individual
product following the launch of our “shop
by job” feature – this cuts down on the time
customers navigate the app or site to select the
right products.

– Add necessary instructions for their orders,
pick-ups and deliveries through our text to
branch service.

– Gain access to a wide and deep product

inventory with visibility as we continued to add
thousands of different products across all of the
businesses we serve.

As we think about longer-term strategy,
technology remains a key differentiator.
We will continue to develop and invest in
e-commerce solutions which will set us up
well for the future.

The McCormick Place Convention Center as it
was being converted into a temporary hospital
to help in the battle against COVID-19

Case study

Pulling out all the stops
COVID-19 continues to present huge challenges for communities and economies.
At the start of the outbreak Ferguson was essential to setting up care facilities to
help cope with the rising number of infected people.

Jim Kuenn, Director of Commercial – Central Midwest describes what happened
when Ferguson got the call to help on the COVID-19 Care Center project at
McCormick Place in Chicago:

“ The goal was to turn an empty convention center into a 3,500-
bed COVID-19 care facility. We got involved midday on a Tuesday.
Our customer called saying, ‘I need help sourcing product and
I need it yesterday’. We were told that 500 beds, with fixtures
and hot water needed to be ready on Friday by noon. It didn’t
stop there. They told us that 3,000 more beds, fixtures and hot
water needed to be ready within eight days. We reviewed the
mechanical schedule and specifications provided to us.

“ The Ferguson team stepped up to the challenge and worked
24/7 to make it happen while adhering to our new COVID-19
procedures such as social distancing and wearing our personal
protective equipment. Our customers ran ahead of schedule
and met the deadlines because everyone, from our contractors
to various suppliers, found a way to say ‘yes’. I get prideful chills
from what was accomplished. What our teams of associates
overcame that week is a true showing of who we are as people.”

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report10

Group Chief Executive’s Q&A (continued)

Q
As a new CEO, is
Ferguson’s overall
strategy going to
change?

Our strategy is consistent with the direction
of travel in recent years. Of course, we will
constantly evolve our approach over time
and our Strategic Framework (below) is our
roadmap for developing our business in the
coming years.

This will ensure that we drive those
initiatives to further enhance our
competitive advantage and provide a
continually improving experience for our
customers, suppliers, and most importantly,
our associates.

We will operate with a short-term and long-
term focus, not sacrificing the short for the
long, or the long for the short. We can and
will do both.

Figure 1: Our strategic framework

How
tomorrow
works

As trusted advisers, we provide innovative
products and solutions to make our
customers’ projects better.

Strategy
We will expand our role in the value chain to
build durable competitive advantages to achieve
profitable growth.
See examples of our
strategy in action

Pages 32 to 41

P r oje ct
d riv e

a
ble

relatio

Digitally

d c
u
n

sto
s
hip
s

d:
n
n
o
e bra
s
u
erg
F

n
O

Focused
product strategy

Changing landscape
– Changing customer expectations
– Shifting channels
– Industry disruptors
– Labor shortage
– Vertical integration

Our values

Where we invest
We will focus on key capabilities that lay the
groundwork for our path to tomorrow.

Culture of
best associates

Innovation and
Ferguson Ventures

Omnichannel and
digital capabilities

Technology and
data capabilities

Supply chain and
value added services

Salesforce
evolution

Running a great business
– First in safety
– Customer service
– Strategic growth
– Gross margin improvement
– Operational leverage
– Capital discipline
– Environmental, social and governance

People

Safety

Integrity

Innovation

Service

Results

Page 20

Read more about our strategy

Pages 10 and 11

We are constantly improving our digital offering with additional functionality.
Customers can now seamlessly do the following:

Buy online, pick-up
at store – we’ve created
a “contactless process”
for our customers and
associates to transact.

Use their mobile
phone to scan
barcodes of our
products to seamlessly
create a shopping
cart for the online
check out process.

We have embedded
our truck delivery
tracking software into
our platform, allowing
our customers to track
their delivery truck in
real-time.

We launched
an innovative “shop
by job” feature that
allows customers to
search for products by
job, versus individual
product – this cuts
down on their time
navigating to select
the right products.

We added a text
to branch service
for customers
who need to add
necessary instructions
for their orders,
pickups and deliveries.

We continue to add
thousands of different
products across all
of the businesses we
serve giving us the
widest and deepest
breadth of product
inventory and visibility
in the industry.

5.4.3.2.Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report
34

Regional performance (continued)

How tomorrow works – Case study

How tomorrow works – Our strategy

1. Digitally enabled customer relationships
2. Project driven

3. Specification and influence

4. Focused product strategy

5. One brand: Ferguson

Read more about our strategy

Pages 10 and 11

Nate Colbert

Focused product strategy
Own brands

Own brands are a critical part of our
growth strategy. They offer our customers
high-quality, “on-trend” product ranges at
competitive prices with excellent availability
and an industry leading warranty. For us,
these products offer higher gross margins
so the business, our customers and our
associates all do well when we sell own
brand products.

Signature Hardware has become our
organization’s primary consumer facing own
brand of decorative plumbing products with
the majority of revenue, 57 per cent, coming
through Ferguson Bath, Kitchen and Lighting
Showrooms. Our legacy decorative plumbing
brands, Mirabelle and Monogram Brass,
migrated to Signature Hardware at the end of
March 2020 to create one unified consumer
plumbing brand. This move reflects greater
focus on our decorative plumbing product
development, product quality, marketing
and omnichannel sales opportunities.
Extensive research of our customers,
contractors and associates showed that
Signature Hardware has strong brand
recognition and reputation, and therefore
presents a strong opportunity for growth.

Our local outside showroom salesperson,
Nate Colbert, heard about a large residential
building development of 68 houses in Eagle,
Idaho. Normally, residential developments
would be bid for through the plumbing
contractor, however Nate took the initiative
and approached the developer directly.
Nate discussed the benefits that Signature
Hardware had to offer and the developer
liked the well-designed look and quality of
the products. Nate put together a quote with
exclusively Signature Hardware products for
all 68 houses, with between 2–3 bathrooms
per house. The price point, product quality
and lead times all meant that the bid was
secured for the project that was worth
approximately $250,000 and completed
in June 2020.

Signature Hardware products

1.5.3.2.Ferguson plc Annual Report and Accounts 2020
35

Own brand percentage
of US revenue.

57%

of Signature Hardware sales are
generated through our Residential
Showroom business.

“ The developer was very grateful for
the direct approach in the end knowing
the great look and feel of the whole
Signature Hardware product range they
were getting at a good, competitive
price. Our lead times meant we could hit
deadlines for such a large order too and
I’m sure that had a part to play in being
awarded the contract.”

Nate Colbert
Outside sales, Residential Showroom

Residential Showroom

Residential Showroom forms part of Blended Branches and
operates a national network of 256 showrooms, serving
consumers and trade customers.

Key products and services

Kitchen and bathroom
plumbing fixtures

Decorative lighting and fans

Appliances

Key highlights this year

White glove appliance delivery
and installation

Consultation, advice and
project management

Cabinetry in select markets

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Virtual showroom tours and appointments

15%

Geo-positioning in trucks to give customers real-time
updates on deliveries

Enhanced white glove delivery and installation services

Improved omnichannel offering linking e-commerce services
and the showroom network

We have continued to enhance our
customer service offering with the addition
of geo-positioning in our delivery fleet.
Customers can now get real-time status
updates on their delivery via email, phone
or text. Additionally, we continue to
expand our white glove delivery service
and are now able to perform installations
of a broader range of products while also
removing old appliance units.

Our showroom business will continue
to focus on leveraging technology to
improve the customer offering, both to
consumers and the trade. We also look to
further develop the omnichannel platform
to ensure frictionless interactions across
physical stores, online and mobile apps.

Ferguson is the market leader with an
estimated 12 per cent market share and the
next largest competitor is about a third of
the size. For more information on market
size and position see page 13.

See pages 30 and 31 for relevant residential
end market indicators and trends.

Showrooms display bathroom, kitchen
and lighting products and assist
customers by providing advice and project
management services for their home
improvement projects.

Customers include consumers, builders,
designers and remodeling contractors.
The builders, designers and remodelers
utilize the showroom network to help their
clients, typically homeowners, to select
the products they wish to install for their
bathroom, kitchen and lighting projects.
These professionals expect Ferguson to
understand their business requirements
and assist their clients through the
selection process in our showrooms.
We also sell into the new construction
market with customers working with us for
our significant product range, know-how
and the timely delivery of products. In most
instances this work is awarded in contracts
at the regional or national level.

During the year we expanded our digital
capabilities to give customers the ability
to independently tour a number of
our showrooms online. We have also
been conducting virtual appointments
where customers can discuss their
project requirements and receive advice
on different products, designs and
specifications from the comfort of their own
homes. Many customers have used this
service and followed it up with an in-store
visit to quickly finalize their purchase,
particularly during the COVID-19 pandemic.

Signature Hardware products

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report

Regional performance (continued)

Commercial

Commercial forms part of Blended Branches and provides
commercial plumbing and mechanical contractors with products
and services including bidding and tendering support and timeline
planning to assist with their construction projects.

Key products and services

Plumbing parts and supplies

Quotation services (partnering with
customers on bids/tenders)

Pipe, valves and fittings

Jobsite delivery and logistics

Hangers, struts and fasteners

Project management

Key highlights this year

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14%

Acquisition of Columbia Pipe & Supply

Expansion of local technical support services across the business

Continued integration of Building Information Modeling (“BIM”)
systems with our software to improve ordering efficiencies

We have also improved our customer
service offering by enhancing our
engineered solutions capabilities across
the country. This has involved the provision
of additional technical support services to
our customers; offering additional solutions
development support; and further utilizing
BIM technologies to improve ordering
efficiencies. We continue to partner with
a number of construction technology
providers to develop more advanced
digital solutions for commercial and
mechanical contractors.

In the year ahead we will continue to invest
in technologies that improve the efficiency
of our customers’ businesses and make
it easier to do business with Ferguson.
We will also continue to strengthen our
advisory capabilities and customer service
proposition to further reinforce our position
as a value added distributor.

Ferguson is number one in the USA
with an estimated market share of 21 per
cent, roughly twice the size of its nearest
competitor. For more information on market
size and position see page 13.

See page 31 for relevant commercial end
market indicators and trends.

Projects typically span weeks or months
with Ferguson’s established supply chain
logistics ensuring the appropriate products
are delivered at the correct time throughout
the course of the job.

We often serve plumbers and mechanical
contractors focused on new commercial
construction projects or repair and remodel
projects including schools, hospitals,
office buildings and hospitality venues.
The plumbing contracts are often awarded
based on bids from a set of building plans
and specifications. For the mechanical
contractor, whose primary focus is the
heating, cooling and water delivery
systems in the building, contracts are
awarded based on bids and specifications
but also take into account the relationship
and service provided when supporting
the design of these intricate systems.
We also sell to service contractors affiliated
with either customer type mentioned
above, focused on smaller jobs, remodels
and immediate service needs in those
building types.

During the year, we acquired Columbia
Pipe & Supply, a Chicago headquartered
distributor specializing in a broad range of
commercial products including plumbing,
valve automation, engineered products
and hydronics. The business has a
strong reputation, established vendor
relationships and long-standing customer
relationships, and it will allow us to expand
on existing capabilities. Through its 16
locations, Columbia Pipe & Supply will
accelerate Ferguson’s growth in the greater
Chicago market and the Midwest.

One Vanderbilt, NY

$5m

The total value of the project for
One Vanderbilt was approximately
$5 million.

50%

Approximately 50 per cent of US
revenue is “project based”.

Our project driven approach helped us enable
specific delivery times for crane picks to lift them
up the skyscraper. If products missed their slot,
it could mean delays for the entire build.

Ferguson plc Annual Report and Accounts 2020

How tomorrow works – Case study

Project driven
One Vanderbilt

One Vanderbilt, NY

We work with our customers to make their
projects better and this is never more true
than in our Commercial business. The
construction of One Vanderbilt, the second
largest skyscraper in New York City, started
in late 2016 and is expected to complete by
the end of calendar year 2020.

Due to the exceptionally limited build space
on-site, products needed to arrive at specific
time windows for crane picks to lift them
up the skyscraper. If products missed their
slot, it could mean delays for the entire build.
Our project driven approach helped us to
understand the full requirements of the
customer including fabrication, collaboration
with installers, specific delivery times, out of
hours work and specialist delivery vehicles,
all of which made us the perfect partner. This,
along with a competitive price won us the
bid and we have consistently delivered to
customer expectations. The total value of this
one project was approximately $5 million.

We supplied all the finished plumbing
fixtures, drain, waste and vent piping and
much of the mechanical piping, valving
and fitting materials for this project.
Our mechanical fabrication shop in Long
Island City assisted by providing cut to
length pieces with fittings ready to install.
All deliveries were co-ordinated to arrive
at specific times, often early in the morning
(including after hours and weekends), due
to the location of the project (right outside
Grand Central Station) and for elevator
loads and crane picks. We utilized our fleet
of boom trucks (with cranes) to offload and
put in place much of this material to assist
the contractor and limit the need to move
material around site.

How tomorrow works – Our strategy

1. Digitally enabled customer relationships
2. Project driven

3. Specification and influence

4. Focused product strategy

5. One brand: Ferguson

Read more about our strategy

Pages 10 and 11

1.5.4.3.Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report
38

Regional performance (continued)

“ The customer required a business
partner that understands the need to
continually innovate while delivering
long-term success. Our shared
vision of creating innovation through
thought leadership and investments in
technology to evolve with the changing
expectations of our customers made the
partnership a very good fit.”

Brandon Matthews
Ferguson Business Development Manager

Waterworks truck

What is an Advanced Metering System (“AMI”)?
AMI enables two-way communication through a fixed network to transmit information between
the utility office and meters or other endpoints, providing greater benefits to the utility provider
and its customers. Real-time data from AMI allows for the identification of potential leaks, saves
money with energy efficiency initiatives, bases monthly bills on actual usage and not estimated
use, and resolves billing questions more efficiently.

How tomorrow works – Case study

Specification and influence
Newport News Waterworks

We are trusted advisers to our customers
and with approximately 50 per cent of
US sales generated through bidding and
tendering with our customers for a job, we
succeed when our customers do. They rely
on our expertise and our ability to help solve
their construction, repair, maintenance and
improvement problems. The Newport News
(Virginia) Waterworks Utility department
(“NNWW”) approached our experts in 2017
looking to update their outdated water
metering infrastructure across 120,000
residential homes. Our experts understood
the customer requirements and specified
an Advanced Metering Infrastructure (“AMI”)
system (see below) that we could implement
with the help of our vendor and install
partners, all managed by us.

Due to the size and scope of this project,
it would traditionally be a direct bid by
manufacturers, cutting out distribution
completely. However, as Ferguson Mid-
Atlantic Waterworks General Manager
Doug Koenig explains, “Our relationship
with NNWW and the collaborative effort
from our vendor and install partners not
only put us in the driver’s seat but helped
ensure the successful award of the project.”
He continued, “Our combined experience
and ability to collaborate across Ferguson
specialisms gave us the leverage to act as
a consultant for the customer and made us
stand out as thought leaders as the customer
made their final decision.”

Two years later, the resulting $45 million
contract included the AMI system, software,
infrastructure, installation and integration,
all managed by us. This is the largest single
“Remote Disconnect Meter” deployment
in the USA and the second-largest capital
expenditure for the NNWW ever. The project
began in 2020 and is scheduled to complete
in 42 months.

How tomorrow works – Our strategy

1. Digitally enabled customer relationships
2. Project driven

3. Specification and influence

4. Focused product strategy

5. One brand: Ferguson

Read more about our strategy

Pages 10 and 11

1.5.4.2.Ferguson plc Annual Report and Accounts 202039

Waterworks

Waterworks distributes pipe, valves and fittings (“PVF”),
hydrants, meter systems, geosynthetics and related water
management products.

Key products and services

Pipe, valves and fittings

Water meters and automation

Digitally enhanced estimation

Advanced metering infrastructure

Irrigation and drainage

Geosynthetics and stormwater management

Key highlights this year

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18%

Expanded water plant division to provide additional value
to customers

Continued to broaden attractive stormwater and
geosynthetics segments

Established new capabilities within the central estimating team

Alongside strategic hires of key personnel,
this year we have integrated the Innovative
Soil Solutions acquisition. This Texas-based
acquisition complements our traditional
Waterworks business and expands our
product offering, allowing us to offer
broader capabilities in geotextiles and
erosion control solutions.

After establishing a central estimating team
in 2018/19, we have streamlined processes
and improved productivity levels.
We have bolstered service offerings with
3D capabilities and the team is working
closely with other businesses, particularly
Commercial, to leverage their specialist
knowledge to improve bid and tender work
across the business.

We look to further develop our project
management and central estimating team
skills in the year ahead, leveraging both
knowledge and technology across the
business where possible.

Ferguson is the largest operator in the USA,
with an estimated market share of 25 per
cent, slightly higher than the number two.
Outside the top two, no other company
holds greater than five per cent market
share. For more information on market size
and position see page 13.

See page 31 for relevant civil/infrastructure
end market indicators and trends.

Sales tend to be part of large planned
projects to public and private water
authorities, utility contractors, public
works/line contractors and heavy highway
contractors on residential, commercial and
municipal projects across the water, sewer
and stormwater management markets.

Municipal customers purchase products
to repair their water and sewer systems or
for capital improvement projects such as
meter systems or pipelines. We sell to utility
contractors who tend to focus on water,
sewerage and storm drainage construction
for residential or commercial construction
projects. Water/wastewater treatment
plant contractors, which are large regional
or national players, typically work on very
large long-term capital intensive projects.
We also sell to utility pipeline contractors
who install and maintain publicly funded
water and sewage line projects.

We have expanded our plant division
during the year, allowing customers to
connect with our in-house experts to find
the best water plant solutions. This includes
creation and modification of Computer-
aided Design (“CAD”) drawings through to
customized project management systems
with better technology enabling us to
do this work faster and more accurately.
Working closely with customers and
leveraging technology helps us to deliver
consistent value.

We continue to focus on the stormwater
segment and enhancing our offerings in
adjacent markets such as geosynthetics
and erosion control products.

“ This project marks one of the largest
collaborative efforts of our business
and perhaps in the industry. I have been
a part of many large pipeline and plant
projects over the years, but I have never
seen so many people and departments
come together to provide value during
the bid process.”

Doug Koenig
Ferguson Mid-Atlantic Waterworks
General Manager

NNWW recently received a Sustainable
Water Utility Management Award,
recognizing its commitment to
achieve a balance of innovation and
success in economic, social and
environmental endeavors.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report

Regional performance (continued)

$50bn

Estimated size of the HVAC market
(see page 13).

+9.4%

HVAC revenue growth in 2019/20.

HVAC

HVAC distributes heating, ventilation, air conditioning and
refrigeration equipment, parts and supplies for use in the
residential and commercial end markets.

Key products and services

Fans, ventilation and indoor air
quality products

Ductless variable refrigeration flow training
and systems

Air conditioners and air handlers

Repair and maintenance parts

Heat pumps and furnaces

Light commercial equipment and controls

Key highlights this year

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Broadened product range to give customers greater choice

10%

Continued expansion into major metro markets including
New York City

Expansion of digital and e-commerce technologies

We have further developed our digital
offerings to support customers and
assist them in growing their businesses.
These offerings give the customer choice
over how they place orders with Ferguson,
along with many other capabilities,
including the ability to review their specific
product pricing, previous invoices and
delivery notes.

Ferguson is the third largest wholesale
distributor in a large, highly fragmented
market with an estimated market share of
approximately four per cent. The market
leader is just over twice the size of
Ferguson. For more information on market
size and position see page 13.

See pages 30 and 31 for relevant residential
and commercial end market indicators
and trends.

We partner with a variety of HVAC
manufacturers, providing distribution
services across different geographies
in the USA.

Typical customers include specialty
and multi-trade contractors focused on
installing, repairing and maintaining HVAC
units serving single and multi-family
residential developments in addition to
light commercial markets. We also sell to
contractors working on large RMI projects
in the commercial market with the majority
of trade going through the branch network.

We have continued to broaden product
ranges through the year with a particular
focus on light commercial equipment,
repair parts, installation supplies and
ductless products. We have also widened
the range of connected products such as
smart thermostats, water sensors, cameras
and carbon monoxide detectors.

Geographic expansion remains focused
on major metro areas and was bolstered
by the acquisition of S. W. Anderson in
New York, which supplies HVAC to both
residential and commercial end markets.
Expertise across multiple customer groups
also allows us to leverage our HVAC
knowledge with commercial customers
when it pertains to larger commercial
project tenders.

Bayshore branch, NY, rebranded Ferguson

Ferguson plc Annual Report and Accounts 2020

Mahwah showroom, counter and shipping
warehouse, NJ, rebranded as Ferguson

How tomorrow works – Our strategy

How tomorrow works – Case study

1. Digitally enabled customer relationships
2. Project driven

3. Specification and influence

4. Focused product strategy

5. One brand: Ferguson

Read more about our strategy

Pages 10 and 11

One brand: Ferguson
How we approach
bolt-on acquisitions

Over the past five years Ferguson has spent
nearly $2 billion acquiring 65 businesses
across the Group, 53 of which were in the
USA. The majority of these deals have
been bolt-on where we rapidly integrate
all businesses into our network to create
synergies. The vast majority of these
businesses have also been rebranded.

Acquisitions remain a key part of our
growth strategy and over the last two years
we have increased our footprint in the
Northeast of the USA considerably with
the acquisitions of Blackman, Wallwork and
S.W. Anderson. Blackman was acquired in
December 2018 and once the back office
technology integration was complete,
Ferguson developed a new marketing
strategy and rebranding plan for the region.
The rebranding was completed in early 2020
across 15 locations, bringing with it additional
benefits for the business as set out below.
Wallwork and S.W. Anderson are currently in
the process of being rebranded.

The rebranding process is hugely important
because the Ferguson name today is
respected and synonymous with quality,
service and results. Acting as one brand in all
that we do enables us to utilize the size, scale
and reputation of the Company and creates
many efficiencies across all areas of our
business including:

– increased brand recognition

and reputation;

– consistent brand promise and customer

experience across all channels;

– leveraged investment across the business
creating efficiencies in areas such as brand
building and marketing, omnichannel and
digital investments, customer insights,
recruiting and creative and design services;

– ability for our customers to engage
seamlessly across all aspects of
our business;

– one path to market for our suppliers; and

– investor and market clarity on brand

value proposition.

We will continue to focus on driving the
Ferguson brand to ensure customers
recognize and value what we do as a
consultative experience.

1.4.3.2.Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report
42

Regional performance (continued)

Industrial

The Industrial business operates across all industries including
energy, pulp and paper, chemical, mining, and food and beverage.

Key products and services

Pipe, fittings and flanges

General industrial MRO products

Valves and automation services

HDPE products, fabrication,
and equipment rental

Supply chain services

Key highlights this year

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Market share gains in a softer industrial market

Enhanced valve automation offering

Continued expansion into industrial maintenance,
repair and operations (“MRO”) markets

Our Industrial customer group supplies
pipe, valves & fittings (“PVF”) as well
as specialized services including valve
automation and supply chain management.
Customers rely on our technical expertise
when building, maintaining and repairing
infrastructure for the industrial market.

The Industrial business operates across all
sectors including energy, pulp and paper,
chemical, mining and food and beverage.
Customers include industrial contractors
where Ferguson typically provides PVF
products. We also sell directly to end
users and manufacturers where we can
offer both a wide variety of products and
specialized services to ensure that facilities
continue to operate safely and efficiently.
Diversification across industries gives us a
broader base of business leading to more
stable profitability.

We have continued to expand the business
ahead of the wider market during the year.
Some industries such as chemicals and
pulp and paper have traded reasonably

well while COVID-19 and lower oil prices
impacted on aerospace, automotive,
mining and oil and gas customers in the
latter part of the financial year.

Growing the valve automation business
remains a priority. We acquired Process
Instruments & Controls and Rencor
Controls which build out our valve
automation service offering on the West
Coast and in the Northeast respectively.

We continue to develop and expand
the Industrial MRO service in a number
of geographies in order to improve our
service offering and grow wallet share
with customers.

The industrial market is fragmented; we
estimate our market share to be five per
cent, with the market leader approximately
two times larger and concentrated in the
oil and gas sector. For more information on
market size and position see page 13.

See page 31 for relevant industrial end
market indicators and trends.

Ferguson plc Annual Report and Accounts 2020

Fire and Fabrication

Fire and Fabrication supports our customers, principally
contractors, working on fire protection systems for new
installations, renovations and servicing of existing fire
systems across residential and commercial end markets.

Key products and services

Fire sprinkler systems

Pipe fittings

Pipe hangers, struts and fasteners

Pipe fabrication

Pipe and tubing

Key highlights this year

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New technology capabilities to offer fire sprinkler design services

Expanded own brand product offerings

Additional fabrication services and locations

Within our Fire and Fabrication customer
group we fabricate and supply fire
protection products, fire protection
systems and fabrication services to fire
contractors. These contractors work on
new installations, renovations and servicing
of fire systems principally in commercial
buildings but also in some residential
facilities. Purchasing decisions are made
based on service, relationships and
inventory availability.

We also continue to focus on the provision
of fabrication services with new facilities
becoming operational during the year, with
more to follow in the year ahead. We were
able to leverage Fire and Fabrication
expertise and fabrication services with
commercial customers during the year and
expect to continue to do so in the years
ahead. The continued roll-out of own brand
products has helped give customers more
product choices.

Ferguson is the number one in the USA
with an estimated 22 per cent market
share. The three next largest competitors
hold approximately 44 per cent market
share between them. For more information
on market size and position see page 13.

See page 31 for relevant commercial end
market indicators and trends.

Product offerings include sprinklers and
pipework, fittings, hangers and supplies.
We offer fabrication services to customize
the product offering based on our
customers’ needs. We also supply materials
to large government, manufacturing and
sports facilities.

With the acquisition of MFP Design, we
are now able to offer fire sprinkler design
services to customers. As our contractor
customers are required to provide an
appropriate fire sprinkler design in order to
win tendered work, this capability allows
Ferguson customers to collaborate with us
on both design and product fulfillment.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report

Regional performance (continued)

Facilities Supply

Facilities Supply provides products, services and
solutions to enable reliable maintenance and renovation
of commercial facilities.

Key products and services

Plumbing, HVAC and lighting products

Door and cabinet hardware

Appliances

Janitorial supplies

Renovation services

Appliance and HVAC installation
(in select markets)

Key highlights this year

n
o
i
t
u
b
i
r
t
n
o
C

e
u
n
e
v
e
r
S
U
o
t

Strong growth in multi-family segment

Expansion of our renovation business

Leveraged e-commerce channels to serve customers
more efficiently

Growing national accounts with both new
and existing customers remains a priority.
We will also look to expand the renovation
business focusing on specific sub-markets
where we are well equipped to win new
work. Additionally, we look to broaden the
customer base by stocking a wider range
of popular products that appeal to specific
customer segments.

The market is both large and highly
fragmented with no competitors holding
more than a four per cent market share.
Ferguson’s market share is estimated at
approximately one per cent. For more
information on market size and position see
page 13.

See page 31 for relevant commercial end
market indicators and trends.

Facilities Supply operates across several
repair, maintenance and improvement
markets. The majority of deliveries are
made from Ferguson’s distribution center
network directly to customer facilities.
Typical customers include multi-family
properties, hospitality, education,
healthcare, commercial properties or
building service contractors.

We saw strong growth in the multi-family
property sector during the year where we
added a number of key national accounts
and grew our wallet share with existing
customers. The renovation part of Facilities
Supply continued to expand organically in
the year, which includes services such as
HVAC installation.

E-commerce remains a key priority
within Facilities Supply where we have
encouraged customers to utilize online
experiences through ferguson.com or via
system to system integrations. This speeds
up customer interactions and frees up
associate time to serve more customers.

Ferguson plc Annual Report and Accounts 2020

eBusiness

eBusiness leverages our US product categories and supply chain
with the majority of revenue generated through Build.com.

Key products and services

Bathroom, kitchen and lighting products

Call center support and advice

Door and cabinet hardware

Appliances

Key highlights this year

n
o
i
t
u
b
i
r
t
n
o
C

e
u
n
e
v
e
r
S
U
o
t

Deepened relationships between eBusiness and key vendors to
give greater breadth of product availability

Improved omnichannel offering linking e-commerce services and
the showroom network

Trialed two-hour delivery

Having developed the capability to
deliver to more than 70 per cent of the US
population in one day during 2018/19, we
have continued to explore accelerated
delivery options. During the year our
supply.com website trialed two-hour
deliveries on thousands of different
products utilizing outsourced fleet
providers. We are working to bring this
capability to Ferguson.com to complement
our one-hour in-branch Pro pick-up option.

The market is predominantly comprised of
large competitors with the top four holding
an estimated 75 per cent of the market.
Ferguson is estimated to be number four
with approximately nine per cent market
share, slightly down from last year as we
continue to focus on profitable growth.
For more information on market size and
position see page 13.

See pages 30 and 31 for relevant residential
end market indicators and trends.

eBusiness sells home improvement
products directly to professional trade
customers and consumers online
predominantly using the Group’s existing
product lines and distribution network.
The majority of eBusiness is conducted
through the brand Build.com, which is
supported by a call center. The call center
is staffed with knowledgeable consultants
who deliver expert advice across all
product categories. This differentiation
gives us a competitive advantage against
the other large competitors in the space.

We continue to evolve our digital
commerce model, investing in the
Ferguson brand to drive a best-in-
class online experience to support
both professional trade customers
and consumers. Additionally, we are
integrating eBusiness with Ferguson’s
physical network to support a seamless
omnichannel experience for the customer,
initially focusing on connecting Build.com
with our 256 showrooms. We do this by
leveraging the Build.com platform and
our projects tool, a home improvement
tool designed to gather inspiration, plan,
organize and collaborate with others in real-
time, to service the walk-in consumer.

During the year we saw a pick-up in
activity during the COVID-19 lockdown as
consumers turned their attention towards
home improvement projects. Additionally,
we have strengthened relationships with
key suppliers where we have aligned
eBusiness and Ferguson branch product
strategies to ensure a consistent and broad
offering for customers. We are also working
closely with suppliers of connected home
equipment who supply a broad range of
smart home products.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report

Regional performance (continued)

Canada

A wholesale distributor of plumbing, heating, ventilation and
air conditioning, refrigeration, waterworks, fire protection, pipe,
valves and fittings and industrial products.

Key highlights this year

– Total revenue decline of 7.5 per cent in challenging markets

– Canada trading profit of $CAD 58 million, $CAD 31 million lower than last year

– Cost base reduced for current operating environment

Five-year performance

$CADm

Ongoing revenue1

Ongoing underlying trading proﬁt1

1,576

1,517

1,458

1,334

1,391

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

1. This is an APM; 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 124 to 127.

Quarterly total revenue growth

8.9%

6.5%

2.9%

-2.0%

-5.8%

-7.0%

-5.5%

2019

-13.0%

2020

Wolseley Canada

Business profile
Wolseley Canada predominantly serves
trade customers across the residential,
commercial and industrial sectors in both
RMI and new construction. The business
operates 210 branches with one distribution
center. At the year-end Canada had
approximately 2,000 associates.

Customer groups and
market position
Canada operates primarily under the
Wolseley brand and supplies plumbing,
heating, ventilation, air conditioning and
refrigeration products to residential and
commercial contractors. It also supplies
specialist water and wastewater treatment
products to residential, commercial and
municipal contractors, and supplies PVF
solutions to industrial customers. We are
the second largest business serving the
plumbing and heating customer group.

Market trends
Canadian GDP growth has decreased
through the year from a high of 1.6 per
cent in calendar Q3 2019 to a 0.9 percent
contraction in calendar Q1 2020 before
sharply contracting by 13.0 per cent in Q2.
Consumer confidence averaged 53.2 in the
first eight months of the financial year before
sharply dropping in April and averaging 40.1
in the final four months of the year. A score
above 50 indicates an expectation of
growth, while a score below 50 indicates an
expectation of contraction.

Operating performance
Revenue was 9.1 per cent lower with inflation
of approximately 2 per cent. Industrial end
markets and Western Canada were weak
during the year and markets remained
generally challenging this year even prior to
the country wide COVID-19 lockdown period.
The business returned to organic revenue
growth in August.

Gross margins were slightly lower than last
year and despite cost cutting measures
underlying trading profit of $43 million was
$24 million lower than last year. We have
reduced net headcount by approximately
300 during the year and closed seven
branch locations to right size the business for
the current environment.

Ferguson plc Annual Report and Accounts 2020UK (non-ongoing)

A leading trade distributor operating in the large and fragmented
UK plumbing, heating and infrastructure markets. In September
2019, we announced our intention to separate the UK operations
subject to shareholder approval (see page 6 for further information).

Key highlights this year

– Total revenue decline of 13.6 per cent in challenging markets

– UK trading profit £48 million lower than last year

– Business restructured for current operating environment

– Refocused business by separating out Blended Branches to better align to

customer needs

Five-year performance

£m

Revenue1

1,952

1,955

1,835

1,725

Underlying trading proﬁt1

1,490

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

1. This is an APM; for further information on APMs, including a description of our policy, purpose, definitions

and reconciliations to equivalent IFRS statutory measures, see note 2 on page 124 to 127.

Quarterly total revenue growth

0.6%

-0.6%

-2.2%

-4.2%

-10.5%

-11.7%

2019

2020

-23.3%

-25.5%

Wolseley UK

Business profile
The UK principally operates under the
Wolseley brand mainly serving the trade
RMI market through 542 branches, four
distribution centers and approximately 5,000
associates. Branches provide same-day and
next-day product availability, a key service
offering to our customers.

Customer groups and
market position

Plumbing and Heating is the largest business
within the UK and provides plumbing and
heating products and the associated pipe,
valves and fittings to customers operating
in the residential sector. Building Services
offers a similar product set to the commercial
sector with the addition of air conditioning
and refrigeration. These businesses
represent 72 per cent of UK revenue and
within these markets Wolseley is the second
largest merchant distributor in the UK.
Infrastructure is a specialist in below ground
drainage serving the civil infrastructure and
utilities markets. The business is estimated to
have a market share of about 20 per cent.

Market trends
The quarterly GDP growth rate in the UK has
declined over the last 12 months from just
over one per cent growth in both calendar
Q3 and Q4 2019 to contracting by 1.7 and
21.7 per cent in Q1 and Q2 of calendar 2020
respectively. Consumer confidence has been
negative for the last 12 months.

Operating performance
Revenue declined by 15.4 per cent, primarily
due to the COVID-19 lockdown restrictions.
Acquisitions contributed 1.8 per cent and
inflation was approximately 1 per cent.
Gross margins were a touch lower and
underlying trading profit of $8 million was
$61 million behind last year as the national
lockdown severely impacted demand. We have
seen a sequential improvement in revenue
trends since April in line with the easing of
lockdown measures and the business returned
to organic revenue growth in August.

Towards the end of the financial year
we have refocused the business on a
clear customer proposition and to drive
operational efficiencies. This included
separating out Building Services from the
core Plumbing and Heating business to
better align our service offering with our
customers’ needs. We have also rationalized
the supply chain reducing capacity to lower
the cost base which included the closure
of the Worcester distribution facility in
June. We have reduced net permanent
headcount by approximately 400 and closed
nine branches during the year as markets
continue to look challenging in the near term.

For information on the UK demerger, see
page 6.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report48

Sustainability
Sustainability

Our
sustainability
program

When we think about sustainability, what is
most important to Ferguson is the health and
safety of our associates, the development of
our people, our impact on the environment
and the communities we serve and ensuring
that we behave ethically at all times, while
always being alert to the emerging risks and
opportunities for the business.

We have also spent time this year
reviewing our ESG approach with a view
to enhancing and formalizing our strategy.
In the coming year we will work on the
expansion of our ESG reporting, recognizing
the recommendations of the TCFD and
the priorities of the UN’s Sustainable
Development Goals.

We concentrate on three key
focus areas where we can have
the greatest positive impact
on our environment and in our
communities, while growing
our business. These priorities
improve associate engagement,
address our top risks and
compliance requirements, and
are important to our customers,
suppliers and shareholders.

Governance
– We continue to utilize the guidance and
methods provided by the Sustainability
Accounting Standards Board (“SASB”),
considering all issues under the Multiline
and Specialty Retailers & Distributors.

– Ferguson’s Sustainability Leadership
Council, which includes CEO Kevin
Murphy, meets quarterly to provide
executive oversight and strategic guidance
for our sustainability program.

– We are committed to transparency

in Environmental, Social and
Governance (ESG) disclosures and
disclose our information in line with the
recommendations set forth by the Task
Force for Climate-Related Financial
Disclosures (TCFD).

– We formally signed on as a Supporter

of TCFD, encouraging other companies
to join us in disclosing ESG related risks
and opportunities.

Ferguson is successful because we have
the best associates, and our baseline
commitment is to create a safe work
environment for all. We are committed to
embedding safety as a core value driver in
everything we do and we’ve worked hard,
in the past three years in particular, to drive
better performance. I’m pleased that our
recordable injuries continue to improve,
which shows we are making progress in our
journey to become First in Safety, but we will
never be complacent here and I know we
can do even better.

Of course our own carbon footprint and
waste reduction remain a key focus and an
area where we can continue to improve.
This year we are still ahead of our 2015/16
baseline results for both carbon and waste
reduction but I am disappointed that we
are not meeting the targets we set for the
business four years ago. I am personally
engaged with our leadership teams and
the specialists from our businesses to
ensure that we consider and act on their
views for best practices and opportunities
for improvement.

Ferguson’s ongoing operations span the
North American continent but our strength
lies in the local nature of our businesses.
We support the communities where our
employees live and work and encourage
fundraising activities championed by our
businesses and their employees locally.
I am very proud of our activities here and
you can read about some of the notable
examples this year on pages 49 and 50.

Our goal is for Ferguson to be a socially and
environmentally responsible organization.
We want to inspire and implement solutions
that protect the environment, while being
commercially successful for our stakeholders.
It is core to how Ferguson does business and
it is how we will grow in the future.

Kevin Murphy
Group Chief Executive Officer

Key focus areas
While we consider all issues under the Multiline and Specialty Retailers & Distributors
guidance offered by the SASB, we focus on the areas where we can make the largest
positive impact. We have strategically grouped issues into three key focus areas.
We developed this approach following feedback from our associates, customers and
suppliers and in line with the latest best practice, utilizing the guidance and methods
provided by SASB.

1 Best

associates

2 Efficient

operations

3 Sustainable products

and solutions

Ferguson plc Annual Report and Accounts 2020
1 Best

associates

As our associates are our most important
asset, this focus area includes health
and safety, inclusion and diversity,
compensation and benefits, development
and retention and community investment.
For more information on our associates,
see pages 20 to 22.

Health and safety
Health and safety is one of the Company’s
values (see our values on page 20).
Our fundamental principle operating in a
COVID-19 environment has been to continue
to safeguard the health and safety of our
associates, customers, suppliers and the
communities around us. Health and safety
considerations are at the forefront of all
our decision-making. It is always important
that our associates are well-informed and
resourced with the appropriate equipment
and tools to protect themselves and those
around them while performing their jobs
safely. We have introduced new COVID-19
ways of working with stringent rules and
guidance on how to operate since the start
of the pandemic (see pages 7 to 14). As the
understanding of the disease changed, so
too did our response and guidance which
we continually communicated to all our
associates (in line with relevant authorities,
in particular, the Centers for Disease Control
and Prevention).

Outside of the COVID-19 pandemic, we have
continued to invest in all areas of health and
safety to address the causes of injuries, and
engage with our associates, empowering
them to do what is right. The past year, we
continue to drive change and strengthen our
culture of “best associates” by focusing on
enablers such as:

Leadership health and safety culture
training: Coaching senior executive leaders
on how they can improve health and safety
culture and effectively engage their teams,
evaluate their health and safety skills and
develop action plans. Ensure anyone with the
responsibility for managing others has the
appropriate health and safety technical skills
and competency for their roles.

Health and safety professionals: Support
the effective delivery of the health and safety
management process while developing and
executing cultural change and technical
learning programs. Our health and safety
professionals build morale and foster an
environment of inclusivity and diversity.

Associate behavior: We continue
to clearly communicate the agreed
standard of expected safe behaviors,
rules and enforcement processes.

Health and safety performance in 2019/20

Figure 1: Group total recordable injury rate
Group 2019/20 Total recordable injury rate: 1.94 – 35% improvement (2018/19: 2.96)

6.00

5.00

4.00

3.00

2.00

1.00

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

2019/20

2018/19

Figure 2: Group lost time rate
Group 2019/20 Lost time rate: 0.66 – 32% improvement (2018/19: 0.97)

1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

2019/20

2018/19

Total recordable injury rate: Total number of injuries per 200,000 hours (this represents 100 associates working
40 hours per week for 50 weeks) in line with the US Occupational Safety and Health Administration guidelines.
The injury number is based on associates receiving medical treatment beyond first aid that requires them to leave
the workplace. The hours worked are calculated using full-time equivalent associate numbers and average days
by business and assume an eight-hour working day.
Lost time rate: An injury case that involves at least one day absent following the day of an injury authorized by a
registered medical professional.

By engaging with our associates on
these matters, we are able to monitor and
discuss adherence to the agreed standards
and address areas of non-adherence
while recognizing good performance
as appropriate.

Communications: Sustain and improve
the “First in Safety” campaign to ensure all
associates understand their contribution
to health and safety. This provides our
associates with the right guidance to do their
job and understand their responsibility for
health and safety.

Health and safety performance
in 2019/20
In 2019/20 the Group’s total recordable
injury rate and lost time rate improved by
35 per cent and 32 per cent respectively
compared to last year (see figures 1 and 2).
This improvement is due to a robust
associate engagement program, senior
leadership commitment and engagement
from all management levels, allocation of
safety resources and deployment of safety
professionals in the field to focus on areas
such as material handling and training.

Focusing our social investment
We are committed to supporting our
key priorities for social investment.
Our Ferguson Cares program focuses
on the following areas:

Inclusion and diversity: Recognizing the
importance of supporting social equality,
Ferguson committed to supporting
The Urban League at the national level.
The Urban League is a historic civil rights
organization that advocates on behalf
of economic and social injustice and
against racial discrimination in the USA.
The organization has been active for over
100 years and its 90 local affiliates serve over
300 communities. Additionally, Ferguson
supported I’m A Father F1rst, an Atlanta-
based non-profit organization focused on
mentoring young men. This organization has
provided relief to their community during
COVID-19 through their Meals of Love
program. Moreover, Ferguson is committing
to grantmaking in the future with a social
equality lens, and stands against racism and
discrimination in any form. To learn more
about our efforts to incorporate inclusion and
diversity into our business, see pages 14 and
20 and 21.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report50

Sustainability (continued)

Hunger: In light of greater community needs
resulting from COVID-19, Ferguson donated
$100,000 to Feeding America in 2019/20.
For more than 40 years, Feeding America
has responded to the needs of individuals
struggling with food insecurity in the United
States. Every dollar donated can provide
10 meals and this donation equates to a
million meals for those struggling with hunger
during the pandemic. In lieu of our annual
Feed the Need challenge (which takes place
every spring and faced complications due
to COVID-19), Ferguson also made a cash
donation to the Virginia Peninsula Food Bank.
This donation will provide over 250,000 meals
for our neighbors in need.

Skilled trade: The skilled labor gap remains
a challenge for many of our customers and
we are committed to ensuring that more
plumbers, HVAC technicians, electricians
and welders enter the workforce. In 2019/20,
our US business continued its support of
the mikeroweWORKS Foundation through
funding of their Work Ethic Scholarships.
We also continued our support of SkillsUSA,
a partnership of students, teachers and
industry professionals working together to
ensure the USA has a skilled workforce.

Knowing how important it is to reach high
school students considering future career
paths, Ferguson also developed a campaign
aimed at this audience to explore a career
in skilled trades. At choosetrades.com,
students can learn about the different career
tracks, apply for an apprenticeship or explore
opportunities to apply for scholarships.
Our goal is to help connect our customers
with the talent that they need.

Clean water and sanitation: Given our size
and national footprint in the USA, we are
uniquely positioned to assist those in our
communities that lack access to running
water and sanitation. Recognizing this
opportunity, the US business committed to a
three-year partnership with Dig Deep, a non-
profit organization working to provide access
to clean water for underserved communities.

An estimated 1.6 million Americans still lack
access to clean water and Ferguson will
be providing both monetary and product
donations to help address this issue.
Specifically, the donations from Ferguson will
be used to fund the Community Plumbing
Challenge, an annual project to expand water
access in the Navajo Nation.

Not only does this project measurably improve
access to clean water and sanitation in
communities, it also brings together the skills
of water industry professionals with students
learning to enter a career in the skilled trades.

Housing: Ferguson continues to support
Homes For Our Troops, a non-profit
organization dedicated to building and
donating specially adapted custom homes
for severely injured veterans. Ferguson’s

recent acquisitions to our own brand
portfolio, including SafeStep, which offers
walk-in tubs, allows us to provide not only
financial support to Homes For Our Troops,
but also product donations.

Associates in Action: As we continue
to focus on our associates and their
impact in our communities, we have
also launched an Associates in Action
program. This program doubles the impact
of our associates by providing monetary
donations to eligible non-profits, matching
up to 16 hours of volunteer time. While we
suspended volunteer programs during
COVID-19, we are committed to continuing
to expand Ferguson’s active engagement in
communities across North America.

For more information on our associates,
please see pages 20 to 22.

2 Efficient

operations

Initiatives that support this focus area
include energy management, supply
chain management, fuel consumption
and emissions reduction.

Ferguson strives to increase accuracy in
our environmental data wherever possible.
In 2019/20 our estimates of historical data
were replaced with actual data where
available. We improved methods for
estimating outsourced transportation data
and air emissions resulting from business
travel. We also improved our estimation
methodology for waste and recycling
data. Further detail on the data provided
can be found in the “Basis of Reporting”
document on the Ferguson plc website
www.fergusonplc.com.

Our five-year carbon and waste reduction
goals set in 2015/16:

Reduce carbon emissions

-10%

Reduce total waste

-15%

Achieve recycling rate of

40%

Performance at the end of 2019/20, four
years into the target period, is as follows:

Carbon

-6.7%

Total waste

-6.9%

Total waste recycled

28%

Update on 2015/16 targets
For 2019/20 we are ahead of our 2015/16
baseline results. We continue with our efforts
to minimize our carbon footprint, drive down
our relative waste and increase our recycling.
However, due to the changing makeup of our
business, recycling challenges in the USA,
and services provided to our customers,
we have more work to do on the targets
set four years ago. We remain committed
to our efforts to reduce carbon and waste
while increasing recycling across our Group.
See below for further details.

Carbon emissions
Our carbon emissions per $ million revenue,
(shown in figure 1) improved by 6.7 per cent
compared to the 2015/16 baseline (21.8
tCO2e per $m revenue in 2019/20 compared
to 23.3 tCO2e per $m revenue in 2015/16).
The improvement from 2015/16 was as a
result of carbon reduction initiatives over
the target period. We also benefited from a
continued reduction in Scope 2 emissions
due to a cleaner conventional electricity grid
mix in the countries where we operate.

Our Scope 1 emissions decreased in
2019/20. By choosing vehicles with better
performance on a miles per gallon basis,
Ferguson achieved improved fleet efficiency
and further reduced fuel consumption
by over a million gallons in 2019/20.
Our business reduced the amount of
associate travel in the second half of the year,
due to COVID-19.

We continue to undertake initiatives that
reduce our Scope 2 emissions. The UK
business expanded their purchasing of
renewable energy and sourced 100 per cent
of the energy required for the business from
a mixed renewable blend, including biomass,
wind and solar. A number of different factors
reduced our Scope 2 emissions in the US
business. The switch to virtual showrooms
from COVID-19 reduced our electricity
consumption in the spring. Upgrades were
also completed to the HVAC and lighting
systems in a number of our facilities.
This focus on energy efficiency not only
helps our sites do more with less energy,
but also improves safety conditions through
enhanced task lighting.

In our US business, we purchased a solar
array for our Perris, California Distribution
Center in 2019/20. This rooftop system will
be the first instance of owned renewable
energy on our distribution network and
is expected to offset 1,305 metric tons of
carbon dioxide annually. This reduction in
greenhouse gases is equivalent to removing
approximately 282 passenger vehicles from
the road for one year according to the U.S.
Environmental Protection Agency’s carbon
footprint calculator. The US business also
invested in renewable energy purchases
in the state of Virginia. Not only does this

Ferguson plc Annual Report and Accounts 202051

increase our green power purchasing,
it also generated over $192,000 in savings
for the Group.

We continue to refine our methodology
for estimating Scope 3 carbon emissions
which are generated largely by outsourced
transportation partners. Our new
Transportation Management System has
driven an improvement in this estimation,
which has led to an increase in these
emissions for the year. Our US outsourced
transportation partners are committed
to reducing their carbon emissions and
improving their fuel efficiency. Our three
primary carriers maintain US Environmental
Protection Agency’s SmartWay Transport
Partnership status and received SmartWay
Excellence Awards.

Waste
During 2019/20, total waste has decreased
6.9 per cent relative to revenue versus our
base line in 2015/16 (3.5 US tons per $m
revenue in 2019/20 versus 3.7 US tons per
$m revenue in 2015/16) due to our waste
reduction initiatives. Total waste increased
1.2 per cent in 2019/20 which remains a
challenge as we continue to accept customer
waste. The total waste recycled during the
year was 28 per cent.

An improvement in the methodology for
estimating waste from front-end containers
was implemented in 2019/20, and our
business now uses the estimations provided
by the US Environmental Protection Agency
(EPA). The new methodology increased the
estimated weight of our typical front-end
container, benefiting our recycling rate.
We were previously underestimating our
recycling tonnage.

As part of our waste reduction initiatives,
Ferguson partnered with Good360,
a non-profit organization that helps
companies distribute highly needed product
donations to people facing challenging
life circumstances. This year we donated
$1.8 million in product, including baths,
faucets and sinks, resulting in healthier
communities. By matching non-profit
partners with discounted or excess inventory
products, we were able to achieve additional
landfill avoidance.

Our distribution centers continue to
demonstrate high recycling rates, recycling
pallets, corrugated cardboard, shrink
wrap and plastic banding. We continue to
utilize PackSize machines to reduce overall
package size and reduce the amount of
waste that our customers need to recycle
downstream. Additionally, our distribution
centers began piloting a foam injection
system for particularly fragile items, in an
effort to reduce overbox packaging and
damage rates.

Figure 1: Carbon emissions

Metric tons of CO2 equivalent per million US dollars of revenue

Carbon emissions

2015/16 2016/17 2017/18 2018/19 2019/20

Increase/
(reduction)
from
2018/19

Total
emissions
reduction
since 2015/16

Scope 1 and 2 emissions

Scope 3 emissions

Total emissions

17.5

5.8

23.3

15.7

5.8

21.5

14.0

7.9

12.7

12.4

7.6

9.4

21.9

20.3 21.8*

(4%)

23%

–

(6.7%)

Total carbon emissions

Metric tons CO2 equivalent

400,272

399,786

442,403

445,190

474,649*

100,100

126,981

107,682

115,164

159,487

166,593

204,946

107,352

96,889

90,254

173,191

176,940

175,564

181,708

179,449

2015/16

2016/17

2017/18

2018/19

2019/20

Scope 1

Scope 2

Scope 3

*Veriﬁed number by ERM-CVS (see page 52).

Figure 2: Waste generation

Relative waste – US tons per $ million revenue

Waste generation

2015/16 2016/17 2017/18 2018/19 2019/20

Increase/
(reduction)
from
2018/19

Relative
waste
reduction
since 2015/16

Landfilled and incinerated

Recycled

Total waste

2.6

1.1

3.7

2.6

0.9

3.5

2.7

0.9

3.6

2.6

0.8

3.4

2.5

1.0

3.5*

(8%)

18%

Total waste generation

–

(6.9%)

US tons

63,634

66,297

71,775

74,408

75,278*

189

18,282

1,052
17,032

1,462
17,826

1,601
17,915

1,367
21,007

45,163

48,213

52,487

54,892

52,903

2015/16

2016/17

2017/18

2018/19

2019/20

Landﬁlled

Recycled

Incinerated

*Veriﬁed number by ERM-CVS (see page 52).

Our approach to measuring carbon was developed in accordance with the Greenhouse Gas Protocol.
Emissions are calculated using the carbon factors from the Greenhouse Gas Protocol, the Department for
Environment, Food & Rural Affairs in the UK, the International Energy Agency in France and the Environmental
Protection Agency in the USA and are reported as tonnes of CO2 equivalent (abbreviated as tCO2e). 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 performing figures.

Streamlined Energy and Carbon
Reporting (SECR)
Globally, Ferguson utilized 957,490,043 kWh
for heating, electricity and transportation.
Our UK operations consumed 94,319,684 kWh
for heating, electricity and transportation.
Overall, the UK business contributed to 5.3%
of the Group’s carbon emissions (figure 1) and
9.9% of the Group’s total energy consumption.

This variance is due to the renewable energy
purchased in the UK business, which is
reported as market-based carbon emissions.

The UK leadership team reviewed the results
of the Energy Savings Opportunity Scheme
(ESOS, a mandatory energy assessment
scheme) and implemented multiple projects
to save energy, including upgrades to
lighting and heating equipment at large
owned locations.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report52

Sustainability (continued)

3 Sustainable products

and solutions

Projects within this focus area include
product quality and integrity, product
packaging and design, and lifecycle
impacts of the products and services
we offer.

Product quality and integrity
We require all our major suppliers to sign
a Supplier Code of Conduct (or operate
under its own comparable business
conduct principles) and reserve the right to
terminate a business relationship with any
supplier that violates any of our principles.
This agreement includes requirements for
social responsibility, including human rights
and labor standards, standards for meeting
environmental regulations and providing
safe working conditions, measures for
anti-bribery and corruption and supply chain
transparency. During 2019/20 we continued
to strengthen our quality control procedures
for sourcing products. Quality teams in our
overseas sourcing entities continue to visit
and assess our suppliers. Each business also
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.

A new role of Senior Director of Product
Assurance, reporting to the Group General
Counsel, was recruited in 2020 to lead
product assurance, compliance and
quality programs across the enterprise.
This position also leads the Company’s
ongoing development of own brand product
assurance protocols and works closely with
the Company’s sourcing and product teams
to ensure effective and robust supplier
assessment and product development
programs are in place.

Sustainability and
product design
We continue to develop products in our own
brand offerings that are more sustainable
with benefits to meet our customers’
requirements. These include products that
meet WaterSense and EnergyStar industry
standards. The PROFLOTM Kelper Faucet is
an excellent example of a stylish and water
efficient own brand fixture, WaterSense
certified at 1.2gpm (gallons per minute).

To reduce our on-campus consumption of
single-use plastics, our US Headquarters
associates took the plastics reduction pledge
and were provided with Ferguson bamboo
reusable utensils.

The UK business continues to achieve high
recycling rates, averaging close to 75 per
cent for 2019/20. We expect the Group
recycling rate to decline following the
UK demerger.

Wolseley Canada reduced the amount of
total waste generated year-over-year, and
made good progress in the rate of recycling
for the business. The business will continue
to focus on this area of improvement
going forward.

We retained ERM CVS, who provide
sustainability assurance services, to
conduct a third-party assurance of certain
environmental metrics in our 2019/2020
annual report. Specifically, they assessed
whether these are fairly presented in
accordance with the reporting criteria, in
this case, Ferguson’s “Basis for Reporting”
where you can also find definitions for
Scope 1, 2 and 3 carbon emissions. For more
information, please see the “External
Assurance Statement” which details the
scope, activities and conclusions of their
engagement. Both of these documents
are available on the Ferguson plc website
www.fergusonplc.com.

Dow Jones Sustainability Index
In September 2019 Ferguson was included in
the Dow Jones Sustainability Europe Index.
We achieved a perfect score of 100 in the
environmental reporting category, reflecting
the commitment to meet our sustainability
goals and to continually improve reporting
transparency. Launched in 1999, the Dow
Jones Sustainability Index is the longest-
running global sustainability index worldwide
and tracks the sustainability performance of
the world’s largest companies.

Climate-related risks
and opportunities
Following the recommendations from the
Task Force for Climate-related Financial
Disclosures (“TCFD”), Ferguson has
convened subject matter experts from across
the business to examine the specific risks
and opportunities to the business posed
by climate change. Ferguson began these
disclosures in 2018/19 and signed on as a
supporter of the TCFD recommendations
in 2019/20. For additional information on
the climate-related risks and opportunities
specific to Ferguson, please refer to our
public Climate Change CDP Response,
available at www.cdp.net. You can view our
climate-related risks and opportunities online
at www.fergusonplc.com.

To ensure that all sales associates are well
trained in the benefits of higher efficiency
products, Ferguson has developed an online
Sustainable Product Training course, which
is required for all sales associates and will be
integrated into the onboarding process for
new sales associates during 2020/21.

UK Modern Slavery Act
Since 2016, the Company has responded
to the UK Government’s directive under the
Modern Slavery Act for concerted action to
tackle the occurrence of forced, involuntary
and child labor in the global supply chain.
While collectively Ferguson buys products
from over 39,000 suppliers in over 40
countries, we source over 95 per cent of
our manufactured goods from suppliers
in North America and Western Europe
where the risk of modern slavery is lower.
As we continue to enhance our anti-slavery
measures, we will focus our efforts on our
international suppliers.

During 2019/20, key milestones included:

– Continuing to commit suppliers to
Ferguson’s anti-slavery standards.
In total, over 1,900 major suppliers have
contractually pledged to abstain from use
of child, forced, or involuntary labor in their
operations. Approximately 13 per cent
of these suppliers are in countries with a
prevalence of modern slavery according to
The Global Slavery Index.

– Harmonization of anti-slavery

measures across our businesses.
Our businesses have continued the
process of incorporating ethical and anti-
slavery elements in their supplier audit
methodologies and we have centralized
all own brand vendor audit activities.
New significant international product
vendors are audited prior to any purchases
and we periodically audit existing vendors.
We continued to develop the audit team
through training and practical experience.

– Continuing to apply our third-party
risk assessment tool to enhance
the effectiveness of our anti-slavery
engagement with our international
suppliers. The risk assessment tool flags
potential high-risk suppliers for review
based on geographic location (linked
to The Global Slavery Index 2018 and
Transparency International’s Corruption
Perceptions Index).

We are determined in our commitment to
eradicate any form of modern slavery in our
global supply chain.

Additional details of our anti-slavery practices
and activities during 2019/20 are set out
in our annual statement in accordance
with section 54 of the Modern Slavery Act,
available here www.fergusonplc.com.

Ferguson plc Annual Report and Accounts 2020Principal risks and their management

Monitoring
risk
throughout
the Group

The Board is 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 frontline operations,
via corporate functions
and independent assurance.

Board, Audit Committee
and Executive Committee

Fourth level

Principal and emerging risks formally
reviewed regularly throughout the year by
the Board, Audit Committee and Executive
Committee. Thresholds for principal
risks agreed.

Overall system of risk management
reviewed by the Audit Committee on
behalf of the Board.

r
a
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y
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n

i
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”
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U
k
a
e
p
S
“
s
c
h
t
E

Corporate functions analyze
risk and control data, set
policies and procedures

Operational assurance
process informs assessment
of control effectiveness by
Group Legal

Semi-annual risk statements
by senior management

Audit findings inform
assessments of control
effectiveness by Group Legal

Reports from Group Legal
inform audit priorities and
plans for the coming year

Frontline business
operations and line
management

e.g. branches and
distribution centers

First level

Business operations
implement policies

Associates act in
line with Ferguson’s
Code of Conduct and
Group policies

Corporate
functions

Independent
assurance

Group and subsidiary level,
e.g. legal, treasury, finance,
tax and IT

Internal Audit
function and other
independent assurance

Second level

Set policies
and procedures

Monitor risks and controls

Manage risk program

Third level

Test the design
and effectiveness
of procedures
and controls

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report

Principal risks and their management (continued)

Risk analysis during the year
2019/20 risk and control assessments
Throughout the year, Ferguson regularly reviews its principal and
emerging risks.

In January 2020, the Board provided its perspective on risks
relating to the Group’s strategy for 2020 and beyond. The Board’s
assessment on principal and emerging risks was then combined with
assessment of risk for business groups and functions in March 2020
to produce an updated 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 finalized with the
Executive Committee and the Audit Committee in May 2020.
The principal and emerging risks were then reported to and
reviewed by the Board in July 2020. Principal risks include those
that would materially threaten the Group’s business model, its future
performance, solvency or liquidity and reputation.

Throughout the year, members of the Board, Audit Committee
and Executive Committee received updates as noted below on
the Group’s principal risks. In addition, following the outbreak
of COVID-19, these updates included analysis of how COVID-19
amplified or accelerated the onset of certain of these risks and the
steps taken to mitigate any potential impacts.

The Group’s strategic approach and future prospects are described
on pages 4 to 14. Strategic plans have been prepared by 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 and the Executive Committee.

The Board and Executive Committee have regular reporting and
review processes in place in order to closely monitor the ongoing
operational and financial performance of the Group. These processes
include the ongoing review of the impact of COVID-19 on the Group
and its stakeholders.

Consideration has also been given to the strength of the
Group’s balance sheet and its credit facilities. During the year
ended July 2020 the Group entered into the following new
financing arrangements:

– A $500 million bi-lateral bank facility that matures in March 2021.

This facility was entered into in April 2020, around the onset of the
COVID-19 pandemic in the Group’s key operating markets, in order
to provide additional committed liquidity. The facility has not been
drawn since it was entered into.

– A $1,100 million revolving credit facility that matures in March 2025.
This facility replaced an £800 million revolving credit facility that
matured in September 2022.

– Issued $600 million of USA bond debt which matures in

Risk

New competitors
and technology

Updates provided

June 2030.

Formal update provided to the Board in
January 2020. Related risks considered by
the Board in January and July 2020 and by
the Executive team.

Market conditions

Pressure on margins

Monthly performance reviews with CEO
and CFO. CEO update to the Board at each
Board meeting.

Information
technology

Health and safety

Regulations

Reports on the status of the Group’s
information technology strategy and
operational risks were provided regularly
to the Executive Committee, the Board and
the Audit Committee throughout the year.

Performance updates were provided at
every Executive Committee and Board
meeting during the year.

The status of the Group’s compliance
program was reported to the Audit
Committee in November 2019 and July
2020 and to the Executive Committee in
March, April and May 2020.

Talent management
and retention

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 2023 is appropriate as this aligns to the
Group’s planning horizon. Furthermore, the Group’s principal risks
are ongoing in nature and could materialize 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.

As detailed in the Financial review on pages 26 to 29 the Group
currently has $5,118 million of committed facilities, of which
$2,200 million were undrawn at July 31, 2020. In addition to this,
the Group had cash and cash equivalents less bank overdrafts of
$1,867 million as at July 31, 2020. Fuller details around the Group’s
financing facilities are contained within note 21 of the notes to the
consolidated financial statements.

During the year ended July 2020 the Ferguson plc long-term credit
ratings remained unchanged at BBB+ and Baa2 with Standard &
Poor’s and Moody’s respectively.

Assessment of viability
While the strategic plans represent the Board’s best estimates of the
future prospects of the business, the Group has also assessed the
financial impact of a number of alternative scenarios. The scenarios
considered included the potential impacts which may result from the
ongoing COVID-19 pandemic, particularly a fall in revenue driven by
(i) reduced customer demand in the Group’s end markets and/or (ii)
reduced availability of product resulting from supply chain disruption.

Scenario modeled

Scenario 1
Revenue reduction
We considered a number of forward-looking
scenarios under which forecast revenue was
adversely impacted in all years of the assessment
period. This was considered alongside mitigating
actions which management could reasonably put
in place should such conditions be experienced.

Scenario 2
Margin compression
A number of scenarios were considered whereby
our ability to maintain attractive margins was
tested. This was considered both in isolation
and in conjunction with a fall in revenue.

Link to principal risks

New competitors
and technology

Market conditions

Talent management
and retention

Pressure on margins

Scenario 3
Large, one-off operational expense
We considered the impact of any potential
legal or regulatory fines or required large,
one-off expenditures.

Information technology

Health and safety

Regulations

Ferguson plc Annual Report and Accounts 2020While linked to the Group’s principal risks, the scenarios detailed
above are hypothetical and designed to test the ability of the Group
to withstand such severe outcomes. In practice, the Group has an
established series of risk control measures in place that are designed
to both prevent and mitigate the impact of any such occurrences from
taking place.

In addition, the testing took account of a number of mitigating actions
available to the business to respond to the risk being considered
including, but not limited to, reductions in operational and capital
expenditure, the release of trade working capital, the suspension
of ordinary dividends and share repurchases, and reductions in
acquisition activity. In the second half of the Group’s financial year a
number of these mitigating actions were implemented in response to
the COVID-19 pandemic. The results of the stress testing undertaken
showed that the Group would be able to absorb the impact of the
scenarios considered should they occur within the assessment
time period.

Viability statement
Based on the outcomes of the scenarios 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 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 110.

UK withdrawal from the European Union
The UK has left the European Union (“EU”) and is now in a transition
period before new rules come into place on January 1, 2021.
This could lead to further market uncertainties that could result in
a negative impact on the Group’s UK business. However, the large
majority of the Group’s profit is derived from North America and the
Board’s strategic intent to separate the UK business is unchanged.
The timing of the separation remains uncertain in the current
economic environment, and consequently the Board is assessing
other separation options in parallel with progress towards the
demerger to facilitate the exit of the United Kingdom operations.
In addition, disruption in the financial markets could adversely
affect the share price of the Group. The Group will continue to
monitor developments.

Principal risks heat map
(after mitigating controls and actions)

A New competitors and technology

B Market conditions

C Pressure on margins

D Information technology

E Health and safety

F Regulations

G Talent management and retention

After mitigating controls or actions

h
g
H

m
u
d
e
M

y
t
i
r
e
v
e
S

w
o
L

D C

Less likely
Likelihood

More likely

The materialization 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.
Various strategies are employed to reduce these inherent risks to
an acceptable level. These are summarized 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 program, including risk assessments, can
therefore only provide reasonable but not absolute assurance that
risks are managed to an acceptable level.

As part of the ongoing risk management process, the Board and the
Group’s management have identified and assessed emerging risks,
and worked with stakeholders to evaluate the impact of such risks to
the business. Although none of these risks are deemed to be significant
and are consequently not listed as one of the Group’s principal risks,
they are tracked in case they evolve to become more significant.
One such risk relates to the geographical composition of the Group’s
shareholder register. If shareholders resident in the USA exceed 50
per cent of the total, the Group would be subject to additional US
regulatory requirements, most notably SEC registration and reporting
and Sarbanes Oxley compliance. A detailed beneficial ownership study
is conducted on an annual basis to ensure compliance.

Another emerging risk is climate change and the impact of this on
our business. During the year, the Group commenced a project to
get more clarity on the risk climate changes presents. During the
year, the Group has convened subject matter experts from across
our businesses to examine the specific risks and opportunities to the
Group posed by climate change.

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 page 29.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report
56

Principal risks and their management (continued)

Risks to the drivers of profitable growth

A New competitors and technology

Inherent risk level: High

Trend: Higher

Definition and impact
Wholesale and distribution businesses in
other industry sectors have been disrupted
by the arrival of new competitors with lower-
cost transactional business models or new
technologies to aggregate demand away
from incumbents.

The Board is attuned to both the risks and
opportunities presented by these changes
and is actively engaged as the Group takes
action to respond.

Mitigation
The Group develops and invests in new
business models, including e-commerce,
to respond to changing customer and
consumer needs. This will allow the Group
to accelerate the time to market for new
revenue streams and gain insight on new
disruptive technologies and trends.

The Group remains vigilant to the
threats and opportunities in this space.
The development of new business models
in our marketplace is closely evaluated –
both for investment potential and threats.

Changes during the year
Ferguson Ventures extended its network
in the start-up community, increasing early
visibility to new competitors and potential
disruption. Partnerships and investments
were made in a range of technology
companies to also include industry focused
venture capital funds. New business
model opportunities were identified and
progressed, leveraging service design
and rapid prototype development in the
Ferguson Ventures Innovation Lab, which
is focused on exploring areas of innovation
and disruption by evaluating consumer
and industry evolution in technology and
service design.

In addition, Ferguson accelerated delivery
of its omnichannel strategy to meet
constantly changing customer demands
and emerging digital needs as the rate of
customer adoption of e-commerce tools
accelerated due to COVID-19.

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.

Changes during the year
This risk is unchanged, notwithstanding
the uncertainty caused by COVID-19.

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, see pages 54 and 55.

Further information on the market trends can
be found in our regional reviews on pages 15
and 30 to 47.

The Group continues to closely monitor
the impact of COVID-19 and take prudent
steps to mitigate any potential impacts to
the successful operation of our business.
The Group is also monitoring for general
recessionary impacts in the medium term
that may result from the government-
mandated shutdowns that occurred during
spring 2020.

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.

The Group remains prepared to implement
appropriate mitigation strategies to
minimize any potential business disruption
from COVID-19.

Ferguson plc Annual Report and Accounts 202057

C Pressure on margins

Inherent risk level: High

Trend: Higher

Definition and impact
The Group’s ability to maintain attractive
profit margins can be affected by a range
of factors, including some that are beyond
the Group’s control. These include levels of
demand and competition in our markets, the
arrival of new competitors with new business
models, the flexibility of the Group’s cost
base, changes in the cost and availability
of commodities or goods purchased,
the imposition of new or increased
governmental tariffs on international sources
of supply, customer or supplier consolidation
or manufacturers shipping directly
to customers.

There is a risk that the Group may not
identify or respond effectively to changes in
these factors. If it fails to do so, the amount
of profit generated by the Group could be
significantly reduced.

D Information Technology (IT)

Inherent risk level: High

Trend: No change

Definition and impact
The Group has a clearly defined
global technology strategy and
roadmap. Technology systems and
data are fundamental to the future
growth and success of the Group.
Information Technology risks are categorized
as strategic and operational.

Strategic risks are threats that could prevent
execution of the IT strategic plan such as
inadequate leadership, poor allocation/
management of resources and/or poor
execution of the organizational change of
management necessary to adopt and apply
new business processes.

Operational risks include business
disruption resulting from system failures,
fraud or criminal activity. This includes
security threats and/or failures in the ability
of the organization to operate, recover and
restore operations after such disruptions.
While cyber security incidents encountered
by the Group to date have resulted in
minimal impact, this risk continues to
persist and evolve, and was amplified by
the increase in frequency and intensity
of cyberattacks since the emergence of
COVID-19 and the related transition to
remote work for many of our associates.

Changes during the year
Pressure on margins increased during the
year, primarily due to levels of competition
and adverse mix challenges arising
from temporary closure of the branch
and showroom networks as a result of
COVID-19.

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 on a monthly basis
throughout the year.

Ongoing gross margin was in line with
last year.

Mitigation
The Group’s strategy for tackling this
issue remains unchanged. This includes
continuous improvements in customer
service, product availability and inventory
management; strict pricing controls
managed with proper data and insight; and
effective maintenance and management
of vendor rebate programs. Revenues from
e-commerce, own brand, and other growth
sectors continue to grow and the Group
has made acquisitions in these areas
during 2019/20, while we paused further
merger and acquisition activity due to
market uncertainty caused by COVID-19.
Refer to pages 14 and 154 and 155 for more
information on acquisitions during the year.

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.

Changes during the year
IT risks have remained material and
are being closely monitored as we
implement the clearly defined global
technology strategy and roadmap (see
page 23). Those risks include the potential
for schedule delays, cost overruns,
functionality deferrals and change
management disruptions on operations.

Under the management of the Chief
Information Officer, the Group has
continued to make substantive progress in
implementing its technology strategy and
roadmap, including progressing significant
upgrades to its enterprise-wide resource
planning systems and other enterprise-
wide IT resources.

IT General Controls continue to be
independently tested by Internal Audit and
findings reported to the Audit Committee.

Briefings on the status of the Group’s IT
strategy, and its implementation have been
regularly provided to the Board, the Audit
Committee and the Executive Committee
throughout the year.

Regular Board update checkpoints have
been established to provide monitoring
and oversight of execution of the IT
strategic plan.

Mitigation
Business leadership continues to execute
a comprehensive change management
program designed to transition current
business practices and norms to adopt
new business capabilities.

Business Technology and Omnichannel
Centers of Excellence are in place to drive
organizational discipline around the prioritization
of business projects to ensure alignment with
Ferguson’s strategic framework.

Management continues to execute a
rolling three-year roadmap of investments
in processes, resources and technical
defenses necessary to continuously address
emerging cybersecurity threats, and is
extending enhancements to the Group’s
control environment to other parts of the
Group’s systems (see page 80).

Group-level compliance processes and
insurance coverage, including data
protection and cyber liability, are in place.

Disaster recovery systems, secondary data
centers, cloud redundancy and resiliency
platforms, resources and processes have
been implemented to ensure business critical
systems are recoverable in the event of a
major disaster. Testing of critical infrastructure
and application systems is in place and has
been consistently executed across the Group.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report58

Principal risks and their management (continued)

E Health and safety

Inherent risk level: Medium

Trend: Lower

Definition and impact
The nature of Ferguson’s operations
can expose its associates, contractors,
customers, suppliers and other individuals to
health and safety risks.

Certain products that we sell pose health
and safety risks.

Health and safety incidents can lead to loss
of life or severe injuries.

The Group continues to closely monitor the
impact of COVID-19 and to take prudent
steps to mitigate any potential impacts to the
health and safety of our associates or to the
successful operation of our business.

Changes during the year
The Group’s strategic plan remains
focused on the elimination and control
of risks causing disabling injuries,
improving our safety culture and closing
the safety, health and environmental
knowledge gap among our associates.
The hiring and deploying of health and
safety professionals in the field provides
businesses with technical resources to
more effectively mitigate risk. Our efforts
in these areas have improved the
overall performance of the Group,
notwithstanding the impact of COVID-19;
see page 49 for more information.

F Regulations

Inherent risk level: Medium

Trend: No change

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,
data protection, labor and employment
practices, accounting and tax standards,
international trade, fraud, bribery and
corruption, land usage, the environment,
health and safety, transportation and
other matters.

Changes during the year
There has been no major change in the
level of regulation applying to the Group
this year. Following the adoption of the
California Consumer Privacy Act, the
procedures and controls implemented by
the relevant businesses within the Group
to ensure compliance were reviewed and
improvement measures put in place.

Awareness training of the Group’s Code
of Conduct was deployed to all associates
during the year. The Code sets out the
Group’s values and commitment to strict
compliance with the various laws and
regulations that apply wherever the
Group operates.

Violations of certain laws and regulations
may result in significant fines and penalties
and damage to the Group’s reputation.

Further information on the Group’s ethics
and compliance program can be found on
pages 22 and 52.

Mitigation
Health and safety is a fundamental value
in our organization. Our leaders have
specific roles to play and are required
to actively engage with our associates
in ensuring a healthier and safer
workplace. Our performance is reported
and discussed at both the Executive
Committee and Board meetings.

The Group maintains a health and safety
policy, with detailed minimum standards,
and standard operating procedures which
sets out requirements for all businesses.
Branches are audited against these
standards and businesses continue to
implement fundamental changes to
transform our culture. For more detail see
page 49.

We continue to follow the COVID-19
guidance of the World Health Organization
and other governmental health agencies,
including with respect to travel restrictions.

Mitigation
The Group monitors the law across its
markets to ensure the effects of changes
are minimized and the Group complies
with all applicable laws.

The Group aligns company-wide
policies and procedures with its key
compliance requirements and monitors
their implementation.

Briefings and awareness training on key
compliance topics and requirements,
including harassment and discrimination,
data privacy and security and gifts and
entertainment were undertaken.

Ferguson plc Annual Report and Accounts 202059

G Talent management and retention

Inherent risk level: Medium

Trend: No change

Definition and impact
As the Group develops new business
models and new ways of working,
it needs to develop suitable skillsets
within the organization.

Furthermore, as the Group continues to
execute a number of strategic change
programs, it is important that existing
skillsets and talent are retained and that
associates remain engaged through
recognition, training and communication.

Failure to do so could delay the execution of
strategic change programs, 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 associate turnover during the year.
Reductions in force implemented as part of
the steps taken to manage our cost base
given the uncertainty of COVID-19 were
offset by lower voluntary attrition.

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.

A new robust individual development
planning process for high-potential
successors from the talent review process
is aligned with our organizational strategy.

The Group continues to invest in associate
development and engagement.

On May 26, 2020, the Group announced
that Mike Powell, the Group CFO, had
resigned and had committed to assisting
with an orderly transition. The new Group
CFO is Bill Brundage and is based at
the Group’s Newport News, Virginia
headquarters in the USA. For further
information, see pages 6, 71 and 82.

Talent management procedures were
reviewed during the year (see pages 20
and 21 for further information).

Associate meetings with our Employee
Engagement Director of the Board were
held and feedback was reported back to
the Board.

Non-financial information statement
In December 2016, the UK government published new regulations implementing the European Union Directive on disclosure of non-financial
and diversity information (the “Non-Financial Reporting Directive”). The regulations amend the Companies Act 2006 requirements for
the Strategic report and include diversity requirements in the Disclosure and Transparency Rules. 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 (see page 67) and sets out the required information below:

– Environmental matters (including the impact of the Company’s business on the environment) on pages 48 to 52.

– The Company’s employees on pages 20 to 22 and 48 to 52.

– Social matters on pages 48 to 52.

– Respect for human rights on pages 20 to 22 and 48 to 52.

– Anti-corruption and anti-bribery matters on pages 20 to 22 and 48 to 52 and 80.

Policies relating to the above matters are available to all associates in a centralized location through the Company’s intranet.
Where appropriate, the Board or relevant Committee of the Board is provided with updates on these matters during the year. The Non-
Financial Reporting Directive also requires references to a description of the Group’s business model (pages 18 to 19), principal risks, including
those relating to the matters identified above (on pages 53 to 59), and key performance indicators (on pages 16 to 17).

The Strategic report has been approved by the Board and signed on its behalf by:

Kevin Murphy
Group Chief Executive
September 28, 2020

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsGovernanceStrategic report60

Governance

61 Governance overview

62 Board of Directors

65 The Board’s focus during the year

66 How the Board engages
with stakeholders

67 Division of responsibilities

69 Composition, succession

and evaluation

71 Nominations Committee

74 Audit, risk and internal control

81 Directors’ Remuneration Report

83 Remuneration at a glance

86 Annual report on remuneration

98 2019 Remuneration Policy –

for information only

109 Directors’ Report – other disclosures

Ferguson plc Annual Report and Accounts 2020Governance overview

For the financial year ended July 31, 2020, we are reporting
against the 2018 version of the UK Corporate Governance Code
(the “Code”) and confirm full compliance with its provisions.

A copy of the Code can be found on the Financial Reporting
Council website www.frc.org.uk. This section, together with
the reports from the Nominations, Audit and Remuneration
Committees provide a description of how the Company has
applied the main principles and complied with the relevant
provisions of the Code. In this report we have used its core
principles as the framework to explain our governance practices
and the signposts below direct you to further detail.

Finally, I would like to take this opportunity to thank you for your
continuing support, particularly in these unprecedented times. I hope
that you find the report informative.

Geoff Drabble
Chairman

Dear Shareholder
I am delighted to present the Company’s Corporate Governance
Report for the financial year ended July 31, 2020, my first after
succeeding Gareth Davis as the Chairman of Ferguson on
November 21, 2019.

The Board recognizes the value and importance of good corporate
governance and the role it plays in supporting Ferguson’s long-term
success and sustainability. Further information on how the Board has
maintained its governance focus is detailed on page 65.

I believe that Ferguson has a strong governance framework that
allows the tone set by the Board to cascade throughout the business
and supports our outstanding management team in providing
entrepreneurial leadership. It is important that we continue to
make progress in ensuring that our strategy, values and culture
are all aligned and supportive of the fulfillment of the Group’s
purpose to “act as a trusted supplier and partner to our customers,
providing innovative products and solutions to make their projects
better”. An important part of this is engaging effectively with our
stakeholders, which is central to how we do business and the
effective delivery of our strategy.

Ferguson has approximately 6,900 registered shareholders, 34,000
associates, 39,000 suppliers and more than a million customers who
we serve through a network of 2,194 branches and 15 distribution
centers. The individuals, businesses and communities that form
our stakeholder groups are all integral to our business and further
information on how the Board has engaged with them during the
year is included on page 66. Additional information on how we have
had regard to the provisions of section 172 of the UK Companies Act
2006 is available in the Strategic report, on pages 24 and 25.

I believe that for boards to be really effective it is important that
they spend time in the business. During the year, the Board visited
Ferguson’s US headquarters in Newport News, Virginia where
we were fortunate to be able to spend time with some of the US
business’ associates and customers, enhancing our understanding
of the residential trade strategy and the culture of the business. I was
hugely impressed by the passion and innovation of our associates,
which shone through in conversations and presentations we received
during our visit.

The Board had also been scheduled to visit the USA for our July
meetings but were, unfortunately, unable to as a result of the
COVID-19 pandemic. We hope to be able to do so as soon as
circumstances allow. However, it is only right that we respect the
ongoing restrictions on non-essential travel in order to protect the
health and wellbeing of our associates and all our other stakeholders.
I am immensely proud of the actions of our business in helping to
combat the impact of the pandemic and especially of the outstanding
efforts our associates have made to ensure that our customers
can keep on carrying out the essential work they undertake in
communities across the USA, Canada and the UK. Further examples
of how we have supported our associates, customers, suppliers and
communities as they tackle the pandemic can be found throughout
the Strategic report.

Core principles

Board leadership
and company purpose

Division of
responsibilities

Composition, succession
and evaluation

Audit, risk and
internal control

Remuneration

Pages 62 to 66

Pages 67 and 68

Pages 69 to 73

Pages 74 to 80

Pages 81 to 108

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance

Board leadership and company purpose
Board of Directors

Geoff Drabble
Chairman

M N

Kevin Murphy
Group Chief Executive

D E M

Appointed Chairman: November 2019

Appointed Group CEO: November 2019

Appointed to the Board: May 2019
(as a Non Executive Director)

Key strengths and experience:
– Extensive leadership experience

in the distribution, technology and
manufacturing sectors

– Deep knowledge of US markets and

operating conditions

Geoff served as Chief Executive of Ashtead Group
plc, the FTSE 100 industrial equipment rental
company, for 12 years during which he presided
over a period of unprecedented growth in the
business and was instrumental in creating a strong
culture. He was previously an executive director of
The Laird Group plc, where he was responsible for
its Building Products division, and held a number of
senior management positions at Black & Decker.

Other principal appointments:
Non Executive Director at Howden Joinery Group
Plc and Non Executive Director and Chairman
Designate at DS Smith Plc.

Appointed to the Board: August 2017
(as Chief Executive Officer, USA)

Key strengths and experience:
– Culture champion with strong executive

leadership skills

– Deep Group and industry knowledge
– Strategic operational experience
Kevin has significant experience in strategic
development and delivering operational performance
improvements. Kevin joined Ferguson in 1999 as an
operations manager following the acquisition of his
family’s business, Midwest Pipe and Supply. Prior to
his appointment as Group CEO he held a number
of leadership positions in the Group’s Waterworks
division. He was Chief Operating Officer of Ferguson
Enterprises from 2007 to 2017 and Chief Executive
Officer, USA from 2017 to 2019. Since Kevin’s
appointment to the Board in 2017, the business has
generated strong, profitable growth and continued to
take market share under his leadership.

Other principal appointments:
None.

Mike Powell
Group Chief Financial Officer
(stepping down on October 31, 2020)

D E M T

Appointed: June 2017

Key strengths and experience:
– Considerable financial management and

operational experience

– Experience of running multi-national businesses

with significant US operations

Mike is a chartered management accountant with
significant experience leading finance teams at
large listed companies. Prior to his appointment at
Ferguson he was Group Finance Director of BBA
Aviation plc (now known as Signature Aviation plc),
a leading provider of aviation support services with
significant US operations, and CFO of AZ Electronic
Materials plc and Nippon Sheet Glass as well as
spending 15 years at Pilkington plc in a variety of
operational and finance roles. Mike served as a
Non Executive Director of Low & Bonar plc from
December 2016 to May 2020.

Other principal appointments:
None.

Tessa Bamford
Independent Non Executive Director

Cathy Halligan
Independent Non Executive Director

Alan Murray
Independent Non Executive Director

A N R

Appointed: March 2011

Appointed: January 2019

A M N R

Appointed: January 2013

Key strengths and experience:
– Broad business knowledge
– Extensive boardroom and City experience
Tessa has held senior advisory roles in both the
UK and USA across a range of sectors. She held
a variety of roles, including corporate finance, at
J Henry Schroder & Co and Barclays de Zoete
Wedd. She was a founder and Director of Cantos
Communications and a Non Executive Director of
Barratt Developments plc.

Other principal appointments:
Consultant at Spencer Stuart.

Graham Middlemiss
Company Secretary

Key strengths and experience:
– Experienced senior executive with extensive

Key strengths and experience:
– Considerable international operational and

board experience

– Extensive digital transformation,

digital commerce, data analytics and
marketing experience

Cathy has a strong track record in the retail,
e-commerce and multi-channel arenas. She has
served as the Chief Marketing Officer at Walmart.
com, the SVP Sales and Marketing at PowerReviews
and held senior marketing and internet roles at
retailer Williams-Sonoma Inc., where she was
responsible for leading efforts to launch its brands,
such as Pottery Barn, on the web. She was an
independent board director at Wilton Brands from
2016 to 2018.

Other principal appointments:
Non Executive Director at FLIR Systems, Inc.
and Ulta Beauty, Inc.

Key to Board and Committee Membership

financial experience

– Extensive executive management experience

within global businesses

Alan is a qualified chartered management
accountant with extensive business leadership
skills, executive and board experience and
global business and financial reporting expertise.
From 2002 to 2007, Alan served as Group Chief
Executive of Hanson plc, where he had previously
served as Finance Director and Chief Executive of
Hanson Building Materials America. He served on
the Management Board and Supervisory Board
of HeidelbergCement AG and as a Non Executive
Director of International Power plc.

Other principal appointments:
Non Executive Director of O-I Glass, Inc.

Graham was appointed Company Secretary of
Ferguson plc on August 1, 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.

A Audit

D Disclosure

E Executive

N Nominations

M Major

Announcements

R Remuneration

T Treasury

E Employee

Engagement
Director

S Senior

Independent
Director

Committee
Chair

Ferguson plc Annual Report and Accounts 202063

Tom Schmitt
Independent Non Executive Director

Nadia Shouraboura
Independent Non Executive Director

Jacky Simmonds
Independent Non Executive Director

A N R

Appointed: February 2019

Appointed: July 2017

A N R

Appointed: May 2014

Key strengths and experience:
– Significant operational experience
– Extensive knowledge of US and international

logistics and supply chain businesses
Tom is an experienced CEO with significant
first-hand leadership experience of the markets
in which the Group operates and a track record
of driving accelerated profitable growth and
promoting integrity, transparency and values-
based leadership. His career started at BP and
McKinsey and has encompassed leadership roles
at FedEx, AquaTerra Corporation and Schenker AG.
He served as a Non Executive Director of Zooplus
AG from 2013 to 2016.

Other principal appointments:
Chairman and Chief Executive Officer of Forward
Air Corporation, Inc.

Key strengths and experience:
– Considerable expertise in running complex

logistics and supply chain activities

– Extensive experience of cutting edge technology

and e-commerce

Nadia has substantial experience of the consumer
and technology sectors. She was a Vice President
at Amazon.com, Inc. and held management
positions at Exelon Power Team, Diamond
Management and Starlight Multimedia Inc. She held
board level positions at Hointer Inc. and Cimpress
N.V.

Other principal appointments:
Non Executive Director of Mobile TeleSystems
Public Joint Stock Company and member of the
Supervisory Board of X5 Retail Group N.V.

Key strengths and experience:
– Extensive expertise in executive remuneration

and human resources within large
international businesses

– Significant knowledge of talent management

and employee engagement

Jacky has experience across a number of sectors.
She has worked as a HR Director in a number of
different consumer facing businesses, including
VEON ltd, easyJet plc, and TUI Travel plc.
She was a member of the Supervisory Board of
TUI Deutschland, GmbH and a Director of PEAK
Adventure Travel Group Limited.

Other principal appointments:
Chief People Officer of Experian plc.

2019/20 Board and Committee meeting attendance (eligibility)

Chairman
Geoff Drabble2 3
Executive Directors
Kevin Murphy4
Mike Powell
Non Executive Directors
Tessa Bamford
Cathy Halligan
Alan Murray
Tom Schmitt
Nadia Shouraboura
Jacky Simmonds
Directors who left during the year
Gareth Davis5
John Martin6
Darren Shapland7

Board1

Audit1

Rem1

Nom1

Committees

9 (9)

9 (9)
9 (9)

9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)

4 (4)
2 (2)
3 (3)

2 (2)

3 (3)

6 (6)

6 (6)
6 (6)
6 (6)
6 (6)
6 (6)
6 (6)

2 (2)

3 (3)

6 (6)
6 (6)
6 (6)
6 (6)
6 (6)
6 (6)

3 (3)

1. There were three unscheduled Board, one unscheduled Audit Committee, three unscheduled Nominations Committee and one

unscheduled Remuneration Committee meetings during the year. These meetings were required in order to facilitate additional workload
required for the Board to consider the UK demerger, listing structure and COVID-19 response, the Audit Committee to review the control
environment, how to operate efficiently in the COVID-19 environment and for the Nominations and Remuneration Committees to consider
succession planning for the Group Chief Executive and the Audit Committee Chair.

2. Non Executive Director and Chairman designate until November 20, 2019. Appointed as Chairman with effect from November 21, 2019.

3. As a member of the Audit and Remuneration Committees in his capacity as a Non Executive Director prior to his appointment as Chairman

when he stepped down from these Committees.

4. Chief Executive Officer, USA until November 18, 2019. Appointed as Group Chief Executive with effect from November 19, 2019.

5. Gareth Davis stepped down as Chairman on November 21, 2019 and as Non Executive Director on January 31, 2020.

6. John Martin stepped down as Group Chief Executive on November 19, 2019.

7. Darren Shapland stepped down as Non Executive Director on November 21, 2019.

The Major Announcements Committee met three times during the year and all meetings were unscheduled. All members, save for Alan Murray
and Mike Powell, attended all meetings. Alan Murray and Mike Powell were unable to attend one meeting due to unavoidable scheduling
conflicts. In addition to the members detailed on pages 62 and 63, Ian Graham, Group General Counsel, and Mark Fearon, Group Director of
Communications and Investor Relations, are members of that Committee.

During the COVID-19 pandemic the Board formed a special purpose Committee to enable certain delegated matters to be dealt with quickly
and efficiently. Geoff Drabble, Kevin Murphy, Mike Powell, Tessa Bamford and Alan Murray are members of the Committee. The Committee
met three times during the year and all members attended each meeting.

Appointments and other
Board and Committee members

Each Board member listed on pages 62 and 63
served throughout the financial year ended July
31, 2020.

John Martin served as Group Chief
Executive, Chair of the Executive and Major
Announcements Committees and member of
the Disclosure Committee until he stepped
down from the Board on November 19, 2019.

Gareth Davis served as Chairman, Chair of the
Nominations Committee and member of the
Major Announcements Committee until he
stepped down as Chairman on November 21,
2019. He served as a Non Executive Director
and member of the Nominations and Major
Announcement Committees for a further two
months until he stepped down from the Board
on January 31, 2020.

Darren Shapland was a Non Executive Director,
Chair of the Audit Committee and a member of
the Nominations and Remuneration Committees
until he stepped down from the Board on
November 21, 2019.

Why you should vote to re-elect
your Board

In accordance with the Code, all Directors
will stand for election or re-election at the
2020 Annual General Meeting (“AGM”), with
the exception of Mike Powell who will step
down from the Board on October 31, 2020.
Further details on the AGM can be found on
page 174 and at www.fergusonplc.com

In line with the findings of the internally-
facilitated Board and Committee effectiveness
reviews, further details of which can be found
on page 70, and evidenced by their biographies,
the Directors possess a broad range of
experience and skills from a variety of industries
and advisory roles, which fully complement
each other. As such, the Board believes that the
election and re-election of each Director is in
the best interests of the Company.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance64

Board leadership and company purpose (continued)

Leadership
The Board’s primary role is to ensure Ferguson’s long-term,
sustainable success by setting the Group’s strategic direction,
ensuring that strategy is aligned with its purpose and culture
and to promote and protect our interests for the benefit of all our
stakeholders. The Company’s governance framework supports
the Board in the delivery of the Group’s strategy and long-
term sustainable success in various ways, as detailed below.
Our Non Executive Directors play an essential role in this by holding
the Executive team to account, ensuring that appropriate progress
implementing strategy is being made and that their behaviors and
decisions are supportive of the Group’s culture and values.

The Board held six scheduled meetings, and three unscheduled
meetings, during 2019/20. Individual Director attendance at Board
and Committee meetings during the year is set out on page 63.

It is important that the Board has a strong culture of open debate
where all Directors are actively encouraged to challenge existing
assumptions and to raise difficult questions. The Board undertakes
a formal review of its performance and that of its Committees each
year. Further information on the 2020 review and actions taken to
address areas for enhancement identified in the 2019 review are set
out on page 70.

The Board has a rolling agenda program which ensures that items
relating to strategy, performance and governance are covered in
its meetings. The balance of time spent by the Board on issues
is considered as part of the annual effectiveness review process
and, as a result, adjustments are made to the Board’s agenda for
the following year. The Board receives copies of the minutes of
each Board Committee meeting and key issues covered by each
Committee are reported to the subsequent Board meeting.

To facilitate an efficient and effective Board, meetings follow an
agreed format. A formal agenda is developed by the Chairman and
Group Company Secretary, with relevant input from other Directors,
for each meeting. This ensures that all relevant matters are prioritized,
given sufficient time and focus, and are put forward for discussion
at the appropriate time. Each agenda builds on the Board’s long-
term forward agenda plan and takes into account the financial and
reporting cycle, the Group’s strategy, relevant internal and external
developments, the location of the meeting and stakeholder feedback.
Details of the Board’s main areas of focus during the year are set out
on page 65.

In advance of each set of meetings, papers and relevant information
are delivered so that each Director is provided with the necessary
resources to fulfill their duties. The information is published via
a secure web portal which also provides access to a library of
information about the Company, the Group and Board procedures.
Meeting support is provided by the Company Secretariat department.
The Group Company Secretary is responsible for ensuring that
all Directors have full and timely access to all relevant information.
Directors, if necessary, may take independent professional advice at
the Company’s expense in furtherance of their duties. Any Director
may request that the Group Company Secretary arrange such advice.
This is in addition to the direct access that every Director has to the
Group Company Secretary for his advice and services.

Our governance framework is defined by standard-setting
documents including the schedule of matters reserved for the
Board (a summary of which can be found on www.fergusonplc.com),
Committee terms of reference, the Ferguson Code of Conduct and
our policies and procedures. These documents formally describe our
approach to decision-making and ascribe responsibility in a way that
provides clarity for our leadership teams and enables them to act with
freedom and confidence when performing their duties. They also set
a common set of standards around behavior that are aligned with our
culture and support the Board in ensuring that the Group continues to
comply with its legal obligations.

In order to ensure that our governance framework is effective it
is also important that we ensure that there is a “speak up” culture
throughout the Group, and that associates feel able to raise
concerns in confidence and have a touch-point for ethical dilemmas.
This supports ethical decision-making, helps to mitigate against the
risk of serious incidents and breaches of our Code of Conduct and
policies and helps drive our purpose by producing better experiences
for our customers. Further information on the operation of our ethics
helpline is included in the Audit Committee report on page 74.

It is among the Board’s core responsibilities to determine the nature
and extent of the principal risks it is willing to take in achieving its
strategic objectives and to ensure the Group maintains sound risk
management and internal control systems. During the year, the
Board and its Committees carried out a robust assessment of the
risks facing the business including principal and emerging risks.
More details of the principal and emerging risks are set out in the
principal risks and their management section on pages 53 to 59.
The effectiveness of the Group’s risk management and internal
control systems is reviewed through the work of the Audit Committee
and is described on pages 79 and 80. The Directors’ assessment of
the Group’s longer-term viability and the viability statement are set
out on pages 54 and 55.

Company purpose
Our corporate purpose is to “act as a trusted supplier and partner to
our customers, providing innovative products and solutions to make
their projects better”. Our vision, mission and values are a reminder
of our purpose and how we expect to fulfill it. They apply to all of our
operations and business units and are applicable to every role and
function throughout the Group. In 2019 the Board approved a new
Group vision, mission and values statement. Further information on
our vision, mission and values is provided on page 20.

Ferguson’s culture is built on our values and ensuring that every
associate throughout the business understands the purpose of the
Company and how they contribute to it. The Board uses a variety of
sources to monitor cultural indicators that are provided to them during
the year, including business-specific reports from the Group Chief
Executive and other senior management, feedback from employee
engagement surveys, ethics helpline reports, the performance of
the Group’s health and safety program, updates on the Group’s
compliance with relevant legal and regulatory requirements, Internal
Audit reports, feedback from the Employee Engagement Director on
his Beyond the Boardroom meetings with associates and progress
in the Group’s inclusion and diversity program. Further information
on how we engage with our associates can be found on pages 24
and 25. Our associates are our most important asset and having the
best associates in our industry is a key part of our culture. During the
year we have maintained our focus on associate development.
We have continued to invest in our Talent Management model in
the USA, developing our leaders through the completion of specific
development activities. For further information regarding associate
development throughout the Group please see pages 20 and 21.

Ferguson plc Annual Report and Accounts 2020The Board’s focus during the year

Principal activities in 2019/20

Strategy

Completed the assessment of the Company’s listing domicile and held an in-depth consultation
with shareholders regarding an additional listing of ordinary shares in the USA

Approved a proposal to seek shareholder approval for an additional listing of ordinary shares
in the USA

Approved changes to the Executive Committee and approved the appointment of the new Group
Chief Executive

Further information

See page 6

Reviewed the Group’s strategy

See pages 30 to 47

Received reports from the Group Chief Executive on progress with strategy and performance

Approved the $500 million share buy back program, reviewed the appropriateness of the
program and agreed to suspend the program in order to protect the Group’s cash position during
the COVID-19 pandemic

Commencement of Wolseley UK demerger process approved

Received regular updates regarding the Group’s technology strategy

See page 109

See page 6

See page 23

Reviewed and approved business acquisition and capital investment proposals and conducted
regular post-investment reviews

See pages 154 and 155

Received briefing on associate engagement and culture

Annual budget reviewed and approved

Reviewed and approved the Group’s Modern Slavery Act Statement

See page 52

Performance

Received regular reports from the Group Chief Financial Officer on financial performance

See pages 26 to 29

Actively monitored the impact of the COVID-19 pandemic on the Group’s performance, including
receiving regular business updates from the Group Chief Executive

See pages 4, 5 and 26 to 29

Approved entering into new finance arrangements

Received regular presentations from management on the performance of the Group and its
business units

Reports on health and safety performance reviewed at every meeting

See pages 30 to 47

See page 49

Reviewed and approved Full Year and Half Year Results and other announcements

See www.fergusonplc.com

Received regular updates on investor relations including detailed feedback from shareholders
following investor meetings

Governance

Reviewed the results of the Board and Committee effectiveness review

Received reports on Non Executive Directors’ tenure, succession planning and approved the
appointment of a new Audit Committee Chairman

Regularly reviewed the Group’s principal risks and risk appetite

Approved Group insurance arrangements

See page 66

See page 70

See pages 71 to 73

See pages 53 to 59

Board visit to Newport News
In January 2020, the Board and Committee meetings were held in
Newport News, the corporate headquarters of Ferguson Enterprises,
our US business. The Board took the opportunity to meet with
associates from a wide variety of business units and functions and
received a deep-dive presentation on the changing expectations
of our residential trade customers and how we are evolving our
proposition to help them grow. The Chairman and Group Chief
Executive hosted a Q&A session with the local Executive Leadership
Team and the Directors engaged in breakout sessions with a range
of associates focused on gaining a better understanding of the
implementation of the business’ strategy and key initiatives of the
business. The Board also toured a residential community of several
hundred new construction homes. This provided the Directors with
the opportunity to see the major phases of residential construction
and how Ferguson’s products and services were being used on-site.
The Directors also engaged directly with an important local customer,
who described his business operations, and reasons why he chose to
partner with Ferguson over other suppliers.

COVID-19: maintaining governance standards
The Board recognizes the value and importance of good corporate
governance, particularly in these unprecedented times caused by the
global COVID-19 pandemic. The Board maintained its governance
focus throughout the pandemic with Board and Committee meetings
taking place as scheduled. Since the outbreak of the pandemic
all Directors have been able to participate in meetings effectively
using secure virtual meeting technology and have covered all usual
business and matters requiring review as a result of the pandemic.
The Board has also, where necessary, held additional meetings to
those scheduled where required, and a special purpose Committee
of the Board was created to enable certain delegated matters to be
dealt with quickly and efficiently with appropriate levels of oversight
and rigor.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance66

Board leadership and company purpose (continued)
How the Board engages with stakeholders

The Board considers that its key stakeholders are associates, customers, investors, suppliers and the community. In compliance with the
Code, we set out, on pages 24 and 25 of the Strategic report, our principal stakeholders and how and why we engage with them, as well as
responses to that engagement.

Under section 172 of the UK Companies Act 2006, boards have a duty to promote the success of their company for the benefit of their
members while having due regard of the likely consequences of any decision in the long term, for the interests of associates, the success
of their relationships with suppliers and customers, the impact of their operations on the community and environment and maintaining a
reputation for high standards of business conduct. The Company is Jersey incorporated and, therefore, is not required to comply with this
legislation. However, the Board recognizes that effective engagement with stakeholders at Board level and throughout the business is
essential to enable us to promote the long-term success of the Group for the benefit of all stakeholders. As a result, stakeholder considerations
are integral to Board discussions and decisions. Our section 172 statement is set out on page 24.

How does the Board hear the stakeholder voice?

Stakeholder

Associates

Customers

Investors

Suppliers

Community

Our associates are our most important asset and having the best associates in our industry is a key part of Ferguson’s
culture. The Board has direct engagement with associates during site visits and these enable the Board to meet a
range of associates. We also have a dedicated Employee Engagement Director, Alan Murray, who hosts meetings with
our associates during the year to further understand their thoughts and opinions. Alan provides feedback from these
discussions to the Board on a regular basis which provides the Board with additional insight of the views and concerns of
associates in their discussions and decision-making. Further information regarding interaction with associates is given on
pages 24 and 25.

The Board engages with customers whenever possible during site visits. Details of the customer visit during the Board’s
US visit in January 2020 can be found on page 65. The Board receives information about customers in Board reports and
presentations and during strategy updates. See pages 24 and 25 for further information on interaction with customers.

The Board engages with investors in a variety of ways. The Group Chief Executive and the Group Chief Financial
Officer meet regularly with the Company’s institutional investors to provide updates on the Group’s strategy and its
results. The Chairman makes himself available to meet with investors and during the year he, together with the Group
Chief Executive and Group Chief Financial Officer, conducted an extensive consultation with institutional investors on
potential listing structures. The Chair of the Remuneration Committee leads consultations with major investors when the
Company’s Remuneration Policy is under review. Further details can be found on page 82. All Directors attended the
2019 AGM and spoke with investors informally before and after the meeting and answered investor questions during
the AGM. For further information regarding interaction with investors please see pages 24 and 25.

We engage with our suppliers through our specialist teams and business leaders. The Board receives material updates from
management on the Group’s supply chain. See pages 24 and 25 for further information on interaction with suppliers.

Community engagement takes place locally through our operating businesses. The Board also received a detailed report
from the Director of Sustainability during the year on the many projects that the Company has undertaken. For further
information on interaction with the community and environment please see pages 24 and 25.

Below are examples of how the Board has had regard to the interests of its key stakeholders when making certain decisions during 2019/20.

Enhanced communication
The Board considered that during the uncertain times caused
by COVID-19 our shareholders, our associates and other key
stakeholders would benefit from understanding more about the
actions that were being taken and the ongoing performance of
the Group. Consequently, in addition to the Company’s scheduled
program of announcements, the Board approved for public release
additional Trading Updates on April 15, 2020 and July 24, 2020.

Listing structure
In April 2020 the Board approved a proposal to seek shareholder
approval for an additional listing of ordinary shares in the USA.
Prior to this decision being made, in-depth consultations were held
with major shareholders regarding two potential listing structures
for the Company, during which we explained the options under
consideration and allowed shareholders to ask questions and
comment on the options. Feedback from the consultation was
reviewed by the Board and the impact on investors, associates and
other stakeholders was considered.

Taking into account the feedback received, the Board considered
it would be in the best interests of stakeholders to seek an
additional listing in the USA. The Board therefore decided to seek
shareholder approval to enable an additional listing of ordinary
shares in the USA as the first step in a two step process, given the
long-term natural listing in the USA. Further details of the proposed
changes to the listing structure can be found on page 6.

2020 AGM
The 2020 AGM will be held on December 3, 2020. Please consult the 2020 Notice of AGM and www.fergusonplc.com for details regarding
the 2020 AGM.

Ferguson plc Annual Report and Accounts 2020Division of responsibilities

Board and Committees of the Board
Committees of the Board support the Board in the fulfillment of its duties and take strategic decisions of a substantive nature.

The effective working of the Board is crucial to the long-term prospects and strategic aims of the Group. 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 summary of their roles and division of responsibilities, along with those of the Non Executive
Directors and Employee Engagement Director, is set out on the following page.

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, provides shareholder safeguards similar to those of a UK registered company, has
regard to relevant institutional shareholder guidelines and complies with the dilution limits detailed in the Investment Association’s Principles
of Remuneration.

The Board

– Responsible for establishing the Group’s purpose and values and ensuring alignment with culture

– Collectively responsible for the long-term success of the Group

– Accountable to shareholders and responsible for the proper conduct of the business

– Setting the overall strategic direction of the Group

– Oversight of effective management of the Ferguson Group ensuring the appropriate leadership and resources are in place to meet

its objectives

– Reviewing the performance of the Board and its Committees and ensuring effective succession planning

– Ensuring effective financial reporting

– Approval of key strategic projects in the best interests of the Group

– Maintaining a sound system of risk management and internal controls

Audit
Committee

Nominations
Committee

Remuneration
Committee

Major
Announcements
Committee

– 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

– Oversees, monitors and

makes recommendations
as appropriate in relation
to the Group’s financial
statements, accounting
processes, audit
(internal and external),
risk management and
internal controls and
matters relating to fraud
and whistleblowing

– Responsible for the

functions specified by DTR
7.1.3R. The membership
of the Audit Committee is
detailed on page 74

– Reviews and recommends

– Meets as required in

exceptional circumstances
to consider disclosure
obligations in relation to
material information where
the matter is unexpected
and non-routine

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

– Reviews workforce

remuneration and related
policies throughout the
Group and the alignment
of incentives and rewards
with culture

A special purpose committee was formed during the COVID-19 pandemic, please see page 65 for further details.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance68

Division of responsibilities (continued)

Other Committees
Implementing strategic decisions and executive or administrative matters:

Executive
Committee

Treasury
Committee

Disclosure
Committee

– Drives business performance and

– 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

Committee membership details:
www.fergusonplc.com

operational improvements

– Ensures that the corporate culture
and values set by the Board are
implemented across the Group, that the
behaviors expected from associates
are clearly communicated and that
actual behaviors are aligned with the
culture and values

– Develops and recommends to

the Board the Group strategy and
responsible for monitoring progress
against the strategy

– Develops and recommends Group

policies and standards to the Board and
ensures that they are implemented,
communicated and maintained

Committee membership and
biographical details for each member:
www.fergusonplc.com

– Meets as required to deal with 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

Committee membership details:
www.fergusonplc.com

Board roles

Chairman

– Overall leadership
and governance
of the Board
(including induction,
development
and performance
evaluation)

– 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

Group Chief
Executive

Senior
Independent
Director

– Effective leadership

– Available to

of the Group,
implementing
strategy and
objectives agreed
by the Board

– Management

and development
of the Group’s
operations and
business models

– Works closely
with the Group
Chief Financial
Officer to ensure
prudent financial
controls

– Develops and
implements
policies integral
to improving the
business, including
in relation to health
and safety and
sustainability

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
discussions
with the Non
Executive Directors

Non Executive
Directors

– Provide effective
and constructive
challenge to
the Board and
scrutinize the
performance of
management

– Review Group

financial information
and ensure
effective systems
of governance, risk
management and
internal controls
are in place

– Determine
executive
remuneration
and succession
planning

Employee
Engagement
Director

– Enhances

communication
channels between
associates and the
boardroom

– Hosts meetings
with associates
throughout year

– Provides updates to
the Board following
these meetings
regarding the views
and concerns
of associates so
that these can
be discussed
and considered

Ferguson plc Annual Report and Accounts 2020
Composition, succession and evaluation

Composition
As at the date of this report, the Board comprises nine Directors:
the Chairman, the Group Chief Executive, the Group Chief Financial
Officer and six independent Non Executive Directors. Forty four per
cent of the Directors are female. The biographies of the Directors
(set out on pages 62 and 63) demonstrate that the Board possesses
strong and diverse experience that is relevant to the sector in which
the Company operates and aligned with its strategy.

Independence of Non Executive Directors
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 judgment and that each Non Executive Director
continues to demonstrate independence of thought and expertise
in meetings, and to support the senior management in an objective
manner and offer appropriate levels of challenge.

The Code indicates several factors that should be considered when
determining their independence, including length of tenure. Each Non
Executive Director has served for six years or less with the exception
of Tessa Bamford, Alan Murray and Jacky Simmonds. As required
by the Code, Tessa and Jacky’s reappointments for a further term
in March 2020 were subject to a particularly rigorous review that
carefully considered the need for progressive refreshing of the Board.
The tenure terms of Non Executive Directors are transitioning towards
one-year terms to reflect the current vote for re-election at the AGM.
Over time it is expected that the terms will be co-ordinated with the
timing of the AGM. During the year Tessa Bamford, Jacky Simmonds
and Nadia Shouraboura’s terms were extended by one year.

The Board is mindful that non executive director tenure that exceeds
nine years is listed by the Code as a circumstance that might impair,
or appear to impair a non executive director’s independence.
Tessa Bamford was first appointed to the Board in March 2011 and,
while her tenure now exceeds nine years, the Board continues to
regard Tessa as independent. Tessa’s independence was subject
to a thorough review by the Nominations Committee prior to its
recommendation to the Board that she be reappointed for a further
term as a Non Executive Director. During this review the Nominations
Committee discussed a wide range of factors, noting that Tessa
continues to demonstrate objective judgment and independence
of thought and provides constructive challenge to management
where required. The Nominations Committee also noted that,
following recent changes to the executive leadership team, Tessa
had not served concurrently with any current Executive Director
for longer than three years and was satisfied that Tessa continued
to demonstrate the high level of independence expected of a Non
Executive Director. The Board considered that the reappointment
of Tessa for a further one-year term to be in the best interests of the
Company and the Group as her skillset and in-depth knowledge
of significant and ongoing Group projects continues to be vital
to the balance of the Board and that Tessa’s continued presence
on the Board provides continuity and stability during a period of
significant change.

The Code indicates that a chairman should not remain in post beyond
nine years from the date of their first appointment to the board. It also
allows that this period can be extended for a limited time, particularly
in those cases where the chairman was an existing non executive
director on appointment, in order to facilitate effective succession
planning and the development of a diverse board.

The Code came into effect in relation to the Company on August 1,
2019 and the Board had prior to this undertaken a succession process
for the role of Chairman to ensure that the Company continued
to comply with the Code. The succession process for the role of
Chairman was led by the Senior Independent Director. In accordance
with the Code, the Senior Independent Director chaired the
Nomination Committee meetings when Chairman succession was
discussed. Gareth Davis stepped down from the Board after 16 years
of service, nine of which as Chairman. As announced on May 22,
2019, Geoff Drabble was appointed to the Board as Chairman-
designate with Gareth remaining as Chairman for a short period
before handing over the role to Geoff at the 2019 AGM. This facilitated
an orderly succession process and transition of responsibilities and
enabled Geoff to receive an appropriate induction and have time
to familiarize himself with the business and the Board before taking
over Chairmanship.

External appointments during the year
As announced on June 26, 2020, Nadia Shouraboura joined Mobile
TeleSystems Public Joint Stock Company as a non executive director
on June 24, 2020. The Board considered and approved in advance
Nadia’s appointment having been satisfied that the time commitment
for the role would not affect her ability to devote sufficient time to her
duties as a Director of the Company.

On June 17, 2020, it was announced that Geoff Drabble had been
appointed as a non executive director and chairman designate of DS
Smith Plc with effect from September 1, 2020 and then as Chairman
from January 3, 2021. Geoff’s appointment was approved in advance
by the Board. The Board took into account the likely time commitment
of the role and was satisfied that it would leave sufficient time for him
to discharge his duties as Chairman of the Company. The Board also
agreed that the Company and Group would benefit from Geoff’s
experience at another internationally publicly quoted company and as
its chairman.

Induction
Upon appointment, all new Directors are provided with a
comprehensive induction program designed to ensure 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 program is structured to reflect best practice
and includes the provision of current and historical information
about the Company, visits to operations around the Group, induction
briefings from function leaders and meetings with Directors, senior
executives, the Group Company Secretary and the Company’s
advisers. We aim to limit the amount of information provided as
reading material during an induction process. All new Directors are
provided with access to our electronic Board paper system which
provides easy and immediate access to a number of key documents.

During the year, Geoff Drabble undertook an induction process
following his appointment as Non Executive Director and Chairman
designate. During his induction he met with a number of senior
executives, the Company’s advisers and operationally focused
associates in the business.

Development of the Board
All Directors are provided opportunities for further development and
training and, during the year, each Director has the opportunity to
discuss development with the Chairman. The Board receives regular
updates on governance, legal and regulatory matters relevant to the
Group’s operating environment and receives detailed briefings from
advisers on a variety of topics that are relevant to the Group and
its strategy.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance70

Composition, succession and evaluation (continued)

Key areas of focus for continued improvement identified in the
2019/20 review were:

– continuing to develop the Board composition to reflect the Group’s

ongoing business and potential future listing location;

– improving the agendas for Board meetings and evolving the

Committees and their structure and composition to enable them to
operate more efficiently while also maintaining appropriate levels
of oversight; and

– the creation of new committees to facilitate more in-depth

oversight in appropriate areas.

Actions have already been taken in relation to these areas of
focus. The Board has updated the composition of the Audit and
Remuneration Committees. In addition, new ad hoc committees have
been created to focus on technology developments (see page 23),
the additional listing of the Company’s shares on a major US stock
exchange and the exit of the UK business.

Chairman effectiveness review
During the year the Non Executive Directors, led by the Senior
Independent Director, undertook the performance evaluation of the
Chairman. The evaluation, which took into account the views of the
Executive Directors, concluded that the Chairman had been very
effective in the role, which he had smoothly transitioned into, and had
established effective relationships with the Non Executive Directors.
The Chairman’s relationship with the Executive Directors struck an
appropriate balance between support and constructive challenge.

Individual Non Executive Director effectiveness review
The Chairman maintains frequent contact with each Director
throughout the year on an individual basis and provides feedback
where relevant. The Chairman considers all Directors to have
engaged fully throughout the year, openly sharing their views
and experience at Board and Committee meetings and providing
constructive challenge and support to management as required.
The ability of Directors to devote sufficient time to their respective
roles is also monitored by the Chairman on an ongoing basis and he
continues to be satisfied that each Director has been able to do so
during the year under review, with full attendance at all scheduled
Board and Committee meetings. The Chairman and the Board
continue to consider each of the Directors to be effective and to
demonstrate commitment to his or her role.

The annual Board and Committee effectiveness review provides
the Directors with an opportunity to assess individual and collective
effectiveness. During the 2018/19 effectiveness review the Board
identified increased opportunities for succession planning, further
briefings on technology and a continued increase in the Board’s
focus on culture. Geoff Drabble worked closely with Gareth Davis
to ensure a successful handover of responsibilities. In addition, the
Board received regular reports from the Nominations Committee
on succession planning during the year. The Board received regular
briefings and presentations from the Chief Information Officer
throughout the year on the implementation of the Group’s technology
strategy and roadmap, including any key risks and opportunities
which may have had an impact on the project. During the year the
Chief Human Resources Officer briefed the Directors on associate
engagement and culture, including an overview of the US culture
surveys that had been undertaken during the year. Details of the
2019/20 review are provided below.

Succession
The Nominations Committee keeps the composition of the Board and
its Committees under regular review to ensure that they maintain an
appropriate balance of skills, experience, independence, knowledge
and diversity to support the successful execution of the Group’s
long-term strategy. Further details on the Nominations Committee’s
work on Board succession planning and Non Executive Director
recruitment is provided on page 72.

Evaluation of performance
The Board undertakes a formal review of its performance and that
of its Committees each year, with an external evaluation every three
years. This year’s Board and Committee effectiveness review was
facilitated internally. As an externally-facilitated review was conducted
in 2017/18, it is expected that the next externally-facilitated review will
be conducted during the year ending July 31, 2021.

The 2019/20 review was conducted using an online survey with
a discussion at the Board meeting and with follow-up discussions
between the Chairman and Board members. The survey was
structured around open questions that encouraged candid feedback
and covered areas such as the composition and diversity of the
Board, how effectively members worked together, how the Board
provided appropriate strategic oversight and the management
and effectiveness of meetings. Overall the Board’s performance
was highly rated with positive feedback given in relation to areas
such as the Board’s testing and development of the Group’s
strategy, the dynamics of the Board and the relationships between
Board members and the understanding of associates, investors
and customers. The results of the review were discussed by the
Board and priority actions for further enhancements to the Board’s
effectiveness were identified. Overall, following consideration of
the findings of the 2019/20 review, the Directors remain satisfied
that the Board and each of the Committees of the Board are
operating effectively.

Ferguson plc Annual Report and Accounts 202071

Nominations
Committee

Geoff Drabble
Nominations Committee Chairman

Nominations Committee members

Membership

Geoff Drabble (Chairman)

Tessa Bamford

Cathy Halligan

Alan Murray

Tom Schmitt

Nadia Shouraboura

Jacky Simmonds

Members who left during the year

Gareth Davis

Darren Shapland

Meetings attended
(eligibility)

6 (6)

3 (3)

Nominations Committee overview

– Geoff Drabble succeeded Gareth Davis as Chairman of the

Committee on November 21, 2019.

– As at the date of this report, the Committee is made up of

six independent Non Executive Directors and the Chairman.
Details of membership and attendance are set out in the
table above.

– The Committee met six times during the year.

– The Group Chief Executive, Group General Counsel and Group
Chief Human Resources Officer and representatives of external
search consultants (as required) attended Committee meetings.

An overview of the Committee’s areas of responsibility is set out
on page 67 and the Committee’s Terms of Reference are available
at www.fergusonplc.com.

Dear Shareholder
I am pleased to present the report of the Nominations Committee
for 2019/20.

Board changes and succession planning
During the year the Committee remained focused on Board and
senior executive succession plans to ensure that we continue
to have the right people, with the right balance of skills, to drive
Ferguson forward.

It was a busy year with Kevin Murphy moving to his new role of Group
Chief Executive (November 2019), Alan Murray taking over the role
of Audit Committee Chairman (November 2019) and my transition
to the role of Chairman (November 2019), all of which we reported
on in our 2019 Annual Report and Accounts. I have talked about
Board changes in greater detail on page 6. These appointments
followed formal, rigorous and transparent recruitment processes.
Further information on our approach to Board composition and
succession planning is set out on page 72.

We commenced a selection process for a new Group Chief Financial
Officer (“Group CFO”) following the announcement in May 2020 that
Mike Powell would be stepping down from this role and I am pleased
to report the appointment of Bill Brundage as our new Group Chief
Financial Officer, effective November 1, 2020. Further information
on the Group CFO succession process is included on page 72.
I would like to express the Board’s thanks to Mike for his significant
contribution to the Group, and we wish him well in his future role.

Committee effectiveness
During the year, we also reviewed the effectiveness of the
Committee. The 2020 Board and Committee effectiveness reviews
were internally facilitated using an online survey, the results of which
were presented and discussed at the July meetings. Overall, the
review found that the Committee continues to operate effectively
and also identified priority areas of focus for the coming year as we
work to enhance our performance. The Committee’s priorities for
2020/21 are:

– to conduct an effective succession process leading to the

appointment of a new Group CFO;

– to enhance the succession plans for Executive and Non Executive

Directors; and

– to monitor and keep under review the composition of Board

Committees to ensure that they retain the appropriate balance of
skills while also making most effective use of Board members and
their experience. Please see page 70 for details of changes made
to Board Committees as a result of the 2020 Board and Committee
effectiveness reviews.

I hope you find the information on the following pages about the work
of the Committee helpful and informative.

Geoff Drabble

Nominations Committee Chairman

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance72

Composition, succession and evaluation (continued)

Board composition and succession planning
The Committee is delighted that Kevin Murphy has settled into his
role as our Group Chief Executive. Kevin was appointed in succession
to John Martin as part of Group Chief Executive succession planning
that had evolved, taking into account the needs of the business.

The Nominations Committee recognizes the benefits of regularly
refreshing the Board more generally and over the last two years
the Board has been fortunate to welcome Cathy Halligan and Tom
Schmitt as new Non Executive Directors, and Geoff Drabble as our
new Chairman. The Board has benefited from Cathy’s retail and
digital e-commerce experience, Tom’s international logistics and
supply chain experience and Geoff’s extensive experience leading
a major UK public company with US operations. The Committee
also recognizes that there has been a great deal of recent change
on the Board with the Chairman, Group Chief Executive and Audit
Committee Chairman all being appointed to those roles during the
year, and with the announcement that Mike Powell is leaving us for
a new role. It is important to balance refreshing the Board while also
maintaining continuity as the Board navigates through those changes
and other changes that the Company is and will be going through,
such as the proposed additional USA listing and steering the business
through the effects of the COVID-19 pandemic. In that context, the
extension of the tenures of Tessa Bamford, Nadia Shouraboura and
Jacky Simmonds was also an important part of the business of the
Committee this year. More details can be found on page 69.

The process to choose a new Group CFO and a smooth induction
following appointment are key priorities for the Committee. Korn Ferry
was appointed to lead the search. The Committee has reviewed
the expertise and experience requirements for the role so that
candidates put forward meet the expectations of the Committee
and the demands of the role. Key elements of the appointment
process include the appointment of qualified recruitment consultants,
developing a specification for candidates, selecting a longlist of
candidates, selecting a shortlist of candidates and holding interviews
and finally recommending preferred candidates to the Board. As the
Group CFO appointment process concluded following the year-end,
further information will be provided in our annual report next year.

Korn Ferry does not have any other connections with the Company
or individual Directors, except in relation to other senior executive
search mandates. The Company does not use open advertising to
search for suitable candidates for Director positions, as it remains of
the belief that the optimal way of recruiting for these positions is to
use targeted recruitment based on the skills and experience required.

Succession planning and development of a diverse pipeline
In addition to its work on Board composition and succession
planning the Committee also considers the composition, skills and
experience of, and the succession plans for, the Group’s senior
executives and the pipeline of talent coming up through the business.
The Committee and the Board take great interest in the development
of the Group’s senior leaders and talent pipeline. Senior leaders
regularly attend Board meetings, where they report on their
respective areas of responsibility. Other leaders from the business
also frequently present or report to the Board and its Committees on
specific areas of expertise or major projects. This direct engagement
and exposure is extremely valuable to the Committee in identifying
and developing the talent pipeline for senior leadership positions.

The Committee is also committed to supporting the Group’s growth
as a diverse and inclusive organization. The Committee is proud that
we continue to meet our stated objectives in terms of Board gender
diversity and only engaging executive search firms committed to
presenting diverse slates of candidates for consideration. We also
recognize that, although we are making progress in terms of diversity
in senior leadership positions and in the talent pipeline, we have more
work to do in these areas. Further information on our approach to
diversity is set out on page 21 and our progress against the objectives
set in our Board Diversity Policy is detailed on page 73.

Inclusion and diversity policy
Good business is about great people and our associates are the
driving force behind our Group. They are consistently focused
on providing best-in-class customer service and developing our
business by making sure that our customers’ projects are better
because they choose to work with Ferguson. This is the essence of
what makes Ferguson a great Group and runs right to the heart of
our strategy and it is why recruiting passionate people and providing
excellent development opportunities is one of our core values.

We are committed to developing a diverse workforce and an inclusive
working environment in all the communities where the Group has a
presence. We believe this will support the delivery of our strategic
objectives by ensuring that we are able to attract the very best talent
in our industry. In addition, we believe that the range of perspectives
provided by a diverse and inclusive organization that reflects our
communities gives us a competitive advantage. People decisions at
Ferguson are based on merit, where the best candidate is hired and
promoted within the organization and associates are encouraged
to reach their full potential, irrespective of race, color, religion,
gender, age, sexual orientation, marital status, disability or any other
characteristic that makes them unique. To ensure success, we are
committed to creating an environment free from discrimination and
harassment, where all associates are treated with dignity and respect.

During the year, the Committee continued to monitor and review
the progress of the Group’s inclusion and diversity program.
Further information on the Group’s approach to diversity and
details of our current gender diversity statistics are set out on page
21. Although we still have work to do in improving our pipeline
for female talent to senior executive positions, we are pleased to
report that at Board-level we continue to satisfy the gender diversity
recommendations set out in the Hampton-Alexander Review.

The Committee is also cognizant of the benefit of promoting diversity
in its widest sense when undertaking its work. We maintain a formal
Board Diversity Policy that reflects the Board’s belief that diversity
in the boardroom makes business sense as it allows the Board to
harness the benefit of differences in skills, experience, background,
personality, culture and work style. Progress against the measurable
objectives set by the Board in support of the Board Diversity Policy is
described in the table opposite.

Ferguson plc Annual Report and Accounts 202073

We know that diversity is more than gender. Therefore, the
Committee and the Board also take into account wider diversity
including race, color, religion, age, sexual orientation, marital
status and we are committed to making progress in all forms of
diversity. During the year the Executive Committee participated in
a number of highly interactive inclusion and diversity experiences.
Unconscious bias training was conducted with leaders and people
managers in the USA, UK and Canada. Additionally, in the USA we
established an African American and a Women’s Business Resource
Group (BRG) to provide support, connection and affiliation across
these groups. Our US LGBTQ BRG will be launched in December.
Further information on the actions we have taken during the year in
relation to inclusion and diversity can be found on page 21.

The Board and the Committee will monitor the Group’s progress as
it continues to deliver improvements in workforce diversity in the
coming year.

Objective1

Status

Progress in 2019/20

Achieved
since
2017/18

Ongoing

To achieve a
minimum 30
per cent female
representation on
the Board by 2020.

To achieve a
minimum 30
per cent female
representation
among senior
management.2

Achieved
since
2018/19

To only engage
executive search
firms that have
signed up to the
standard Voluntary
Code of Conduct
for executive
search firms (or
US equivalent).

44 per cent of the Board
is female.

20 per cent of senior
management are female
(2018/19: 24 per cent).3
Our recruitment practices
factor in under-represented
groups and we insist on
diverse candidate slates
when using executive
search firms, where
permissible to do so.
In addition, we have
established Inclusion and
Diversity Councils in the
USA and UK and BRGs
in the USA to promote
inclusion and drive
our initiatives.

Korn Ferry was engaged
during the year to assist the
Committee in the search for
a new Group Chief Financial
Officer. Korn Ferry is a
signatory to the Voluntary
Code of Conduct. No other
executive search firms were
used by the Nominations
Committee during the year.

1. All targets detailed in these objectives are aspirational in nature.

Recruitment decisions are based on merit with the best candidate hired or
promoted irrespective of race, color, religion, gender, age, sexual orientation,
marital status, disability or any other characteristic that makes them unique.

2. Defined as the Executive Committee, their direct reports and other
senior management included in the Company’s report to the annual
Hampton-Alexander Review.

3. While the percentage of senior management that are female has reduced in
2019/20, the number of female managers has not reduced during the year.
The change in percentage is due to a change in the structure of the Executive
Committee which meant that additional US leaders joined the Executive
Committee during the year.

Geoff Drabble

on behalf of the Nominations Committee

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance74

Audit, risk and internal control

Audit Committee

Alan Murray
Audit Committee Chairman

Audit Committee members

Membership

Alan Murray1 (Chairman)

Tessa Bamford

Cathy Halligan

Tom Schmitt

Nadia Shouraboura

Jacky Simmonds

Members who left during the year

Geoff Drabble2

Darren Shapland3

Meetings attended
(eligibility)

6 (6)

2 (2)

1. Chartered management accountant.
2. Geoff Drabble stepped down as a Committee member when his

appointment as Chairman became effective on November 21, 2019.
3. Darren Shapland ceased to be a member of the Committee when he

stepped down from the Board on November 21, 2019.

Audit Committee overview

– Alan Murray succeeded Darren Shapland as Chairman of the

Committee on November 21, 2019.

– As at the date of this report, the Committee is made up of six

independent Non Executive Directors. Details of membership
and attendance are set out in the table above.

– Other attendees at meetings included the Chairman, Group

Chief Executive, Group Chief Financial Officer (“Group CFO”),
Group Head of Internal Audit, Group General Counsel and
representatives from Deloitte LLP (“Deloitte”).

– The Board has reviewed the composition of the Committee
and is satisfied that the Committee as a whole meets the
requirements for sectoral competence and recent and relevant
financial experience.

– Private sessions for Committee members are held when
necessary to enable the Committee members to discuss
agenda items and Audit Committee business without
management present.

– Deloitte, the Group Head of Internal Audit and the Group CFO

meet with the Committee on a periodic basis.

An overview of the Committee’s areas of responsibility is set out
on page 67 and the Committee’s Terms of Reference are available
at www.fergusonplc.com

Dear Shareholder
I am pleased to present this report on the work of the Audit
Committee during the financial year ended July 31, 2020. This is my
first report as Chairman of the Audit Committee having taken over
from Darren Shapland in November 2019. I would like to thank Darren
for his outstanding service, both as a Non Executive colleague and
as Chairman of the Audit Committee, and on a personal level for the
support he provided to me during the transition of responsibilities.

It is my view that the Committee’s primary purpose is to act
independently and with integrity to provide oversight of the Group’s
financial reporting procedures and internal control framework as
well as monitoring the effectiveness, performance, objectivity and
independence of our internal and external auditors.

This has been a year of considerable development for the business
and it is important that, in addition to fulfilling its regular duties, the
Committee keeps a close eye on future developments both externally
and within the Group that could have a significant impact on our
operations. During the year we continued to review proposed changes
to the UK audit market. We commenced a review of the Group’s
internal control framework and US GAAP reporting requirements with
a view to ensuring that the Company is prepared for possible changes
to its listing structure. As you would expect the Committee also looked
at how to operate efficiently in light of the COVID-19 pandemic; in
particular, how the external audit could be delivered in the current
environment while maintaining the expected high level of rigor, and to
ensure that the Internal Audit function had the resources and planning
in place to complete its work for 2019/20. Consequently, appropriate
changes to the 2019/20 External and Internal Audit plans were
considered and approved by the Committee.

The Committee’s principal focus during the year has remained on
our core areas of responsibility. We maintained oversight of the
Group’s financial reporting processes by reviewing the application of
financial and accounting policies, challenging the judgments made
by management and the assumptions and estimates that underpin
those judgments. We received regular reports from Deloitte on
various matters and continued to oversee their effectiveness and
independence. We gained assurance on the continued effectiveness
of the internal control environment by reviewing the work undertaken
by Internal Audit as well as the risk and finance functions and
considered all matters raised through the Group’s ethics helpline.

The Committee recognizes the importance of maintaining a culture
of continuous improvement in its own work and in the functions and
processes of which it has oversight. The Committee undertook a
rigorous review of its effectiveness in July 2020. The review found
that the Committee is, overall, highly effective. It also identified areas
in which we can strengthen our performance. These are reflected in
the Committee’s priorities for 2020/21, set out below:

– Continued oversight of the Group’s control environment and risk

management processes.

– Transition of responsibilities from the outgoing Group CFO to

his successor.

– Oversight of actions related to the additional US listing, including
preparations for compliance with the Sarbanes-Oxley Act and
ensuring that reports and information received by the Committee are
developed to reflect the evolution towards additional governance
requirements while retaining appropriate clarity and succinctness.

I hope you find the information on the following pages useful
and informative.

Alan Murray

Chairman of the Audit Committee

Ferguson plc Annual Report and Accounts 202075

How the Committee operates
Committee meetings
Meetings are scheduled to coincide with key dates in the financial
reporting cycle and a forward agenda plan is agreed by the
Committee and reviewed on an ongoing basis to ensure that the
Committee’s agenda enhances the efficiency of its time.

In order to ensure that appropriate information is provided and
that meetings have optimal focus, the Committee Chairman holds
meetings with senior management, Internal Audit and Deloitte prior
to or following Committee meetings on a periodic basis. Information is
delivered to Committee members in accordance with the process
detailed for the delivery of information to the Board described on
page 64.

Committee composition
The Nominations Committee and the Board keep the composition of
the Committee under regular review. All members of the Committee
are Independent Non Executive Directors whose independence,
in line with the definition provided in the Code, is reviewed on an
ongoing basis. Between them, the members of the Committee
possess significant logistics, distribution, commercial (including
e-commerce), financial, human resource and listed company skills
and expertise gained in large international businesses, which are
relevant to a leading value added distribution company listed on the
London Stock Exchange.

Recent and relevant financial knowledge is provided by Alan Murray
who is a chartered management accountant, has previously served
as the Finance Director of a large international business and is the
Chairman of the Audit Committee of O-I Glass, Inc.

This provides the Board with assurance that the Audit Committee
meets the relevant regulatory requirements relating to independence,
financial experience and sectoral competence. The key strengths
and experience of each member of the Committee are summarized in
their biographies on pages 62 and 63.

Committee effectiveness
This year’s internally-facilitated effectiveness review involved a survey
of Committee members and attendees, follow-up discussions with
the Committee Chairman and an in-depth review and discussion
of the results by the Committee. Overall, the review found that
the Committee continued to be highly effective. The review also
identified opportunities for further improvement and these are
reflected in the Committee’s 2020/21 priorities, which are outlined in
the Committee Chairman’s introduction on page 74.

Last year’s effectiveness review highlighted five areas of focus for the
Committee. Further information on the focus areas, along with the
actions taken to address them, are detailed in the table below.

2019/20 area of focus

What the Committee has done

Continued oversight of cyber security

– The Chief Information Officer briefed the Directors on cyber security threats that had

been experienced during the year as well as additional security measures that had been
implemented to reduce certain security risks. An update on the status of the Group’s strategic
security program for 2019/20 was also provided.

Focus on oversight of the proposed demerger
of the Group’s UK business

– Although the demerger was not implemented during 2019/20, the Committee was briefed on
the potential accounting implications of the proposed demerger of the Group’s UK business
during the year.

Continued focus on the Group’s control
environment, including more extensive
reporting to the Committee from business
CFOs on the actions that are being taken to
improve controls in each business

– The Committee received briefings from the CFO of the US business, Head of Internal Audit,
and External Audit on the control environment and actions being taken to improve controls
throughout the Group. Further details on internal controls can be found on page 80.

– In preparation for the planned additional listing of shares in the USA, work is underway to
prepare for the required certifications under Sarbanes-Oxley. The Committee received
briefings on this during the year.

Reviewing audit committee best practice and
identifying further opportunities to enhance
the Audit Committee’s performance

– Reviewed audit committee best practice, including guidance published by the Financial

Reporting Council.

– Provided feedback to presenters that resulted in an enhancement in the way certain papers

were presented.

Overseeing the further enhancement of the
capabilities of the Internal Audit function,
particularly in the areas of information
technology and controls environment reviews

– The Committee received updates from the Head of Internal Audit regarding opportunities

for improvement which had been identified during the Internal Audit effectiveness review in
2018/19.

– An action plan was developed which included nine opportunities for improvement, relating

to areas such as information technology audits, monitoring and communicating audit findings
and the continued development of KPIs. The action plan was presented and approved by the
Committee. All actions were completed during the year.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance76

Audit, risk and internal control (continued)

Principal areas of focus
The Committee has a rolling program of agenda items to ensure that relevant matters are properly considered. Some of the key items which
were discussed by the Committee during 2019/20 are summarized below.

Principal areas of focus during 2019/20

Financial statements

Reviewed management’s work in conducting a robust assessment of such risks as 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.

Received and discussed reports and presentations from management regarding the Group’s Full
and Half Year Results prior to their announcement.

Reviewed reports from the Group CFO on any accounting issues relevant to the consideration of the
Group’s financial statements well in advance of announcements.

Conducted a fair, balanced and understandable review of the 2019 Annual Report.

Internal control environment

Received reports on the Group’s base financial controls and IT controls on a regular basis.
Updates on the testing of these controls were regularly provided as part of Internal Audit reports.

Reviewed risk management reports that identified significant existing and emerging risks facing
the Group.

Received a report at each Committee meeting on the results of audits performed by Internal Audit,
testing of the internal control environment and progress against improvement actions identified
during prior audits.

Received regular reports detailing matters reported through the Group’s international confidential
telephone reporting lines and secure website reporting facility, including a summary of
investigations into matters raised and details of any corrective action taken.

Reviewed results of assurance activities undertaken in relation to the Company’s technology
strategy and roadmap.

Reviewed the Group’s internal control framework and US GAAP reporting requirements.

Received presentations from the Chief Financial Officer of the US business that included detail on
the effectiveness of the financial control environment and implementation of major initiatives.

Received a detailed report on the Group-wide application of the Company’s base financial
control framework.

Further information

See pages 54 and 55*

See www.fergusonplc.com

See page 78

See page 78**

See pages 53 to 59

See page 79

See page 80

Internal Audit

Received reports from the Group Head of Internal Audit on the function’s work at every meeting.

See page 79

Met privately with the Group Head of Internal Audit on a regular basis.

External audit

Reviewed and approved the plan for, and scope of the external audit and agreed Deloitte’s fees,
undertook a formal annual review of Deloitte’s effectiveness and reviewed and approved details of
the engagement of Deloitte for non-audit work at each Committee meeting.

Received regular reports from Deloitte on the results of their work including detailed reports
received ahead of the Half and Full Year Results announcements.

Met privately with senior representatives from Deloitte on a periodic basis.

Approved the appointment of a new lead audit partner.

Considered the timing for tendering for the external audit.

Audit Committee effectiveness

See pages 78 and 79

See pages 158 to 163

See page 79

Held a private session for Audit Committee members at each meeting, conducted a formal annual review of the
Committee’s effectiveness.

See page 75

* The information provided on pages 54 and 55 relates to the 2020 viability statement, which was carried out after the end of the financial year ended July 31, 2020.

For further information on the 2019 viability statement, which was reviewed by the Committee during the year, please see pages 48 and 49 in the Ferguson plc Annual
Report 2019.

** The information provided on page 78 relates to the Committee’s fair, balanced and understandable review of this Annual Report which was undertaken after the end of
the financial year ended July 31, 2020. For further information on the review of the 2019 Annual Report please see page 69 in the Ferguson plc Annual Report 2019.

Ferguson plc Annual Report and Accounts 202077

Financial reporting and significant financial judgments
The Committee considered the issues summarized below as
significant in the context of the 2019/20 financial statements.
These were discussed and reviewed with management and the
external auditors and the Committee challenged judgments 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 that report. The information contained in the table
below should be considered together with the independent auditor’s
report on pages 158 to 163 and the accounting policies disclosed in
the notes to the financial statements as referenced in the table.

Item

Description

Audit Committee review and conclusions

Completeness of supplier rebates
(recurring item)

Inventory valuation (recurring item)

Exceptional items (new item)

Supplier rebates 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
judgment. However, for tiered rebates,
judgments are required to forecast the
expected level of volumes purchased to
determine the appropriate rate at which a
rebate is earned.

For further information please see note 1
of the consolidated financial statements
on pages 119 to 124 and the independent
auditor’s report on pages 158 to 163.

Judgment 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 stockcounts.

For further information please see note 1
of the consolidated financial statements
on pages 119 to 124 and the independent
auditor’s report on pages 158 to 163.

The Committee’s review covered the
processes and controls in place during
the year and the level of adherence
to the Group’s accounting policies
and procedures.

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
$339 million rebate receivable as at July
31, 2020 were prudent but appropriate
and properly reflected in the consolidated
financial statements.

The Committee considered the level
of provisions and the appropriateness
and application of the policy, ensuring
consistency across the Group in the
current and previous financial periods.
The Committee also sought the views of the
external auditors.

Following its review, which included
consideration of the external audit
findings, the Committee concluded that
a $209 million provision for obsolete and
slow-moving inventory was consistently
calculated on a prudent basis, appropriate
and fairly stated in the consolidated
financial statements.

Exceptional items in 2019/20 are significant
for the Group and included cost actions
taken to ensure that the business is
appropriately sized for the post COVID-19
operating environment, costs in relation to
the proposed UK business separation and
costs in relation to the Group’s planned
listing in the USA. There is judgment
required to determine items are correctly
classified as exceptional.

For further information please see note 5
of the consolidated financial statements on
page 131.

The Committee reviewed the nature
of items included as exceptional and
considered whether the classification was
appropriate and consistent with the Group
policy. The Committee also sought the
views of the external auditors.

Following its review, which included
consideration of the external audit findings,
the Committee concluded the $120 million
charge to operating profit for exceptional
items was appropriate and fairly stated in
the consolidated financial statements.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance78

Audit, risk and internal control (continued)

Fair, balanced and understandable assessment

Overview

Assessment process

Conclusion

At the request of the Board, the Committee
assessed whether the content of the
2020 Annual Report, Full Year Results
announcement and the Full Year Results
presentation taken as a whole, were fair,
balanced and understandable.

In its assessment, consideration was
given as to whether key information and
key messages were included consistently
across the announcement, presentation
and Annual Report.

A formal process ensured access to all
relevant information. Drafts of the Annual
Report were received by the relevant
Board and Committee members during
the drafting process in sufficient time to
allow for challenge to the disclosures.
A report from management was also
provided describing the approach taken
in the preparation of the Annual Report
and highlighting:

– the key messages and information;

– whether each of the key messages and
information was positive, neutral, mixed
or negative; and

– the relative prominence given to each

key message.

The Committee advised the Board it was
satisfied that, taken as a whole, this Annual
Report is fair, balanced and understandable
and provides the information necessary
for shareholders to assess the Company’s
position and performance, business model
and strategy.

External audit
During the year, the lead audit partner, together with other relevant
and appropriate Deloitte partners, attended all the Committee
meetings. They provided the Committee with detailed reports on their
work and conclusions on the financial statements, critical accounting
judgments and estimates and the internal control environment, as
well as how the 2019/20 audit process would be conducted during
the COVID-19 pandemic.

The terms, areas of responsibility and scope of Deloitte’s 2019/20
audit were reviewed and approved by the Committee. During the
year, Deloitte provided external audit services for regulatory and
statutory reporting. They are expected to report material departures
from Group accounting policies and procedures identified in the
course of their work to the Committee. At the date of this report,
Deloitte’s 2019/20 external audit plan has been successfully
completed and their independent auditor’s report can be found on
pages 158 to 163.

Effectiveness
Following the completion of the external audit plan, the Committee
conducts an annual review of external auditor effectiveness.
The review survey is completed by each operating business, the
Committee Chairman, Group CFO, divisional CFOs and the Chief
Information Officer as well as the Group Finance, Internal Audit,
Treasury and Tax teams. The results of the survey which are reported
to the Committee, form the basis of a thorough review of the external
auditor’s effectiveness.

The survey requires respondents to rate Deloitte against a range
of measures including: adequacy of planning, sufficiency of
resource and thoroughness of review and testing; thoroughness
and robustness of audit challenge; adequacy and application
of knowledge of the Group; usefulness of feedback; and quality
of reporting.

Deloitte’s performance relating to 2018/19 was highly rated, and
opportunities to further enhance their service were discussed and
agreed with the Committee. The Committee was satisfied that
Deloitte continues to provide an effective audit service.

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 (“Ethical Standard”). Details of
the services that the external auditor cannot be engaged to perform
are provided at www.fergusonplc.com. In addition, 2019/20 was
the first year for which the EU PIE 70 per cent cap on certain non-
audit services applied to the Company. Deloitte and the Company
monitored the level of fees for non-audit services throughout the year
to ensure compliance with the cap. For further details, see page 79.

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
pre-approve provision of non-audit services and the use of separate
teams where non-audit services are being provided to the Group.
This internal process requires all proposed audit and non-audit
services to receive approval from the lead audit partner before
commencing any work and includes assessment of the proposed
services against the Ethical Standard.

The Committee believes that the safeguards in place are robust
and continues to be satisfied with the independence and objectivity
of Deloitte.

Non-audit services policy
The appointment of the external auditor for non-audit work is made
on a case-by-case basis. Before Deloitte is appointed to undertake
any non-audit work, an assessment is made to consider whether their
appointment is appropriate and in the best interests of the Company.
The prior consent of the Committee Chairman is required before
Deloitte is appointed to undertake non-audit work where the fee is
expected to exceed $65,000. Where the fee is expected to be less
than $65,000, the Committee Chairman must be notified that the
external auditors are to be engaged to provide a non-audit service
but approval is not required in advance. The external auditor will not
be appointed to provide non-audit services where the Chairman
or the Committee considers it might impair their independence or
objectivity in carrying out the audit. The Committee reviews any new
non-audit engagement and the level of fees at each meeting.

Ferguson plc Annual Report and Accounts 202079

Audit and non-audit fees
During the year, Deloitte was appointed to undertake non-audit
services. Fees for non-audit work performed by Deloitte as a
percentage of audit fees for the year ended July 31, 2020 were 83 per
cent (2019: 42 per cent). Of these fees, $1.1 million were not required
by law or regulation and were subject to the EU PIE cap. These fees
represented 27 per cent and 52 per cent of the three-year average of
audit fees for the Deloitte network and Deloitte UK firm respectively,
which are both within the 70 per cent cap. Further disclosure of the
non-audit fees incurred during the year ended July 31, 2020, can be
found in note 4 to the consolidated financial statements on page 131.
Non-audit services related mainly to the proposed demerger of the
UK business, the Group’s planned additional listing of shares in the
USA, the issuance of a USA bond and the Half Year review. The work
relating to the demerger of the UK business was the most significant
of these. 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 Group. The Committee is satisfied that Deloitte’s continued
objectivity and independence was unaffected due to the nature and
scale of the work undertaken.

Auditor reappointment and audit tender process
The Committee reviews and makes recommendations to the Board
with regard to the reappointment of the external auditor. In doing so,
the Committee takes into account auditor independence and audit
partner rotation. The lead audit partner is required to rotate every five
years and other key audit partners are required to rotate every seven
years. The current lead audit partner, Ian Waller, completed his term in
2020. His replacement as lead audit partner, Andrew Bond, has been
involved in the audit for five years and, of these, has acted as a key
audit partner for three years. Therefore, a new lead audit partner will
be put in place following the 2021/22 audit (his fifth year as a key audit
partner and seventh year involved with the audit).

Deloitte was appointed as the Company’s external auditor for
the 2015/16 audit following a formal tender process and their
reappointment was approved by shareholders at the 2019 AGM.

During the year, the Committee reviewed the arrangements with the
current external auditor and considered whether it was appropriate
to initiate a tender process. The Committee noted the significant
period of change that the Company was, and would be going
through, such as the planned change to the Company’s listing
structure and the appointment of a new Group CFO and concluded
that given the knowledge and standard of services provided by
Deloitte that it would be in the best interests of the Company and its
stakeholders for Deloitte to continue as auditors. It is therefore the
Committee’s present intention to initiate a competitive tender process
for the external auditor in 2024 for the 2024/25 audit. However, the
Committee will keep this matter under review and may reconsider the
tender timetable and process if appropriate.

The Board recommends that Deloitte be reappointed as the external
auditor for the financial year ending July 31, 2021 at the 2020 AGM.

The Company confirms that it complied with the provisions of the
Code, the Competition and Markets Authority Order and the Statutory
Audit Services Order 2014 during the year under review.

Internal control environment
and risk management
While ultimate responsibility for maintaining a robust internal control
environment and effective risk management processes sits with the
Board, oversight of the effectiveness of these systems of internal
control has been delegated to the Audit Committee. The main
features of the Group’s internal control and risk management
systems, and the Committee’s oversight of them, are summarized
below and on the following page.

Internal Audit
Internal Audit is an independent, objective assurance and consulting
activity designed to add value to, and improve, Ferguson’s
operations. The scope of its audit activities include corporate,
financial controls, branch operations and IT (including IT general
control) audits. In addition to reviewing the effectiveness of these
areas and reporting on aspects of the Group’s compliance with
relevant policies and procedures, the Internal Audit function
makes recommendations to address issues identified as requiring
remedial action.

Internal Audit’s annual plan and budget is reviewed and approved
by the Committee ahead of the start of each financial year and
the scope of its activity is reviewed at each Committee meeting.
The Head of Group Internal Audit seeks approval by the Committee
for any changes to the scope or plan during the year. In 2019/20 the
Committee approved changes to the audit plan due to COVID-19,
and the corresponding impact on the plan, due to travel restrictions.
Internal audits planned for the future that were considered to be
conducive for remote work environments were brought forward in
the current year’s plan. Internal Audit’s findings, along with detail of
any recommended remedial action agreed with management, are
reported to the Committee and the Group Head of Internal Audit
provides progress reports on actions taken to address previously
identified issues on an ongoing basis. The Committee discusses the
reports in detail and considers the matters raised and the adequacy
of management’s response to them, including the time taken to
resolve any such matters.

The Head of Group Internal Audit maintains an internal quality
assurance and improvement program covering all aspects of
the internal audit activities to evaluate the conformance of these
activities with the International Standards for the Professional
Practice of Internal Auditing. During a periodic assessment, the
Head of Group Internal Audit assesses whether the purpose,
authority, and responsibilities of the internal audit function continue
to accomplish its objectives as reflected in its Charter. The results of
this periodic assessment are presented to senior management and
the Audit Committee on an annual basis. At least every five years,
an independent quality assessment of the Internal Audit function
is conducted and the results are shared with Audit Committee.
The last independent quality assessment was conducted in 2018/19.
The Committee undertook a review of the effectiveness of the
Internal Audit function during the year. The function was highly rated
overall and was considered to be well run.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance80

Audit, risk and internal control (continued)

Risk management
The Committee receives bi-annual risk management statements,
as well as risk reports on a regular basis throughout the year.
These reports summarize significant risks and include assessment of
these risks from the Executive Committee and senior management.
Risks relating to material joint ventures and associates are considered
as part of this process. The reports identify the significant risks to
the Group, review potentially significant emerging risks, provide
an assessment of the controls in place and highlight the tolerance
levels that the Executive Committee and, ultimately, the Board are
prepared to accept. In addition, following the outbreak of COVID-19,
these reports included analysis of how COVID-19 amplified or
accelerated the onset of certain risks and the steps taken to mitigate
any potential impacts.

During the year, the Committee reviewed the effectiveness of
the Company’s overall risk management framework, including
the procedures for risk identification, assessment, mitigation,
monitoring and reporting and was satisfied with their effectiveness.
Potential enhancements to the risk assurance framework, including
an operational assurance process, were identified and agreed by the
Committee. The Committee will monitor the implementation of these
enhancements across the coming year.

The Committee also reviewed management’s work in preparing the
Company’s viability statement, which can be found on page 55, at its
meeting in September 2020.

Internal controls
The Group’s internal control systems are designed to manage
rather than eliminate risk and can only provide reasonable, but not
absolute, assurance that risks are managed to an acceptable level.
Their effectiveness is dependent on regular evaluation of the extent
of the risks to which the Company is exposed.

In relation to the financial reporting process, at the business level,
line management is 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 the financial reporting process through setting the
policies and requiring a bi-annual self-certification 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.

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, as well as the Company’s statements
on internal controls, before they were agreed by the Board for this
Annual Report. The Committee receives regular reports throughout
the year to assure itself that the Group’s systems comply with the
requirements of the Code. The Committee can confirm that the
Group’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 regularly reviewed by the Committee on behalf
of the Board.

While the Committee is of the view that the Group has a well-
designed and effective system of internal control, the planned listing
in the US means the Group’s internal control environment will be
exposed to a different regulatory regime over the next several years.
Early preparations for the required certifications under Sarbanes-
Oxley, combined with feedback received, have highlighted areas
where the control environment requires further refinement to
meet these different standards. Last year, enhancements to the
Group’s control environment were identified in the annual report
and accounts, we have responded to these observations and
improvements have been made in the year. We are now seeking
to extend these improvements across other parts of the Group’s
information technology systems. Beyond information technology,
we are focusing on increasing the level of detail in documenting
control procedures, in particular relating to the definition and
precision of certain other controls. This includes entity level controls,
management review procedures and oversight of external specialists.
The Committee will oversee the enhancement of the control
environment as detailed in the priorities for 2020/21 in the Committee
Chairman’s introduction on page 74.

Whistleblowing, anti-fraud and anti-bribery and corruption programs
In line with its whistleblowing policy, the Group operates international
confidential telephone reporting lines and secure website reporting
facility, which are operated on its behalf by an independent third
party. The whistleblowing policy encourages associates to raise
concerns confidentially and disclose information they believe shows
malpractice or a breach of ethical conduct. All matters reported are
investigated by the relevant operating company and reported to the
Committee, together with details of any corrective action taken.

The Group has anti-fraud and anti-bribery and corruption policies and
programs in place. All Group companies are required to implement
these policies and all associates are required to comply with them.
Compliance with the Group’s anti-fraud and anti-bribery and
corruption policies is monitored by Internal Audit. The Committee
receives reports on non-compliance with these policies during the
year, reviews Internal Audit reports that provide details of fraud
losses and considers, discusses or satisfies itself with management’s
response/actions to control improvements, where applicable.

This report was approved by the Audit Committee and is signed on its
behalf by the Chairman of the Audit Committee.

Alan Murray
Chairman of the Audit Committee
September 28, 2020

Ferguson plc Annual Report and Accounts 2020Directors’ Remuneration Report

Remuneration
Committee

Jacky Simmonds
Remuneration Committee Chair

Remuneration Committee members

Membership

Jacky Simmonds (Chair)

Tessa Bamford

Cathy Halligan

Alan Murray

Tom Schmitt

Nadia Shouraboura

Members who stepped down during the year

Geoff Drabble¹

Darren Shapland²

Meetings attended
(eligibility)

6 (6)

3 (3)

1. Geoff Drabble attended all meetings which he was eligible to attend in

his capacity as a Non Executive Director prior to becoming Chairman on
November 21, 2019. Upon becoming Chairman Geoff Drabble stepped down
as a member of the Committee, and continues to attend as an attendee.
2. Darren Shapland attended all meetings which he was eligible to attend prior

to stepping down from the Board on November 21, 2019.

Remuneration Committee overview

– Jacky Simmonds has served as Chair of the Committee

since August 1, 2014.

– During the year, Geoff Drabble stepped down from the

Committee on becoming Chairman and Darren Shapland left
the Committee when he stepped down from the Board.

– As at the date of this report, the Committee is made up of six

independent Non Executive Directors. The Committee met six
times during the year. Details of membership and attendance
are set out in the table above.

– Other attendees at meetings include the Chairman, Group Chief

Executive, Chief Human Resources Officer, Group General
Counsel, Group Company Secretary, Group Head of Reward
and Mercer Kepler (Remuneration Consultant).

– Mercer Kepler meets with the Committee at meetings without

the presence of management on a periodic basis.

An overview of the Committee’s area of responsibility is set out on
page 67 and the Committee’s Terms of Reference are available at
www.fergusonplc.com

Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended July 31, 2020.

Reflections on 2019/20
This year has been unprecedented for us and before I turn to
executive pay, I want to briefly touch upon COVID-19 and its impact
on our people and our business. At Ferguson, we continue to put the
health and wellbeing of our associates and our customers first and
this remains the most important priority. As both Kevin and Geoff
have reported, the Board took a number of steps during the second
half of 2019/20 to mitigate both the economic impact and adjust
to new ways of working to safeguard our associates and protect
our business.

Our associates have demonstrated enormous courage and
dedication in their approach to supporting our customers in these
exceptional circumstances. I would like to add my own thanks to
those of my fellow Directors to all our 34,000 associates for their
continued efforts in these challenging times.

The Committee reviewed executive remuneration arrangements
regularly throughout this period to understand any potential impact
and concluded that we did not need to make any changes in relation
to executive pay. This is consistent with the approach taken for
our associates. Therefore, the structure of and targets for 2019/20
incentives were unchanged from those agreed and set at the start of
the year.

2019/20 performance and remuneration outcomes
Despite the impact of COVID-19 on our markets, performance for
the year ended July 31, 2020 was strong in the USA, although
performance in Canada and the UK was impacted. In the UK this was
as a consequence of the more stringent local lockdown restrictions
put in place. As a result, 2019/20 underlying trading profit delivered
above the threshold performance level set and our strong cash-to-
cash days performance resulted in the maximum performance level
being exceeded. This demonstrates the robustness of our business
model even in these challenging circumstances.

For our 2017 Long Term Incentive Plan (“LTIP”) cycle, TSR over the
three-year performance period was 34.8 per cent and ranked in
the top quartile against our comparator group. Adjusted headline
EPS growth was 23.5 per cent above US CPI and our three-
year cumulative adjusted operating cash flow (“OpCF”) was
$5.379 billion, which exceeded the maximum performance target set.
These elements will vest at 100 per cent, 76.7 per cent and 100 per
cent, respectively.

For these performance outcomes, the Committee has confirmed:

– bonus payments for the year ended July 31, 2020 of 73 per cent of
maximum for Kevin Murphy and 72 per cent of maximum for Mike
Powell; and

– the LTIP granted for the performance period 2017-2020 will vest at

92.23 per cent of maximum.

This year the Committee made some minor adjustments in assessing
performance against the bonus and LTIP targets to better align the
incentive outcomes to the underlying performance of the Group.
For the bonus, performance is measured at budgeted rates and
was adjusted to exclude the impact of IFRS 16; and for the LTIP, the
Committee excluded the impact on the performance assessment
of exceptional cash flow, the impact of IFRS 16, the impact of the
disposal of the Nordic business during the performance period and a
2017/18 funding contribution to the UK defined benefit pension plan.
Further details can be found on pages 88 and 90.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance82

Directors’ Remuneration Report (continued)

The Committee also considered whether the outcomes for the annual
bonus and LTIP were appropriate in the context of the underlying
performance of the Group more generally and the experience of
our stakeholders. The Committee agreed that the business has
performed strongly over the past three years, and has proved resilient
over the last 12 months. Accordingly, no discretion was exercised with
regard to remuneration outcomes for the Executive Directors.

2019 Remuneration Policy
2019/20 was the first year of implementation for our 2019
Remuneration Policy. The Committee can confirm that the Policy was
operated as intended during the year. While we recognize that all
remuneration resolutions put forward at our 2019 AGM were passed,
the Board was disappointed that a minority of shareholders voted
against these resolutions, despite conducting extensive consultation
with our major institutional shareholders prior to the proposals
being finalized.

Following the AGM, I sought to engage further with several
shareholders who we had identified as having voted against the
resolutions. We wrote directly to these shareholders (representing
about 12 per cent of the issued share capital) to clarify our position
on the various components of total remuneration. The Committee
reviewed the feedback received during this engagement and, as no
new concerns were raised, concluded that the Remuneration Policy
remained appropriate.

CFO succession
On May 26, 2020 it was announced that Mike Powell would step
down as Group Chief Financial Officer and he will leave the Group
on October 31, 2020. In light of this, the Committee did not award a
salary increase to Mike, nor is he eligible for a bonus award for the
period August 1 – October 31, 2020 and he will not be granted an LTIP
award in 2020/21. All outstanding LTIP awards will lapse on October
31, 2020.

Bill Brundage has been appointed as Mike’s successor, effective
November 1, 2020. On appointment, Bill will be paid an annual salary
of $590,000 and will participate in the Company’s established bonus
and long term incentive schemes. Further details can be found
on page 84. As this was an internal promotion, there are no buy
out arrangements.

The Committee made the decision to set his salary on appointment
at below the market median and to increase this over time 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 October 2021 and October 2022 to move him closer to the
market median, consistent with our Remuneration Policy.

Other 2020/21 remuneration decisions
In accordance with our Policy, the Committee undertook an annual
review of the Executive Directors’ base salaries for the coming year.
The Committee awarded a salary increase of 2.0 per cent to Kevin
Murphy, in line with the general level of increases awarded to other
North American based associates in the Group. In addition, annual
bonus arrangements will continue to operate along the same lines as
for the year ended July 31, 2020, further details of which can be found
on page 84.

The implementation of the LTIP for the coming year also remains
unchanged, with awards subject to TSR, EPS and OpCF (weighted
equally, our practice since 2015/16), further details of which can be
found on pages 84 and 85.

As the COVID-19 pandemic will continue to present many challenges
to us we will keep our approach to remuneration under review so that
we continue to drive our business forward and maintain alignment
with the interests of our shareholders. Finally, and on behalf of the
Committee, I thank you for your continued support.

Jacky Simmonds
Chair of the Remuneration Committee

Glossary of terms in Directors’ Remuneration Report

AGM

Code

DBP

EPS

ESPP

ISP

LTIP

LTI plans

OpCF

PBBO

Annual General Meeting

UK Corporate Governance Code

Deferred Bonus Plan 2015 or Deferred Bonus
Plan 2019

Headline Earnings Per Share

Employee Share Purchase Plan 2011 or
Employee Share Purchase Plan 2019

International Sharesave Plan 2011 or
International Sharesave Plan 2019

Long Term Incentive Plan 2015 or
Long Term Incentive Plan 2019

Ordinary Share Plan 2011, Revised Ordinary
Share Plan 2016, Performance Ordinary Share
Plan 2016, Performance Based Buy Out Award,
Restricted Share Buy Out Awards,
Ordinary Share Plan 2019 and
Performance Ordinary Share Plan 2019

Operating cash flow

Performance Based Buy Out Award
granted to Mike Powell in June 2017 Directors’
Remuneration Policy

Policy

Directors’ Remuneration Policy

Remuneration
Reporting
Regulations
or Regulations

Report

RSBO

The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations
2008 as amended

Directors’ Remuneration Report

Restricted Share Buy Out Awards
granted to Mike Powell in June 2017

TSR

Total Shareholder Return

Ferguson plc Annual Report and Accounts 2020Remuneration at a glance

Ferguson remuneration principles

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 operations as well
as 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.

Fixed

Base salary

Pension

Benefits

Other

Other remuneration

Variable
Short-term

Annual bonus

Long-term
Long term
incentive
with two year
post-vesting
holding period

Remuneration for Executive Directors 2019/20

Kevin Murphy
Group Chief Executive (“CEO”)

$5,580m

$3,486m

Mike Powell
Group Chief Financial Officer (“CFO”)

$5,075m

£2,906m

£2,674m

£2,042m

t
e
g
r
a
t
-
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O

9
1
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8
1
0
2

m
u
m
i
x
a
M

9
1
/
8
1
0
2

a
u
t
c
A

9
1
/
8
1
0
2

t
e
g
r
a
t
-
n
O

9
1
/
8
1
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2

m
u
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a
M

9
1
/
8
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0
2

a
u
t
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A

9
1
/
8
1
0
2

2019/20 breakdown

Percentage of
maximum achieved
(%)

N/A

73.1

92.2

N/A

Key

Maximum
potential
($000)

1,063

170

127

1,562

2,658

N/A

Actuals
($000)

1,063

170

127

1,14

2,572

Percentage of
maximum achieved
(%)

Maximum
potential
(£000)

N/A

72.0

92.2

N/A

595

149

654

1,489

N/A

Actuals
(£000)

595

149

471

1,438

1. The Actuals figures for long term incentive plan awards and their total remuneration figures include the value of dividend equivalents which are not included in

the on-target or maximum charts.

2. The Actuals figure for Kevin Murphy above includes the “other” remuneration relating to the grant of an ESPP award detailed in the single figure table on page 87

and it is included in the chart above.

Remuneration Policy applicable to USA-based Executive Directors

All figures are maximum; actual figures applicable for the year ending July 31, 2021 for Kevin Murphy are: shareholding guidelines is 1x
annual LTIP award opportunity; LTIP award is 350% of salary; annual bonus at maximum is 150% of salary; pension contribution is 16% of
salary; and base salary is $1,122,000.

Shareholding guidelines
1x Annual LTIP award opportunity

Long term incentive plan
Up to max. of 500% of salary. Vests subject to three-year TSR, EPS and OpCF performance and two-year holding period post-vesting.

Annual bonus
Max. of 200% of salary.

Pension
Max. contribution of 16% of salary.

Base salary

Deferred bonus plan
If shareholding guidelines not met, bonus in excess of target deferred as shares until end of third financial year.

1 year

2 years

3 years

4 years

5 years

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance

Remuneration at a glance (continued)

Implementation of Policy for the year ending
July 31, 2021

Annual bonus
The threshold, target and maximum bonus opportunities for 2020/21
are set out in the table below:

Executive Directors
This section provides an overview of how the Committee will
implement the Policy for the year ending July 31, 2021. As detailed in
the Chair’s statement, Mike Powell is expected to leave the Company
with effect from October 31, 2020 and any payments detailed below
will be paid pro rated to his date of departure. Any outstanding
unvested share awards, other than his DBP awards, will lapse as of
that date. For the year ending July 31, 2021 Mike will not receive a
salary increase, he will not be considered for a bonus award and he
will not receive a grant under the LTIP.

The Committee has reviewed the remuneration arrangements in
relation to the appointment of Bill Brundage as Group Chief Financial
Officer. All aspects of his reward package have been set, effective
November 1, 2020, in line with the existing Remuneration Policy.
As this was an internal promotion there are no buy out arrangements
but, in accordance with the Remuneration Policy, Bill’s entitlements
under unvested share plan awards and other incentive arrangements
granted prior to his appointment as a Director will be honored.
Further details for 2020/21 are set out below.

Base salary
In line with the Policy, the Remuneration Committee undertook an
annual review of the Executive Directors’ base salaries during the
year. The Committee agreed to an increase to the base salary level of
Kevin Murphy from October 1, 2020 and no increase for Mike Powell.

K Murphy

B Brundage

Threshold

49%

50%

As % salary

Target

110%

90%

Maximum

150%

110%

80 per cent of the bonus opportunity will be linked to the
achievement of financial performance targets (20 per cent is based
on cash-to-cash days and 60 per cent on underlying trading profit)
and the remaining 20 per cent of the bonus opportunity is linked to
personal strategic objectives.

Specific individual objectives were set at the beginning of the
2020/21 financial year. When considering the objectives for the
Executive Directors and other members of the Executive Committee,
the Remuneration Committee assesses whether incentives are
designed to promote the right behaviors and 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.

K Murphy1

M Powell2

B Brundage

Annualized base salary

2020/21
(000)

Effective date
of salary change

$1,122.0
(+2.0% increase)³

October 1,
2020

2019/20
(000)

$1,100.0

£595.0
(no increase)

$590.0

N/A

£595.0

November 1,
2020

N/A

The Board considers that the performance targets for 2020/21 are
commercially sensitive and they are not disclosed in this Report
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.

Long term incentives
LTIP awards will be made during 2020/21 at the levels set out in the
table below:

1. During 2019/20, Kevin Murphy received a salary of $975,000 per annum from
August 1, to November 19, 2019. His salary was increased to $1.1 million per
annum upon appointment as Group Chief Executive on November 19, 2019.

2. Mike Powell will receive his base salary up to his date of departure on

October 31, 2020.

3. For context, the Group-wide average salary increase was 2.0 per cent.

Pension and benefits
USA-based Executive Directors (Kevin Murphy and, from his
appointment as CFO, Bill Brundage) participate in the Ferguson
defined contribution pension arrangement and receive a company
contribution of 16 per cent of base salary, in line with the average
maximum a US associate could receive in their pension plan.
This includes a 401k plan and Ferguson Executive Retirement Plan
arrangements. The 401k plan has a normal retirement age of 62,
however, in-service withdrawals are possible at 591/2. The Ferguson
Executive Retirement Plan has a normal retirement age of 55.
Mike Powell will continue to receive a salary supplement of 25 per
cent of base salary in lieu of membership of the Group pension
scheme up to his date of departure, in line with the Remuneration
Policy in effect upon his appointment. Only base salary is
included in the calculation of the Company pension contributions.
Benefits provided to the Executive Directors are detailed in the notes
to the Remuneration table on page 87.

K Murphy

B Brundage

LTIP (award
value as %
of salary)

350%

250%

The extent to which the LTIP awards (proposed to be granted during
2020/21) vest will be dependent on the following performance
targets over a three-year performance period, each with a weighting
of one-third of the total award opportunity: relative TSR, EPS growth
and OpCF.

Relative 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%

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.

Ferguson plc Annual Report and Accounts 2020
85

The TSR measure is considered appropriate as it closely aligns the
interests of the Executive Directors with those of the Company’s
shareholders over the long term and incentivizes outperformance of
the Company relative to other UK listed companies of comparable
scale. The TSR performance condition supports the achievement of
profit growth, cash generation, maximizing 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):

The assumptions for on-target and maximum performance are
applied to the figures provided below.

Annual bonus

On-target

Paid at 110 per cent (as a
percentage of base salary).

LTIP

Vesting at 17 per cent of
an award1 expressed as a
percentage of the base salary2
used for calculating the award: 58
per cent of base salary.

Total margin of EPS growth over
US inflation (“CPI”) after three years

Percentage of award subject
to EPS which will vest2

Maximum

30% and above

Between 3% and 30%

At or below 3%

Paid at 150 per cent (as a
percentage of base salary).

100%

0%-100%

Full vesting at 100 per cent
of the award expressed as a
percentage of the base salary2
used for calculating the award:
350 per cent of base salary.

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 0 per cent and 100 per cent.

For the EPS growth target, 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.

OpCF
The OpCF element of the award will vest as set out in the table below
(comprising one-third of the total award opportunity):

OpCF1,2

$5.200 billion

Between $4.610 billion and $5.200 billion

$4.610 billion

Below $4.610 billion

Percentage of award subject
to OpCF which will vest3

100%

25%-100%

25%

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).

2. The cumulative three-year figure for adjusted OpCF for the last three years

equals $5,379 billion, as set out on page 90.

3. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.

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.

1. The payment level for performance in line with threshold for the 2020/21 LTIP.

Further details are set out on pages 84 and 85.

2. Awards will be granted by reference to a percentage of the Executive Directors’
2020/21 base salary and this table calculates the value of the awards on that
basis. These values are used in the scenarios.

Kevin Murphy

$(000)

1,429

3,317

7,039

9,002

65%

56%

37%

100%

20%

43%

24%

19%

20%

16%

Fixed pay

On-target

Maximum

Max plus
50% share
price growth

Fixed pay

Bonus

Long term share awards

Non Executive Directors and Chairman
The Company’s policy on the Chairman’s remuneration is set by the
Committee. The 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.

The OpCF measure is considered appropriate as it encourages long-
term generation of cash to fund investment and returns to shareholders.

A summary of annualized fees for 2020/21 (and those applied for
2019/20) is set out below:

Illustrations of the Remuneration Policy (2020/21)
The following charts give an illustrative value of the remuneration
package that Kevin Murphy would receive in accordance with the
Policy based on:

– Fixed Pay: (1) 2020/21 base salary, (2) 2019/20 benefits

(as set out in the Remuneration table on page 87), (3) pension using
the 2019 Policy and applied to 2020/21 base salary; and

– Variable Pay: (1) 2020/21 LTIP award using the 2019 Policy and (2)

2020/21 Bonus award using the 2019 Policy.

Chairman’s fee

Non Executive Director base fee

Additional fees:

Senior Independent Director

Chair of Audit Committee

Chair of Remuneration Committee

Employee Engagement Director

2020/21

(£000)1,2

410.5

71.5

2019/20
(£000)2

402.0

70.0

21.0

10.2

20.5

10.0

In this Report, the assumptions include an estimation of the amount
attributable to share price appreciation (for the “Maximum plus 50 per
cent share price appreciation” scenario only) but do not include any
all-employee share plan awards for which Kevin Murphy may be
eligible nor the dividend equivalent amount payable on the LTIP
award as shares.

1. All increases to Non Executive Director/Chairman fees were broadly in line

with the average salary increase awarded to the general workforce.

2. The Non Executive Directors (including the Chairman) are also eligible to
receive a travel allowance of £2,500 (each way), where there is a need for
intercontinental flight in excess of five hours (one way) based on the home
location of the Non Executive Director or Chairman and the location of the
Board (or Committee) meeting, up to a maximum of £30,000 per annum.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance86

Annual report on remuneration

Report for the year ended July 31, 2020

Information
For the purposes of this Annual report on remuneration:

(1) any estimated share values are determined using a share

price of 6,401.7 pence, being the average closing mid-market
quotation for Ferguson plc shares for the three-month period
ended July 31, 2020.

(2) the remuneration of Kevin Murphy is shown in USD and any
sterling payments have been converted to USD based on a
12-month average exchange rate for the year ended July 31,
2020 of $1.2613:£1 (2019: $1.2878:£1 ).

Remuneration Committee
The Committee met regularly during the year. Details of meetings
and attendance are shown in the table on page 81.

Principal areas of focus in 2019/20
Governance

– 2019 Remuneration Policy Review including consultation of
shareholders and reviewing their feedback in the context of
finalizing the proposed 2019 Policy.

– Review and approval of the 2019/20 Directors’ Remuneration Report.

– Annual governance and compliance review including reviewing pay
practices and methods for gathering the views of the workforce.

– Review and amendments to LTIP rules.

– Annual review of remuneration adviser performance.

– Annual review of terms of reference.

– Annual review of effectiveness of the Committee.

– Annual review of Directors’ shareholdings against applicable

shareholding guidelines.

Reward including salary and fees review

– Review of executive pay levels and the Chairman’s fee.

– Review and approval of remuneration proposals for Executive

Directors and Executive Committee members.

– Analysis of key reward and US compensation practices.

Incentives

– Regular assessment of performance against 2019/20 annual bonus

targets and objectives.

– Review of arrangements required due to the proposed demerger

of the Wolseley UK business.

– Review of impact of COVID-19 pandemic on short and long term

incentive arrangements.

– Regular review of performance against targets for outstanding LTIP

and other discretionary share awards.

– Review and approval of 2018/19 annual bonus outcomes.

– Review and approval of LTIP structure and targets

for 2019/20 awards.

– Confirmation of vesting of LTIP and other discretionary share plan

awards that vested in 2019/20.

– Review and approval of process for 2019/20 grants under

all-employee share plans.

– Review and approval of grant of LTIP and other discretionary share
plan awards to senior executives, including those below Board
level for 2020/21.

– Regular review of use and operation of discretionary share plans

and all-employee share plans.

– Review and approval of annual bonus structure and targets

for 2020/21.

Remuneration Committee effectiveness review
The annual review of the effectiveness of the Committee was
conducted during the year and considered at the July 2020 meeting.
The review concluded the Committee was working effectively and
that the Committee should continue to develop its understanding of
remuneration practices and governance trends in relevant markets
and the challenges arising from the COVID-19 pandemic.

Advisers to the Committee
During the year, the Committee received advice and/or services from
various parties. Details are set out below.

Mercer Kepler (which is part of the MMC group of companies) was
appointed as the Committee’s independent remuneration consultant
in 2017 following a competitive tender process led by the Chair of
the Committee. Mercer 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. Mercer Kepler adheres to
this Code of Conduct. The Committee has established arrangements
to ensure that the advice received from Mercer Kepler is independent
of the advice provided to the Company. The Chair of the Committee
has direct contact with the lead Mercer Kepler partner to discuss
performance. Mercer Kepler is appointed by the Committee
and its performance, along with the quality and objectivity of its
advice, is reviewed on an annual basis. The Committee reviewed
the performance of, and advice provided by, Mercer Kepler in
November 2019.

Mercer 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 (including expenses) paid to
Mercer Kepler for the advice provided to the Committee during the
year were £115,849. Fees (including expenses) paid to Mercer Kepler
for other remuneration-related services provided to the Company
during the year were £19,160. Mercer Kepler do not have any other
connections with any individual Directors of the Company.

Freshfields Bruckhaus Deringer LLP (“Freshfields”) provided legal
advice to the Committee during the year in connection with 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 £66,569.
Freshfields was appointed by the Company and also provided other
services (including legal, governance and share plan advice) 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 Chief
Human Resources Officer, the Group Chief Executive, the Group
General Counsel and the Group Company Secretary, together with
other senior Group associates as necessary. Those who attend by
invitation do not participate in discussions that relate to the details of
their own remuneration.

Ferguson plc Annual Report and Accounts 202087

Single total figure of remuneration for Executive Directors (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 July 31, 2020.

Fixed remuneration

Variable remuneration

Salary
(000)

Taxable
benefits3
(000)

Pension
benefits4
(000)

Year

Sub total
(000)

Bonuses⁵
(000)

Value of LTI

vesting6,7,8
(000)

Other9,10
(000)

Sub total
(000)

Total
remuneration
(000)

£591.8

£6,075.6

£7,289.1

Executive Directors

K Murphy

2019/20 $1,062.8

$127.1

$170.0

$1,359.9

$1,141.5

$2,571.9

2018/19

$975.0

$117.5

$156.0

$1,248.5

$1,035.8

–

M Powell

2019/20

£595.0

2018/19

£550.0

£18.7

£18.8

£148.7

£137.5

£762.4

£706.3

£471.3

£1,438.0

£500.5

$1.4

$0.7

£2.2

£1,254.7

$3,714.8

$5,074.7

$1,036.5

$2,285.0

£1,911.5

£1,755.2

£2,673.9

£2,461.5

Past Director

J Martin1

2019/20

£275.2

2018/19

£899.2

£27.8

£52.0

£82.5

£385.5

£206.3

£269.7

£1,220.9

£918.0

£3,936.7

–

£206.3

£4,854.7

–

Total2

2019/20

£1,712.8

£147.2

£366.1

£2,226.1

£1,582.6

£3,477.1

£3.3

£5,063.0

2018/19 £2,206.3

£162.0

£528.4

£2,896,7

£2,222.8

£3,936.7

£1,255.3

£7,414.8

£10,311.5

Total in USD
(for information) 2019/20 $2,160.3

$185.7

$461.8

$2,807.8

$1,996.1

$4,385.6

$4.1

$6,385.8

$9,193.6

1. John Martin stepped down as a Director on November 19, 2019. The remuneration in this table includes his pro rated salary, bonus, benefits and pension benefits earned up to

the date he stepped down. Payments up to July 31, 2020 including his value of LTI vesting are detailed in the Payments to past Directors section below.

2. For the purposes of the total remuneration figures shown for 2019/20 and 2018/19, payments made to Kevin Murphy shown in USD have been converted back into pounds sterling
using the 12-month average exchange rate for the year ended July 31, 2020 ($1.2613: £1) and the 12-month average exchange rate for the year ended July 31, 2019 ($1.2878: £1).

3. For all Directors, their benefits during the year included private health insurance, car benefit (car allowance and/or car), and healthcare benefits. For Kevin Murphy, this also
included life insurance premium contributions. For John Martin, up to November 19, 2019, this included the provision of a driver and associated tax gross up arrangement.
4. Kevin Murphy participates in the defined contribution pension arrangements of Ferguson Enterprises, LLC. receiving contributions of 16 per cent of base salary from Ferguson

Enterprises LLC. The cost of employer contributions during the year was $170,047. During the year ended July 31, 2020, Mike Powell and John Martin received salary
supplements in lieu of Group pension scheme membership.

5. Mike Powell’s annual bonus payment for 2018/19 includes the face value of a nil cost option award of 85 shares in accordance with the terms of the DBP. This represents the

amount in excess of target that was deferred into the DBP, as he had not met his shareholding guideline target at that time.

6. The LTIP grants made in October 2017 will vest overall at 92.23 per cent in October 2020. For further details on the percentage vesting see page 90.
7. The value of vested shares under the 2017/18 LTIP has increased by £345,322 for Kevin Murphy (equivalent to $435,555 at the average exchange rate for the year ended July 31,
2020 of $1.2613: £1) and £243,960 for Mike Powell since the award date as a result of share price appreciation. The value on the award date has been calculated using the award
price of 5,263.5 pence, being the average close price for the 10 dealing days prior to the award date. No discretion has been exercised by the Committee as a result of this share
price appreciation.

8. Value shown for 2019/20 represents estimated value of LTIP awards granted in 2017 that will vest in October 2020. The estimate assumes 92.23 per cent overall vesting of

LTIP awards using the three-month average share price noted on page 86 under the heading “Information”. No discretion has been applied either for share price movements
or for formulaic vesting outcomes. Value shown for 2018/19 represents the actual vesting of John Martin’s LTIP award which vested in November 2019, trued up from the figure
disclosed in last year’s Annual report on remuneration to reflect the share price of 6,583 pence on the date of vesting (November 1, 2019).

9. Value shown for 2018/19 for Mike Powell represents the actual vesting of the PBBO awards which vested in November 2019, trued up from the figure disclosed in last year’s

Annual report on remuneration to reflect the share price of 6,583 pence on the date of vesting (November 1, 2019).

10. Both Kevin Murphy and Mike Powell were granted shares in all-employee share plans in the year. Kevin Murphy entered into a one-year ESPP savings contract and Mike Powell

entered into a three-year sharesave contract, respectively. The values shown for 2019/20 and 2018/19 represents the gain, calculated as being the difference between the option
price and the share price at the date the option price was set, on the maximum number of shares granted.

Payments for loss of office (Audited)
No payments for loss of office were made during the financial year.

Payments to past Directors (Audited)
No payments have been made to past Directors during the financial year other than those included in the Remuneration tables above and on
page 92 and the payments to John Martin detailed below.

John Martin served as Group Chief Executive and as a Director until November 19, 2019 and continued to be an associate of the Group
until September 3, 2020. Payments made to Mr Martin as an Executive Director are set out in the Remuneration table above. Mr Martin
received payments as an associate in relation to salary, benefits and pension totaling £847,734 for the period November 20, 2019 to July 31,
2020. Additionally, details of an LTIP award granted to Mr Martin in October 2017 that is due to vest in October 2020 are disclosed on page 90.
The estimated value at vesting is £2,920,003 using the three-month average share price noted on page 86 under the heading “Information”.

Payments to Gareth Davis and Darren Shapland, who stepped down from the Board during the year, are set out in the Non Executive Directors’
Remuneration table on page 92.

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 Board. The Board 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, Mike Powell was a non executive director and audit committee chairman of Low & Bonar plc but stepped down on May 12,
2020 and John Martin was a non executive director of Ocado plc. For the year ended July 31, 2020, Mike Powell received a fee of £63,472 for
his services. For the period August 1, 2019 to November 19, 2019, John Martin received a fee of £19,680 for his services. The Company allowed
both Mr Martin and Mr Powell to retain the fees paid to them during the year.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance88

Annual report on remuneration (continued)

Additional disclosures in respect of the Remuneration table (Audited)
Annual bonus
The annual bonuses awarded to Executive Directors for the year ended July 31, 2020 are shown in the Remuneration table on page 87.
The Committee reviewed the level of vesting against the wider business performance of the period and determined this level of payment
was appropriate; no discretion was applied either for share price movements or for formulaic vesting outcome. The bonuses are calculated
as follows:

Director

Measure2

Threshold

Target

Maximum

K Murphy¹ Chief Executive Officer, USA (August 1, 2019 – November 18, 2019)

Actual
performance

Threshold

Target

Maximum

Group underlying trading profit

$1,554m $1,653m $1,752m

$1,602m3 8.9%

USA underlying trading profit

$1,480m $1,575m $1,669m

$1,587m

54.7%

Target performance

Actual performance
(as % of salary)

Maximum
opportunity
(% of salary)

16.8%

67.2%

Group average
cash-to-cash days4

USA average
cash-to-cash days4

Personal objectives5,8

57.3

56.3

55.3

57.1

56.1

58.1

1/20

54.8

53.6

5.6%

22.4%

–

20/20

28.0%

Total achieved

119.6%

K Murphy¹ Group Chief Executive (November 19, 2019 – July 31, 2020)

Group underlying trading profit

$1,554m $1,653m $1,752m

$1,602m3 42.8%

Group average
cash-to-cash days4

Personal objectives5,8

57.3

1/20

56.3

55.3

54.8

30.0%

–

20/20

30.0%

Total achieved

102.8%

Aggregate total achieved

107.4%

M Powell Group underlying trading profit

$1,554m $1,653m $1,752m

$1,602m3 37.0%

Group average
cash-to-cash days4

Personal objectives6,8

57.3

1/20

56.3

55.3

54.8

22.0%

–

20/20

18.4/20

20.2%

Total achieved

79.2%

Past Director

J Martin Group underlying trading profit

$1,554m $1,653m $1,752m

$1,602m3 41.5%

Group average
cash-to-cash days4

Personal objectives7,8

57.3

1/20

56.3

55.3

54.8

24.0%

–

20/20

7.4/20

8.8%

Total achieved9 74.3%

24.0%

120.0%

1. Bonus details for Kevin Murphy are separated to show outcomes against targets while in each role and also shows an aggregated outcome for the year.
2. Details of the performance measures and how they were set were disclosed in the Company’s 2019 Annual Report and Accounts on page 95.
3. Actual Group underlying trading profit of $1,603 million (see note 2 to the consolidated financial statements on page 126) adjusted for the retranslation at Company

budgeted foreign exchange rates for the year ended July 31, 2020.

4. Actual Group continuing average cash-to-cash days defined as the 12-month average number of days from payment for items of inventory to receipt of cash from

customers for the ongoing business adjusted for the retranslation at Company budgeted foreign exchange rates for the year ended July 31, 2020.

5. Kevin Murphy’s personal objectives were based on a co-ordinated enterprise solution for e-commerce, developing M&A opportunities and delivery of the next phase of

the Company’s technology strategy and roadmap.

6. Mike Powell’s personal objectives were based on an assessment of the listing structure for recommendation to shareholders, UK business transformation,

implementation of the demerger of Wolseley UK and corporate talent planning within the USA.

7. John Martin’s personal objectives were based on leadership inputs to ensure the successful completion of the Wolseley UK demerger, completion of an effective

handover of the CEO role and guidance on the listing structure review.

8. 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 intends to disclose further details of these targets in next year’s Annual Report.

9. Bonus payable to John Martin was pro rated to the date he stepped down as a Director (November 19, 2019) and the pro rated figure total was 22.5% of salary.

28.0%

140.0%

90.0%

30.0%

150.0%

147.0%

66.0%

22.0%

110.0%

72.0%

Ferguson plc Annual Report and Accounts 202089

Following a review, the Committee considers that Executive Directors’ personal objectives for 2018/19 are no longer commercially sensitive
and has approved the following disclosure:

Executive Director Objective

Assessment

Payout of element

Kevin Murphy¹

– Review Ferguson Enterprises B2C e-commerce

– Strategy developed and presented to the

strategy to include approach to branding, search,
omnichannel, relationship with Ferguson.com and
showrooms and own brand.

– Develop and deliver the first stage of the Company’s

technology strategy and roadmap.

– Ensure robust organic growth of own brand sales

at an agreed level above the overall organic growth
rate of the business to be measured straight-line from
Ferguson Enterprises growth rate to the agreed level.

Board. Pilot programs successfully deployed
and tested.

– Resources made available and dedicated
to the project. Vision and planning stages
proceeded in line with plan and key
deliverables implemented in the year.

– Organic own brand sales increased by 15.5
per cent. This compared to organic sales
growth of 6.2 per cent.

– Hosting of US shareholder meetings.

– Hosted a number of shareholder meetings

with established and prospective
shareholders. Positive feedback received
from shareholders.

– Review and conclude the options for the future tax
domicile of the Ferguson Group’s parent company
and implement by July 31, 2019, ensuring an
appropriate strategy to engage with all relevant tax and
regulatory authorities.

– The tax redomiciliation was concluded
successfully. New corporate structure
approved by shareholders and implemented
in May 2019.

– Execute the Group’s funding plan including the raising
of an additional $750 million in the US bond market.
Engage the credit rating agencies and complete the
bondholder roadshow.

– The Group made its primary issue in the US

bond market in October 2018. The amount to
be raised was fully achieved.

– Review and appoint individuals to Wolseley UK

– Recruitment completed and new team in

financial leadership team and ensure resources are
available to drive performance.

place. Wolseley UK finance team performing
strongly in line with plan and prepared
for demerger.

– Commence planning for the demerger of the UK
business and a review of the Company’s listing.

– Project plans in place for both. Good progress

made and further work ongoing.

Mike Powell

Past Director

John Martin

– Develop and deliver the first stage of the Company’s

technology strategy and roadmap.

– Ensure robust organic growth of own brand sales

at an agreed level above the overall organic growth
rate of the business to be measured straight-line from
Ferguson Enterprises growth to the agreed level.

– Conclude an exit strategy for the Wolseley UK

business by July 31, 2019.

– Resources made available and dedicated
to the project. Vision and planning stages
proceeded in line with plan and key
deliverables implemented in the year.

– Organic own brand sales increased by 15.5
per cent. This compared to organic sales
growth of 6.2 per cent.

– Exit strategy agreed. Intention to demerge
Wolseley UK from the Ferguson Group
announced on September 3, 2019.

1. Kevin Murphy’s objectives for 2018/19 relate to his role as Chief Executive Officer, USA.

25.0%

40.0%

25.0%

10.0%

Total: 100.0%

30.0%

15.0%

20.0%

Total: 95.0%

35.0%

30.0%

35.0%

Total: 100.0%

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance90

Annual report on remuneration (continued)

Long term incentives
Long term incentives awarded to Executive Directors under the LTIP in October 2017 will vest in October 2020. The vesting of those awards
is subject to the performance conditions shown in the tables that follow. In relation to those awards and consistent with past practice, the
Committee reviewed the EPS and OpCF measures and considered it appropriate to adjust for the impact of the Nordic business disposal and
IFRS 16 (EPS and OpCF), for exceptional cash flow (OpCF only) and for the impact of a special pension funding contribution to the UK defined
benefit pension plan (OpCF only). Further details and reconciliation to the consolidated financial statements are set out in the footnotes to the
2017/18 Awards table below.

Vested awards
LTIP
The performance conditions which applied to the awards made in October 2017 have been measured following the year-end and actual
performance achieved is detailed below.

2017/18 awards1

Performance level

Below threshold

Threshold

Between threshold
and maximum

Maximum or above

Actual performance achieved

% of award subject to each
performance condition vesting

Performance required

% of award
vesting

TSR relative to FTSE 100
at date of grant

Total margin of adjusted EPS growth
over US inflation after three years (“CPI”)2

Adjusted OpCF³

25%

25% –
100%

100%

Below median

At median

Between median
and upper quartile

Upper quartile

84th percentile

100.0%

Below 9%

Below $4.400 billion

$4.400 billion

Between 9%
and 30%

Between $4.400 billion
and $4.900 billion

30% and above

23.5%

76.7%

$4.900 billion

$5.379 billion

100.0%

Total percentage vesting⁴: 92.23%

1. Details of the performance measures and how they were set were disclosed in the Company’s 2017 Annual Report and Accounts on page 73.
2. Headline earnings per share of 366.1 cents per share in 2016/17 and 511.6 cents per share in 2019/20 adjusted to include 24.0 cents in 2016/17 relating to the disposed
Nordic business and to remove 7.1 cents in 2019/20 relating to the impact of IFRS 16. The growth in adjusted headline earnings per share from 390.1 cents in 2016/17
to 504.5 cents in 2019/20 was in excess of US inflation (“CPI”) for the same period of 5.8 per cent.

3. Cash generated from operations, before interest and tax of $2.252 billion (2018/19: $1.609 billion and 2017/18: $1.323 billion) adjusted for items which are not considered
part of the underlying business performance as agreed by the Remuneration Committee. These adjustments were to add back $94 million (2018/19: $94 million and
2017/18: $31 million) in relation to the cash flow lost due to the Nordic business being disposed of in 2017/18; $113 million (2018/19: $53 million and 2017/18: $59 million)
of cash flow on exceptional items; $nil (2018/19: $nil and 2017/18: $99 million) in relation to a special funding contribution to the UK defined benefit pension plan; and to
remove $348 million (2018/19: $nil and 2017/18: $nil) in relation to the impact of IFRS 16.

4. The Committee reviewed this level of vesting against the wider business performance of the period and determined this level of payment was appropriate; no discretion

was applied either for share price movements or for formulaic vesting outcomes.

Accordingly, the total percentage of shares vesting is set out below:

K Murphy1

M Powell1

Past Director

J Martin2

Total number
of shares granted

Percentage of
award vesting

Number of
shares vesting³

Value of shares
vesting (£000)4,5

32,915

23,254

92.23%

30,358

21,447

2,039.1

1,438.0

47,219

92.23%

43,551

2,920.0

1. In accordance with shareholding guideline requirements, Kevin Murphy and Mike Powell will, while still Group associates, retain vested shares or hold vested but

unexercised nil cost options for a holding period of two years from the vesting date.

2. As detailed on page 96 of the Company’s 2019 Annual Report and Accounts, time pro ration has been applied to John Martin’s award to reflect his continuing

employment during the vesting period (i.e. to September 3, 2020). His original award was 49,997 nil cost options.
3. The number of shares vested does not represent the product of their component parts in the table due to roundings.
4. Value determined using the share price noted on page 86 under the heading “Information”.
5. Dividend equivalents have accrued on the 2017 share awards and will be paid out in cash after vesting of the awards. The value of shares vesting figure above includes
a value of the cash payment at 303.09 pence per share. For Kevin Murphy, the dividend equivalents cash payment will be paid in US dollars at a value of 397.50 cents
per share.

Ferguson plc Annual Report and Accounts 2020Unvested awards
LTIP
The following tables set out the performance conditions and indicative total percentage vesting for unvested awards under the LTIP made
in 2018/19 and 2019/20 respectively. For those awards the performance conditions of relative TSR, EPS and OpCF each comprise one-third
of the total award opportunity. Calculations for TSR are independently carried out and verified before being approved by the Committee.
Calculations for EPS and OpCF are performed and verified internally.

2018/19 awards

Performance level

Below threshold

Threshold

Between threshold
and maximum

Maximum or above

% of award
that would
vest1

25%

Below median

At median

25% – 100%

Between median and
upper quartile

Performance required

TSR relative to FTSE 100
at date of grant

Total margin of adjusted EPS growth over
US inflation after three years (“CPI”)2

Adjusted OpCF3

Below 9%

Below $4.423 billion

$4.423 billion

Between 9%
and 30%

Between $4.423 billion
and $4.983 billion

100%

Upper quartile

30% and above

$4.983 billion

Indicative total percentage vesting based on performance as at July 31, 2020

76%

1. Awards will vest on a straight-line basis between 25 per cent and 100 per cent.
2. 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).

3. Cash generated from operations (before interest and tax) as presented in the audited annual Group cash flow statement 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).

2019/20 awards

Performance levels and performance required

Element

Performance measure

Below threshold

Threshold

TSR

EPS

TSR relative to FTSE 100 at date of grant

Below median

At median

% of award that would vest1

Total margin of adjusted EPS growth over
US inflation after three years (“CPI”)2

% of award that would vest1

Below 3%

Below

25%

OpCF

Adjusted operating cash flow3

$4.292 billion $4.292 billion

Between
threshold
and maximum

Between median
and upper quartile

25%–100%

Between 3% and 30%

0%–100%

Between $4.292 billion
and $4.832 billion

% of award that would vest1

25%

25%–100%

Indicative total percentage vesting based on performance as at July 31, 2020

Maximum
or above

Upper
quartile

100%

30%

100%

$4.832 billion

100%

67%

1. Awards will vest on a straight-line basis between threshold and maximum payout percentages.
2. 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).

3. Cash generated from operations (before interest and tax) as presented in the audited annual Group cash flow statement 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).

Deferred Bonus Plan
The DBP Awards of nil cost options granted to Mike Powell on October 30, 2017 (284 options), October 18, 2018 (1,095 options) and October 17,
2019 (85 options) will normally vest in August 2020, August 2021 and August 2022, respectively. These awards are not subject to performance
conditions and will vest in accordance with the DBP rules.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance92

Annual report on remuneration (continued)

Share awards exercised during the year
Details of the share awards exercised during the year are set out below:

Director

K Murphy

M Powell

Past Director

J Martin

All-employee

–

LTIP

–

56,268

OSP

5,574

–

PBBO

–

18,029

–

POSP

12,876

–

RSBO

–

2,439

Total1,2

18,515

20,468

–

56,268

1. The aggregate gain made on the exercise of options during the year by Kevin Murphy and John Martin was £1,126 and £3,704,228 respectively.
2. The aggregate value of assets received or receivable by Kevin Murphy and Mike Powell was £1,214,599 and £1,305,286 respectively.

Scheme interests awarded during the financial year (Audited)
Awards were made to Kevin Murphy and Mike Powell during the financial year and the scheme interests are summarized in the table below.
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 and targets, and
their weighting, for awards which were granted during the year are set out on page 91.

Director

Award

Type of award

Number
of shares1

Face value2,3
of award
(£000)

K Murphy

LTIP

Conditional shares

43,625

2,940.8

M Powell

LTIP

Nil cost options

26,481

1,785.1

Performance
criteria period

Threshold
performance

Performance
conditions⁵

August 1, 2019 –
July 31, 2022

0% of element

25% of element

EPS

TSR

25% of element

Cumulative OpCF

M Powell

DBP

Nil cost options

5.4

N/A4

N/A

1. Kevin Murphy and Mike Powell’s LTIP awards granted during the financial year were based on a percentage of salary as follows: Kevin Murphy (350 per cent) and Mike
Powell (300 per cent). The DBP award granted to Mike Powell during the year was based on the amount of annual bonus earned in 2018/19 that exceeded target.

2. The share price used to calculate the face value of the DBP award granted on October 17, 2019 was 6,376 pence and of the LTIP share awards granted on December 5,
2019 was 6,741 pence. For both DBP and LTIP awards this was the average share price over a 10 dealing day period immediately preceding the date of grant. The LTIP
award made to Kevin Murphy was a conditional share award and there is no exercise price. The DBP award and LTIP award made to Mike Powell were in the form of
nil cost options and, at vesting, the exercise price per share will be nil. Face value is calculated as required by the 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 DBP awards over the vesting period 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 and DBP scheme interests would be 0.03 per cent calculated as

at July 31, 2020.

4. Mike Powell’s DBP award will vest on August 1, 2022.

Single total figure of remuneration for Non Executive Directors (Audited)
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 July 31, 2020. Non Executive Directors do not participate in variable remuneration arrangements.

Chairman and Non Executive Directors

Chairman
G Drabble
Non Executive Directors
T Bamford
C Halligan
A Murray

T Schmitt

N Shouraboura
J Simmonds
Past Directors3
G Davis

D Shapland
Total remuneration

Fees
(£000)
2019/20

302.2²

70.0
70.0
114.2

70.0

70.0
90.5

201.0

27.7
1,015.6

Fees
(£000)
2018/19

13.3

68.5
40.0
83.3

32.2

68.5
88.5

393.0

88.5
875.8

Taxable
benefits1
(£000)
2019/20

Taxable
benefits1
(£000)
2018/19

Total
remuneration
(£000)
2019/20

Total
remuneration
(£000)
2018/19

10.8

6.8
27.7
21.2

23.6

16.1
10.5

11.5

2.1
130.3

5.0

10.0
10.0
12.5

10.0

10.0
5.0

10.0

10.0
82.5

313.0

76.8
97.7
135.4

93.6

86.1
101.0

212.5

29.8
1,145.9

18.3

78.5
50.0
95.8

42.2

78.5
93.5

403.0

98.5
958.3

1. The taxable benefits for the Non Executive Directors (including the Chairman) relate to (i) UK taxable benefits and (ii) a travel allowance of £2,500 (each way), where there
is a need for intercontinental flight in excess of five hours (one way) based on the home location of the Non Executive Director or Chairman and the location of the Board
(or Committee) meeting, up to a maximum of £30,000 per individual per annum. This allowance was introduced in November 2018.

2. The fees for Geoff Drabble reflect that he was a Non Executive Director for part of the financial year before taking over the role of Chairman.
3. Gareth Davis and Darren Shapland stepped down from the Board during the year ended July 31, 2020 and remuneration shown above is to the date of cessation for

those individuals.

Ferguson plc Annual Report and Accounts 202093

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

Director2,3

Executive Directors

K Murphy

M Powell1

Chairman

G Drabble

Non Executive Directors

T Bamford

C Halligan

A Murray

T Schmitt

N Shouraboura

J Simmonds

Effective date of appointment

Expiry of current term

August 1, 2017 and November 19, 2019 (as Group CEO)

June 1, 2017

May 22, 2019

May 22, 2022

March 22, 2011

January 1, 2019

January 1, 2013

February 11, 2019

July 1, 2017

May 21, 2014

March 22, 2021

January 1, 2022

February 11, 2022

July 1, 2021

May 21, 2021

1. As announced on May 26, 2020, Mike Powell gave notice of his resignation and will leave the Company. His leaving date is October 31, 2020.
2. Details of all Directors can be found on pages 62 and 63. The terms of Non Executive Directors are transitioning towards one-year terms to reflect the current vote for

re-election at the AGM. Over time it is expected that the terms will be co-ordinated with the timing of the AGM. Further details can be found on page 69.

3. With the introduction of a new holding company in May 2019, new letters of appointment were entered into by the Directors. For the purposes of tenure, their original

appointment timings continue to be applied as the effective date of appointment.

Statement of shareholder voting
The following table shows the results of the full details of the voting outcomes in relation to Directors’ remuneration at the AGM on November
21, 2019:

Remuneration Report

Remuneration Policy

LTIP Amendment

Votes for

For %

Votes against

Against %

Total

Votes withheld
(abstentions)

130,081,506

124,039,675

127,110,021

74.49

70.29

72.03

44,543,309

52,431,270

49,358,759

25.51

29.71

27.97

174,624,815

3,175,124

176,470,945

1,328,995

176,468,780

1,331,160

In response to the above voting results, and in accordance with the provisions of the Code, the Company provided an update via RNS to
the London Stock Exchange on May 13, 2020. Following the AGM, the Board engaged with several shareholders who it identified as having
voted against those resolutions and who despite our best efforts had not engaged with the Company during the earlier consultation process.
The Company wrote directly to these shareholders representing about 12 per cent of issued share capital setting out its position.

During this engagement the Company sought to clarify its position on the various components of total compensation including fixed pay, bonus
and Long Term Incentive Plans. No new concerns were raised during the engagement and the Board considers that the Remuneration Policy
remains appropriate to reflect the size and scale of Ferguson. The Board will continue to review how it applies the Remuneration Policy over its
three-year life, and takes into account all relevant factors in its decision-making.

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
and they are also available at the Company’s corporate headquarters at Winnersh Triangle, UK.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance94

Annual report on remuneration (continued)

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 July 31, 2020 are set out below
and any changes in interests since that date and up to the date of this Report are reflected in the footnotes.

Shares
beneficially
owned as at
July 31, 2020

Shareholding
guideline
(as a multiple
of salary/fees)1,2

Vested
(unexercised)
share
awards3,4

With performance conditions

Without performance conditions

LTIP5

DBP3,5

All-employee5

Unvested share awards

Executive Directors

K Murphy

M Powell

40,654

20,861

3.5

Chairman and Non Executive Directors

G Drabble

T Bamford

C Halligan

A Murray

T Schmitt

N Shouraboura

J Simmonds

Past Directors6

G Davis

J Martin

D Shapland

4,983

1,940

425

2,368

1,350

–

1,894

14,538

163,327

1,989

N/A

–

109,198

72,978

–

1,464

144

446

–

97,496

–

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 DBP if on the date a relevant bonus was paid the guideline target had not been met. Beneficially owned shares
count towards the guideline while unvested awards of shares or share options do not. Vested share awards do not count towards the guideline until exercised.

2. As at July 31, 2020, Kevin Murphy, Mike Powell, Geoff Drabble, Cathy Halligan and Nadia Shouraboura had not met their shareholding guideline targets set for 2019/20.
Shareholding guideline targets for Kevin Murphy as the newly appointed Group Chief Executive were set on December 1, 2019 and Kevin has until November 19, 2024
to meet his shareholding target. Shareholding guideline targets for Mike Powell and Nadia Shouraboura were set on August 1, 2017. Nadia Shouraboura has until July
1, 2022 to meet her shareholding target. Shareholding guideline targets for Geoff Drabble and Cathy Halligan were set on August 1, 2019 and they have until May 22,
2024 and November 21, 2024 respectively to meet their shareholding target. Shareholding guideline targets are first set by reference to the salary or fees of a Director
as at October 1 in the financial year following appointment to the Board and calculated using the average share price for the two months ended October 1 of the financial
year in which the appointment was made. For Executive Directors, the guideline level of shareholding will be set in line with the Executive Director’s annual LTIP award
opportunity. Shareholding guideline targets are re-tested annually until met. Once met, the target is re-tested at least annually on the same basis and set at the number
of shares resulting from the re-test or, if lower, the existing target increased in line with any base salary or fee increases.

3. Mike Powell’s DBP award in the form of a nil cost option over 284 shares was granted on October 30, 2017 and under normal circumstances would become exercisable
on August 1, 2020. However, the exercise of the DBP award was delayed until September 29, 2020 following the announcement of the Company’s Full Year Results due
to the restrictions imposed by the Company’s close period.

4. Details of share awards exercised in the year are detailed in the share awards exercised during the year table on page 92.
5. LTIP awards are subject to performance conditions but DBP and all-employee awards are not. LTIP awards were awarded in the form of conditional share awards to Kevin
Murphy and in the form of nil cost options to Mike Powell. DBP awards were awarded to Mike Powell in the form of nil cost options. Further details of the performance
conditions which apply to the LTIP awards are set out on page 91.

6. Shareholdings stated for past Directors are given as at the date on which the Director stepped down from the Board.

Relative importance of spend on pay
The following table sets out the amounts and percentage change in total associate remuneration costs, dividends and returns of capital for the
year ended July 31, 2020 compared to the year ended July 31, 2019. Further details on associate remuneration, dividends and the share buy
back program can be found in note 10, note 8 and note 24 of the consolidated financial statements on pages 135, 134 and 153 respectively.

Total associate remuneration costs

Ordinary dividends1

Share buy back

2019 Share buy back2

2020 Share buy back3

Year ended
July 31, 2020
$m

Year ended
July 31, 2019
$m

3,137

466

350

101

3,163

473

150

–

Percentage
change

(0.8)%

(1.5)%

133.0%

100.0%

1. This disclosure is revised for this year and for future years to show dividends paid in relation to the relevant financial year, rather than those paid during the financial year.
2. The figures are not representative of an increase but show actual expenditure across two financial years in relation to a $500 million share buy back program announced

by the Company on June 10, 2019.

3. The figure is not representative of an increase but shows the actual expenditure in the year in relation to a $500 million share buy back program announced by the

Company on February 4, 2020. As announced on April 15, 2020 the share buy back program was suspended to protect the Company’s cash position due to the impact
of the COVID-19 pandemic on operations.

Ferguson plc Annual Report and Accounts 2020500

Ferguson TSR performance and Group Chief Executive remuneration comparison
The graph opposite shows Ferguson’s
TSR performance against the performance
of the FTSE 100 Index from the creation
of the holding company at the time of the
redomiciliation to Switzerland in November
2010, to July 31, 2020. The FTSE 100 Index
has been chosen as being a broad equity
market index consisting of companies
comparable in size and complexity
to Ferguson.

Nov
2010

Jul
2016

Jul
2015

Jul
2012

Jul
2014

Jul
2013

Jul
2011

200

400

300

100

Ferguson return index

FTSE 100 return index

Jul
2017

Jul
2018

Jul
2019

Jul
2020

The table below shows the total remuneration of the Group Chief Executive1 for the 10-year period from August 1, 2010 to July 31, 2020.

Single figure of total
remuneration (£000)2

Annual bonus
award rates against
maximum opportunity

Long term incentive
vesting rates against
maximum opportunity

Group CEO1

I Meakins

J Martin

K Murphy

I Meakins

J Martin

K Murphy

I Meakins LTIP

ESOP

J Martin

LTIP

ESOP

K Murphy LTIP

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19 2019/20

2,011

5,603

5,109

5,890

3,901

3,375

1,768

–

98%

85%

84%

97%

86%

55%

3,746

3,952

6,076³

592

–

97%

95%

85%

–

76%

100%

88%

75%

47%

72%

100%

–

72%

82%

96%

100%

–

4,023⁴

–

23%⁵

73%

–

92%

–

1. During the 10-year period, Ian Meakins was the Group Chief Executive until his retirement on August 31, 2016. From September 1, 2016, John Martin served as Group
Chief Executive until November 19, 2019 when he was succeeded by the current Group Chief Executive, Kevin Murphy. The single figure total shown for Mr Martin
in the 2016/17 financial year includes one month’s pay as Group Chief Financial Officer. The single figure shown for Mr Murphy in the 2019/20 financial year includes
three and a half months’ pay as Chief Executive Officer, USA.

2. The single figure for all 10 years is calculated on the same basis as that used in the Remuneration table on page 87.
3. The single figure of total remuneration for John Martin for the year ended July 31, 2019 has been adjusted respectively from the value of £5,512.1 million estimated

in that year’s report to reflect the actual value of LTIP at the date of vesting in November 2019.

4. The single figure shown for Mr Murphy in the 2019/20 financial year has been converted into pounds sterling using a 12-month average rate for the year ended

July 31, 2020 of $1.2613: £1.

5. The percentage bonus figure for John Martin is reflective of the pro ration applied to his bonus when he stepped down as a Director on November 19, 2019.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance96

Annual report on remuneration (continued)

Group Chief Executive pay ratio
The table below reports the pay ratio for 2019/20 as required under
the Companies (Miscellaneous Reporting) Regulations 2018 which
require us to provide this ratio against our UK workforce. The table
also provides further information on the total pay figures and the
salary component for each quartile associate.

Method

Group Chief
Executive

25th
percentile
ratio

50th
percentile
ratio

75th
percentile
ratio

Option A

199:1

168:1

118:1

Total pay and benefits
(£000)

4,014.8

Salary (£000)

887.7

20.1

19.7

23.9

22.6

34.0

33.5

The pay ratios have been calculated using Option A which requires
the calculation and ranking, from lowest to highest, of the pay and
benefits of UK associates for the relevant financial year in order to
identify those at the 25th, 50th and 75th percentiles. The Committee
considered it to be the most appropriate and robust way to calculate
the three ratios.

Due to the change of Group Chief Executive in the year, the Group
Chief Executive values used are derived from the total single figure
of remuneration table on page 87 for the periods that each of John
Martin and Kevin Murphy held that role. Where required, Kevin
Murphy’s values are converted to GBP using the exchange rate set
out on page 86 under the heading “Information”.

UK associates’ pay data as at July 31, 2020 uses associate pay
calculated on the same basis as that of the Group Chief Executive
single total figure of remuneration. It was calculated based on actual
base pay, benefits (including employer pension contributions), bonus
and long term incentives for the 12 monthly payrolls within the full
financial year.

The percentile figures are representative of the whole UK associate
population but do not include all UK associates as at July 31, 2020.
For part-time UK associates earnings are annualized on a full-time
equivalent basis to allow equal comparisons. Joiners and leavers in the
year have been excluded from the calculations.

The pay ratio data above reflects the composition of our UK
workforce. The primary driver of the pay ratio is the significantly
greater variability in Group Chief Executive remuneration, compared
to competitive market norms for those associates representing the
25th, 50th and 75th percentiles of our UK workforce on the basis
of pay levels, where fixed pay components represent a higher
proportion of the package.

Notwithstanding the above, the Group cascades its pay, reward
and progression policies in a consistent manner across the whole
workforce. The Committee takes into account this analysis in its
decision-making in relation to executive remuneration, and also uses
it as important context when reviewing the Group’s decisions relating
to remuneration for the wider associate population.

Percentage change in remuneration of all Directors
remuneration compared to all associates
As required under The Companies (Directors’ Remuneration Policy
and Directors’ Remuneration Report) Regulations 2019, the analysis
has been expanded to cover each Executive Director and Non
Executive Director and this information will build up to display a five-
year history.

The legislative requirement is to provide a comparison to associates
of the parent company in the Group. Ferguson plc does not have
any directly employed associates and there would be no figure to
disclose. The comparator group in previous years was UK-based
associates. Pending the demerger of the UK business, the Committee
has elected this year to disclose against US-based associates as a
more suitable comparator group and to more accurately reflect the
nature of the Company’s workforce.

The Committee monitors this information carefully to ensure that
there is consistency in fixed pay trend for the Executive Directors and
Non Executive Directors compared with the wider workforce.

% change
in salary or
fees¹

% change
in benefits²

% change
in annual
bonus3

Executive Directors

Kevin Murphy

Mike Powell

Chairman and Non Executive Directors

G Drabble

T Bamford

C Halligan

A Murray

T Schmitt

N Shouraboura

J Simmonds

Past Directors⁴

John Martin

Gareth Davis

Darren Shapland

Average for all US-based
associates

9.0

8.2

341.1

2.2

37.0

2.2

2.3

2.0

2.3

3.4

8.2

(0.8)

115.4

(31.7)

177.2

69.3

135.6

61.4

109.7

(46.5)

15.4

(78.8)

10.4

(5.8)

N/A

(25.8)

N/A

(1.7)

2.9⁵

1. The figures for Kevin Murphy, Geoff Drabble and Alan Murray relate to changes
in role during 2019/20: Kevin Murphy was promoted during the period from
Chief Executive Officer USA to Group Chief Executive; Geoff Drabble became
Chairman; and Alan Murray became Employee Engagement Director and
Chairman of the Audit Committee. The figure for Mike Powell relates to the
phased increase of salary as determined by the Committee for 2019/20 and as
previously disclosed in last year’s Report.

2. The figures for Non Executive Directors do not reflect any change in the benefits
offered. It relates mainly to the travel allowance which had been introduced
following the AGM in November 2019 and other benefits taxable in the UK since
the redomicilation. Also those Non Executive Directors who joined the Company
part way through 2018/19 (Geoff Drabble, Cathy Halligan and Tom Schmitt) will
show a higher increase. In addition, benefits are higher for Geoff Drabble to
reflect his promotion to the role of Chairman in 2019/20.

3. Executive Director bonuses are determined by the Executive Director’s

performance and the performance of the whole of the Ferguson Group; whereas
associates’ bonuses are based on their performance and the performance of the
businesses in the countries in which they work.

4. The percentage change in salary for past Directors reflects annualized values for
2019/20 remuneration. For the past Directors, the percentage change in benefits
is reflective of the pro rated period the individual was a Director. For John
Martin, the percentage change in annual bonus reflects annualized values.
Where annualized values have been used, this is to enable a comparison with
2018/19 on a like-for-like basis.

5. This figure excludes a special recognition payment made in 2019/20 to certain

eligible hourly associates of $1,000 (2018/19: $250).

Ferguson plc Annual Report and Accounts 202097

Compared to the limits set by the Investment Association in respect of
new share issues to satisfy options granted for executive share plans
(5 per cent in any rolling 10-year period) and all share plans (10 per
cent in any rolling 10-year period) as at July 31, 2020, the Company’s
headroom was 2.91 per cent and 6.73 per cent respectively.

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
September 28, 2020

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 Code. The Remuneration Committee
confirms that throughout the financial year the Company has
complied with these governance rules.

Further information

Detail of Employee Benefit Trusts
Ferguson has established a Jersey Trust and a US Trust (together,
“the Trusts”) in connection with the obligation to satisfy historical
and future share awards under the LTI plans and any other associate
incentive plans (“share awards”).

The trustees of each of the Trusts have waived their rights to receive
dividends on any shares held by them. As at July 31, 2020, the
Jersey Trust held 126,229 ordinary shares of 10 pence and $1,308
in cash; and the US Trust held 1,151,118 ordinary shares of 10 pence.
The number of shares held by the Trusts represented 0.55 per cent of
the Company’s issued share capital at July 31, 2020.

During the year, 307,345 ordinary shares were purchased by the US
Trust for £19.9 million to ensure that it continued to have sufficient
shares to satisfy share awards. The Company provided funds to the
US Trust to enable it to make the purchases. The number of shares
purchased represented 0.13 per cent of the Company’s issued share
capital. No shares were acquired by the Jersey Trust during the year.

Further details of shares held by the Trusts can be found at note 24 on
page 153 of the consolidated financial statements.

Detail of all-employee share plans
The Company operates two all-employee share plans in which
Executive Directors can participate. In Canada and the USA, the ESPP
operates as a one-year savings contract plan. In the UK, associates
may participate in the ISP for a savings period of three or five years.

Dilution
Awards under the LTIP, historical executive share option 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 shares
purchased in the market. Awards under the LTI plans are met by
market purchases of shares or from the Trusts. The Company
monitors the number of shares issued under the plans and any
impact on dilution limits.

Executive share plans

Actual

Limit

2.09%

All share plans

Actual

Limit

3.27%

10%

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance98

2019 Remuneration Policy – for information only

1. Introduction
In accordance with Provision 40 of the Code, the Committee keeps the Policy under review in the context of the following six themes:

Clarity: The Committee believes the approach to disclosure is transparent, with clear rationale provided for decisions. The Committee
remains committed to consulting with shareholders on the Policy and its implementation, when appropriate and/or necessary.
Simplicity: The Policy and the Committee’s approach to implementation is simple and well understood. The performance measures used in
the incentive plans are well aligned to the Group’s strategy.
Risk: The Committee has ensured that remuneration arrangements do not encourage and reward excessive risk taking by setting targets to
be stretching and achievable, with discretion to adjust formulaic annual bonus and LTIP outcomes, if required.
Predictability and proportionality: The alignment of performance measures to strategy, and the approach to setting targets, balances
predictability and proportionality by ensuring outcomes do not reward poor performance.
Culture: The Policy is consistent with the Group’s culture as well as strategy, therefore driving behaviors that promote the long-term success
of the Group for the benefit of all stakeholders.

For reference this Report sets out Ferguson’s policy on remuneration that was approved by shareholders at the 2019 AGM on November
21, 2019 and can be found on our website at www.fergusonplc.com. The Policy took effect from this date and remains unchanged.
Page references contained in the Policy relate to the Ferguson plc 2019 Annual Report and Accounts.

2. Remuneration Policy tables

Policy table: Executive Directors
Base salary

Purpose and link to strategy
To pay Executive Directors at a level commensurate with their contribution to the Group and appropriately based on skills, experience
and performance achieved.

The level of salary paid should be set at a level that is considered appropriate to aid the recruitment, retention and motivation of high-
calibre Executive Directors required to ensure the successful formation and delivery of the Group’s strategy and management of its
business in the international environment in which it operates.

Operation and opportunity
– Base salary is normally set taking into account prevailing market and economic factors, individual and corporate performance,

experience in the role, pay conditions across the general workforce, the location of the role holder and the market for talent, with the
opportunity to exceed this level to reward sustained individual high performance. It is normally set at or around the mid-market level of
other companies comparable on the basis of size, internationality and complexity.

– Base salary is paid monthly in cash in the currency specified in the employment contract.

– Base salary will be reviewed (but not necessarily increased) each year, with any increases typically in line with the general level of

increase awarded to other employees in the Group.

– There is an annual review of base salary by the Committee although an out-of-cycle review may be conducted if the Committee
determines it appropriate. The review will take into account the same items as discussed above as well as percentage increases
awarded to the general workforce, and governance practices.

– The Committee retains the flexibility to award larger increases than those awarded to the general workforce where it considers it

appropriate and/or necessary (such as in exceptional circumstances or if an individual assumes a new or expanded role with further
scope and responsibility). If it is considered appropriate, larger increases may be phased over more than one year.

– 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.

– The base salaries for the Executive Directors for the year under review and the coming year are set out in the Annual report

on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: the Committee considers the individual salaries of the Executive Directors at a Committee
meeting each year, taking into account the factors listed in “operation and opportunity” above.

Recovery of sums paid or the withholding of any payment to be made relating to base salary: there are no provisions for the recovery of
sums paid or the withholding of any payment relating to base salary.

Ferguson plc Annual Report and Accounts 202099

Policy table: Executive Directors
Taxable benefits

Purpose and link to strategy
To provide a range of market competitive benefits to encourage retention and which enable an Executive Director to perform his or her
duties effectively.

Operation and opportunity
– A range of benefits are provided that, depending on the location of the individual, may include:

– life assurance cover;

– critical illness cover;

– private medical cover for Executive Directors and their dependants;

– car, driver, car allowance;

– professional tax and financial advice (including assistance in relation to tax filings);

– relocation assistance (where necessary);

– tax equalization arrangements in relation to additional international tax and social security contributions, so that the Executive

Director is no better or worse off from an individual tax perspective; and

– other reasonable ancillary benefits, where necessary.

– The travel and other business expenses incurred in relation to their duties as Executive Directors may be reimbursed or paid for by the

Company directly, as appropriate (including any relevant tax payable).

– In addition, the Executive Directors have the benefit of Directors’ and Officers’ Liability Insurance and an indemnity from the Company.

– It is expected that an Executive Director would receive reasonable levels of benefits consistent with those typically offered in his or her

country of residence.

– Benefits are typically paid monthly and their value assessed at the end of each financial year for tax purposes.

– Benefits are monitored, controlled and reviewed on a periodic basis.

– The Committee retains the flexibility to offer additional benefits where appropriate. This would be reviewed on a case-by-case basis
due to the position and circumstances of the relevant Executive Director (e.g. if asked to relocate, or is recruited, from overseas).

– The benefits for the Executive Directors for the year under review and the coming year are set out in the Annual report

on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable.

Recovery of sums paid or the withholding of any payment to be made relating to benefits: consistent with our policy for all employees
there are no provisions for the recovery of sums paid or the withholding of any payment relating to benefits.

Policy table: Executive Directors
Pension

Purpose and link to strategy
To provide a market-competitive benefit for retirement which rewards sustained contribution and to encourage the recruitment and
retention of high performing Executive Directors.

Operation and opportunity
– The maximum opportunity, either by way of a Company contribution to a Group pension arrangement or payment of a cash

salary supplement, for current Executive Directors will not be increased from the percentage levels set out in the Annual report
on remuneration.

– Any new Executive Director who is first appointed as a Director on or after the date of the 2019 AGM will be eligible to participate on
consistent terms in the pension arrangements available for the workforce in the relevant market, or to receive a payment of a cash
salary supplement in lieu of pension entitlement. The actual percentage levels will be set out in the Annual report on remuneration
following their appointment.

– Pension contribution or cash salary supplement is paid monthly.

– The entitlement is fixed as a percentage of base salary.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable.

Recovery of sums paid or the withholding of any payment to be made relating to pension: consistent with our policy for all employees
there are no provisions for the recovery of sums paid or the withholding of any payment relating to pension.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance100

2019 Remuneration Policy (continued)

2. Remuneration Policy tables continued

Policy table: Executive Directors
Annual bonus

Purpose and link to strategy
To reward achievement of annual financial and operational goals consistent with the strategic direction of the business.

Operation and opportunity
– Executive Directors are eligible (subject to invitation at the discretion of the Committee in consultation with the Group Chief Executive,
other than in relation to his or her own arrangements) to receive an annual bonus which is based on an assessment of financial and
personal performance in the relevant financial year.

– The annual bonus earned up to the target level of payout by an Executive Director shall be paid in cash and, if shareholding guidelines
have been met at the time the bonus is awarded, any amounts of annual bonus earned in excess of target will also be paid in cash.
If shareholding guidelines have not been met, the Deferred Bonus Plan policy on page 86 will apply.

– The annual bonus is not pensionable.

– The annual bonus is normally reviewed annually and the opportunity available may be adjusted each year.

– The maximum annual bonus opportunity for an Executive Director who is recruited from or based in the USA is up to 200 per cent of

base salary; and for an Executive Director who is recruited from and based in any other geography is up to 150 per cent of base salary.
The annual bonus opportunities for each of the Executive Directors for the year under review and the coming year are set out in the
Annual report on remuneration. Threshold, on-target and maximum performance levels are also set as a percentage of base salary.

– All bonus payments are determined by the Committee.

– Details of the actual vesting, as well as the threshold, on-target and maximum performance percentages for each Executive Director

for the current year, as well as details of performance criteria set for the year under review and performance against them, are set out in
the Annual report on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: financial key performance indicators are used. Performance measures, targets and weightings
are reviewed annually. They will be set each year by the Committee with reference to the Group’s annual budget, business priorities at the
time and also the long-term strategic business plan, as well as market expectations of the Group’s future performance. They are intended
to align the performance of Executive Directors with the Group’s near-term objectives of delivering against its strategy. At least 80 per
cent of maximum bonus is weighted to financial performance and not more than 20 per cent of maximum bonus is weighted to personal
objectives aimed at driving the strategic objectives of the business.

Recovery of sums paid or the withholding of any payment to be made relating to annual bonus: recovery and withholding provisions will
apply. The Committee has the right to recover from Executive Directors any amount of the bonus paid at any time before the second
anniversary of the announcement of the results for the financial year to which the annual bonus relates in the following circumstances:
(a) the Committee forms the view that there has been a material financial misstatement of the Company’s audited financial accounts
(other than as a result of a change in accounting practice) and that such misstatement resulted either directly or indirectly in a higher
cash bonus payment being made than would have been the case had that misstatement not been made; and/or (b) it is discovered that,
during the financial year in respect of which the bonus is paid, the Executive Director: (i) conducted him/herself in a way which resulted in
significant reputational damage to the Company; or (ii) was guilty of negligence or gross misconduct. The Committee also has the right
to recover from an Executive Director any amount of the bonus paid in the event a fraud was effected by or with the knowledge of the
Executive Director during the financial year in respect of which the bonus was paid. There is no time limit on the application of recovery or
withholding provisions in the event of fraud during a year to which a bonus payment relates.

Ferguson plc Annual Report and Accounts 2020101

Policy table: Executive Directors
Deferred Bonus Plan

Purpose and link to strategy
To encourage Executive Directors to build up a shareholding in value equivalent to a set multiple of base salary and to facilitate share
ownership to provide further alignment with shareholders.

To align interests of Directors and shareholders in developing the long-term growth of the business and the execution and delivery of the
Group’s strategy.

Operation and opportunity
– Executive Directors who have not met their shareholding guidelines requirement in any financial year in which an annual bonus is paid

will be granted an award under the DBP as set out below.

– In any given year, the annual bonus earned up to the target level of payout by an Executive Director shall be paid in cash.

If shareholding guidelines have not been met at the time the bonus is awarded, amounts earned in excess of target by an Executive
Director will be deferred into shares and held subject to the terms of the DBP (“DBP shares”) and subject to forfeiture for three years (or
such other period as the Committee considers appropriate) from the date the bonus is awarded.

– Awards of DBP shares will normally be made in the form of nil-cost options but may be awarded in other forms allowed under the DBP

rules (if appropriate).

– For awards from the date of this Policy, dividend equivalent payments will normally be satisfied in shares (in accordance with the DBP
rules) on the shares which are the subject of the award (to the extent they vest) with a value equal to the value of dividends that would
have been payable on the DBP shares during the period between grant and vesting of an award.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable.

Recovery of sums paid or the withholding of any payment to be made relating to DBP: for DBP shares awarded in respect of bonus
awards made from the date of this Policy and subsequently, recovery and withholding provisions will apply. The Committee has the
right to recover or withhold from Executive Directors any award of DBP shares at any time before the second anniversary of the date on
which they vested in the following circumstances: (a) there has been a material financial misstatement of the Company’s audited financial
accounts (other than as a result of a change in accounting practice); and/or (b) (i) the Executive Director conducted him/herself in a way
which resulted in or was reasonably likely to result in significant reputational damage to the Company; or (ii) was guilty of negligence or
gross misconduct. The Committee also has the right to recover from an Executive Director any award of DBP shares in the event a fraud
was effected by or with the knowledge of the Executive Director. There is no time limit on the application of recovery or withholding
provisions in the event of fraud during a year to which a bonus payment relates.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance102

2019 Remuneration Policy (continued)

2. Remuneration Policy tables continued

Policy table: Executive Directors
LTIP

Purpose and link to strategy
To align the interests of Executive Directors and those of shareholders in developing the long-term sustainable growth of the business
and execution and delivery of the Group’s strategy.

To facilitate share ownership to provide further alignment with shareholders.

Operation and opportunity
– Executive Directors are eligible to participate (subject to invitation by the Committee) in the LTIP approved by shareholders.

– Awards are typically made annually in each financial year in accordance with the plan rules and are structured as nil cost options,

restricted shares, conditional shares or phantom shares. They are not pensionable.

– Vesting of awards is subject to the Group meeting performance targets measured over at least three financial years, typically starting

with the financial year in which the grant takes place.

– The Committee retains the discretion to award up to the maximum award that may be granted under the LTIP rules.

– The maximum opportunity (in shares valued on or around the date of grant) for an Executive Director who is recruited from or based in
the USA is up to 500 per cent of base salary and for an Executive Director who is recruited from and based in any other geography is
up to 350 per cent of base salary. The Committee will not increase awards for each Executive Director role above any prior year award
levels under the LTIP without prior consultation with the Company’s major shareholders.

– For each performance element, up to 25 per cent of the award vests for threshold performance (0 per cent below threshold) increasing

pro rata on a straight-line basis to 100 per cent vesting for maximum performance.

– Executive Directors are required to retain vested shares (after taking into account any shares sold to pay tax, social security or similar

liabilities) received from awards made under the LTIP for two years from the vesting date (except in exceptional circumstances and with
the approval of the Committee). For awards granted as options, it will be sufficient to hold the vested but unexercised nil cost options
for this period.

– For awards from the date of this Policy, dividend equivalent payments will normally be satisfied in shares in accordance with the LTIP
rules on the shares which are the subject of the award (to the extent they vest) with a value equal to the value of dividends that would
have been payable during the period between grant and vesting of an award.

– The LTIP awards granted in the year under review, and those proposed to be granted to the Executive Directors are set out in the

Annual report on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: metrics will be assessed each year and will be set by the Committee prior to grant to ensure
they remain appropriate. The Committee may adjust in limited circumstances the targets or introduce alternative or additional measures
to those set out on pages 95 and 96 of the Annual report on remuneration but would consult with major shareholders before doing so.
The Committee may also vary: (i) weightings between measures provided that no single measure will have a weighting of more than 40
per cent; and (ii) the targets after the start of the cycle, although the targets will not be materially less challenging than those originally set.

Recovery of sums paid or the withholding of any payment to be made relating to LTIP: the Committee may, in its discretion, at any time
before the fifth anniversary of the date of grant, recover from Executive Directors any vested LTIP shares and/or cash paid and withhold
any unvested awards or reduce future grants in any of the following circumstances: (i) a material financial misstatement of the Company’s
audited financial accounts (other than as a result of a change in accounting practice); (ii) any conduct of the Executive Director which
results in or is reasonably likely to result in significant reputational damage to the Company; and (iii) the negligence or gross misconduct
of the Executive Director. The Committee may, in its discretion, recover from an Executive Director any vested LTIP shares and/or cash
paid and withhold any unvested awards or reduce future grants in the event of a fraud effected by or with the knowledge of the Executive
Director. There is no time limit on the application of recovery or withholding provisions in the event of a fraud.

Ferguson plc Annual Report and Accounts 2020103

Policy table: Executive Directors
All-employee share plans

Purpose and link to strategy
To foster wider employee share ownership and to allow Directors to voluntarily invest in the Company.

Operation and opportunity
– Executive Directors are entitled to participate in any Company all-employee share plan applicable to the jurisdiction in which they are

based on the same terms as other eligible employees.

– The Company currently operates all-employee share purchase arrangements taking advantage of certain tax favourable regimes

that are available in the USA and the UK. For the USA, grants are currently made under the ESPP and in the UK, under a tax favoured
schedule to the ISP.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable as these are all-employee share plans (without performance measures) offered to
all eligible employees on equivalent terms.

Recovery of sums paid or the withholding of any payment to be made relating to all-employee share plans: there are no provisions for the
recovery of sums paid or the withholding of any payment relating to all-employee share plans.

Policy table: Executive Directors
Shareholding guidelines

Purpose and link to strategy
To encourage Executive Directors to build up a shareholding, to align interests with those of shareholders in developing the sustainable
long-term growth of the business and the execution and delivery of the Group’s strategy.

Operation and opportunity
– Executive Directors are expected to hold over time and maintain an individual shareholding in the Company.

– During the life of this Policy, the guideline level of shareholding will be set in line with the Executive Director’s annual LTIP

award opportunity.

– The shareholding guideline may be achieved by (i) beneficially owning shares, and (ii) retaining shares received as a result of

participating in a Company share plan (including any vested awards that remain subject to a post-vesting holding period) after taking
into account any shares sold to finance option exercises and/or to pay tax, social security and similar liabilities.

– Further details of the shareholding guideline levels set for each Executive Director in the year under review will be disclosed in the

relevant Annual Report on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable as these are guidelines for holding shares and not a form of remuneration.

Recovery of sums paid or the withholding of any payment to be made relating to shareholding guidelines: there are no provisions for the
recovery of sums paid or the withholding of any payment relating to shareholding guidelines.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance104

2019 Remuneration Policy (continued)

2. Remuneration Policy tables continued
In the following table, Non Executive Directors shall include the Chairman, except where noted otherwise.

Policy table: Non Executive Directors
Fees

Purpose and link to strategy
To remunerate Non Executive Directors to reflect their level of responsibility and time commitments.

Operation and opportunity
– The Chairman is paid a basic fee determined by the Remuneration Committee.

– Non Executive Directors are paid a basic fee. Additional fees are paid for the roles of Senior Independent Director, Chair of the

Audit Committee, Chair of the Remuneration Committee and Employee Engagement Director to reflect the material additional time
commitment of these roles.

– Fees for Non Executive Directors, other than the Chairman, are determined by the Chairman and the Executive Directors.

Additional fees for Non Executive Directors for duties beyond those stated above may be payable, at the discretion of the Board, from
time to time to reflect the additional time commitment and responsibility involved.

– The maximum aggregate fees for all Non Executive Directors, including the Chairman, are set out in the Company’s Articles of

Association (or such higher amount as the Company may from time to time by ordinary resolution determine).

– The Committee, in relation to the Chairman, and the Board, in relation to the other Non Executive Directors, retain the flexibility to

increase fee levels to ensure that they continue to appropriately recognise the experience of the individual, time commitment of the
role, and fee levels at comparable companies. Fee increases each year, if applicable, are normally effective at the same time as the
effective annual salary review date for Ferguson employees.

– The fees payable to the Chairman and Non Executive Directors for the year under review and the coming year are set out in the Annual

report on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable.

Recovery of sums paid or the withholding of any payment to be made relating to fees: there are no provisions for the recovery of sums
paid or the withholding of any payment relating to fees.

Policy table: Non Executive Directors
Benefits

Purpose and link to strategy
To enable a Non Executive Director to perform his or her duties effectively.

Operation and opportunity
– Non Executive Directors (including the Chairman) do not participate in any incentive plan, nor is any pension payable in respect of their

services, and they are not entitled to any benefits, except:

– they receive assistance with their tax affairs arising from their duties as a Non Executive Director;

– the travel and other business expenses incurred relating to their duties as Non Executive Directors may be reimbursed or paid for by

the Company directly, as appropriate (including any relevant tax payable); and

– a travel allowance of £2,500 (each way), where there is a need for intercontinental flight in excess of five hours (one way) based
on the home location of the Non Executive Director or Chairman and the location of the Board (or Committee) meeting, up to a
maximum of £30,000 per annum.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable.

Recovery of sums paid or the withholding of any payment to be made relating to benefits: there are no provisions for the recovery of sums
paid or the withholding of any payment relating to benefits.

Ferguson plc Annual Report and Accounts 2020105

Policy table: Non Executive Directors
Shareholding guidelines

Purpose and link to strategy
To encourage Non Executive Directors to build up a shareholding in value equivalent to a set multiple of their basic fee.

To align interests of Non Executive Directors and shareholders in developing the sustainable long-term growth of the business and
overseeing the execution and delivery of the Group’s strategy.

Operation and opportunity
– All Non Executive Directors are required to hold shares equivalent in value to a prescribed percentage of their fees.

– All Non Executive Directors are advised of the required target percentage, a timeline to achieve the target and requirements for

maintaining the shareholding in line with salary or fees increases.

– Details of the actual guidelines that apply to each Non Executive Director and their current shareholdings are set out in the Annual

report on remuneration.

Framework to assess performance measures and for recovery of sums paid
Assessment of performance measures: not applicable as these are guidelines for holding shares and not a form of remuneration.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance106

2019 Remuneration Policy (continued)

3. Legacy arrangements
In approving this 2019 Policy, authority is given to the Company
for the duration of the 2019 Policy to honour commitments paid,
promised to be paid or awarded to: (i) current or former Directors
prior to the date of this 2019 Policy being approved (provided that
such payments or promises are consistent with the 2019 Policy
or were consistent with any Remuneration Policy of the Company
which was approved by shareholders and was in effect at the
time they were made); or (ii) an individual (who subsequently is
appointed as a Director of the Company) at a time when the relevant
individual was not a Director of the Company and, in the opinion of
the Committee, was not paid, promised to be paid or awarded as
financial consideration of that individual becoming a Director of the
Company, even where such commitments are inconsistent with the
provisions of the 2019 Policy.

For the avoidance of doubt, this includes: (1) all awards granted
under the LTIP 2015, LTIP 2019, DBP 2016 and DBP 2019; (2)
all awards granted under the Ordinary Share Plan 2011 and
Performance Ordinary Share Plan 2016 to employees of the
Company who were not Directors at the date of grant; and (3) all
awards granted to Mike Powell upon joining Ferguson of either the
Restricted Share Buy Out Awards or Performance Based Buy Out
Award, as well as Deferred Bonus Plan Awards granted to him in
November 2017 and October 2018.

4. Differences in Remuneration Policy
for Executive Directors compared to
other employees
The remuneration policy for other senior executives across the
Group is broadly consistent with that for the Executive Directors,
although there are differences in award opportunities as well as the
performance linkage of incentives. Executives and senior managers
with Group roles participate in long term incentive arrangements
which reflect Group performance (and for some who have regional
duties as well, also reflect regional performance). Executives and
senior managers with regional roles participate in incentives that
are linked to regional performance, thereby maximising participant
line-of-sight and aligning pay outcome with their contribution to
the success of their business area. In addition, the operation of the
DBP is not cascaded into the organisation, reflecting local practice
in the markets in which many senior executives are based (notably
the USA).

Below the executive and senior manager populations, the wider
employee population of the Group receives remuneration that is
considered to be appropriate for their geographic location, role,
level of responsibility and performance.

5. Recruitment policy
Executive Directors
As noted earlier, the Committee will consider the need to attract
the best talent while aiming to pay no more than is appropriate and/
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 in force at that
time. The Committee retains the flexibility to review and decide on
a case-by-case basis whether it is appropriate to award increases
above the average level for the relevant workforce 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 in force at that
time. The maximum level of variable remuneration (annual bonus
and LTIP awards) which may be awarded to new Executive Directors
is limited to 700 per cent (US) and 500 per cent (UK/RoW) 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 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 expected
value of the forfeited award.

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.

Non Executive Directors
For the appointment of the Chairman or Non Executive Director,
fee arrangements will be made in line with the Policy in force at
that time.

6. 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 2019 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
any other benefit in connection with stepping down from the Board
(for example, outplacement counselling costs and disbursements

Ferguson plc Annual Report and Accounts 2020107

(such as legal costs)) if considered to be appropriate and/or
necessary and dependent on the circumstances of departure.

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:

Details
of provision

Notice
period

Executive Directors

– 12 months’ notice from

the Company.

– For any new Executive Directors

and the new Group Chief Executive,
up to 12 months’ notice from
the Executive.

– For the current Group Chief

Financial Officer, six months’ notice
from the Executive.1

– If an Executive Director’s services
are not required during the notice
period, the Company may terminate
an Executive Director’s service
contract by making a payment in
lieu of notice equal to base salary
and the value of benefits (excluding
bonus) in respect of the period
covered by the payment in lieu
of notice.

– Any such payment in lieu of notice

will be made in monthly instalments
subject to mitigation.

– No payment will be made to

Executive Directors in the event of
gross misconduct.

– Non-compete and non-solicitation

covenants apply after the
termination date.

Termination
payment

Post-
termination
covenants

Chairman and
Non Executive
Directors

Up to six
months’
notice by
either party.

Fees and
expenses
accrued
up to the
termination
date only.

Not
applicable.

The Committee retains the discretion to determine when the
awards should vest and performance conditions be tested; although
this would normally be at the usual vesting date, the Committee
may determine in certain circumstances to bring forward the
performance test and date of vesting to the date of cessation, e.g.
in circumstances such as death in service. 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 LTIP,
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 relevant section of the applicable 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, in which case the award shall vest in full at
the date of death or cessation of employment.

7. Discretion, flexibility and judgement
of the Committee
The Committee operates the annual bonus plan, DBP, LTIP and
all-employee plans and other long term incentive 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:

1. This reflects the Company’s policy at the time the Group CFO was appointed.

– selecting the participants in the plans on an annual basis;

The policy on loss of office and contractual provisions above
would be applied to any new Director’s service contract or letter
of appointment.

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 Committee retains the discretion whether or not to require
an Executive Director to defer any part of a bonus that is awarded
on termination.

The treatment of leavers under the LTIP or any other awards under
LTI plans, together with awards under all-employee plans and the
DBP (if applicable), would be determined by the relevant leaver
provisions in accordance with the plan rules.

Under the LTIP or any other awards under 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).

– 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 the DBP 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 LTIP from
year to year.

If an event occurs which results in the performance conditions
and/or targets of the annual bonus plan or LTIP 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 Remuneration Policy
tables 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.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernanceThe Committee considers the basic salary increase, remuneration
arrangements and employment conditions for the broader
employee population when determining the Policy for the Executive
Directors. It also takes account of market developments, the wider
economic environment, good corporate governance practices,
remuneration data and its responsibilities to its shareholders.
This information is taken into account by providing context
and informing the Committee of the market in which they are
making decisions.

As noted on page 18, a forum with associates called “Beyond
the Boardroom” is in place. The forum allows Alan Murray, as
the Group’s appointed Employee Engagement Director, to ask
questions and hear the views of associates on various matters.
Where appropriate, this includes questions and discussions on
remuneration arrangements across the Group.

108

2019 Remuneration Policy (continued)

8. Matters considered when determining
the Policy
Shareholder views
The Committee’s aim is to have an ongoing and open dialogue with
major shareholders. The Chair of the Committee will usually consult
with major institutional shareholders and shareholder representative
bodies, when required and as appropriate, to discuss the business
and executive remuneration more widely. The Committee
recognizes the importance of understanding shareholders’ views
and ensuring that they are considered when making decisions
regarding the Remuneration Policy for Directors. Therefore, when
any material changes are proposed to a policy, the Chair of the
Committee will inform major shareholders in advance and offer a
meeting to discuss the proposed changes. The Committee also
considers shareholder feedback received in relation to the AGM
each year and at other times, as appropriate.

Consideration of conditions elsewhere in the Group and other
matters determining policy
Our policy for all Directors and employees across the Group is
to provide remuneration at mid-market levels. On promotion or
appointment, senior executives may be initially remunerated below
market levels and then increased to mid-market levels over time,
once performance has been established. The emphasis on the
various elements of pay within the 2019 Policy varies depending
on the role of the individual within the Group. Where possible,
employees are encouraged to hold shares in Ferguson, thereby
providing alignment with shareholders and benefiting from
any growth in value of the Group but through different delivery
mechanisms. For the Executive Directors, a greater emphasis is
placed on performance-related pay.

Ferguson plc Annual Report and Accounts 2020Directors’ Report – other disclosures

109

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
2020 AGM.

Authority to allot shares
At the 2019 AGM, authority was given to the Directors to allot new
ordinary shares up to a nominal value of £15,164,986. The Directors
intend to propose at the 2020 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 2021 AGM or, if earlier, at the close of business on
the date which is 15 months after the date of the 2020 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 2021 AGM or, if earlier, at the
close of business on the date which is 15 months after the date of
the 2020 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
five 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 five 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 2019 AGM, authority was given to the Directors to purchase
up to 22,747,479 of the Company’s ordinary shares of 10 pence each
(with such purchases being subject to minimum and maximum price
conditions). This authority to purchase the Company’s shares will
expire at the 2020 AGM.

During the year the Company undertook two $500 million share
repurchase programs. These programs were announced on June
10, 2019 (the “2019 Buy Back Program”) and February 4, 2020 (the
“2020 Buy Back Program”), (together, the “Buy Back Programs”).
The purpose of the Buy Back Programs was to reduce the issued
share capital of Ferguson plc.

The 2019 Buy Back Program was completed during the year.
From June 11, 2019 to December 16, 2019, 6,548,150 ordinary
shares of 10 pence each had been purchased for a consideration of
$500 million representing 2.82 per cent of the issued share capital of
the Company as at July 31, 2020. All shares purchased were held in
Treasury. In relation to the 2020 Buy Back Program, 1,133,791 ordinary
shares of 10 pence each had been purchased for a consideration of
$101 million representing 0.49 per cent of the issued share capital
of the Company as at July 31, 2020. On April 15, 2020 the Company
announced that the 2020 Buy Back Program had been suspended.
All shares purchased were held in Treasury.

Additional details concerning the Buy Back Programs can be found
in note 24 to the consolidated financial statements. Details of shares
that were acquired by the Company in previous financial years that
were held or disposed of during the financial year ended July 31,
2020 are provided in note 24 to the consolidated financial statements
on pages 152 and 153.

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. It is intended that
a special resolution will be proposed at the 2020 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 have no present intention of
exercising this authority to purchase the Company’s shares but will
keep the matter under review. The 2020 Buy Back Program remains
suspended and the Directors will continue to assess this as we gain
further clarity on economic conditions. 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 canceled,
sold for cash or used for the purpose of employee share plans.
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.

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance110

Directors’ Report – other disclosures (continued)

Capitalized interest
The Group does not have capitalized 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 $600 million US bond issued in June 2020,
the $500 million bank facility dated April 1, 2020, the $1,100 million
multi-currency revolving credit facility agreement dated March
10, 2020, the $750 million US bond issued in October 2018, the
$450 million US Private Placement Bonds issued on November 30,
2017, $800 million US Private Placement Bonds issued on September
1, 2015, the amended $600 million receivables facility agreement
originally entered into on July 31, 2013 and the $281 million US Private
Placement Bonds issued on November 16, 2005 which could, under
specific circumstances, 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 plans may cause
options and awards granted under such plans to vest in those
circumstances. All of the Company’s share plans 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 reorganization),
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 authorize
potential conflicts which can be limited in scope, in accordance
with the Company’s Articles of Association. These authorizations
are regularly reviewed. 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 capitalized interest and dividend
waiver can be found on pages 110 and 97 of this Annual Report and
Accounts respectively. The remaining disclosures required by the
above Listing Rule are not applicable to the Company.

Associates
The Group actively encourages associate involvement in driving
our current and future success and places particular importance on
keeping associates 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. Group companies regularly engage with associates through
consultation forums and the annual engagement survey.

The Board engages with associates during site visits and through our
dedicated Employee Engagement Director who hosts meetings with
our associates during the year and provides feedback from these
discussions to the Board. Further information on how the Group and
the Board engages with associates, including how the Board has had
regard to associate interests when making decisions, can be found
on pages 24, 25 and 66. All associates 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-associate
share 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 20 and
21. 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.

Going concern statement
The Group’s principal objective when managing cash and debt is
to safeguard the Group’s ability to continue as a going concern for
the foreseeable future. The Group retains sufficient resources to
remain in compliance with all the required terms and conditions
within its borrowing facilities with material headroom and no material
uncertainties have been identified. While there remains significant
uncertainty as to the future of the COVID-19 pandemic, the Group
continues to conduct ongoing risk assessments of the potential
impact of the pandemic on its business operations and liquidity. The
Group has also taken steps to enhance its operational resilience
and position the business for the current operating environment.
Consideration has also been given to reverse stress tests, which
seek to identify factors that might cause the Group to require
further liquidity, and a view can be formed of the probability of those
occurring. Having assessed the relevant business risks, including the
impact of COVID-19 as discussed in our principal risks on pages 53 to
59, and considered the headroom available under several alternative
scenarios as set out in the viability assessment on page 54, the
Directors consider it appropriate to continue to adopt the going
concern basis in preparing the financial statements.

Indemnities and insurance
The Company indemnifies the Directors and officers in respect of
liabilities incurred in the course of acting as Directors and officers
of the Company or of any associated company. These indemnities
are provided in accordance with the Company’s Articles of
Association and to the maximum extent permitted by Jersey law.
Qualifying third-party indemnity provisions were granted to all
Directors and officers then in office by the then holding companies,
now known as Wolseley Limited (to the maximum extent permitted by
English law) and Ferguson Holdings Limited (to the maximum extent
permitted by Jersey law) and these remain in force as at the date of
this report. When Ferguson plc became the new holding company
for the Group in May 2019, additional third-party indemnity provisions
were granted by the Company to the then current Directors and
officers, and it has granted indemnities in accordance with Jersey law
to all Directors and officers appointed since May 2019.

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 or officer is proved to have acted fraudulently or dishonestly.

Ferguson plc Annual Report and Accounts 2020Independent auditors and audit information
In respect of the consolidated financial statements for the financial
year ended July 31, 2020, 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”) is 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 is aware of that information.

111

Substantial shareholdings
As at July 31, 2020, the Company had received the following
notifications (on the dates specified below) pursuant to the Financial
Conduct Authority’s Disclosure Guidance and Transparency Rule
5 (DTR 5) and the Company’s Articles of Association.1 No further
notifications were received between July 31, 2020 and the date of
this report.

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 2020 Annual General Meeting.

Name of holder

BlackRock

Percentage
of issued
voting share capital2

Date notification
received

9.64% December 13, 2013

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. During the
financial year ended July 31, 2020, the Company was not aware of
any agreements between holders of securities that may result in
restrictions on the transfer of securities or on voting rights with the
exception of any awards granted under the Long Term Incentive Plan
2015 and the Long Term Incentive Plan 2019 to Executive Directors.
Such awards must be held for a two-year period following vesting
during employment. Persons discharging managerial responsibility
and other associates designated as restricted employees by the
Company require permission to deal prior to any dealing in the
Company’s shares or linked financial instruments in line with the
Group Share Dealing Policy.

Share capital and voting rights
Details of the authorized and issued share capital, together with any
movements in the issued share capital during the year, are shown
in note 24 to the consolidated financial statements on pages 152
and 153.

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”) program in the USA managed by J.P. Morgan Chase Bank,
N.A. The American Depositary Shares (“ADS”), which are evidenced
by ADRs, are traded on the US over-the-counter market, where
each ADS represents one-tenth of a Ferguson plc ordinary share.
As announced on February 4, 2020, in the event of an additional
listing of shares in the USA, the ADR Program would be canceled.

Trian Fund Management, L.P.

5.14%

June 12, 2019

FIL Limited

Norges Bank

4.95% February 15, 2010

3.61%

October 10, 2017

1. Although the Company is a non-UK issuer, as a matter of good governance the

Company’s Articles of Association specify that the Company, for the purposes of
the notification obligations set out in DTR 5, should be treated as if it were a UK-
Issuer (and not a non-UK Issuer). Accordingly, shareholders are required to notify
the Company when their holdings reach, exceed or fall below 3 per cent and
each 1 per cent threshold thereafter up to 100 per cent. The Company is reliant
upon shareholders providing notification when they reach, exceed or fall below
a given threshold.

2. As at the date of disclosure. Since the disclosure date, the shareholders’ interests

in the Company may have changed.

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 Guidance and Transparency Rules can be found on
the following pages of this Annual Report and Accounts and are
incorporated into the Directors’ Report by reference:

Details of the Company’s proposed final dividend
payment for the year ended July 31, 2020

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

Viability statement

Page

142 to 146

Disclosures concerning greenhouse gas emissions

50 and 51

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
July 31, 2020

Shares issued during the year

1 to 80

157

1 to 59

152

Ferguson plc Annual Report and Accounts 2020Other informationFinancialsStrategic reportGovernance112

Directors’ Report – other disclosures (continued)

The Directors of Ferguson plc as at the date of this Annual Report and
Accounts are as follows:

Geoff Drabble, Chairman

Kevin Murphy, Group Chief Executive

Mike Powell, Group Chief Financial Officer

Alan Murray, Senior Independent Director and Non Executive Director

Tessa Bamford, Non Executive Director

Cathy Halligan, Non Executive Director

Tom Schmitt, Non Executive Director

Nadia Shouraboura, Non Executive Director

Jacky 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 Accounts, taken as a whole, are fair,
balanced and understandable and provide the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy.

The Directors’ Report, comprising pages 4 to 112 was approved by the
Board and signed on its behalf by:

Graham Middlemiss
Group Company Secretary
September 28, 2020

Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report and
Accounts 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 102 “The Financial Reporting Standard applicable in
the UK and Republic of Ireland”. 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 judgments 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.

In preparing the Group financial statements, International Accounting
Standard 1 requires that Directors:

– properly select and apply accounting policies;

– present information, including accounting policies, in a

manner that provides relevant, reliable, comparable and
understandable information;

– 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.

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.

Ferguson plc Annual Report and Accounts 2020113

Financials

114 Group income statement

115 Group statement of

comprehensive income

116 Group statement of changes in equity

117 Group balance sheet

118 Group cash flow statement

119 Notes to the consolidated
financial statements

158 Independent auditor’s report

to the members of Ferguson plc

164 Company income statement

164 Company statement
of changes in equity

165 Company balance sheet

166 Notes to the Company

financial statements

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials114

Group income statement
Year ended July 31, 2020

Revenue

Cost of sales

Gross profit

Operating costs

Operating profit

Finance costs

Finance income

Share of (loss)/profit after tax of associates

Gain on disposal of interests in associates and other
investments

Impairment of interests in associates

Profit before tax

Tax

Profit from continuing operations

Profit from discontinued operations

Profit for the year attributable to shareholders of the
Company

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

Ongoing underlying trading profit

Non-ongoing underlying trading profit

Underlying trading profit

Adjusted EBITDA from continuing operations

Headline earnings per share

Notes

3, 4

2, 3

2, 9

Before
exceptional
items
$m

Exceptional
items
(note 5)
$m

–

(3)

(117)

(120)

–

(113)

(90)

(88)

21,819

(15,395)

6,424

(4,882)

1,542

(151)

(2)

–

(22)

1,374

(330)

1,044

1,049

1,595

1,603

1,797

511.6c

2020

Total
$m

21,819

(15,398)

6,421

(4,999)

1,422

(151)

(2)

(22)

1,261

(307)

954

961

427.5c

423.5c

424.4c

420.4c

Before
exceptional
items
$m

Exceptional
items
(note 5)
$m

–

(2)

(92)

(94)

–

(91)

(72)

(31)

22,010

(15,550)

6,460

(4,964)

1,496

(86)

–

(9)

1,415

(282)

1,133

1,139

1,532

1,606

1,788

517.4c

2019

Total
$m

22,010

(15,552)

6,458

(5,056)

1,402

(86)

(9)

1,324

(263)

1,061

1,108

481.3c

477.8c

460.9c

457.5c

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

Ferguson plc Annual Report and Accounts 2020Group statement of comprehensive income
Year ended July 31, 2020

115

Profit for the year

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss:

Exchange gain/(loss) on translation of overseas operations1

Exchange (loss)/gain on translation of borrowings and derivatives designated as hedges of overseas operations1

Cumulative currency translation differences on disposals1

Cumulative currency translation differences on disposal of interests in associates1

Items that will not be reclassified subsequently to profit or loss:

Remeasurement of retirement benefit plans2

Tax credit on items that will not be reclassified to profit or loss2

Other comprehensive expense for the year

Total comprehensive income for the year

Total comprehensive income attributable to:

Continuing operations

Discontinued operations

Total comprehensive income for the year attributable to shareholders of the Company

Impacting the translation reserve.

1.
2. Impacting retained earnings.

Notes

7, 23

2020
$m

961

(31)

–

(235)

(156)

805

787

805

2019
$m

1,108

(86)

(36)

(72)

1,036

993

1,036

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials116

Group statement of changes in equity
Year ended July 31, 2020

At July 31, 2018

Profit for the year

Other comprehensive expense

Total comprehensive income

Cancellation of Treasury shares

Group reconstruction

Capital reduction

Issue of share capital

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

Adjustment arising from change
in non-controlling interest

Purchase of Treasury shares

Disposal of Treasury shares

Dividends paid

At July 31, 2019

Adjustment on adoption of IFRS 16

At August 1, 2019

Profit for the year

Other comprehensive expense

Total comprehensive 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

Purchase of Treasury shares

Disposal of Treasury shares

Dividends paid

At July 31, 2020

Notes

Share
capital
$m

Share
premium
$m

Translation
reserve
$m

Treasury
shares
$m

Own
shares
$m

Retained
earnings
$m

Non-
controlling
interest
$m

Total
equity
$m

(556)

(1,380)

(90)

5,972

(1)

4,057

Reserves

–

(4)

(11)

–

16,083

(16,150)

–

(42)

–

1,369

–

(309)

–

(38)

–

1,108

(30)

1,078

(1,365)

(16,072)

16,150

–

(26)

–

(12)

(449)

(598)

(305)

(102)

5,316

–

(187)

(598)

(305)

(102)

5,129

–

(292)

–

(26)

–

961

(191)

770

–

(40)

–

(16)

(327)

(563)

(570)

(88)

5,553

–

1,108

(72)

1,036

–

(38)

–

(309)

(449)

4,350

(187)

4,163

961

(156)

805

(26)

–

(292)

(327)

4,371

Ferguson plc Annual Report and Accounts 2020Group balance sheet
Year ended July 31, 2020

117

Notes

2020
$m

2019
$m

Assets

Non-current assets

Intangible assets: goodwill

Intangible assets: other

Right of use assets

Property, plant and equipment

Interests in associates

Other 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

Other financial assets

Derivative financial assets

Cash and cash equivalents

Assets held for sale

Total assets

Liabilities

Current liabilities

Trade and other payables

Current tax payable

Borrowings

Lease liabilities

Obligations under finance leases

Provisions

Non-current liabilities

Trade and other payables

Borrowings

Lease liabilities

Obligations under finance leases

Deferred tax liabilities

Provisions

Retirement benefit obligations

Total liabilities

Net assets

Equity

Share capital

Share premium

Reserves

Equity attributable to shareholders of the Company

1,721

521

1,111

1,389

–

216

377

5,379

2,880

3,042

–

2,115

8,057

13,456

1,656

423

–

1,349

178

164

340

4,191

2,821

3,213

1,133

7,194

11,386

3,591

3,797

293

531

281

–

251

–

4,749

4,181

338

2,635

1,074

–

202

4,336

9,085

4,371

4,332

4,371

292

2,292

–

186

2,855

7,036

4,350

4,311

4,350

The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements on pages 114
to 157 were approved and authorized for issue by the Board of Directors on September 28, 2020 and were signed on its behalf by:

Kevin Murphy
Group Chief Executive

Mike Powell
Group Chief Financial Officer

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials

118

Group cash flow statement
Year ended July 31, 2020

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

Net proceeds from the disposal of property, plant and equipment, assets held for sale and right of use assets

Purchases of intangible assets

Acquisition of associates and other investments

Disposal of interests in associates and other investments

Net cash used in investing activities

Cash flows from financing activities

Proceeds from the issue of shares

Purchase of own shares by Employee Benefit Trusts

Purchase of Treasury shares

Proceeds from the sale of Treasury shares

Proceeds from loans and derivatives

Repayments of loans

Lease liability capital payments

Finance lease capital payments

Dividends paid to shareholders

Net cash (used in)/generated from financing activities

Net cash generated

Cash, cash equivalents and bank overdrafts at the beginning of the year

Effects of exchange rate changes

Cash, cash equivalents and bank overdrafts at the end of the year

Notes

2020
$m

2019
$m

2,252

1,609

(167)

(225)

1,868

(351)

(215)

(87)

(5)

(90)

(242)

1,290

(657)

201

(382)

(36)

(11)

(606)

(783)

–

(26)

(451)

1,169

(566)

(295)

–

(327)

(485)

777

1,086

1,867

(38)

(150)

757

(2)

–

(3)

(445)

131

638

458

(10)

1,086

Ferguson plc Annual Report and Accounts 2020Notes to the consolidated financial statements
Year ended July 31, 2020

119

1 – Accounting policies
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.

The Group’s subsidiary undertakings are set out on pages 170 and 171.

Ferguson plc is a public company limited by shares incorporated in
Jersey under the Companies (Jersey) Law 1991 and is headquartered
in the UK. It operates as the ultimate parent company of the Ferguson
Group. Its registered office is 26 New Street, St Helier, Jersey, JE2 3RA,
Channel Islands.

The consolidated financial statements have been prepared on a going
concern basis (see page 110) and under the historical cost convention
as modified by the revaluation of financial assets and liabilities
measured at fair value.

Choices permitted by IFRS
The Group has elected to apply hedge accounting to some of its
financial instruments.

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

The Group has applied the modified retrospective transition method
and has not restated comparatives for the year ended July 31, 2019.
For the majority of leases, the right of use asset on transition has been
measured as if IFRS 16 had been applied since the commencement
of the lease, discounted using the Group’s incremental borrowing rate
as at August 1, 2019, with the difference between the right of use asset
and the lease liability taken to retained earnings. For the remaining
leases which relate to the Group’s US fleet, where sufficient historic
information has not been available, the right of use asset has been
measured as equal to the lease liability on transition. The US fleet
represented $252 million of the lease liability on transition.

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

– To not reassess whether contracts are, or contain, a lease at the

date of initial application;

– Application of a single discount rate to a portfolio of leases with

The impact of the adoption of IFRS 16 on the income statement in the
year ended July 31, 2020 was to decrease rental costs by $337 million,
increase depreciation by $268 million and increase finance costs by
$53 million. The impact on the cash flow statement was to increase
cash generated from operations by $348 million, increase interest
paid by $53 million and increase lease liability capital payments by
$295 million. There was no impact on the net increase in cash, cash
equivalents and bank overdrafts.

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

Right of use assets

Property, plant and equipment

Net deferred tax assets

Lease liabilities

Obligations under finance leases

Other

Net retained earnings adjustment

1,220

(6)

(1,481)

(187)

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

Operating lease commitments at July 31, 2019

Leases of low value assets

Long-term leases that expire before July 31, 2020

Reasonably certain extension or termination options

Effect from discounting1

Lease liabilities due to initial application of IFRS 16
at August 1, 2019

Lease liabilities from finance leases under IAS 17
at July 31, 2019

Total lease liabilities at August 1, 2019

1,126

(20)

(12)

564

(183)

1,475

1,481

1. The weighted average incremental borrowing rate applied by the Group upon

transition was 3.5 per cent.

The following other standards and amendments to existing standards
became effective for the year ended July 31, 2020 and have not had a
material impact on the Group’s consolidated financial statements:

– IFRIC 23 “Uncertainty over Income Tax Treatments”;

– Amendments to IFRS 9 – Prepayment Features with

Negative Compensation;

– Amendments to IAS 28 – Long-term Interests in Associates and

Joint Ventures;

– Annual Improvements to IFRSs 2015-2017 Cycle; and

– Amendments to IAS 19 – Plan Amendment, Curtailment

reasonably similar characteristics;

or Settlement.

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

– Election to not apply the measurement requirements of the standard

to leases where the term ends within 12 months of the date of
initial application;

– Exclusion of initial direct costs from the measurement of the right of

use asset at the date of initial application; and

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

Critical accounting judgments
Impact of COVID-19
Management has exercised judgment in evaluating the impact of
COVID-19 on the financial statements. Management assessed areas
relevant for the Group which had the potential to be impacted such as:
expected credit losses; inventory impairment; goodwill, intangible and
tangible asset impairment; and deferred tax asset recognition. In light
of the Group’s strong and resilient performance during the period,
management concluded there was no material impact in these areas
and no new sources of estimation uncertainty.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials120

1 – Accounting policies continued
Critical accounting judgments continued
Exceptional items
Note 2 provides the Group’s definition of exceptional items.
The classification of exceptional items requires significant management
judgment to determine the nature and intentions of a transaction.
Note 5 provides further details on exceptional items.

Leases
Property leases entered into by the Group typically include extension
and termination options to provide operational flexibility to the Group.
Management applied significant judgment in determining whether these
options were reasonably certain to be exercised when determining the
lease term on adoption of IFRS 16. In making this judgment management
considered the remaining lease term, future business plans and other
relevant economic factors. Specifically in respect to property leases,
which represent the majority of the lease liability, a renewal option was
determined to be reasonably certain to be exercised when a lease
expired within the Group’s three year strategic planning horizon.

Pensions and other post-retirement benefits
The Group operates defined benefit pension plans in the UK and
Canada that are accounted for using methods that rely on actuarial
assumptions to estimate costs and liabilities for inclusion in the
consolidated financial statements.

The discount rate used is set with reference to the yield at the
valuation date on high-quality corporate bonds that have a
maturity approximating to the terms of the pension obligations.
Significant judgment is required when selecting the bonds to include.
The most significant criteria considered for selection of the bonds
include the issue size of the corporate bonds, the quality of the bonds
and the identification of outliers which are excluded.

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. Management believes that
the estimates and assumptions that have been applied would not give
rise to a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year.

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.

Basis of 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 profit/(loss) after
tax of its associates.

The financial performance of business operations is included in profit
from continuing operations from the date of acquisition and up to the
date of classification as a discontinued operation or sale.

Intra-group transactions and balances and any unrealized 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 classified as held for sale, a
business component that represents a separate major line of business
or geographical area of operations, it classifies such operations as
discontinued in accordance with IFRS 5 “Non-current Assets Held for
Sale and Discontinued Operations”. The post-tax profit or loss of the
discontinued operations are 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 the parent and 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 US dollars, which is the
presentational currency of the Group.

The trading results of overseas subsidiary undertakings are translated
into US dollars using the average rates of exchange ruling during the
relevant financial period. The balance sheets of overseas subsidiary
undertakings are translated into US dollars at the rates of exchange
ruling at the year-end. Exchange differences arising on the translation
into US dollars of the net assets of these subsidiary undertakings are
recognized in other comprehensive income and accumulated in the
translation reserve. At July 31, 2020, the translation reserve comprised
$354 million in relation to pound sterling entities, $181 million in relation
to US dollar entities and $28 million in relation to entities denominated
in other currencies.

In the event that a subsidiary undertaking which has a non-US dollar
functional currency is disposed of, the gain or loss on disposal
recognized 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 the functional currency of the entity 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. Except as noted above,
changes in the fair value of derivative financial instruments, entered
into to hedge foreign currency net assets and that satisfy the hedging
conditions of IFRS 9 “Financial Instruments”, are recognized in other
comprehensive income and the translation reserve (see the separate
accounting policy on derivative financial instruments).

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. Costs related to acquisitions 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 recognized directly in the income statement.

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 recognized 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 recognized
in the Group income statement and share of other comprehensive
income or expense is recognized in the Group statement of other
comprehensive income.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020121

1 – Accounting policies continued
Accounting policies continued
Interests in associates continued
On acquisition of the investment in an associate, any excess of the
cost of the investment over the Group’s share of the fair value of net
assets of the investee is recognized as goodwill, which is included
within the carrying amount of the investment. The requirements of
IAS 36 “Impairment of Assets”, are applied to determine whether it
is necessary to recognize any impairment loss with respect to the
Group’s investment in an associate. Impairment losses recognized
are charged to the income statement.

Revenue
The Group’s revenues are derived primarily from the sale of a broad
range of plumbing and heating products and solutions. The Group’s
customers predominantly operate within the repair maintenance and
improvement sector and are served through a network of branches
and distribution centers.

Revenue is the consideration expected to be received in exchange
for the provision of goods 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.

Revenue from the sale of goods is recognized when the customer
obtains control of the goods, which is the point they are delivered to,
or collected by, the customer. Revenue from the provision of goods is
only recognized when the transaction price is determinable and it is
probable that the entity will collect the consideration to which it will be
entitled in exchange for the goods to be transferred to the customer.
Payment terms between the Group and its customers vary by the type
of customer, country of sale and the products sold. The Group does
not have significant financing components in its contracts and the
payment due date is typically shortly after sale.

In some instances, goods are delivered directly to the customer by
the supplier. The Group has concluded it is the principal in these
transactions as it is primarily responsible to the customer for fulfilling
the obligation and has the responsibility for identifying and directing
the supplier to deliver the goods to the customer.

The Group offers a right of return to its customers for most of its
goods sold. Revenue is reduced by the amount of expected returns,
estimated based on historical data, in the period in which the related
revenue is recorded. Returns can be reliably estimated as historic
returns as a percentage of revenue have remained stable over
time and the terms and conditions of sale have remained broadly
unchanged for several years. Early settlement discounts are known
shortly after the sale and can therefore be reliably estimated.
The Group also provides customers with assurance-type warranties
for some own brand goods that provide assurance the goods comply
with agreed-upon specifications and will operate as specified for a set
period from the date of sale. Obligations under these warranties are
accounted for as provisions.

The Group has no contracts with an expected duration of more than
one year.

Cost of sales
Cost of sales includes purchased goods and the cost of bringing
inventory to its present location and condition.

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 judgment required to determine the amount
recorded in the income statement.

A small proportion of volume-based rebates are subject to tiered
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
tiered rebates, judgment 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 judgment is exercised
consistently with historically insignificant true ups at the end of the period.

An amount due in respect of supplier rebates is not recognized 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.

Other rebates
The Group has also entered into other rebate agreements which
represent a smaller element of the Group’s overall supplier rebates,
which are recognized in the income statement when all performance
conditions have been fulfilled.

Supplier rebates receivable
Supplier rebates are offset with amounts owing to each supplier
at the balance sheet date and are included within trade payables
where the Group has the legal right to offset and net settles balances.
Where the supplier rebates are not offset against amounts owing to
a supplier, the outstanding amount is included within prepayments.

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 amortized 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 operating
segments determined in accordance with IFRS 8 “Operating
Segments”. The recoverable amount of goodwill and acquired
intangible assets are assessed on the basis of the higher of fair value
less costs to sell and 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.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials122

1 – Accounting policies continued
Accounting policies continued
Other intangible assets
An intangible asset, which is an identifiable non-monetary asset
without physical substance, is recognized 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
capitalized separately from goodwill and are carried at cost less
accumulated amortization and accumulated impairment losses.
Amortization is calculated using the reducing balance method
for customer relationships and the straight-line method for other
intangible assets.

The cost of the intangible assets is amortized and charged to operating
costs in the income statement over their estimated useful lives
as follows:

Customer relationships

4–25 years

Trade names and brands

1–15 years

Other

1–4 years

Computer software that is not integral to an item of property, plant and
equipment is recognized separately as an intangible asset and is carried
at cost less accumulated amortization and accumulated impairment
losses. Costs include software licenses 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. Amortization 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.

Leases (applicable for the year ended July 31, 2020)
The Group enters into leases in the normal course of its business;
these principally relate to property for the Group’s branches,
distribution centers and offices which have varying terms including
extension and termination options and periodic rent reviews.

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

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

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

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

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

Operating leases (applicable for the year ended July 31, 2019)
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.

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
recognized 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 estimated useful lives as follows:

Freehold buildings

20–50 years

Leasehold improvements

over the period of the lease

Plant and machinery

7–10 years

Computer hardware

Fixtures and fittings

Motor vehicles

3–5 years

5–7 years

4 years

The residual values and estimated useful lives of PPE are reviewed and
adjusted if appropriate at each balance sheet date.

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.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020

123

1 – Accounting policies continued
Accounting policies continued
Inventories
Inventories, which comprise goods purchased for resale, are stated
at the lower of cost and net realizable 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 realizable 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 realizable 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 recognized initially at their transaction price
and measured subsequently at amortized cost using the effective
interest method, less the loss allowance. The loss allowance for trade
receivables is measured at an amount equal to lifetime expected
credit losses, estimated based on historical write-offs adjusted for
forward-looking information where appropriate. A loss allowance of
100 per cent is recognized against all trade receivables more than
180 days past due because historical experience indicates that these
are generally not recoverable. The loss is recognized in the income
statement. Trade receivables are written off 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 and environmental
restoration are recognized 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 recognized for future operating losses.

Retirement benefit obligations
Contributions to defined contribution pension plans and other
post-retirement benefits are recorded within operating profit.

For defined benefit pension plans and other post-retirement benefits,
the cost of providing benefits is determined annually using the
Projected Unit Credit Method by independent qualified actuaries.
The current and past service cost of defined benefit pension plans is
recorded within operating profit.

The net interest amount is calculated by applying the discount rate
to 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,
changes in actuarial assumptions and the return from pension
plan assets, excluding amounts recorded in net interest on the net
pension plan liability/asset are charged or credited to equity in other
comprehensive income in the period in which they arise.

The liability or asset recognized 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. Where a plan is in a net asset position the asset is
recognized where trustees do not have unilateral power to augment
benefits prior to a wind-up.

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 that have been enacted or
substantively enacted by the balance sheet date and are expected to
apply when the related deferred tax asset is realized or the deferred
tax liability is settled. Deferred tax assets are recognized to the extent
that it is probable that future taxable profit will be available against
which the temporary differences can be utilized.

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.
Judgment is sometimes required in determining the worldwide
provision for income taxes. There may be transactions for which the
ultimate tax determination is uncertain and may be challenged by
the tax authorities. The Group recognizes 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 most
likely amount or the expected value approach, depending on which
is most appropriate for the uncertain tax provision. In assessing its
uncertain tax provisions, management takes into account the specific
facts of each dispute, the likelihood of settlement and professional
advice where required. 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.

Share capital
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 shareholders of the Company until the
shares are canceled, 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 shareholders
of the Company.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials124

1 – Accounting policies continued
Accounting policies continued
Share-based payments
Share-based incentives are provided to employees under the
Group’s long term incentive plans and all-employee sharesave plans.
The Group recognizes 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 was 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 recognized 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 recognized in the Group’s
consolidated 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 with original maturities of three months or less and bank
overdrafts to the extent there is a legal right of offset and practice of
net settlement with cash balances. 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.

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 recognized as assets and liabilities measured at
their fair values at the balance sheet date. Where derivative financial
instruments do not fulfill the criteria for hedge accounting contained
in IFRS 9, changes in their fair values are recognized 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.

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 recognized 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 amortized 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 recognized directly in other comprehensive income.

When the hedged item is recognized in the financial statements, the
accumulated gains and losses recognized in equity are either recycled
to the income statement or, if the hedged item results in a non-financial
asset, are recognized 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 recognized
when the forecast transaction is ultimately recognized 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 recognized initially at the fair value of the consideration
received net of transaction costs incurred. Borrowings are
subsequently measured at amortized cost with any difference
between the initial amount and the maturity amount being recognized
in the income statement using the effective interest method.

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

Ongoing and non-ongoing
The Group reports some financial measures excluding businesses
that have been disposed of, closed or classified as held for sale or the
Group is committed to exiting and uses the following terminology:

Non-ongoing operations are businesses, which do not meet the
criteria to be classified as discontinued operations under IFRS 5 “Non-
current Assets Held for Sale and Discontinued Operations”, which have
been disposed of, closed or classified as held for sale or the Group
is committed to exiting. In 2020, the Group’s UK business has been
classified as non-ongoing and all comparatives have been restated
for consistency and comparability. In 2019, the Group’s Dutch business
Wasco and UK business soak.com were also included in non-ongoing.

Ongoing operations are continuing operations excluding
non-ongoing operations.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020125

2 – Alternative performance measures continued
Organic revenue growth
Management uses organic revenue growth as it provides a consistent measure of the percentage increase/decrease in revenue year-on-year,
excluding the effect of currency exchange rate fluctuations, trading days, acquisitions and disposals. Organic revenue growth is determined as
the growth in total reported revenue excluding the growth/decline attributable to acquisitions, disposals, trading days and currency exchange rate
fluctuations, divided by the preceding financial year’s revenue at the current year’s exchange rates.

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

Revenue

Reported 2019 restated

Impact of exchange rate movements

Reported 2019 at 2020 exchange rates

Organic growth

Trading days

Acquisitions

Disposals

Reported 2020

Ongoing

Non-ongoing

Continuing

% growth

19,549

(20)

19,529

(26)

356

–

19,940

(0.1)

0.4

1.8

–

2.0

2,461

(51)

2,410

(348)

(233)

1,879

22,010

(71)

21,939

(374)

395

(233)

21,819

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

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

– restructuring costs within a segment which are both material and incurred as part of a significant change in strategy or due to the closure of

a large part of a business and are not expected to be repeated on a regular basis;

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

– gains or losses on disposals of businesses which are considered to be exceptional in nature as they do not reflect the performance of the

trading business;

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

– gains or losses arising on significant changes to, or closures of, defined benefit pension plans, and the impact of fluctuations in foreign currency
exchange rates in relation to pension assets or liabilities held in currencies which are different to that of the functional currency of the entity.
These are considered exceptional by nature; and

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

the business.

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

Exceptional items for the current and prior year are disclosed in note 5.

Ongoing gross margin
The ratio of ongoing gross profit, excluding exceptional items, to ongoing revenue. Ongoing gross margin is used by management for assessing
segment performance and is a key performance indicator for the Group (see page 16). A reconciliation of ongoing gross margin is provided below:

Continuing

Non-ongoing

Exceptional items

Ongoing

2020

Ongoing
gross margin
%

Gross profit
$m

6,421

(441)

Revenue
$m

21,819

(1,879)

–

Gross profit
$m

6,458

(590)

Revenue
$m

22,010

(2,461)

–

Restated
2019

Ongoing
gross margin
%

5,983

19,940

30.0

5,870

19,549

30.0

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

The ongoing trading margin is the ratio of ongoing trading profit to ongoing revenue. Ongoing underlying trading margin is the ratio of ongoing
underlying trading profit to ongoing revenue and is used to assess business unit profitability and is a key performance indicator for the Group (see
page 16).

Underlying trading profit and ongoing underlying trading margin are presented to allow better comparison between the year ended July 31, 2020
prepared under IFRS 16 and the year ended July 31, 2019 prepared under IAS 17.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials126

2 – Alternative performance measures continued

Trading profit/underlying trading profit and ongoing trading margin/ongoing underlying trading margin continued
A reconciliation of underlying trading profit and trading profit to statutory operating profit and the calculation of ongoing trading margin are
provided below:

Ongoing

Non-ongoing

Continuing

Ongoing

Non-ongoing

Continuing

2020

Restated
2019

growth %

Trading profit 2019

Impact of exchange rate movements

Trading profit 2019 at 2020 exchange rates

Growth at constant exchange rates

Underlying trading profit

Impact of IFRS 16

Trading profit

Exceptional items

Amortization of acquired intangible assets

Operating profit

1,532

–

1,532

1,595

1,663

(99)

(114)

1,450

4.1

(1)

(65)

(21)

(16)

(28)

1,606

(1)

1,605

(2)

1,603

1,672

(120)

(130)

1,422

(1)

1,421

111

1,532

–

1,532

(117)

(109)

1,306

Revenue, trading profit/underlying trading profit and trading margin/underlying trading margin are reconciled below:

(5)

(6)

–

(1)

1,507

(6)

1,501

105

1,606

–

1,606

(94)

(110)

1,402

Revenue

Restated
2019
$m

2020
$m

18,857

18,358

1,083

–

1,191

–

Trading
profit

Impact of
IFRS 16

Underlying
trading
profit

2020
$m

1,654

(35)

2020
$m

(67)

(1)

–

2020
$m

1,587

(35)

Trading
profit

Restated
2019
$m

1,508

(43)

USA

Canada and Central Europe

Central and other costs

Total ongoing operations

19,940

19,549

1,663

(68)

1,595

1,532

Soak.com

Canada and Central Europe

1,879

2,222

–

180

Total non-ongoing operations

1,879

2,461

–

(1)

–

(1)

–

(4)

Continuing operations

21,819

22,010

1,672

(69)

1,603

1,606

Trading
margin

Underlying
trading
margin

2020
%

Trading
margin

Restated
2019
%

8.8

4.1

–

8.3

0.5

–

0.5

7.7

8.4

4.0

–

8.0

0.4

–

0.4

7.3

8.2

5.6

–

7.8

3.1

(6.8)

5.0

3.0

7.3

Adjusted EBITDA
Adjusted EBITDA is operating profit before charges/credits relating to depreciation, amortization, impairment, exceptional items and the impact
of IFRS 16. Adjusted EBITDA is used in the net debt to adjusted EBITDA ratio to assess the appropriateness of the Group’s financial gearing and
excludes IFRS 16 in line with the requirements of the Group's debt covenants. For this reason, adjusted EBITDA refers to Group adjusted EBITDA
unless otherwise stated. A reconciliation of statutory operating profit to adjusted EBITDA is provided below:

Operating profit

Exceptional items

Amortization of acquired intangible assets

Trading profit

Impact of IFRS 16

Underlying trading profit

Depreciation and impairment of property, plant and equipment

Amortization of non-acquired intangible assets

Impairment of assets held for sale

Adjusted EBITDA

Continuing
$m

Discontinued
$m

1,422

120

130

1,672

(69)

1,603

159

–

1,797

(2)

–

Continuing
$m

Discontinued
$m

2020

Group
$m

1,429

118

130

1,677

(69)

1,608

159

–

1,402

110

1,606

–

1,606

147

1,802

1,788

2019

Group
$m

1,449

110

1,611

–

1,611

147

1,793

(42)

–

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020127

2 – Alternative performance measures continued
Ongoing effective tax rate
The ongoing effective tax rate is the ratio of the ongoing tax charge to ongoing profit before tax and is used as a measure of the tax rate of the
ongoing business. See reconciliation in note 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 amortization and impairment of acquired
intangible assets and impairment of interests in associates net of tax, exceptional items net of tax and non-recurring tax relating to changes in
tax rates and other adjustments. The Group excludes amortization and impairment of acquired intangible assets to improve the comparability
between acquired and organically grown operations, as the latter cannot recognize internally generated intangible assets.

Headline earnings per share is the ratio of headline profit after tax to the weighted average number of ordinary shares in issue during the year,
excluding those held by the Employee Benefit Trusts and those held by the Company as Treasury shares. Headline earnings per share is used for
the purpose of setting remuneration targets for the Executive Directors and other senior executives. See reconciliation in note 9.

Net debt
Net debt excluding lease liabilities comprises cash and cash equivalents, bank overdrafts, bank and other loans, derivative financial instruments
and in the prior year obligations under finance leases under IAS 17. The Group uses net debt excluding lease liabilities, which excludes lease
liabilities under IFRS 16, to be consistent with adjusted EBITDA in line with the requirements of the Group’s debt covenants. For this reason the
Group uses the term net debt to refer to net debt excluding lease liabilities unless otherwise stated. Net debt is a good indicator of the strength of
the Group’s balance sheet position and is used by the Group’s debt providers. See note 27 for a reconciliation.

Return on gross capital employed
Return on gross capital employed is the ratio of the Group’s trading profit to the average year-end shareholders’ equity, net debt, total lease
liabilities and accumulated amortization and impairment of goodwill and acquired intangible assets. Return on gross capital employed is a key
performance indicator (see page 17). The calculation of return on gross capital employed is shown below:

Net debt excluding lease liabilities (note 27)

Lease liabilities (note 27)

Accumulated impairment losses of goodwill (note 11)

Accumulated amortization and impairment losses of acquired intangible assets (note 12)1

Shareholders’ equity

Gross capital employed

Average gross capital employed2

Group trading profit3

Return on gross capital employed %

1. Excludes software.

2. Gross capital employed in 2018 was $5,921 million.

3. Reconciliation provided under adjusted EBITDA.

2020
$m

1,012

1,355

140

811

4,371

7,689

7,022

1,677

23.9

2019
$m

1,195

–

133

677

4,350

6,355

6,138

1,611

26.2

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials128

3 – Segmental analysis
The Group’s operating segments are established on the basis of the operating businesses overseen by distinct divisional management teams
responsible for their performance. These operating businesses are managed on a geographical basis and are regularly reviewed by the chief
operating decision-maker, which is determined to be the Group Chief Executive Officer and the Group Chief Financial Officer, in deciding how to
allocate resources and assess the performance of the businesses. All operating segments derive their revenue from a single business activity,
the distribution of plumbing and heating products. Revenue is attributed to a country based on the location of the Group company reporting
the revenue.

The Group has combined the Canada and Central Europe operating segments into one reportable segment as individually they do not meet the
quantitative thresholds set out in IFRS 8 “Operating Segments” to be separately disclosed. In 2019, the Group disposed of its Dutch business,
Wasco, which was the last of its Central European businesses.

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

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

Where businesses are disposed in the year, the difference between the revenue and trading profit in the current year up to the date of disposal
and the revenue and trading profit in the equivalent portion of the prior year is included in organic change.

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

USA

Canada and Central Europe

Continuing operations

2019
$m

Exchange
$m

Disposals
$m

Acquisitions
$m

Trading days
$m

18,358

2,281

1,371

22,010

–

(46)

(25)

(71)

–

(58)

(175)

(233)

355

395

An additional disaggregation of revenue by end market for continuing operations is as follows:

Residential

Commercial

Civil/Infrastructure

Industrial

USA

Canada and Central Europe

Continuing operations

Organic
change
$m

(348)

(94)

(374)

2020
$m

10,087

6,116

1,315

1,339

18,857

1,879

1,083

21,819

An analysis of the change in underlying trading profit/(loss) (note 2) by reportable segment for continuing operations is as follows:

USA

Canada and Central Europe

Total reportable segments

Central and other costs

Continuing operations

2019
$m

1,508

1,649

(43)

1,606

Exchange
$m

Disposals
$m

Acquisitions
$m

Trading days
$m

–

(1)

(2)

(1)

–

(8)

(5)

–

(5)

–

Organic
change
$m

(66)

(25)

(44)

(37)

2020
$m

18,857

1,879

1,083

21,819

2019
$m

9,599

6,054

1,212

1,493

18,358

2,281

1,371

22,010

2020
$m

1,587

1,638

(35)

1,603

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020
129

3 – Segmental analysis continued

Underlying trading profit/(loss) (note 2) is the Group’s measure of segment performance in 2020 and is comparable to trading profit/(loss) (note 2)
in 2019. Trading profit/(loss) was the Group’s segment measure of performance in 2019 and prior years, before the adoption of IFRS 16.
The reconciliation between underlying trading profit/(loss) by reportable segment and Group profit before tax for continuing operations is as follows:

Underlying
trading
profit/(loss)
$m

Impact of
IFRS 16
$m

Trading
profit/(loss)
$m

Exceptional
items
$m

Amortization
of acquired
intangible
assets
$m

Operating
profit/(loss)
$m

Trading
profit/(loss)
$m

Exceptional
items
$m

2020

Amortization
of acquired
intangible
assets
$m

2019

Operating
profit/(loss)
$m

1,587

1,654

1,638

(35)

1,603

–

1,707

(35)

1,672

(65)

(21)

(7)

(93)

(27)

(120)

USA

Canada and Central
Europe

Total reportable
segments

Central and other costs

Group

Net finance costs

Share of (loss)/profit
after tax of associates

Gain on disposal of
interests in associates
and other investments

Impairment of interests
in associates

Profit before tax

1,508

1,649

(43)

1,606

(63)

(54)

(83)

(11)

(94)

(102)

–

(8)

(110)

–

(110)

(113)

(16)

1,476

(28)

(1)

(130)

1,484

–

(130)

(62)

1,422

(144)

(2)

(22)

1,261

1,343

102

1,456

(54)

1,402

(74)

(9)

1,324

Other information on assets and liabilities by segment is set out in the following tables:

USA

Canada and Central Europe

Total reportable segments

Central and other costs

Discontinued

Tax assets/(liabilities)

Net cash/(debt)

Group assets/(liabilities)

2020

Segment
net assets/
(liabilities)
$m

4,936

351

288

Segment
liabilities1
$m

(4,402)

(742)

(315)

(5,459)

5,575

(132)

(9)

(319)

(3,166)

(9,085)

(83)

(6)

(103)

(1,012)

4,371

Segment
assets1
$m

9,338

1,093

603

11,034

216

2,154

13,456

2019

Segment
net assets/
(liabilities)
$m

5,009

591

297

Segment
liabilities
$m

(3,243)

(553)

(267)

(4,063)

5,897

(282)

(34)

(307)

(2,350)

(7,036)

(185)

(30)

(137)

(1,195)

4,350

Segment
assets
$m

8,252

1,144

564

9,960

170

1,155

11,386

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

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials130

3 – Segmental analysis continued

Geographical information on non-current assets is set out in the table below. Non-current assets includes goodwill, other intangible assets,
right of use assets, property, plant and equipment and interests in associates.

USA

Canada and Central Europe

Group

USA

Canada and Central Europe

Total reportable segments

Central and other costs

Group

2020
$m

4,134

357

255

4,746

2019
$m

3,036

225

196

3,457

2019

2020

Additions
to other
acquired
intangible
assets and
interests in
associates
$m

Additions
to goodwill
$m

–

107

–

138

–

138

Additions to
non-acquired
intangible
assets
$m

Additions to
right of use
assets
$m

Additions to
property,
plant and
equipment
$m

Additions
to goodwill
$m

Additions
to other
acquired
intangible
assets and
interests in
associates
$m

Additions to
non-acquired
intangible
assets
$m

Additions to
property,
plant and
equipment
$m

–

115

–

115

199

214

–

214

2020

258

224

–

259

–

259

–

224

–

224

–

327

371

374

2019

Impairment
of goodwill,
other acquired
intangible
assets and
interests in
associates
$m

Amortization
of other
acquired
intangible
assets
$m

Amortization
and
impairment
of non-
acquired
intangible
assets
$m

Depreciation
and
impairment
of right
of use
assets
$m

Depreciation
and
impairment
of property,
plant and
equipment
$m

Impairment
of goodwill,
other acquired
intangible
assets and
interests in
associates
$m

Amortization
of other
acquired
intangible
assets
$m

Amortization
and
impairment
of non-
acquired
intangible
assets
$m

Depreciation
and
impairment
of property,
plant and
equipment
$m

USA

Canada and Central Europe

Total reportable segments

Central and other costs

Group

–

113

130

–

130

226

277

278

131

158

159

–

102

–

110

–

110

118

147

–

147

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 20204 – Operating profit
Amounts charged/(credited) in arriving at operating profit from continuing operations include:

Amortization of acquired intangible assets

Amortization of non-acquired intangible assets

Depreciation of right of use assets

Impairment of right of use assets

Depreciation of property, plant and equipment

Impairment of property, plant and equipment

Impairment of assets held for sale

Loss/(gain) on disposal of businesses

Amounts included in cost of sales with respect to inventory

Staff costs

Operating lease rentals: land and buildings

Operating lease rentals: plant and machinery

Trade receivables impairment

During the year, the Group obtained the following services from the Company’s auditor and its associates:

131

Notes

2020
$m

130

268

154

–

15,237

3,137

–

2019
$m

110

–

147

–

(23)

15,427

3,163

252

2020
$m

2019
$m

Fees for the audit of the 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

Total non-audit fees

Total fees payable to the auditor

1.7

2.5

4.2

2.6

0.9

3.5

7.7

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 were safeguarded are set out in the Audit Committee report on pages 74 to 80. No services were provided
pursuant to contingent fee arrangements.

5 – Exceptional items
Exceptional items credited/(charged) to profit before tax from continuing operations are analyzed by purpose as follows:

(Loss)/gain on disposal of businesses

Business restructuring

Other exceptional items

Total included in operating profit

Gain on disposal of interests in associates and other investments

Total included in profit before tax

2020
$m

(3)

(93)

(24)

(120)

(113)

For the year ended July 31, 2020, business restructuring principally comprises costs incurred in the USA, UK and Canada in respect of cost
actions taken to ensure the business is appropriately sized for the post COVID-19 operating environment.

Other exceptional items principally relate to the proposed separation of the UK business and the Group’s planned listing in the USA.

The gain on disposal of interests in associates and other investments relates to the sale of the Group’s investment in Meier Tobler AG.

During the year, the cash flows relating to exceptional items were $113 million (2019: $53 million) used in respect of operating activities and
$41 million (2019: $169 million) generated in respect of investing activities.

1.6

2.2

3.8

0.3

1.3

1.6

5.4

2019
$m

(108)

(9)

(94)

(91)

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials132

6 – Net finance costs

Finance income

Interest cost on borrowings

Unwind of fair value adjustment to senior unsecured loan notes

Lease liability expense

Net interest income on defined benefit obligation (note 23)

Valuation gains on financial instruments

Finance costs

Total net finance costs

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 charge/(credit): origination and reversal of temporary differences

Total tax charge

2020
$m

(108)

(53)

(151)

(144)

2020
$m

294

(16)

278

307

An exceptional tax credit of $23 million (2019: $19 million) was recorded against exceptional items. The deferred tax charge of $29 million
(2019: credit of $47 million) includes a credit of $6 million (2019: charge of $3 million) resulting from changes in tax rates. A tax charge of $nil
(2019: $4 million charge) arises on the profit from discontinued operations. Of this charge $nil (2019: $4 million) relates to exceptional items.

Tax on items charged to the Group statement of comprehensive income:

Deferred tax credit on remeasurement of retirement benefit plans

Total tax on items credited to the Group statement of comprehensive income

Tax on items credited to equity:

Current tax credit on share-based payments

Deferred tax credit on share-based payments

Total tax on items credited to equity

2020
$m

2019
$m

(97)

–

(86)

(74)

2019
$m

306

310

(47)

263

2019
$m

There is no tax charge in the statement of changes in equity which relates to changes in tax rates in the current or prior year.

The Group has made provisions for the liabilities likely to arise from open audits and assessments. At July 31, 2020, the Group has recognized
provisions of $294 million (2019: $254 million) in respect of its uncertain tax positions. The total provision has increased by $40 million in the year
due primarily to increases related to certain cross-border transfer pricing risks. Although there is uncertainty regarding the timing of the resolution
of these matters, management do not believe that the Group’s uncertain tax provisions constitute a major source of estimation uncertainty as they
consider that there is no significant risk of a material change to its estimate of these provisions within the next 12 months.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020133

7 – Tax continued

Tax reconciliation:

Profit before tax

Expected tax at weighted average tax rate1

Adjusted for the effects of:

(under)/over provisions in respect of prior periods2

exceptional items which are non-tax deductible3

current year charge in relation to uncertain tax provisions4

tax credits and incentives

non-taxable income

other non-tax deductible expenditure5

other

effect of tax rate changes6

Tax (charge)/credit / effective tax rate

Tax reconciliation:

Profit before tax

Expected tax at weighted average tax rate1

Adjusted for the effects of:

(under)/over provisions in respect of prior periods2

exceptional items which are non-tax deductible3

current year charge in relation to uncertain tax provisions4

tax credits and incentives

non-taxable income

other non-tax deductible expenditure5

recognition of previously unrecognized deferred tax asset

other

effect of tax rate changes

Tax (charge)/credit / effective tax rate

Ongoing profit/tax7

Non-ongoing and
other profit/tax8

Total profit/tax from
continuing operations

2020

1,512

(327)

(9)

–

(33)

(20)

(1)

–

21.6

0.6

–

2.2

(0.4)

(0.5)

1.3

0.1

–

(376)

24.9

(251)

–

(4)

(6)

(24.3)

(4.4)

(0.4)

–

1.6

2.4

(2.4)

(27.5)

1,261

(266)

(33)

(24)

(7)

(307)

21.1

(0.2)

(0.1)

2.6

(0.5)

(0.6)

1.9

0.6

(0.5)

24.3

Restated
2019

Ongoing profit/tax7

Non-ongoing and
other profit/tax8

Total profit/tax from
continuing operations

1,456

(289)

(7)

–

(35)

(11)

–

(2)

19.8

0.5

–

2.5

(0.3)

(0.2)

0.8

–

0.1

(132)

(7)

–

(5)

–

(1)

(52.3)

(6.8)

5.3

–

3.8

(8.3)

–

0.7

1,324

(220)

(7)

(35)

(16)

(2)

(3)

(339)

23.3

(57.6)

(263)

16.6

(0.1)

0.6

2.6

(0.3)

(0.2)

1.2

(0.8)

0.1

0.2

19.9

This expected weighted average tax rate reflects the applicable statutory corporate tax rates on the accounting profits/losses in the countries in which the Group operates
after intra-group financing. This results in interest deductions and lower taxable profits in many of the countries and therefore reduces the tax rate. The pre intra-group financing
ongoing expected weighted average tax rate is 25.6 per cent (2019 restated: 26.8 per cent) and this is reduced to a post intra-group financing ongoing expected weighted
average tax rate of 21.6 per cent (2019 restated: 19.8 per cent) following intra-group financing. The 1.8 per cent increase in the post intra-group financing ongoing expected
weighted average tax rate is primarily due to tax reform.

2. This includes adjustments arising out of movements in uncertain tax provisions regarding prior periods and differences between the final tax liabilities in the tax computations and

the tax liabilities provided in the consolidated financial statements.

3. This primarily relates to non-taxable disposal of businesses.
4. This reflects management’s assessment of the potential tax liability for the current year in relation to open tax issues and audits.
5. This relates to certain expenditure for which no tax relief is available such as disallowable business entertaining costs and legal/professional fees.
6. This relates to the change of the deferred tax rate to 19 per cent from the previously enacted 17 per cent in the UK.
7. Ongoing profit means profit before tax, exceptional items, the amortization and impairment of acquired intangible assets and impairment of interests in associates for ongoing

operations as defined in note 2. Ongoing tax is the tax expense arising on ongoing profit.

8. Non-ongoing and other profit or loss is profit or loss from non-ongoing operations as defined in note 2 and from the amortization and impairment of acquired intangible assets,
impairment of interests in associates and exceptional items. Non-ongoing and other tax is the tax expense or credit arising on the non-ongoing and other profit or loss and
includes other non-recurring tax items. In 2020, the non-ongoing and other credit of $69 million relates primarily to exceptional restructuring costs, tax deductible amortization in
relation to intangible assets, non-taxable disposal of businesses and the amortization of loan premium.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials134

8 – Dividends
Amounts recognized as distributions to equity shareholders:

Final dividend for the year ended July 31, 2018: 131.9 cents per share

Interim dividend for the year ended July 31, 2019: 63.1 cents per share

Final dividend for the year ended July 31, 2019: 145.1 cents per share

Interim dividend for the year ended July 31, 2020: nil

Dividends paid

2020
$m

–

327

–

327

2019
$m

303

146

–

449

After careful consideration, the Board decided to withdraw the interim dividend for the year ended July 31, 2020 which was due for payment on
April 30, 2020 due to the significant uncertainty around the impact and duration of the COVID-19 disruption.

Since the end of the financial year, the Directors have proposed a final ordinary dividend of $466 million (208.2 cents per share) which effectively
reinstates the previously withdrawn interim dividend. The dividend is subject to approval by shareholders at the Annual General Meeting and is
therefore not included in the balance sheet as a liability at July 31, 2020.

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

9 – Earnings per share

Profit from continuing and discontinued operations
attributable to shareholders of the Company

Profit from discontinued operations

Profit from continuing operations

Non-recurring tax credit relating to changes in tax rates
and other adjustments

Amortization and impairment of acquired intangible assets
and impairment of interests in associates (net of tax)

Exceptional items (net of tax)

Headline profit after tax from continuing operations

2020

Diluted
earnings
per share
cents

423.5

(3.1)

420.4

Earnings
$m

Basic
earnings
per share
cents

961

(7)

954

(13)

119

1,150

427.5

(3.1)

424.4

(5.7)

52.9

40.0

511.6

Earnings
$m

1,108

(47)

1,061

Basic
earnings
per share
cents

481.3

(20.4)

460.9

(33)

(14.3)

1,191

39.5

31.3

517.4

2019

Diluted
earnings
per share
cents

477.8

(20.3)

457.5

The weighted average number of ordinary shares in issue during the year, excluding those held by Employee Benefit Trusts and those held by
the Company as Treasury shares, was 224.8 million (2019: 230.2 million). The impact of all potentially dilutive share options on earnings per share
would be to increase the weighted average number of shares in issue to 226.9 million (2019: 231.9 million).

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202010 – Employee and key management information

Wages and salaries

Social security costs

Pension costs – defined contribution plans

Pension costs – defined benefit plans (note 23)

Share-based payments

Total staff costs

Average number of employees

USA

Canada and Central Europe

Central and other

Continuing operations

135

2020
$m

2,840

187

2019
$m

2,833

194

3,137

3,163

2020

27,059

5,031

2,473

2019

27,447

5,439

2,974

34,637

35,939

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the
Group, directly or indirectly, including any Director of the Company.

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

Post-employment benefits

Share-based payments

Total compensation

2020
$m

2019
$m

Further details of Directors’ remuneration and share options are set out in the Remuneration Report on pages 81 to 108.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials136

11 – Intangible assets – goodwill

Cost

At August 1

Exchange rate adjustment

Acquisitions

Adjustment to fair value on prior year acquisitions

Disposal of businesses

At July 31

Accumulated impairment losses

At August 1

Exchange rate adjustment

Disposal of businesses

At July 31

Net book value at July 31

2020
$m

2019
$m

1,789

1,605

(14)

–

(14)

259

(6)

(55)

1,861

1,789

133

–

140

1,721

197

(9)

(55)

133

1,656

Goodwill and intangible assets acquired during the year have been allocated to the individual cash generating units or aggregated cash
generating units (together “CGUs”) which are deemed to be the smallest identifiable group of assets generating independent cash inflows.
CGUs have been aggregated in the disclosure below at a segmental level except for certain CGUs in the USA which are considered to be
significant (more than 10 per cent of the current year goodwill balance). Impairment reviews were performed for each individual CGU during
the year ended July 31, 2020.

Blended Branches¹

Waterworks

Rest of USA¹

USA

Canada

Total

Long-term
growth rate
%

Post-tax
discount rate
%

Pre-tax
discount rate
%

2.2

1.5

1.3

8.1

7.7

7.8

10.8

9.4

10.8

2020

Goodwill
$m

991

183

353

1,527

139

1,721

Long-term
growth rate
%

Post-tax
discount rate
%

Pre-tax
discount rate
%

2.2

2.0

9.3

8.0

8.5

12.6

9.8

11.6

2019

Goodwill
$m

973

188

314

1,475

142

1,656

Due to a reorganization of the reporting structure, a component of the eBusiness CGU has been reallocated to the Blended Branches CGU. As a result, the eBusiness CGU is no
longer considered to be significant and is not disclosed separately. The comparative has been reclassified for comparability.

The relevant inputs, including key assumptions, to the value in use calculations of each CGU are set out below.

Cash flow forecasts for years one to three are derived from the most recent Board approved strategic plan. The forecast for year five represents
an estimate of “mid-cycle” trading performance for the CGU based on historic analysis. Year four is calculated as the average of the final year of
the strategic plan and year five’s mid-cycle estimate. The other inputs include: a risk-adjusted pre-tax discount rate, calculated by reference to the
weighted average cost of capital (“WACC”) of each country and reflecting the latest equity market risk factors; and the 30-year long-term growth
rate by country, as published by the IMF in April 2020.

The strategic plan is developed based on analyses of sales, markets and costs at a regional level. Consideration is given to past events,
knowledge of future contracts and the wider economy. It takes into account both current business and future initiatives. The most recent strategic
plans were approved by the Board in July 2020. The plans take into account the impact of COVID-19 on recent trading and reflect the Board’s
latest expectations of future trading activity in a post COVID-19 environment.

Management has performed a sensitivity analysis across all CGUs which have goodwill and acquired intangible assets using reasonably possible
changes in the following key impairment review assumptions: compound average revenue growth rate, post-tax discount rate and long-term
growth rate, keeping all other assumptions constant. The sensitivity analysis included an assessment of the break-even point for each of the key
assumptions and the break-even point was considered for reasonableness in light of the recent impact of COVID-19 on the trading activities of the
business. The sensitivity testing identified no reasonably possible changes in key assumptions that would cause the carrying amount of any CGU
to exceed its recoverable amount. As a result, management do not believe that the key impairment review assumptions constitute a major source
of estimation uncertainty as they consider that there is no significant risk of a material change to its estimate of these assumptions within the next
12 months.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202012 – Intangible assets – other

Cost

At July 31, 2018

Exchange rate adjustment

Acquisitions

Adjustment to fair value on prior year acquisitions

Additions

Disposal of businesses

Disposals

At July 31, 2019

Exchange rate adjustment

Acquisitions

Adjustment to fair value on prior year acquisitions

Additions

Disposals and transfers

At July 31, 2020

Accumulated amortization and impairment losses

At July 31, 2018

Exchange rate adjustment

Amortization charge for the year

Disposal of businesses

Disposals

At July 31, 2019

Exchange rate adjustment

Amortization charge for the year

Disposals

At July 31, 2020

Net book value at July 31, 2020

Net book value at July 31, 2019

137

Acquired intangible assets

Software
$m

Trade names
and brands
$m

Customer
relationships
$m

Other
$m

Total
$m

224

(5)

–

(12)

(40)

203

–

(2)

176

(1)

–

(2)

–

192

–

482

(3)

202

–

(15)

–

673

101

–

165

1,047

–

(9)

224

(29)

(40)

168

1,236

–

151

(2)

306

231

787

173

1,497

153

(3)

(7)

(38)

136

(8)

165

141

(1)

(2)

–

124

107

420

(3)

(13)

–

469

–

557

230

204

–

113

–

130

739

(7)

141

(22)

(38)

813

165

(8)

976

521

423

At July 31, 2020, customer relationships net book value includes $80 million (2019: $93 million) in relation to the acquisition of Jones Stephens
which had a remaining amortization period of 8 years (2019: 9 years).

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials138

13 – Leases

Movement in right of use assets for the year ended July 31, 2020 were as follows:

Net book value at July 31, 2019

Adjustment on adoption of IFRS 16

Net book value at August 1, 2019

Acquisitions

Additions

Disposals and remeasurements

Depreciation charge for the year

Impairment charge for the year

Exchange rate adjustment

Net book value at July 31, 2020

Land and
buildings
$m

Plant and
machinery
$m

Total right of
use assets
$m

–

940

(191)

(9)

849

–

280

(3)

(77)

(1)

–

262

–

1,220

115

(268)

(10)

1,111

The Group’s land and building leases include leases for branches, distribution centers and offices. Leases in the USA and Canada often include
one or more options to extend the lease term and some of the Group’s leases include options to terminate early. Certain leases include variable
lease payments that are linked to a consumer price index or market rate. The Group’s land and building leases have a weighted average
remaining lease term at July 31, 2020 of 5.9 years.

The Group’s plant and machinery leases include leases for fleet vehicles, trucks and company cars. These leases have a weighted average
remaining lease term at July 31, 2020 of 4.5 years.

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

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 undiscounted lease payments

Effect of discounting

Lease liabilities

Current lease liabilities

Non-current lease liabilities

Lease liabilities

At July 31, 2020 the Group was committed to future undiscounted lease payments of $nil relating to short-term leases.

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

Depreciation of right of use assets

Impairment of right of use assets

Short-term lease expense

Low value lease expense

Sublease income

Charged to operating costs

Charged to finance costs

Total amount charged to the Group income statement

2020
$m

325

326

282

211

146

218

1,508

(153)

1,355

281

1,074

1,355

2020
$m

268

(2)

307

360

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020139

2019
$m

342

631

153

1,126

13 – Leases continued

Operating lease commitments under IAS 17
Future minimum lease payments under non-cancelable leases for the year ended July 31, 2019 were as follows:

Less than one year

After one year and less than five years

After five years

Total operating lease commitments

14 – Property, plant and equipment

Cost

At August 1, 2018

Exchange rate adjustment

Acquisitions

Additions

Disposal of businesses

Disposals and transfers

At July 31, 2019

Adjustment on adoption of IFRS 16

At August 1, 2019

Exchange rate adjustment

Acquisitions

Additions

Disposals and transfers

Reclassification as held for sale

At July 31, 2020

Accumulated depreciation and impairment losses

At August 1, 2018

Exchange rate adjustment

Depreciation charge for the year

Disposal of businesses

Disposals and transfers

At July 31, 2019

Adjustment on adoption of IFRS 16

At August 1, 2019

Exchange rate adjustment

Depreciation charge for the year

Impairment charge for the year

Disposals

Reclassification as held for sale

At July 31, 2020

Net book value at July 31, 2020

Owned assets

Assets under finance leases

Net book value at July 31, 2019

Land and buildings

Freehold
$m

Finance
leases
$m

Leasehold
improvements
$m

Plant
and machinery
$m

Other
equipment
$m

Total
$m

949

(7)

193

(35)

1,184

–

1,184

127

(30)

1,303

259

(2)

(8)

(2)

278

–

278

–

(7)

309

994

906

–

906

–

(2)

(1)

–

448

(6)

–

(20)

498

–

498

–

(17)

–

497

322

(3)

–

(12)

338

–

338

(13)

–

364

133

160

–

160

680

(9)

(19)

(56)

679

(2)

677

(40)

(1)

718

481

(7)

(9)

(51)

475

(1)

474

(36)

–

508

210

203

204

232

2,312

(5)

(38)

219

(13)

206

–

(26)

–

190

164

(4)

(3)

(40)

141

(9)

132

–

(19)

–

138

(27)

374

(59)

(114)

2,581

(16)

2,565

214

(81)

(31)

2,708

1,226

(16)

147

(20)

(105)

1,232

(10)

1,222

154

(68)

(7)

1,319

1,389

1,343

1,349

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials140

15 – Deferred tax assets and liabilities
Deferred tax assets and liabilities, which are offset where the Group has a legally enforceable right to do so, are shown in the balance sheet after
offset as follows:

Deferred tax assets

Deferred tax liabilities

2020
$m

216

(26)

190

2019
$m

164

(56)

108

The following are the major deferred tax assets and liabilities recognized by the Group and movements thereon during the current and prior
reporting year:

Goodwill and
intangible
assets
$m

Share-
based
payments
$m

Property,
plant and
equipment
$m

Right of
use assets
$m

Lease
liabilities
$m

Retirement
benefit
obligations
$m

Inventories
$m

(47)

At July 31, 2018

Credit/(charge) to income

Credit to other
comprehensive income

Credit to equity

Acquisitions

Disposal of businesses

Exchange rate adjustment

At July 31, 2019

Adjustment on adoption of IFRS 16

At August 1, 2019

Credit/(charge) to income

Credit to other
comprehensive income

Credit to equity

Acquisitions

Exchange rate adjustment

At July 31, 2020

–

(31)

–

(74)

–

(74)

–

(12)

–

(83)

–

(2)

–

(4)

–

(4)

–

(14)

–

(298)

–

(4)

–

372

(34)

–

(4)

–

(1)

(95)

(21)

–

(114)

–

(114)

–

Tax
losses
$m

–

Trade
and other
payables
$m

Other
$m

Total
$m

–

(5)

(13)

–

(33)

(2)

108

177

(13)

(29)

–

(11)

(275)

342

(109)

100

190

Legislation has been enacted in the UK to increase the standard rate of UK corporation tax from 17 per cent to 19 per cent with effect from April 1,
2020. Accordingly, the UK deferred tax assets and liabilities have been calculated based on a 19 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 recognized on the basis that sufficient taxable profits are forecast to be available in the future to enable
them to be utilized.

In addition, the Group has unrecognized gross tax losses totaling $369 million (2019: $367 million) that have not been recognized 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 recognized in respect of taxable temporary differences associated with unremitted earnings from the Group’s
subsidiary undertakings. However, tax may arise on $442 million (2019: $436 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.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202016 – Inventories

Goods purchased for resale

Inventory provisions

Net inventories

17 – Trade and other receivables

Current

Trade receivables

Less: provision for expected credit losses

Net trade receivables

Other receivables

Prepayments

Non-current

Other receivables

141

2020
$m

3,089

(209)

2,880

2020
$m

2,604

(36)

2,568

139

335

3,042

2019
$m

2,997

(176)

2,821

2019
$m

2,747

(28)

2,719

143

351

3,213

377

340

Included in prepayments is $289 million (2019: $277 million) due in relation to supplier rebates where there is no right of offset against trade
payable balances.

Trade receivables have been aged with respect to the payment terms specified in the terms and conditions established with customers.
The loss allowance for trade receivables by aging category is as follows:

At July 31, 2020

Expected credit loss rate

Gross trade receivables

Lifetime expected credit losses

Net trade receivables

At July 31, 2019

Expected credit loss rate

Gross trade receivables

Lifetime expected credit losses

Net trade receivables

Amounts not
yet due
$m

Less than six
months past
due
$m

More than six
months past
due
$m

0.6%

1,836

(11)

1,825

1.1%

751

(8)

743

100%

(17)

–

Amounts not
yet due
$m

Less than six
months
past due
$m

More than six
months
past due
$m

0.4%

1,934

(7)

1,927

0.9%

799

(7)

792

100%

(14)

–

Total
$m

2,604

(36)

2,568

Total
$m

2,747

(28)

2,719

No contracts contain a significant financing component and payment from customers is typically due within 30 to 60 days.

The contractual amount outstanding on trade receivables that were written off during the year and that are subject to enforcement activity was
$12 million (2019: $12 million).

18 – Cash and cash equivalents

Cash and cash equivalents

2020
$m

2,115

2019
$m

1,133

Included in the balance at July 31, 2020 is an amount of $248 million (2019: $18 million) which is part of the Group’s cash pooling
arrangements where there is an equal and opposite balance included within bank overdrafts (note 20). These amounts are subject
to a master netting arrangement.

At July 31, 2020, cash and cash equivalents included $93 million (2019: $87 million) which is used to collateralize letters of credit on behalf
of Ferguson Insurance Limited.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials142

19 – Trade and other payables

Current

Trade payables

Tax and social security

Other payables

Accruals and deferred income

Non-current

Other payables

2020
$m

2,855

114

115

507

3,591

2019
$m

2,885

112

116

684

3,797

338

292

Trade payables are stated net of $50 million (2019: $44 million) due from suppliers with respect to supplier rebates where an agreement exists
that allows these to be net settled.

Accruals and deferred income includes $nil (2019: $159 million) payable in relation to the irrevocable and non-discretionary share buy back
program announced in July 2019 and settled on September 24, 2019.

20 – Borrowings

Bank overdrafts

Senior unsecured loan notes

Total borrowings

Current
$m

Non-current
$m

248

283

531

–

2,635

2020

Total
$m

248

2,918

3,166

Current
$m

Non-current
$m

–

2,292

2019

Total
$m

2,297

2,344

In June 2020, the Group successfully issued $600 million of 10-year 3.25 per cent notes maturing in June 2030 in the USA bond market. At July
31, 2020 total USA bond debt was $1,350 million (2019: $750 million) which is held at par value.

The carrying value of the USPP senior unsecured loan notes of $1,568 million comprises a par value of $1,530 million and a fair value adjustment
of $38 million (2019: $1,547 million, $1,530 million and $17 million respectively).

The Group applies fair value hedge accounting to debt of $355 million (2019: $355 million), swapping fixed interest rates into floating interest rates
using a series of interest rate swaps.

Included in bank overdrafts at July 31, 2020 is an amount of $248 million (2019: $18 million) which is part of the Group’s cash pooling arrangements
where there is an equal and opposite balance included within cash and cash equivalents (note 18). These amounts are subject to a master
netting arrangement.

In April 2020, Ferguson Finance Plc was approved as an eligible issuer under the Covid Corporate Financing Facility (CCFF), all commercial paper
issued under the CCFF was fully repaid in June 2020 and as a result there are no balances recognized in the financial statements at the balance
sheet date. The Group did not utilize the funds that were previously drawn down under the facility and Ferguson Finance Plc’s CCFF eligibility
expires in October 2020. There are no unfulfilled conditions or contingencies associated with the facility.

No bank loans were secured against trade receivables and the trade receivables facility of $600 million was undrawn at July 31, 2020
and July 31, 2019.

There have been no significant changes during the year to the Group’s policies on accounting for, valuing and managing the risk of financial
instruments. These policies are summarized in note 1.

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

2020
$m

–

250

150

2,085

2,635

2019
$m

282

–

250

150

1,610

2,292

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202021 – Financial instruments and financial risk management
Financial instruments by measurement basis
The carrying value of financial instruments by category as defined by IFRS 9 “Financial Instruments” is as follows:

Financial assets
Financial assets at fair value through profit and loss

Financial assets at fair value through other comprehensive income

Financial assets at amortized cost

Financial liabilities

Financial liabilities at fair value through profit and loss

Financial liabilities at amortized cost1

1. As at July 31, 2020, financial liabilities at amortized cost include lease liabilities.

143

2020
$m

307

3,114

265

7,474

20192
$m

267

3,258

240

5,569

2. The financial asset and financial liability associated with the executive deferred compensation plan has been reclassified as at fair value through profit and loss and the
comparatives have been restated for comparability.

Financial instruments in the category “fair value through profit and loss” and “fair value through other comprehensive income” 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).
– Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The Group’s derivatives principally relate to interest rate swaps to manage its exposure to interest rate movements on its borrowings. They are
measured at fair value through profit and loss using forward interest curves which are level 2 inputs. The current element of derivative financial
assets is $11 million (2019: $12 million) and the non-current element is $28 million (2019: $10 million). Total net derivative financial instruments is an
asset of $39 million (2019: $22 million). No transfers between levels occurred during the current or prior year.

The Group’s executive deferred compensation plan comprises a financial asset of $268 million (2019: $245 million) which is measured at fair
value through profit and loss using level 1 inputs and a financial liability of $265 million (2019: $240 million) which is measured at fair value through
profit and loss using level 2 inputs. The fair value of the liability is calculated with reference to the fair value of the associated asset. The financial
asset is all classified as non-current. The current element of the financial liability is $13 million (2019: $12 million) and the non-current element is
$252 million (2019: $228 million). No transfers between levels occurred during the current or prior year.

The Group has made the irrevocable election to designate its investments in equity instruments as financial assets at fair value through other
comprehensive income as this presentation is more representative of the nature of the Group’s investments. The fair value of the investments in
the current and prior year are measured using market derived valuation methods which are level 2 inputs. The investments are classified as non-
current financial assets in the balance sheet. No dividends were received from these investments in the current and prior year.

The Group’s other financial instruments are measured at amortized cost. Other receivables include an amount of $71 million (2019: $67 million)
which has been discounted at a rate of 1.0 per cent (2019: 2.0 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 USPP senior unsecured loan notes, which had a book value of
$1,568 million (2019: $1,547 million) and a fair value (level 2) of $1,671 million (2019: $1,621 million), and the USA bond debt which had a book value
of $1,350 million (2019: $750 million) and a fair value (level 1) of $1,488 million (2019: $789 million).

Disclosure of offsetting arrangements
The financial instruments which have been offset in the financial statements are disclosed below:

At July 31, 2020

Financial assets

Non-current assets

Derivative financial assets

Current assets

Derivative financial assets

Cash and cash equivalents

Financial liabilities

Current liabilities

Derivative financial liabilities

Borrowings

Non-current liabilities

Borrowings

Closing net debt excluding lease liabilities

Gross
balances1
$m

Offset
amounts2
$m

Financial
statements3
$m

Cash pooling
amounts4
$m

Net total5
$m

Notes

2,115

2,162

531

2,635

3,174

(1,012)

–

(8)

–

(8)

–

(8)

–

2,115

2,154

–

531

2,635

3,166

(1,012)

–

(248)

–

(248)

–

(248)

–

1,867

1,906

–

283

2,635

2,918

(1,012)

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials144

21 – Financial instruments and financial risk management continued

Disclosure of offsetting arrangements continued

At July 31, 2019
Financial assets

Non-current assets

Derivative financial assets

Current assets

Derivative financial assets

Cash and cash equivalents

Financial liabilities

Current liabilities

Derivative financial liabilities

Borrowings

Finance leases

Non-current liabilities

Borrowings

Finance leases

Closing net debt excluding lease liabilities

Gross
balances1
$m

Offset
amounts2
$m

Financial
statements3
$m

Cash pooling
amounts4
$m

Net total5
$m

Notes

1,133

1,166

2,292

2,361
(1,195)

–

(11)

–

(11)

–

(11)
–

1,133

1,155

–

2,292

2,350
(1,195)

–

(18)

–

(18)

–

(18)
–

1,115

1,137

–

2,292

2,332
(1,195)

1. The gross amounts of the recognized financial assets and liabilities under a master netting agreement, or similar arrangement.

2. The amounts offset in accordance with the criteria in IAS 32.

3. The net amounts presented in the Group balance sheet.

4. The amounts subject to a master netting arrangement, or similar arrangement, not included in (3).

5. The net amount after deducting the amounts in (4) from the amounts in (3).

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 these risks which have been consistently applied during the financial years ended July 31, 2020 and July 31, 2019. 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 summarized 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 structure and risk management
The capital structure of the Group consists of net debt (borrowings disclosed in note 20 after deducting cash and bank balances) and equity of
the Group (comprising share capital, share premium and reserves). 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 adjusted EBITDA. The Group aims to operate with
investment grade credit metrics and keep this ratio within one to two times. Of the Group’s borrowing facilities, only the US Private Placement
debt contains a financial covenant limiting the ratio of net debt to adjusted EBITDA to 3.5:1. All other borrowing facilities and USA bond debt are
covenant free. The reconciliation of opening to closing net debt is detailed in note 27.

The Group’s sources of funding currently comprise cash flows generated from 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.

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 July 31, 2020, the maximum exposure to credit risk was $2,568 million (2019: $2,719 million).

Each of the Group’s businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding
and overdue balances are regularly reviewed 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 and 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 expected credit losses. The aging of trade receivables is detailed in note 17.

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 $1,873 million (2019: $1,089 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.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020145

21 – Financial instruments and financial risk management continued
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 borrowings (excluding bank overdrafts) and lease liabilities, 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 analyzed by maturity as follows:

Trade and
other
payables
$m

2,889

211

3,183

Debt including
lease liabilities
$m

Interest
on debt
including lease
liabilities
$m

561

291

507

345

286

2,245

4,235

148

131

117

103

285

876

2020

Total
$m

3,598

456

644

463

392

2,741

8,294

Trade and
other
payables
$m

3,133

184

3,425

Debt
$m

282

250

150

1,601

2,286

Interest
on debt
$m

295

715

2019

Total
$m

3,220

432

113

343

238

2,080

6,426

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

The Group relies on continued access to funding in order to meet its operating obligations, to support the growth of the business and to make
acquisitions when opportunities arise. Its sources of funding include cash flows generated by operations and borrowings from banks and other
financial institutions. The Group holds a $1,100 million (2019: £800 million) revolving credit facility that matures in March 2025, a $500 million bi-
lateral facility that matures in March 2021 (2019: $nil), and a $600 million (2019: $600 million) securitization facility that matures in December 2021.
This facility is secured against the trade receivables of Ferguson Enterprises, LLC. All facilities were undrawn at July 31, 2020 and July 31, 2019.
During the year, as a result of COVID-19, the Group introduced measures to preserve its liquidity such as suspension of the $500 million share
buy back program announced in February 2020, withdrawing the interim dividend due for payment in April 2020 and pausing acquisition activity
which remains an important part of the Group’s strategy.

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

After five years

Total

2020
$m

500

600

–

1,100

–

2,200

2019
$m

–

600

973

–

1,573

At July 31, 2020 the Group has total available facilities, excluding bank overdrafts, of $5,118 million (2019: $3,870 million), of which $2,918 million is
drawn (note 20) and $2,200 million is undrawn (2019: $2,297 million and $1,573 million respectively). The Group does not have any debt factoring
or supply chain financing arrangements.

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 86 per cent (2019: 83 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 169. The net effect of
currency translation was to decrease revenue by $71 million (2019: decrease by $174 million) and to decrease trading profit by $1 million (2019:
decrease by $6 million). These currency effects primarily reflect a movement of the average US dollar exchange rate against pounds sterling and
Canadian dollars as follows:

Pounds sterling

Canadian dollars

2020
Strengthening
of USD

2019
Strengthening
of USD

2.1%

1.6%

4.4%

3.8%

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials
146

21 – Financial instruments and financial risk management continued
Foreign currency risk continued
Net debt excluding lease liabilities by currency was as follows:

Interest
rate swaps
$m

Cash and
borrowings
$m

US dollars

Pounds sterling

Other currencies

Total

–

(1,186)

(38)

173

(1,051)

(1,012)

2020

Total
$m

(1,147)

(38)

173

Interest
rate swaps
$m

Finance
lease
obligations
$m

Cash and
borrowings
$m

Currency
bought
forward
$m

–

(3)

–

(6)

(1,465)

169

(1,211)

–

2019

Total
$m

(1,450)

170

(1,195)

Currency bought forward comprises short-term foreign exchange contracts which were designated and effective as hedges of
overseas operations.

Net investment hedging
Exchange differences arising from the translation of the net investment in foreign operations are recognized in the statement of comprehensive
income and accumulated in the translation reserve. Gains and losses on those hedging instruments designated as hedges of the net investments
in foreign operations are recognized in equity in the statement of comprehensive income and accumulated in the translation reserve to the extent
that the hedging relationship is effective.

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 $368 million (2019:
$327 million). The loss on translation of those financial instruments into US dollars of $31 million (2019: $36 million gain) has been taken to the
statement of comprehensive income. There was no hedge ineffectiveness in the year.

Interest rate risk
At July 31, 2020, 85 per cent (2019: 80 per cent) of borrowings (excluding bank overdrafts) 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.

The interest rate profile of the Group’s net debt excluding lease liabilities, including the effect of interest rate swaps, is set out below:

US dollars

Pounds sterling

Other currencies

Total

Floating
$m

1,284

(38)

173

Fixed
$m

(2,431)

–

2020

Total
$m

(1,147)

(38)

173

1,419

(2,431)

(1,012)

Floating
$m

384

170

642

Fixed
$m

(1,834)

(3)

–

2019

Total
$m

(1,450)

170

(1,837)

(1,195)

The Group’s weighted average cost of debt is 5.4 per cent. Fixed rate borrowings at July 31, 2020 carried a weighted average interest rate of 3.7
per cent fixed for a weighted average duration of 7.0 years (2019: 3.9 per cent for 7.8 years). Floating rate borrowings, excluding overdrafts, at July
31, 2020 had a weighted average interest rate of 1.7 per cent (2019: 3.7 per cent).

The Group holds interest rate swap contracts comprising fixed interest receivable on $355 million of notional principal. These contracts expire
between November 2023 and November 2026 and the fixed interest rates range between 3.3 per cent and 3.5 per cent. These swaps were
designated as a fair value hedge against a portion of the Group’s outstanding debt.

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 financial impact for reasonable approximation of possible changes in interest rates
and exchange rates are as follows. The Group has estimated that an increase of one per cent in the principal floating interest rates to which it is
exposed would result in a credit to the income statement of $14 million (2019: $6 million). The Group has estimated that a weakening of the US
dollar by 10 per cent against financial instruments denominated in a foreign currency in which the Group does business would result in a charge
to the translation reserve of $52 million (2019: $10 million credit). The Group 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.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202022 – Provisions

At July 31, 2018

Utilized in the year

Changes in discount rate

(Credit)/charge for the year

Acquisition of businesses

Exchange rate adjustment

At July 31, 2019

Adjustment on adoption of IFRS 16

At August 1, 2019

Utilized in the year

Changes in discount rate

(Credit)/charge for the year

Acquisition of businesses

Exchange rate adjustment

At July 31, 2020

Environmental
and legal
$m

Ferguson
Insurance
$m

Restructuring
$m

Property
provisions
$m

Other
provisions
$m

(5)

(1)

–

(4)

(1)

(18)

–

(1)

–

(20)

–

(22)

–

(2)

(14)

(27)

–

(1)

–

(1)

–

(4)

–

(2)

(1)

(4)

–

(10)

–

Provisions have been analyzed between current and non-current as follows:

At July 31, 2020

Current

Non-current

Total provisions

At July 31, 2019

Current

Non-current

Total provisions

Environmental
and legal
$m

Ferguson
Insurance
$m

Restructuring
$m

Property
provisions
$m

Other
provisions
$m

Environmental
and legal
$m

Ferguson
Insurance
$m

Restructuring
$m

Property
provisions
$m

Other
provisions
$m

147

Total
$m

274

(50)

(7)

265

(1)

264

(56)

255

Total
$m

202

255

Total
$m

186

265

The environmental and legal provision includes $72 million (2019: $70 million) for the estimated liability for asbestos litigation on a discounted
basis using a long-term discount rate of 1.0 per cent (2019: 2.0 per cent). This amount has been actuarially determined as at July 31, 2020 based
on advice from independent professional advisers. The Group has insurance that it currently believes significantly covers the estimated liability
and accordingly an insurance receivable of $71 million (2019: $67 million) 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.

Ferguson 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 branch closure costs. The weighted average maturity of these obligations is approximately two years.

Property provisions include dilapidations on leased properties. The weighted average maturity of these obligations is approximately two years.

Other provisions include warranty costs relating to businesses disposed of. The weighted average maturity of these obligations is approximately
two years.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials148

23 – Retirement benefit obligations
(i) Long term benefit plans provided by the Group
The principal UK defined benefit plan is the Wolseley Group Retirement Benefits Plan which provides benefits based on final pensionable
salaries. 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 plan was closed to new entrants in 2009, it was closed to future service accrual
in December 2013, when it was replaced by a defined contribution plan, and during October 2016, it was closed for future non-inflationary
salary accrual.

In 2017, the Group secured a buy-in insurance policy with Pension Insurance Corporation for the UK defined benefit plan. This policy covered all
of the benefits provided by the plan to pensioner members at the time. The insurance asset is valued as exactly equal to the insured liabilities.
The deferred members of the plan at the time were not covered by this policy.

In 2019, the Group offered some deferred members of the UK defined benefit plan an enhanced transfer value to settle their benefits accrued
under the plan.

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.

In Canada, defined benefit plans and a defined contribution plan are operated. Most of the Canadian defined benefit plans are funded.
The contribution rate is calculated on the Projected Unit Credit Method as agreed with independent consulting actuaries.

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 30 per cent of the plan assets. For the remaining assets, the strategy is
to invest in a balanced portfolio of equities, government bonds, corporate bonds and securitized fixed income assets. The investment strategy is
subject to regular review by the trustees of the plan in consultation with the Company. For the non-UK plans, the investment strategy is to invest
predominantly in equities 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, growth assets and debt instruments. Due to the long-term nature of the plan liabilities,
the trustees of the pension plan consider the investment allocation an appropriate balance between higher return growth assets and lower risk
assets which provide protection against the inflation and interest risk inherent in the plan’s underlying liabilities.

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.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202023 – Retirement benefit obligations continued
(ii) Financial impact of plans

As disclosed in the Group balance sheet

Non-current asset

Non-current liability

Net (liability)/asset

Analysis of Group balance sheet net (liability)/asset

Fair value of plan assets

Present value of defined benefit obligations

Net (liability)/asset

UK
$m

Non-UK
$m

2,012

(2,039)

(27)

110

(144)

(34)

2020

Total
$m

2,122

(2,183)

(61)

UK
$m

1,788

(1,610)

178

Analysis of total expense recognized in the Group income statement

Administrative costs

Exceptional settlement losses, past service costs and administrative costs

Charged to operating costs (note 10)

Credited to finance costs (note 6)

Total expense recognized in the Group income statement

Expected employer contributions to the defined benefit plans for the year ending July 31, 2021 are $15 million.

The remeasurement of the defined benefit net liability is included in the Group statement of comprehensive income.

Analysis of amount recognized in the Group statement of comprehensive income

The return on plan assets (excluding amounts included in net interest expense)

Actuarial (loss)/gain arising from changes in demographic assumptions

Actuarial loss arising from changes in financial assumptions

Actuarial (loss)/gain arising from experience adjustments

Remeasurement of retirement benefit plans

Tax

Total amount recognized in the Group statement of comprehensive income

149

2020
$m

–

(61)

Non-UK
$m

116

(141)

(25)

2019
$m

178

(25)

153

2019

Total
$m

1,904

(1,751)

153

2020
$m

2019
$m

–

(3)

–

2020
$m

(62)

(211)

(58)

(235)

(191)

(5)

2019
$m

134

(210)

(36)

(30)

The cumulative amount of actuarial losses recognized in the Group statement of comprehensive income is $759 million (2019: $524 million).

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials150

23 – Retirement benefit obligations continued
(ii) Financial impact of plans continued
The fair value of plan assets is as follows:

At August 1

Interest income

Employers’ contributions

Benefit payments

Remeasurement gain:

Return on plan assets (excluding amounts included
in net interest expense)

Exchange rate adjustment

At July 31

Actual return on plan assets

UK
$m

1,788

(64)

140

2,012

133

Non-UK
$m

116

–

(9)

(2)

110

2020

Total
$m

1,904

(73)

138

2,122

138

Employers’ contributions included special funding contributions of $13 million (2019: $32 million).

The plan assets were invested in a diversified portfolio comprised of:

Equity type assets

Government bonds

Corporate bonds

Cash

Insurance policies

quoted

Securitized fixed income assets

Other

Total fair value of assets

The present value of defined benefit obligations is as follows:

At August 1

Current service costs (including administrative costs)

Past service costs

Interest cost

Benefit payments

Remeasurement loss/(gain):

Actuarial loss/(gain) arising from changes in demographic
assumptions

Actuarial loss arising from changes in financial assumptions

Actuarial loss/(gain) arising from experience adjustments

Exchange rate adjustment

At July 31

UK
$m

165

566

385

609

167

2,012

UK
$m

1,610

–

(64)

202

134

2,039

Non-UK
$m

–

110

Non-UK
$m

141

–

(9)

–

(2)

144

UK
$m

1,824

(110)

132

(140)

1,788

180

UK
$m

241

495

142

580

154

2020

Total
$m

230

589

397

609

167

2,122

1,788

2020

Total
$m

1,751

–

(73)

211

132

2,183

UK
$m

1,631

(110)

(38)

199

(126)

1,610

Non-UK
$m

121

(10)

(2)

116

Non-UK
$m

–

116

Non-UK
$m

140

–

(10)

–

(3)

(2)

141

2019

Total
$m

1,945

(120)

134

(142)

1,904

186

2019

Total
$m

310

520

154

580

154

101

1,904

2019

Total
$m

1,771

(120)

(38)

210

(2)

(128)

1,751

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020151

23 – Retirement benefit obligations continued
(ii) Financial impact of plans continued
An analysis of the present value of defined benefit obligations by funding status is shown below:

Amounts arising from wholly unfunded plans

Amounts arising from plans that are wholly or partly funded

Total present value of defined benefit obligations

(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

2020
$m

2,180

2,183

UK
%

2.2

3.2

2.1

2.8

2.1

UK
Years

2019
$m

1,748

1,751

2019

Non-UK
%

2.9

2.0

n/a

2.0

2.5

2019

Non-UK
Years

UK
%

1.5

2.9

2.1

2.6

2.1

UK
Years

2020

Non-UK
%

2.4

2.0

n/a

2.0

2.5

2020

Non-UK
Years

The weighted average duration of the defined benefit obligation is 21.1 years (2019: 22.0 years).

(iv) Sensitivity analysis
The Group considers that the most sensitive assumptions are the discount rate, inflation rate and life expectancy. The sensitivity analyses below
shows the (increase)/decrease on the Group’s defined benefit plan net liability of reasonably possible changes of the respective assumptions
occurring at the end of the reporting period, while holding all other assumptions constant.

Discount rate

Inflation rate

Life expectancy

Change

+0.25%

(0.25)%

+0.25%

(0.25)%

+1 year

UK
$m

(96)

(85)

(56)

2020

Non-UK
$m

(5)

–

Change

+0.25%

(0.25)%

+0.25%

(0.25)%

(5)

+1 year

UK
$m

(77)

(64)

(34)

2019

Non-UK
$m

(4)

–

(3)

The UK defined benefit plan holds a buy-in policy asset which exactly equals the insured liability. The above sensitivities are in respect of the
Group’s remaining defined benefit plan net liability.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials152

24 – Share capital
(i) Ordinary shares in issue

On May 10, 2019, pursuant to a Scheme of Arrangement under Article 125 of the Companies (Jersey) Law 1991, a new parent company was
introduced which is now called Ferguson plc (the “Company”). The previous parent company has been renamed as Ferguson Holdings Limited
(“Old Ferguson”).

Allotted and issued shares

Number/cost of ordinary 10 pence shares in the Company (million)

Number of
shares

232

2020

Cost
$m

Number of
shares

232

2019

Cost
$m

The authorized share capital of the Company is 500 million ordinary 10 pence shares (2019: 500 million ordinary 10 pence shares).

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:

2020

2019

Number of ordinary 11227/563 pence shares in Old Ferguson in issue at August 1

Cancellation of Treasury shares

Group reconstruction

Number of ordinary 11227/563 pence shares in Old Ferguson in issue at July 31

Number of ordinary 10 pence shares in the Company in issue at August 1

Initial subscriber shares issued on March 8, 2019

Group reconstruction

Redemption of initial subscriber shares

New shares issued to settle options

–

232,171,182

–

Number of ordinary 10 pence shares in the Company in issue at July 31

232,171,182

252,602,622

(20,611,650)

(231,990,972)

–

231,990,972

(2)

180,210

232,171,182

During the year, the Company issued nil (2019: 180,210) ordinary shares with a nominal value of 10 pence per share to participants in the long term
incentive plans and all-employee sharesave plans. Consideration received, net of transaction costs, amounted to $nil (2019: $9 million).

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020153

24 – Share capital continued
(ii) Treasury shares
The shares purchased under the Group’s buy back programs have been retained in issue as Treasury shares and represent a deduction from
equity attributable to shareholders of the Company.

A summary of the movements in Treasury shares in the year is detailed in the following table:

Treasury shares held by Old Ferguson at August 1

Disposal of Treasury shares to settle share options

Cancellation of Treasury shares

Treasury shares held by Old Ferguson at July 31

Treasury shares held by the Company at August 1

Treasury shares purchased under irrevocable commitment from prior year

Treasury shares purchased

Disposal of Treasury shares to settle share options

Treasury shares held by the Company at July 31

Treasury shares purchase irrevocably committed to at July 31

Treasury shares total cost at July 31

Number of
shares

–

2,036,945

2,139,221

3,452,349

(348,293)

7,280,222

Number of
shares

20,777,872

(166,222)

(20,611,650)

–

2,090,371

(53,426)

2,036,945

2020

Cost
$m

–

146

159

305

292

(27)

570

–

570

2019

Cost
$m

1,380

(11)

(1,369)

–

150

(4)

146

159

305

Consideration received in respect of shares transferred to participants in certain long term incentive plans and all-employee plans amounted
to $11 million (2019: $3 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:

Own shares in Old Ferguson at August 1

New shares purchased

Exercise of share options

Group reconstruction

Own shares in Old Ferguson at July 31

Own shares in the Company at August 1

Group reconstruction

New shares purchased

Exercise of share options

Own shares in the Company at July 31

Number of
shares

–

1,563,778

–

307,345

(593,776)

1,277,347

2020

Cost
$m

–

102

–

(40)

Number of
shares

1,426,605

540,000

(396,192)

(1,570,413)

–

1,570,413

–

(6,635)

1,563,778

2019

Cost
$m

(26)

(102)

–

102

–

102

Consideration received in respect of shares transferred to participants in the discretionary share option plans and long term incentive plans
amounted to $nil (2019: $nil). At July 31, 2020, the shares held in the trusts had a market value of $114 million (2019: $117 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 2020Other informationGovernanceStrategic reportFinancials154

25 – 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 attributable to shareholders

Net finance costs

Share of loss/(profit) after tax of associates

Gain on disposal of interests in associates and other investments

Impairment of interests in associates

Tax charge

Loss/(gain) on disposal and closure of businesses and revaluation of assets held for sale

Amortization of acquired intangible assets

Amortization of non-acquired intangible assets

Depreciation and impairment of right of use assets

Depreciation and impairment of property, plant and equipment

Gain on disposal of property, plant and equipment, assets held for sale and right of use assets

Decrease/(increase) in inventories

Decrease/(increase) in trade and other receivables

(Decrease)/increase in trade and other payables

Decrease in provisions and other liabilities

Share-based payments

Cash generated from operations

2020
$m

961

144

(7)

307

130

278

159

(3)

210

(9)

(25)

2019
$m

1,108

(2)

(3)

267

(53)

110

–

147

(7)

(172)

(132)

227

(25)

2,252

1,609

26 – Acquisitions
The Group acquired the following businesses during the year ended July 31, 2020, which are all engaged in the distribution of plumbing and
heating products and were acquired to support growth in the USA and UK. All transactions have been accounted for by the acquisition method
of accounting.

Name

Continental Product Engineering Ltd

Process Instruments & Controls, LLC

S. W. Anderson Sales Corporation

Columbia Pipe & Supply Co

Rencor Controls, Inc

MFP Design, LLC

Date of acquisition

August 2019

September 2019

November 2019

March 2020

Country of
incorporation

Shares/asset
deal

Acquired %

USA

Assets

100

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 202026 – Acquisitions continued
The assets and liabilities acquired and the consideration for all acquisitions in the year are as follows:

Intangible assets

Software

Trade names and brands

Customer relationships

Other

Right of use assets

Property, plant and equipment

Inventories

Trade and other receivables

Cash, cash equivalents and bank overdrafts

Obligations under finance leases

Lease liabilities

Trade and other payables

Deferred tax

Provisions

Total

Goodwill arising

Consideration

Satisfied by:

Cash

Deferred consideration

Total consideration

155

2020
$m

2019
$m

101

–

(30)

(28)

(11)

(2)

255

333

321

333

–

202

–

122

(3)

–

(71)

(33)

(2)

436

259

695

656

695

The fair values acquired are provisional figures, being the best estimates currently available. Further adjustments may be necessary when
additional information is available for some of the judgmental areas.

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

The acquisitions contributed $185 million to revenue, $15 million to trading profit, $17 million loss to the Group’s operating profit, $24 million loss
to the Group’s profit before tax and $18 million loss to the Group’s profit after tax for the period between the date of acquisition and the balance
sheet date.

If each acquisition had been completed on the first day of the financial year, continuing revenue would have been $21,993 million, continuing
trading profit would have been $1,686 million, continuing operating profit would have been $1,419 million, continuing profit before tax would have
been $1,253 million and continuing profit after tax would have been $949 million.

The net outflow of cash in respect of the purchase of businesses is as follows:

Purchase consideration

Deferred and contingent consideration in respect of prior year acquisitions

Cash consideration

Cash, cash equivalents and bank overdrafts acquired

Net cash outflow in respect of the purchase of businesses

2020
$m

321

357

(6)

351

2019
$m

656

668

(11)

657

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials156

27 – Reconciliation of opening to closing net debt

Cash
and cash
equivalents
(note 18)
$m

Bank
overdrafts
(note 20)
$m

Total
cash, cash
equivalents
and bank
overdrafts
$m

Derivative1
financial
instruments
(note 21)
$m

At July 31, 2018

Cash movements

Proceeds from loans and derivatives

Repayments of loans

Finance lease capital payments

Changes in net debt due to disposal of
businesses

Changes in net debt due to acquisition of
businesses

Other cash flows

Non-cash movements

Fair value and other adjustments

Exchange movements

At July 31, 2019

Adjustment on adoption of IFRS 16

At August 1, 2019

Cash movements

Proceeds from loans and derivatives

Repayments of loans

Lease liability capital payments²

Interest paid on lease liabilities²

Changes in net debt due to acquisition of
businesses

Other cash flows

Non-cash movements

Lease liability additions

Changes in lease liabilities due to
acquisition of businesses

Discount unwinding on lease liabilities

Fair value and other adjustments

Exchange movements

At July 31, 2020

1. Liabilities from financing activities.

833

(375)

458

1,133

–

1,133

(47)

–

(47)

–

(1)

628

–

(10)

1,086

–

1,086

–

771

–

2,115

(248)

1,867

Obligations1
under
finance
leases
$m

Net debt
excluding
lease
liabilities
$m

Lease1
liabilities
(note 13)
$m

(6)

(1,080)

–

(3)

–

(757)

(1)

628

(1)

(2,297)

(6)

(1,195)

Net debt
including
lease
liabilities
$m

(1,080)

(757)

(1)

628

(1)

(1,195)

–

(1,481)

(1,475)

(1,189)

(1,481)

(2,670)

(1,169)

566

–

771

–

(5)

–

295

–

(1,169)

566

295

771

(115)

(30)

(53)

(16)

(8)

(30)

(53)

(8)

(13)

(1,012)

(1,355)

(2,367)

Loans1
(note 20)
$m

(1,530)

(750)

–

(26)

–

(2,297)

(2)

(7)

–

(7)

(1,162)

–

566

–

(4)

(20)

(5)

(2,918)

2. Total cash outflow in relation to leases including short-term leases, leases of low value assets and sublease income in the year ended July 31, 2020, was $377 million.

Notes to the consolidated financial statements (continued)Year ended July 31, 2020Ferguson plc Annual Report and Accounts 2020157

28 – Related party transactions
The Group purchases goods and services from a company which is an indirect wholly owned subsidiary of a company whose chief executive
officer is also a Ferguson Non Executive Director. In the year ended July 31, 2020, the Group purchased goods and services totaling $18 million
(2019: $7 million) from and owed $nil (2019: $nil) to this company. The goods and services are purchased on an arm’s-length basis.

There are no other related party transactions requiring disclosure under IAS 24 “Related Party Disclosures” in the years ended July 31, 2020 and
July 31, 2019 other than the compensation of key management personnel which is set out in note 10.

29 – 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 unfavorable 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 crystallize, though it is possible that claims in respect of which no provision has been made could crystallize 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, appropriate provisions have been made in respect of claims relating to businesses disposed of.

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, 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 unfavorable outcome arising from such litigation is not expected to have
a material adverse effect on the financial position of the Group.

30 – Events after the reporting period
There are no post-balance sheet events requiring disclosure under IAS 10 “Events after the Reporting Period”.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials158

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 of Ferguson plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of

the Company’s affairs as at July 31, 2020 and of the Group’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 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”; and

– the financial statements have been prepared in accordance with the requirements of Companies (Jersey) Law, 1991.
We have audited the financial statements which comprise:
– the Group and Company income statements;
– the Group statement of comprehensive income;
– the Group and Company statements of changes in equity;
– the Group and Company balance sheets;
– the Group cash flow statement;
– the notes to the consolidated financial statements 1 to 30; and
– the notes to the Company’s 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 Company financial statements is applicable
law and United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”
(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 Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (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. The non audit services provided to the Group and Company for the
year are disclosed in note 4 to the financial statements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the Company.
While the Company is not a public interest entity subject to European Regulation 537/2014, the Directors have decided that the Company should
follow the same requirements as if that Regulation applied to the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Summary of our audit approach

Key audit
matters

The key audit matters that we identified in the current year were:
– Valuation and existence of inventory;
– Revenue recognition; and
– First year adoption and reporting of IFRS 16

Materiality

The materiality that we used for the Group financial statements was $55 million which was determined on the basis of approximately 5% of profit before tax.

Scoping

Significant
changes
in our
approach

We have performed a full scope audit at one component, being the USA, and on the consolidation process. We have performed audits of certain specified
account balances at two components, Canada and UK and in two head office companies. Our components within the scope of our audit represent 100% of
the Group’s revenue, 98% of the Group’s profit before tax and 99% of the Group’s net assets.

Our approach is consistent with previous year with the exception of:
– a change in the level at which we set materiality, to be 5% of forecast profit before tax, whereas in the prior year it was determined to be approximately 5%

of profit before tax excluding exceptional items and impairment of interests in associates;

– a change in the scope of our audit work in the UK from a full-scope audit to an audit of certain specified account balances due to a reduction in the scale

and significance of the UK business to the Group in the current year;

– appropriateness of supplier rebates is no longer a key audit matter as the Group has further improved its estimation methodology in the current year and

we no longer consider the accrual for tiered rebates to be overly prudent, reducing the level of required audit procedures;

– inventory remains a key audit matter but it has been expanded to capture all of our procedures over valuation and existence in the current year, given the

extent of our audit work in that area. It was previously just focused on the provision for slow-moving and obsolete inventory;

– our audit of revenue has become a more significant area of audit focus in the current year as a result of our reduced materiality level, our evaluation of the

design and implementation of controls and increased levels of substantive testing; and

– the first year adoption and disclosure of IFRS 16 has required a significant level of audit effort auditing the initial adoption assumptions and the first year of

reporting under this new standard.

Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed 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’s and Company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact of the
COVID-19 pandemic and Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the
Directors’ assessment of the Group’s ability to continue as a going concern, including challenging the underlying data and key assumptions used to
make the assessment, and evaluated the Directors’ plans for future actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3)
and report if the statement is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Ferguson plc Annual Report and Accounts 2020159

Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were consistent with the knowledge we obtained in the course of
the audit, including the knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue as a
going concern, we are required to state whether we have anything material to add or draw attention to in relation to:
– the disclosures on pages 53 to 59 that describe the principal risks, procedures to identify emerging risks, and an explanation of how these are

being managed or mitigated;

– the Directors’ confirmation on page 54 that they have carried out a robust assessment of the principal and emerging risks facing the Group,

including those that would threaten its business model, future performance, solvency or liquidity; or

– the Directors’ explanation on page 54 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.

We are also required to report whether the Directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

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.

Valuation and existence of inventory

Key audit
matter
description

The Group had inventories of $2,880 million at July 31, 2020, held in distribution centres and numerous branches, and across multiple product lines.
Details of its valuation are included in the Audit Committee Report on page 77 and the accounting policies in note 1 to the consolidated financial
statements.

How the
scope of
our audit
responded
to the key
audit matter

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. As outlined in Note 16 to the consolidated financial statements, inventories are net of a provision of $209 million, which is
primarily driven by comparing the level of inventory held to future projected sales.

Given the highly disaggregated nature of the inventory balance across the Group’s distribution centre and branch locations, management employs a
range of inventory counting procedures to record the existence and condition of inventory. These include perpetual cycle count controls and full wall-
to-wall counts, which vary by business and by location. Approximately half of the Group’s inventory is subject to perpetual cycle counting programmes,
and the other half is subject to wall-to-wall counting, typically twice per year. In the current year, as a result of localised lockdowns in place as a result of
COVID-19, management has had to modify the nature and timing of its inventory count procedures for those locations normally subject to a full wall-to-wall
counts prior to year-end.

Management’s revised approach to inventory counting in the current year has meant increased audit effort has been required to validate the existence
and condition of inventory, through observation of management’s own count processes and performing our own independent counting.

We still consider the assessment of inventory provisions to require judgement based on the size of the balance held at year-end and the manual
intervention required in the provision calculation.

As a result of the above factors the audit of the valuation and existence of inventory has had a significant effect on the overall audit strategy, the allocation
of resources and the efforts of the engagement team.

We have performed the following procedures in respect of this key audit matter:

Valuation
– evaluated the design and implementation of relevant inventory controls operating across the Group, including those at a sample of distribution centres,

warehouses and branches;

– formed an expectation of the inventory obsolescence reserve at year-end based on prior year ratios and compared the Group’s inventory obsolescence

balance against our expectation;

– performed analytics to determine whether there is any significant change in the product lines requiring provision and whether there is any indication the

provision may be overstated as a result;

– tested the data included in the provision models by agreeing a sample of historic demand to supporting evidence of the sale;
– extended management’s model to include older historic data and extrapolated the demand trend-lines to assess whether management’s assumptions

do not result in a material difference in the level of provision required;

– compared 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; and

– assessed the basis on which the cost of inventory had been determined, including selecting a sample of inventory items and agreeing the basis for

determining inventory cost to supporting audit evidence, such as purchase invoices.

Existence
– evaluated the design and implementation of relevant inventory controls operating across the Group, including those at a sample of distribution centres,

warehouses and branches;

– evaluated the design and implementation of the general IT controls associated with the relevant IT systems for inventory, including the system

responsible for managing the perpetual cycle count programme;

– physically observed management’s count procedures over inventory close to the year-end date and performed independent count procedures in

relation to 59 locations across the Group, including distribution centres and branches. Two locations were observed on a virtual basis, using a live video
feed;

– performed procedures to roll forward or roll back the results of our independent test counting to the balance sheet date; and
– considered the results of our independent counts, including investigating any variations and considering the impact in the context of the inventory

balance as a whole.

Key
observations

We consider the Group’s provisioning methodology to be conservative 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 financial result as at July 31, 2020.

Our work on the existence of inventory was completed as planned and, after taking into account any count variances observed, we are satisfied that the
Group’s inventory is not materially misstated.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials160

Independent auditor’s report to the members of Ferguson plc (continued)

Revenue recognition

Key audit
matter
description

How the
scope of
our audit
responded
to the key
audit matter

Revenue from continuing operations was $21,819 million for the year ended July 31, 2020.

As disclosed in the Group’s accounting policy note on revenue (Note 1), revenue is recognised when the customer obtains control of the goods. This is
considered to be the point where goods are delivered to or collected by the customer.

The revenue population typically comprises high volume, low value transactions and as such, the Group has no contracts with an expected duration of
more than one year. The majority of the Group’s revenues occur through its branch network and control of the goods passes on the same day, requiring little
estimation or judgement.

Based on the nature of the Group’s revenues, the results of our audit work from prior years and a detailed risk assessment in the current year, we have
rebutted the presumed risk of fraud in revenue recognition.

Our audit of revenue is one of the key determinants of our overall audit strategy, has involved a significant allocation of resources throughout the audit and
has represented one of the key areas of focus in directing the efforts of the engagement team. It has become a more significant area of audit focus in the
current year as a result of our reduced materiality level, our evaluation of the design and implementation of controls and increased levels of substantive
testing. It has therefore been included as a key audit matter.

We have performed the following procedures in respect of this key audit matter:

– evaluated the design and implementation of relevant controls over the revenue cycle throughout the Group, evaluating the design and implementation of

relevant IT system general IT controls;

– tested a sample of revenue transactions during the period to supporting invoices and bills of lading and/or cash receipts;
– tested the completeness of revenue by agreeing a sample of cash receipts back to the general ledger to determine whether they had been appropriately

recorded;

– tested the cut-off of revenue at year-end, by agreeing a sample of revenue transactions to proof of deliveries on either side of the year-end to determine

whether they had been recorded in the correct period;

– tested a sample of manual adjustments to revenue by agreeing to supporting evidence and to determine whether they had been appropriately

approved; and

– assessed whether the disclosures within the financial statements are in compliance with the requirements of IFRS 15.

Key
observations

We are satisfied that revenue is not materially misstated and the disclosures made by management are in accordance with the requirements of IFRS 15.

As part of our audit, we highlighted areas in the Group’s control environment which require further enhancement. Further detail on these can be found in the
Audit Committee report on page 80. As a result, we adopted a fully substantive approach to the audit of revenue.

First year adoption and reporting of IFRS 16

Key audit
matter
description

As outlined in Note 1 to the financial statements, IFRS 16 has come into effect for the Group for the year ended July 31, 2020 and has superseded the
previous lease accounting standard IAS 17.

The Group has adopted IFRS 16 using the modified retrospective approach with the cumulative effect of initially applying the standard recognised at the
date of initial application. Management recorded an opening adjustment which created a $1,220 million right of use asset and $1,481 million lease liability.

As outlined in Note 1 to the financial statements on page 119, on transition the Group applied significant judgement in recognising reasonably certain
extension or termination options on its leases, totalling $564 million. The majority of these related to property lease extension options. This represents a
critical accounting judgement for the group, as outlined on page 120.

The Group also had to make judgements and estimates around which practical expedients to apply, and what discount rates to use in determining the lease
liability and right of use asset.

How the
scope of
our audit
responded
to the key
audit matter

The Group’s principal accounting policy on IFRS 16 is disclosed on page 122.

The associated audit work on the adoption of the standard, the assumptions made on transition about reasonably certain lease extension or termination
options, current year movements in the balance and the adoption disclosures required a significant allocation of resources and has been a key area of focus
in directing the efforts of the engagement team.

We have performed the following procedures in respect of this key audit matter:

Opening transition adjustment
– challenged the reasonably certain lease extension/termination assumptions for properties, particularly in the US, with reference to historical data

demonstrating the Group’s past history of extension or termination and through review of the Group’s strategic plan. We tested the underlying data by
agreeing to supporting evidence;

– tested the equivalent extension assumptions for the US vehicle lease portfolio, with reference to past activity;
– in conjunction with our valuation specialists, tested management’s methodology in calculating the incremental borrowing rate;
– tested the mechanical accuracy of the calculation by selecting a sample of leases, tracing key inputs to original contracts and comparing our recalculation

to management’s lease schedule;

– tested the reconciliation from IAS 17 operating lease commitment disclosures to IFRS 16 opening balances recognised.

Current year accounting and disclosures
– evaluated the design and implementation of the Group’s controls over IFRS 16;
– in conjunction with our valuation specialists, tested management’s methodology in calculating the incremental borrowing rate;
– tested the movements in the IFRS 16 balances during the year; and
– assessed whether the disclosures within the financial statements are appropriate in light of the requirements of IAS 1 ‘Presentation of Financial

Statements’ and IFRS 16.

Key
observations

We conclude that the amounts recognised on adoption and the disclosures made within the financial statements are appropriate and in accordance with
IFRS 16.

Ferguson plc Annual Report and Accounts 2020161

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 financial statements

Materiality

$55 million (2019: $70 million)

Company financial statements

$28 million (2019: $28 million)

Basis for
determining
materiality

Materiality was originally determined on the basis to be 5% of forecast profit before tax, which
represents a reduction from the prior year when it was determined to be approximately 5% of profit
before tax excluding exceptional items and impairment of interests in associates.

Materiality was determined on the basis of the
Company’s net assets. This was then capped at the
lowest component materiality.

In the current year, we changed our benchmark to be a closer representation of statutory
performance rather than adjusting for certain items. Our materiality also reflects the uncertainty
over the Group’s actual profit outturn prior to year-end, given wider macroeconomic factors due to
COVID-19. As a result, it equates to 4.4% of the final profit before tax.

Profit before tax is a key metric for users of the financial statements and reflects the manner in which
business performance is reported and assessed by external users of the financial statements.

Rationale
for the
benchmark
applied

The entity is non-trading and contains investments in
all of the Group’s trading components and as a result,
we have determined net assets for the current year
to be the appropriate basis.

$1,261m

Profit before tax

Group materiality

Group materiality $55m
Component materiality range $50m to $28m

Audit Committee reporting threshold $2.75m

Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 65% of Group materiality for
the 2020 audit (2019: 70%). In determining performance materiality, we considered the following factors:
– our cumulative experience from prior year audits;
– the level of corrected and uncorrected misstatements identified;
– our risk assessment, including our understanding of the entity and its environment; and
– our assessment of the Group’s overall control environment in light of COVID-19.

Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $2.75 million (2019: $3.5 million), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds. 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.
Based on that assessment we focused our Group audit scope primarily on the audit work performed at components in the USA, Canada and the
UK. Full scope audits were performed by local component auditors in the US, whilst specified account balance audits were performed by local
component auditors in Canada and the UK and in two head office companies. The Company is located in the UK and is audited directly by the Group
audit team. Our audit work on the three components was executed at levels of materiality applicable to each individual entity which were lower than
Group materiality and ranged from $28 million to $50 million (2019: $28 million to $60 million).
Our components within the scope of our audit represent 100% of the Group’s revenue (2019: 99%), 98% of the Group’s profit before tax (2019: 96%)
and 99% of the Group’s net assets (2019: 93%).
At the Group level we also tested the consolidation process and 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 or audit of specified
account balances.
As part of our oversight of the component teams, planning meetings were also held with key component audit teams. The purpose of these planning
meetings was to determine whether the component teams had a good level of understanding of the Group’s businesses, its core strategy and
significant risks.
We sent our component teams detailed instructions, included them in our team briefings and discussed their risk assessment. We also provided
direction on enquiries made by the component auditors through online and telephone conversations. All the findings noted were discussed with the
component auditors in detail and further procedures to be performed were issued where relevant.
In response to the COVID-19 pandemic, which limited our ability to make component visits, more frequent calls were held between the Group and
component teams and remote access to relevant documents was provided. Given the pandemic, the majority of our year-end audit was performed
under a remote working environment. Throughout this time, we increased the frequency of our meetings with the audit team and with management
to ensure progress. Other than the two instances where we needed to perform virtual stock counts, we were able to perform our procedures without
needing to make substantial changes to our planned approach.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials162

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 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 the 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 position and
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 required under the Listing

Rules 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 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 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws and
regulations are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.

Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit
procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.

Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
– the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration policies, key

drivers for directors’ remuneration, bonus levels and performance targets;

– results of our enquiries of management, internal audit and the Audit Committee about their own identification and assessment of the risks

of irregularities;

– any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:

– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

– the matters discussed among the audit engagement team including significant component audit teams and involving relevant internal specialists,
including tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial statements and any potential
indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in classification of exceptional items. In common with all audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws and
regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations
we considered in this context included the included the UK Companies Act, Jersey Law, Listing Rules, pension legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with
which may be fundamental to the Group’s ability to operate or to avoid a material penalty.

Ferguson plc Annual Report and Accounts 2020163

Audit response to risks identified
As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance with laws
and regulations.
In addition to the above, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and

regulations described as having a direct effect on the financial statements;

– enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation and claims;
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with tax

authorities; and

– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments;

assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of
any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.

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
Companies Act 2006 as if that Act 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 the 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
– proper accounting records have not been kept by the Company, or proper returns adequate for our audit have not been received from branches

not visited by us; or

– the Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also required to report 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 members of the Annual General Meeting on November 12, 2015
to audit the financial statements for the year ending July 31, 2016 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 5 years, covering the years ending July 31, 2016 to July 31, 2020.

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).

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
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.

Ian Waller
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Recognised Auditor
London, UK

September 28, 2020

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials164

Company income statement
Year ended July 31, 2020

Administrative expenses

Operating loss

Income from shares in Group undertakings²

Impairment of investments

Profit/(loss) on ordinary activities before interest

Interest receivable and similar income

Interest payable and similar charges

Profit/(loss) for the financial year/period

1. For the period from March 8, 2019 to July 31, 2019.

2. Includes $13,107 million distribution in specie, see note 3 on pages 166 and 167 for details.

Company statement of changes in equity
Year ended July 31, 2020

Notes

2020
$m

(38)

14,028

(11,276)

2,714

(7)

2,724

2019¹
$m

(14)

–

(14)

–

(11)

Loss for the period

Scheme of Arrangement

Capital reduction

Issue of share capital

Credit to equity for share-based payments

Purchase of Treasury shares

Disposal of Treasury shares

At July 31, 2019

Profit for the year

Own shares transfer

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 July 31, 2020

Called up
share capital
$m

Notes

–

Share
premium
$m

–

16,150

(16,150)

–

Treasury
shares
reserve
$m

Own shares
reserve
$m

Retained
earnings
$m

–

(309)

(305)

–

(292)

–

(113)

–

(11)

–

16,150

–

(2)

16,146

2,724

113

(2)

–

(16)

(327)

Total
shareholders’
equity
$m

(11)

16,180

–

(309)

15,880

2,724

–

(292)

(327)

(570)

(111)

18,664

18,022

Ferguson plc Annual Report and Accounts 2020Company balance sheet
Year ended July 31, 2020

165

Fixed assets

Investments in subsidiaries

Current assets

Debtors: amounts falling due within one year

Cash at bank and in-hand

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

2020
$m

2019
$m

18,037

16,180

(21)

(15)

–

(300)

18,022

15,880

(570)

(111)

18,664

18,022

(305)

–

16,146

15,880

The accompanying notes are an integral part of these Company financial statements.

The Company financial statements on pages 164 to 167 were approved by the Board of Directors on September 28, 2020 and were signed
on its behalf by:

Kevin Murphy
Group Chief Executive

Mike Powell
Group Chief Financial Officer

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials

166

Notes to the Company financial statements
Year ended July 31, 2020

1 – Corporate information
Ferguson plc (the “Company”) was incorporated and registered
in Jersey on March 8, 2019 under the Jersey Companies Law as a
limited company under the name Alpha JCo Limited with company
number 128484. On March 26, 2019 the Company was converted
to a public company and changed its name to Ferguson NewCo plc
(subsequently changed to Ferguson plc on May 10, 2019). 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. The Company is headquartered in the UK.

The principal activity of the Company is to act as the ultimate holding
company of the Ferguson Group of companies.

2 – Company accounting policies
Basis of accounting
The separate financial statements of the Company are presented in
compliance with the requirements for companies whose shares are
traded on the London Stock Exchange’s main market. They have
been prepared on a going concern basis and under the historical
cost convention and in accordance with the Companies (Jersey) Law
1991 and United Kingdom Generally Accepted Accounting Practice
(“UK GAAP”) including FRS 102 (Financial Reporting Standard 102)
“The Financial Reporting Standard applicable in the UK and Republic
of Ireland” as issued by the FRC.

As permitted by FRS 102, the Company has taken advantage of the
disclosure exemptions available under that standard as a qualifying
entity in relation to share-based payments, financial instruments,
presentation of a cash flow statement, key management personnel
and related party transactions.

Note 4 (Operating profit) on page 131, note 8 (Dividends) on page 134,
note 24 (Share capital) on pages 152 and 153 and note 30 (Events after
the reporting period) on page 157 of the Ferguson plc consolidated
financial statements form part of these financial statements.

Foreign currencies
The financial statements are presented in US dollars which is the
functional currency of the Company at July 31, 2020.

Foreign currency transactions entered into during the year are
translated into US dollars 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.

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.

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 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 shareholders
of the Company until the shares are canceled, 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 shareholders of the Company.

Share-based payments
Share-based incentives are provided to employees of the Group under
the Group’s long term incentive plans and all-employee sharesave
plans. The Company recognizes 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 the 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 recognized 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 recognized in the Company’s
financial statements in the period in which the dividends are paid
or approved by the shareholders of the Company. company of the
Ferguson Group of companies.

3 – Fixed asset investments

Cost

At August 1

Scheme of Arrangement

Dividend in specie

Additions

Disposals

At July 31

Accumulated impairment losses

At August 1

Impairment charge for year

Disposals

At July 31

Net book value at July 31, 2020

Net book value at July 31, 2019

2020
$m

16,180

2019
$m

–

16,180

13,107

4,956

(16,206)

18,037

–

(11,276)

11,276

–

18,037

16,180

–

16,180

–

16,180

–

On December 9, 2019 the Company received a dividend in specie
from Ferguson Holdings Limited of its shares in Wolseley Limited at the
fair value at that date of $13,107 million. A provision for impairment was
subsequently recorded against the Company’s investment in Ferguson
Holdings Limited.

On December 9, 2019 the Company disposed of its investment in
Ferguson Holdings Limited to Wolseley Limited in exchange for an
issue of new ordinary shares in Wolseley Limited.

All of the above investments are in unlisted shares. The Directors
believe that the carrying value of the investments at July 31, 2020 is
supported by the recoverable amount of their underlying assets.

Ferguson plc Annual Report and Accounts 2020167

3 – Fixed asset investments continued

The Company’s direct holdings in subsidiary undertakings as at July 31,
2020 were as follows:

9 – Own shares reserve continued
A summary of the movements in own shares held in the Employee
Benefit Trusts is detailed in the table below:

Company

Country of
incorporation

Principal
activity

Ordinary shares
held %

Wolseley Limited

England and Wales

Investment

100

Details of the subsidiary undertakings of the Company, including those
that are held indirectly, are listed on pages 170 and 171 of the Ferguson
plc Annual Report.

4 – Debtors: amounts falling due within one year

Other debtors

Amounts owed by Group companies

Total

2020
$m

2019
$m

–

The fair value of amounts included in debtors approximates to
book value.

5 – Creditors: amounts falling due within one year

Bank overdrafts

Other creditors

Amounts owed to Group companies

Total

2020
$m

–

2019
$m

159

140

300

In 2019, other creditors comprised $159 million payable in relation to
the irrevocable and non-discretionary share buy back program.

The fair value of amounts included in creditors approximates to
book value. Amounts owed to Group companies are interest bearing,
carrying an interest rate of 0.3 per cent and are payable on demand.

6 – Share capital
Details of the Company’s share capital are set out in note 24
on pages 152 and 153 to the Ferguson plc consolidated
financial statements.

7 – Share premium account
Details of new share capital subscribed are set out in note 24
on pages 152 and 153 to the Ferguson plc consolidated
financial statements.

8 – Treasury shares
Details of Treasury shares are set out in note 24 on pages 152 and 153
to the Ferguson plc consolidated financial statements.

9 – Own shares reserve
During the year, shares in the Company held by the Jersey Employee
Benefit Trust owned by Ferguson Holdings Limited were transferred
into a new Jersey Employee Benefit Trust owned by the Company by
way of a deed of resettlement. In addition, the USA Employee Benefit
Trust was reassigned from Ferguson Holdings Limited to the Company.
The shares were recorded at fair value at the date of the transfer.

The shares held by both of these trusts have been consolidated
within the Company’s balance sheet as at July 31, 2020 and amount to
$111 million.

Own shares transfer

Exercise of share options

At July 31, 2020

Number of
shares

1,296,447

(19,100)

1,277,347

Cost
$m

113

(2)

111

10 – Share-based payments
The net profit and loss charge to the Company for equity-settled
share-based payments was $nil (2019: $nil). The Company charged
the full amount incurred for equity-settled share-based payments of
$26 million (2019: $9 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.

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 Company acts as a guarantor for the Group’s UK defined benefit
pension plan, which is disclosed in note 23 on pages 148 to 151 to the
Ferguson plc consolidated financial statements.

12 – Employees, employee costs
and auditor’s remuneration
There were no employees or direct employment costs in 2020 or
2019. Other employees of Group companies may be seconded or
assigned to the Company in order to fulfill 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.

Fees payable to the auditor for the audit of the Company’s financial
statements are set out in note 4 on page 131 to the Ferguson plc
consolidated financial statements.

13 – Dividends
Details of the Company’s dividends are set out in note 8 on page 134
to the Ferguson plc consolidated financial statements.

14 – Related party transactions
The Company is exempt under the terms of FRS 102 from disclosing
related party transactions with entities that are 100 per cent owned.

15 – Events after the reporting period
Details of events after the reporting period are given in note 30 on
page 157 to the Ferguson plc consolidated financial statements.

Ferguson plc Annual Report and Accounts 2020Other informationGovernanceStrategic reportFinancials168

Five-year summary

Revenue

USA

Canada and Central Europe

Continuing operations

Underlying trading profit¹

USA

Canada and Central Europe

Central and other costs

Continuing operations

Impact of IFRS 16

Amortization of acquired intangible assets

Impairment of goodwill and acquired intangible assets

Exceptional items

Operating profit

Net finance costs

Share of (loss)/profit after tax of associates

Gain on disposal of interests in associates and other investments

Impairment of interests in associates

Profit before tax

Tax

Profit from continuing operations

Profit/(loss) from discontinued operations

Profit for the year attributable to shareholders of the Company

Ordinary dividends

Special dividend

Total dividends

Net assets employed

Intangible fixed assets

Right of use assets

Property, plant and equipment

Other net assets, excluding liquid funds

Financed by

Share capital

Share premium

Retained earnings and other reserves

Equity attributable to shareholders of the Company

Net debt¹

Lease liabilities

Net assets employed

2020
$m

2019
$m

2018
$m

2017
$m

2016
$m

18,857

1,879

1,083

21,819

18,358

2,281

1,371

22,010

16,670

2,568

1,514

20,752

15,193

2,548

1,543

19,284

13,808

2,915

1,602

18,325

1,587

1,508

1,406

(35)

(43)

(55)

1,603

1,606

1,507

(130)

–

(120)

1,422

(144)

(2)

(22)

1,261

(307)

954

961

(327)

–

(327)

2,242

1,111

1,389

1,996

6,738

4,332

4,371

1,012

1,355

6,738

–

(110)

–

(94)

1,402

(74)

(9)

1,324

(263)

1,061

1,108

(449)

–

(449)

2,079

–

1,349

2,117

5,545

4,311

4,350

1,195

–

5,545

–

(65)

–

(82)

1,360

(53)

–

(122)

1,187

(346)

841

426

1,267

(390)

(974)

(1,364)

1,716

–

1,086

2,336

5,138

3,946

4,058

1,080

–

5,138

1,224

(50)

1,341

–

(81)

–

218

1,478

(54)

(1)

–

1,423

(370)

1,053

(133)

920

(328)

–

(328)

1,413

–

1,068

2,768

5,249

4,431

4,543

706

–

5,249

1,132

108

(66)

1,251

–

(70)

(125)

(6)

1,050

(71)

–

979

(307)

672

159

831

(350)

–

(350)

1,460

–

1,897

1,721

5,078

3,728

3,840

1,238

–

5,078

Ferguson plc Annual Report and Accounts 2020169

Continuing operations (unless otherwise stated)

Organic revenue growth (ongoing)¹

Gross margin (before exceptional items)

Underlying trading margin¹

Headline earnings per share¹

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

Return on gross capital employed¹

Cash generated from operations from continuing
and discontinued operations ($m)

Average number of employees

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 (million)

Number of branches at year-end

Continuing operations

Discontinued operations

Total branches

Pounds sterling translation rate

Income statement

Balance sheet

Canadian dollars translation rate

Income statement

Balance sheet

1. Alternative performance measures, see note 2 on pages 124 to 127.

2020

(0.1)%

29.4%

7.3%

511.6c

427.5c

208.2c

–

2.5

2019

5.8%

29.4%

7.3%

517.4c

481.3c

208.2c

–

2.5

23.9%

26.2%

2,252

34,637

1,609

35,939

2018

9.7%

29.2%

7.3%

444.4c

515.7c

189.3c

400.0c

2.3

22.7%

1,323

34,056

2017

7.0%

29.0%

7.0%

366.1c

156.4c

–

2.3

2016

4.4%

28.6%

6.8%

342.7c

327.8c

132.1c

–

2.6

18.6%

17.5%

1,410

33,511

1,488

32,269

224.8

230.2

245.7

251.3

253.5

2,194

–

2,194

0.79

0.76

1.35

1.34

2,259

–

2,259

0.78

0.82

1.32

2,280

–

2,280

0.74

0.76

1.27

1.30

2,310

239

2,549

0.79

0.76

1.32

1.25

2,498

256

2,754

0.68

0.76

1.33

1.30

Ferguson plc Annual Report and Accounts 2020FinancialsGovernanceStrategic reportOther information170

Group companies

The Ferguson Group comprises a large number of companies. This list includes only those subsidiaries owned by the Company at July 31, 2020
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

Ferguson Enterprises, LLC

Ferguson Finance (Switzerland) AG

Ferguson Finance plc

Ferguson Global AG

Ferguson Group Services Limited

Ferguson Insurance Limited

Ferguson US Holdings, Inc.

Wolseley Canada Inc.

Wolseley Capital, Inc.

Wolseley Limited

Wolseley UK Limited

Principal activity

Operating company

Financing company

Operating company

Service company

Operating company

Investment company

Operating company

Financing company

Investment company

Operating company

Country of incorporation

USA

Switzerland

England and Wales

Switzerland

England and Wales

Isle of Man

USA

Canada

USA

England and Wales

All shareholdings in the above mentioned companies are held by intermediate subsidiary undertakings except Wolseley Limited which is a direct subsidiary undertaking.

1.
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 and companies in which a Ferguson Group company has a controlling interest and associated undertakings as at
July 31, 2020. 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
A. C. Electrical Holdings Limited (England)(viii)(18)
A. C. Electrical Wholesale Limited (England)(iii)(18)
A C Ferguson Limited (Scotland)(ii)(iii)(15)
Advancechief Limited (England)(ii)(iii)(2)
AMRE Supply Canada Inc. (Canada)(ix)(9)
British Fittings Central Limited (England)(ii)(iii)(2)
British Fittings Company (North Eastern)
Limited (England)(ii)(viii)(2)
British Fittings Group Limited (England)(ii)(viii)(2)
British Fittings Limited (England)(ii)(iii)(2)
Broughton’s Limited (England)(ii)(iii)(2)
Build.com, Inc. (USA)(ix)(1)
Builder Center Limited (England)(ii)(iii)(2)
Building and Engineering Plastics Limited
(England)(ii)(iii)(2)
Caselco Limited (England)(ii)(iii)(2)
Clawfoot Supply, LLC (USA)(x)(1)
Clayton International, LLC (USA)(x)(1)
Columbia Pipe & Supply, LLC (USA)(x)(1)
Continental Product Engineering Limited
(England)(iii)(18)
Crew-Davis Limited (England)(ii)(iii)(2)
DBS Holdings, Inc. (USA)(ix)(1)
Energy & Process Corporation (USA)(ix)(1)
FEI Ventures, LLC (USA)(x)(1)
Ferguson Enterprises, LLC (USA)(ix)(1)

Ferguson Finance (Switzerland) AG
(Switzerland)(iii)(3)
Ferguson Finance plc (England)(iii)(2)
Ferguson Fire & Fabrication, Inc. (USA)(iii)(1)
Ferguson Global AG (Switzerland)(iii)(3)
Ferguson Group Services Limited (England)(iii)(2)
Ferguson Holding A/S (Denmark)(iii)(13)
Ferguson Holdings (Switzerland) AG
(Switzerland)(iii)(3)
Ferguson Holdings Limited (Jersey)(iii)(11)
Ferguson Insurance Limited (Isle of Man)(viii)(19)
Ferguson Nordic Holdings ApS (Denmark)(iii)(13)
Ferguson Panama, S.A. (Panama)(ix)(4)
Ferguson Property (Finland) Oy (Finland)(iii)(xv)(21)
Ferguson Puerto Rico, Inc. (Puerto Rico)(ix)(1)
Ferguson Receivables, LLC (USA)(x)(1)
Ferguson Sourcing (Switzerland) AG
(Switzerland)(iii)(3)
Ferguson Swiss Holdings Limited (England)(iii)(2)
Ferguson US Holdings, Inc. (USA)(iii)(1)
Ferguson Winnersh Limited (England)(ii)(iii)(2)
Fusion Provida Holdco Limited (England)(iii)(18)
Fusion Provida UK Limited (England)(iii)(18)
G. L. Headley Limited (England)(ii)(iii)(2)
Glegg & Thomson Limited (Scotland)(ii)(iii)(15)
Hall & Co. Limited (England)(ii)(iii)(18)
Heating Replacement Parts & Controls Limited
(England)(ii)(iii)(2)

Heatmerchants Limited (England)(ii)(iii)(2)
HM Wallace, Inc. (USA)(iii)(1)
HP Logistics, Inc. (USA)(ix)(1)
H P Products Corporation (USA)(ix)(1)
James Electric Motor Services Ltd. (Canada)(ix)(9)
James Martin Signature Vanities, LLC (USA)(x)(1)
Jones Stephens Corp. (USA)(ix)(1)
Julise Limited (England)(ii)(iii)(2)
King & Company (1744) Limited (England)(ii)(iii)(2)
Living Direct, Inc. (USA)(ix)(1)
M. A. Ray & Sons Limited (England)(ii)(iii)(2)
Matera Paper Company, Inc. (USA)(ix)(1)
Max Industries, LLC (USA)(x)(1)
Melanie Limited (England)(ii)(iii)(2)
Millennium Lighting, Inc. (USA)(ix)(1)
MPS Builders Merchants Limited (England)(iii)(18)
Ningbo Ferguson Global Company Limited
(China)(iii)(16)
Nu-Way Heating Plants Limited (England)(ii)(iii)(2)
O.B.C. Limited (Northern Ireland)(ii)(iii)(7)
Parts Center Limited (England)(ii)(iii)(2)
P.D.M. (Plumbers Merchants) Limited
(Scotland)(ii)(iii)(xiv)(15)
Pipeline Controls Limited (England)(ii)(iii)(2)
Power Equipment Direct Inc. (USA)(ix)(1)
Promandis Limited (England)(ii)(iii)(2)
Reay Electrical Distributors Limited (England)(ii)(iii)(2)

Ferguson plc Annual Report and Accounts 2020

Wolseley Finance (Theale) Limited (England)(ii)(vii)(2)
Wolseley Group Holdings Limited (England)(iii)(2)
Wolseley Group Limited (England)(i)(iii)(18)
Wolseley Holdings (Ireland) Unlimited Company
(Republic of Ireland)(ii)(iii)(xiii)(5)
Wolseley Holdings Canada Inc. (Canada)(ix)(9)
Wolseley Industrial Canada Inc. (Canada)(iii)(9)
Wolseley Integrated de Mexico, S.A.
de C.V. (Mexico)(iv)(20)
Wolseley Integrated Services Inc. (Canada)(ix)(9)
Wolseley Investments Limited (England)(ii)(iii)(2)
Wolseley Limited (England)(i)(iii)(iv)(2)
Wolseley NA Construction Services,
LLC (USA)(x)(1)
Wolseley Overseas Limited (England)(iii)(2)
Wolseley Pension Trustees Limited
(England)(ii)(vi)(2)
Wolseley Properties Limited (England)(ii)(iii)(2)
Wolseley (Shanghai) Holdings AG
(Switzerland)(iii)(3)
Wolseley Trinidad Ltd (Trinidad and Tobago)(iii)(12)
Wolseley UK Directors Limited (England)(ii)(iii)(18)
Wolseley UK Finance Limited (Guernsey)(ii)(iii)(xiii)(14)
Wolseley UK Limited (England)(viii)(18)
Wolseley Utilities Limited (England)(iii)(18)
Wolseley-Hughes Limited (England)(ii)(iii)(2)
Wolseley-Hughes Merchants Limited
(England)(ii)(iii)(2)

Associated undertakings
Group Silverline Limited (England)(xi)(23)
GTP Services, LLC (USA)(xii)(24)

Fully owned subsidiaries continued
Rosco Industrial Limited (Scotland)(ii)(iii)(15)
Safe Step Walk In Tub, LLC (USA)(x)(22)
Sellers of Leeds (Group Services) Limited
(England)(ii)(iii)(2)
Sellers of Leeds International Limited
(England)(ii)(iii)(2)
Sellers of Leeds Limited (England)(viii)(18)
SEMSCO Barbados, LLC (USA)(ii)(x)(10)
Shanghai Du Te International Trading Company
(China)(iii)(17)
Stock Loan Services, LLC (USA)(x)(1)
T & R Electrical Wholesalers Ltd (England)(iii)(18)
Tellum Construction, LLC (USA)(x)(1)
Thames Finance Company Limited
(England)(ii)(iii)(2)
Thomson Brothers Limited (Scotland)(iii)(15)
Uni-Rents Limited (England)(ii)(iii)(2)
Utility Power Systems Limited (England)(vi)(18)
Wholesale Supplies (C.I.) Ltd (Jersey)(iii)(v)(8)
William Wilson & Co. (Aberdeen) Limited
(Scotland)(ii)(iii)(15)
William Wilson (Rugby) Limited (England)(ii)(iii)(2)
William Wilson Holdings Limited (Scotland)(iii)(vi)(15)
William Wilson Ltd (Scotland)(iii)(15)
WM. C. Yuille & Company Limited (Scotland)(ii)(iii)(15)
Wolseley (Barbados) Ltd (Barbados)(ix)(1)
Wolseley Bristol Limited (England)(ii)(iii)(2)
Wolseley Canada Inc. (Canada)(ix)(9)
Wolseley Capital, Inc. (USA)(ix)(1)
Wolseley Centers Limited (England)(ii)(iii)(2)
Wolseley Centres Limited (England)(ii)(iii)(2)
Wolseley DC Plan Trustees Limited (England)(iii)(18)
Wolseley de Puerto Rico, Inc. (Puerto Rico)(ix)(1)
Wolseley Developments Limited (England)(ii)(iii)(2)
Wolseley Directors Limited (England)(ii)(iii)(2)
Wolseley Engineering Limited (England)(ii)(iii)(2)
Wolseley Europe Limited (England)(iii)(2)
Wolseley Finance (Isle of Man) Limited
(Isle of Man)(ii)(viii)(xiii)(6)
Wolseley Finance (Thames) Limited
(England)(ii)(iii)(2)

171

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 ordinary and preference shares.
(ix) Ownership held in common stock.
(x) Ownership held as membership interests.
(xi) Ownership held as 100% of preference shares.
(xii) Ownership held as 70% of series A preferred units.
(xiii) Companies controlled by the Group based on

management’s assessment.

(xiv) Applied for strike off.
(xv) Voluntary liquidation in progress.

Registered office addresses:
(1)

12500 Jefferson Avenue, Newport News VA 23602,
United States of America.
1020 Eskdale Road, Winnersh Triangle, Wokingham,
RG41 5TS, United Kingdom.
Grafenauweg 8, CH-6300, Zug, Switzerland.
Avenida 2F Norte, Calle Matias Hernandez,
Rio Abajo, Panama City, Panama.
25/28 North Wall Quay, Dublin 1, Ireland.
33-37 Athol Street, Douglas, IM1 1LB, Isle of Man.
42-46 Fountain Street, Belfast, Northern Ireland,
BT1 5EF, United Kingdom.
47 Esplanade, St Helier, Jersey, JE1 0BD, Jersey.
880 Laurentian Drive, Burlington ON L7N 3V6,
Canada.

(2)

(3)
(4)

(5)
(6)
(7)

(8)
(9)

(10) 9501 Highway, 92 East, Tampa FL FL 33610,

(11)

United States of America.
26 New Street, St Helier, Jersey, JE2 3RA,
Channel Islands.

(12) Building no 6, Fernandes Industrial Centre,
Eastern Main Road, Laventille, Port of Spain,
Trinidad and Tobago .

(13) Sundkrogsgade 21, 2100, København, Denmark.
(14) Glategny Court, Glategny Esplanade, St Peter Port,

GY1 1WR, Guernsey.

(15) Hareness Road, Altens Industrial Estate, Aberdeen,

AB12 3QA, United Kingdom.

(16) Room 1203, Building 1 (Beilun Financial Building),

527 Baoshan Road, Xinqi, Beliun District,
Ningbo, China.

(17) Room 306-1 Building 2, 3000 Yixian Road,

Baoshan district, Shanghai, China.

(18) 2 Kingmaker Court, Warwick Technology

Park, Gallows Hill, Warwickshire, CV34 6DY,
United Kingdom.

(19) Tower House, Loch Promenade, Douglas,

Isle of Man, IM1 2LZ, Isle of Man.

(20) Carretera a General Cepeda 8395, Derramadero,

Coahuila, 25300, Mexico.

(21) Bulevardi 1, FI-00100 Helsinki, Finland.
(22) 402 BNA Drive, Suite 350, Nashville, TN 37217,

United States of America.

(23) Boundary Way, Lufton Trading Estate, Yeovil,
Somerset, BA22 8HZ, United Kingdom.

(24) 9375 Spruce Mountain Rd., Larkspur, CO 80118,

United States of America.

Ferguson plc Annual Report and Accounts 2020FinancialsGovernanceStrategic reportOther information

172

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 the remainder of calendar year 2020 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.

December 3, 2020

December 11, 2020

Ferguson plc 2020 Annual General Meeting

2020 final dividend payment date

Ferguson shares
Share price history
Set out below is a graph showing the performance of Ferguson’s share price (using normalized share price data) compared to the FTSE 100 Index
during the financial year.

FTSE 100 Index – Ferguson and FTSE 100

August 1, 2019

120

100

July 31, 2020

Aug 2019

Sept 2019

Oct 2019

Nov 2019

Dec 2019

Jan 2020

Feb 2020 Mar 2020

Apr 2020 May 2020 June 2020

July 2020

Aug 2020

Ferguson plc

FTSE 100 Index

Recent share capital history
Since 2009, there have been six events affecting the share capital of Ferguson plc:

2019 – Scheme of arrangement and redomiciliation and consequential redenomination of shares as 10 pence.

2018 – Special dividend, share consolidation and consequential redenomination of shares as 11227/563 pence.

2013 – Special dividend, share consolidation and consequential redenomination of shares as 1053⁄66 pence.

2012 – Special dividend, share consolidation and consequential redenomination of shares as 105⁄11 pence.

2010 – Scheme of arrangement and redomiciliation.

2009 – Share capitalization 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 program 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:

J.P. Morgan Depositary Receipts
383 Madison Avenue, Floor 11
New York, NY 10179
Email enquiries: adr@jpmorgan.com

Telephone: Within the USA toll free: +1 800 990 1135
Outside the USA: +1 651 453 2128
Global Invest Direct: +1 800 428 4267
Website: www.adr.com

Ferguson plc Annual Report and Accounts 2020173

Dividend
Proposed final dividend
208.2 cents per share
The Directors have recommended a final dividend of 208.2 cents per share. Payment of this dividend is subject to approval at the 2020 AGM.
Dividends will be declared in US dollars and shareholders will be able to elect to receive payment in US dollars.

Key dates for this dividend

Ex-dividend date

Record date

Last day for DRIP and USD currency elections

AGM (to approve final dividend)

USD/pounds sterling exchange rate announcement

Payment date

DRIP certificates posted/CREST accounts credited

November 12, 2020

November 13, 2020

November 27, 2020

December 3, 2020

December 4, 2020

December 11, 2020

December 16, 2020

Dividend history
Details of dividends paid in the financial years 2018/19 and 2019/20 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

2019/20

2018/19

Dividend period

Final 2019

Interim 2019

Dividend amount
(per share)

145.10 cents1

63.10 cents2

Record date

Payment date

DRIP share price

October 25, 2019

November 28, 2019

£69.4581

April 5, 2019

April 30, 2019

£54.4866

1. Shareholders who elected to receive the 2019 final dividend of 145.10 cents per share in pounds sterling received 112.46 pence per share.

2. Shareholders who elected to receive the 2019 interim dividend of 63.10 cents per share in pounds sterling received 48.11 pence per share.

Dividend payment

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 checks 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. USD election: Dividends are declared in US dollars. However, the default payment currency remains in pounds sterling. Should you wish
to elect to receive your dividend in US dollars, further information can be found on the Ferguson plc website, Shareview website or you can
contact Equiniti by telephone.

3. Overseas payment service: If you wish to receive your dividends in a currency other than pounds sterling or US dollars, 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 currency1. Further information can be found on the Ferguson plc website, Shareview website or you can contact Equiniti by
telephone.

4. 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 2020 final dividend,
our Registrars, Equiniti, must have received the instruction by November 27, 2020. Instructions received by Equiniti after this date will be applied
to the next dividend.

1. 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 2020FinancialsGovernanceStrategic reportOther informationEquiniti
Address: Equiniti (Jersey) Limited, c/o Equiniti (0049)
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

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.

174

Shareholder information (continued)

Shareholder communications
Annual General Meeting (“AGM”)
The 2020 AGM will be held on Thursday, December 3, 2020.
Please consult the 2020 Notice of AGM and www.fergusonplc.com
for details regarding the 2020 AGM.

Website
See page 175 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.

Ferguson plc Annual Report and Accounts 2020
Group information

175

Company details
Registered Office
Ferguson plc
26 New Street
St Helier
Jersey
JE2 3RA
Channel Islands

Registration No. 128484 Jersey

Registered in the UK as Ferguson Group Holdings, United Kingdom
Establishment No. BR021199

Corporate Headquarters and Group Services Office
Ferguson plc
1020 Eskdale Road
Winnersh Triangle
Wokingham
RG41 5TS
United Kingdom

Telephone: +44 (0) 118 927 3800

Website
www.fergusonplc.com

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

Corporate brokers
Barclays
JP Morgan Cazenove

Financial adviser
Rothschild & Co

Public relations
Brunswick Group LLP

Solicitor
Carey Olsen Jersey LLP
Freshfields Bruckhaus Deringer LLP

Stay informed

Main corporate site
www.fergusonplc.com

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.

Shareholder information section
www.fergusonplc.com/en/investors-and-media/
shareholder-centre.html

Visit our Investor and media center on our corporate website to
stay up to date on Ferguson’s results, financial calendar and latest
press releases. Within the Investor and media center you will find
the Shareholder center where you will find information on the AGM,
dividends, electronic communications, share price and managing
your shares.

Ferguson plc Annual Report and Accounts 2020FinancialsGovernanceStrategic reportOther information
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 Guidance 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.

176

Group information (continued)

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), and potential
impacts of the COVID-19 pandemic on our business operations,
financial results and financial position on the global economy.

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.

Ferguson plc Annual Report and Accounts 2020Credits
Design and production: Radley Yeldar
www.ry.com

Printing
This publication is printed by a CarbonNeutral company and the
paper is Carbon Balanced with World Land Trust.

Photography: Andy Wilson and Scott K. Brown Photography, Inc

Paper
In this year’s report we have opted to print on Amadeus Silk paper
and cover board with Revive Uncoated paper, made from 100%
post-consumer waste, used in the financial section.

Balancing is delivered by World Land Trust, an international
conservation charity, who offset carbon emissions through the
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Through protecting standing forests, under threat of clearance,
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Amadeus Silk and Revive Uncoated are made from FSC®
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Both products are fully biodegradable and recyclable and produced
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CBP00019082504183028

Ferguson plc

Registered Office
26 New Street
St Helier
Jersey
JE2 3RA
Channel Islands

Registration No. 128484 Jersey

Registered in the UK as Ferguson Group
Holdings, UK Establishment No. BR021199

Corporate Headquarters
and Group Services Office
1020 Eskdale Road
Winnersh Triangle
Wokingham RG41 5TS
Telephone +44 (0) 118 927 3800

www.fergusonplc.com

@Ferguson_plc