We are
Ferguson
Ferguson plc
Annual Report FY2023
We are a leading
value-added distributor
in North America
providing expertise,
solutions and products
from infrastructure,
plumbing and
appliances to HVAC,
fire, fabrication
and more.
I
Our
purpose
We exist to make our customers’
complex projects simple,
successful and sustainable.
Our associates are the driving
force of our business and a
key differentiator in how we
live our purpose and create
value for our customers
and stakeholders.
Ferguson Annual Report FY2023We are Ferguson II
We are
Ferguson
The trade professional is our
core customer. But we also build
relationships with key decision-
makers such as general contractors,
developers, architects, engineers
and business owners.
At Ferguson, we bring both a
multi-customer group solution
and an intentional product
strategy, including an integrated
Environmental Product Strategy,
to a project. This makes us unique,
sets us apart from our competitors
and positions us as a project
success partner.
Read more about our Environmental
Product Strategy on our website
(corporate.ferguson.com) and in the
FY2023 ESG Report.
Ferguson Annual Report FY2023We are Ferguson III
From the
ground
up
Our customer groups collaborate to
bring greater value to our customers
throughout the life of the project.
We leverage our core strengths –
value-added solutions, global supply
chain, digital experience
and our associates – and the
expertise of our customer
groups to focus on our
customers’ unique needs.
That is why we are the
first on the job site, and
last off.
Ferguson Annual Report FY2023We are Ferguson IV
A
balancedapproach
Ferguson has a balanced business
mix and leading positions in
attractive, fragmented markets
that outgrow GDP over the long
term. Our balanced exposure and
agile business model positions us
well to take advantage of growth
opportunities, while navigating
dynamic markets.
Balanced market exposure
60%
Repair,
Maintenance and
Improvement
(RMI)
52%
Residential
40%
New construction
48%
Non-residential
Ferguson Annual Report FY2023We are Ferguson V
Our positions in highly fragmented
North American markets
>75% of revenue generated from #1 or #2 market positions.
$30b revenue with a ~$340b market opportunity
Residential Trade Plumbing
Market position #2
Market value $31b Current share 17%
HVAC
Market position #3
Market value ~$70b
Current share 5%
Residential Building and Remodel
Market position #1
Market value $30b Current share 13%
Residential Digital Commerce
Market position #4
Market value $25b
Current share 9%
Waterworks
Market position #1
Market value $29b Current share 22%
Commercial / Mechanical
Market position #1
Market value $18b Current share 22%
Fire & Fabrication
Market position #1
Market value $4b Current share 25%
Facilities Supply
Market position #3
Market value ~$100b
Current share 1%
Industrial
Market position #2
Market value $34b
Current share 6%
Market size, market share, market position, residential/non-residential proportion and RMI/new construction proportion are approximates and derived from management estimates as of FY2023.
Ferguson Annual Report FY2023We are Ferguson VI
Partnering with
dual-trade
professionals
The residential market is evolving,
with a growing proportion of our
customers working as dual-trade
plumbing and HVAC professionals.
Our ability to bring together
market-leading capabilities in both
plumbing and HVAC provide us
with a competitive advantage for
serving these professionals and
capturing growth from the dual-
trade market for years to come.
Our HVAC and plumbing associates
work together to create the best
overall experience for these
professionals. We are able to
provide them with a single point of
service while further differentiating
our services as we simplify
processes, harmonize pricing and
coordinate pick-ups and deliveries.
HVAC market
~$70b
Dual-trade
pro market
~$30b
Residential trade
plumbing market
~$30b
Within the $100 billion combined residential trade plumbing and HVAC
markets, dual-trade contractors represent a $30 billion addressable market.
Derived from management estimates as of FY2023.
Ferguson Annual Report FY2023We are Ferguson VII
Ferguson Annual Report FY2023We are Ferguson VIII
Capturing growth from
megaprojects
We believe that an incremental
$30+ billion total addressable
market opportunity exists for
Ferguson from large scale non-
residential megaprojects over the
next five years. They are supported
by on-shoring activity, recent
legislative acts and the aging
infrastructure.
Megaprojects provide us with
a significant opportunity to sell
“from the ground up” solutions
throughout the life of the projects
and leverage our approach across
multiple customer groups.
Key areas include chip and semi-
conductor manufacturing facilities,
electric vehicle and battery plants,
biotech facilities and waterworks
plants.
Ferguson Annual Report FY2023We are Ferguson IX
Ferguson Annual Report FY2023We are Ferguson X
Delivering
national scale
locally
We have a network of national and market
distribution centers, complemented with 1,700+
branch locations and a fleet of 5,700 vehicles
for final-mile delivery. Our extensive network
places us within 60 miles of 95% of our
customers in North America.
And we continue to expand our network with
new market distribution centers. With three
open today, five more in the pipeline and
an expectation to expand across our top 30
markets at a pace of two to three per year,
we will continue to build on our competitive
advantage.
Alaska
Hawaii
Branch
Market Distribution Center
National Distribution Center
Branch
Import Center
Market Distribution Center
National Distribution Center
Import Center
Alaska
Hawaii
Ferguson Annual Report FY2023We are Ferguson XI
Ferguson Annual Report FY2023We are Ferguson XII
Strong performance
in 2023
In fiscal year 2023 our associates delivered strong results, showed great
resilience and went above and beyond to leverage our scale and core
strengths to serve our customers’ unique needs.
I would like to thank each of our associates for their unwavering commitment
to help make our customers’ complex projects simple, successful
and sustainable.
Resilient financial performance
Amid a challenging residential construction market, we delivered another
year of revenue growth as we grew organically above market and continued
to consolidate our fragmented markets with high quality acquisitions.
As expected, adjusted operating profit* was slightly lower than last year
driven by normalization of adjusted operating margins after a period of rapid
expansion. Adjusted diluted earnings per share* increased as slightly lower
operating profit and higher interest expense was offset by the impact of
share repurchases.
Cash generation remains an important strength of our business. We delivered
operating cash flow of $2.7 billion during the year, an improvement of
$1.6 billion compared to fiscal year 2022.
Our cash generative business model allows us to continue to invest in our
four capital priorities. First, we invested $0.4 billion in the organic growth
of the business through capital expenditures in areas such as our Market
Distribution Centers, technology and our overall branch network.
Second, we continued to sustainably grow our ordinary dividend. During the
fiscal year we transitioned from a semi-annual dividend distribution schedule
to a quarterly schedule. Our Board declared a $0.75 per share quarterly
dividend, bringing the total annual dividend to $3.00 per share which reflects
9% growth over the prior year. This progression reflects confidence in our
business model.
Third, we continued to consolidate our fragmented markets by investing
$0.6 billion in eight high quality bolt-on acquisitions. These businesses
generate aggregate annualized revenues of approximately $0.8 billion
and we continue to maintain a healthy acquisition pipeline that will help fuel
future growth.
And finally, we are committed to returning capital to shareholders when we
are below the low end of our target net debt to adjusted EBITDA range.
We returned $0.9 billion to shareholders through share buybacks during the
fiscal year and we had $0.5 billion remaining under the program at the end of
the fiscal year.
Our balance sheet remains strong with net debt to adjusted EBITDA* of 1.0
times as of July 2023. We continue to operate toward the low end of our 1.0
to 2.0 times guided range to ensure we have capacity to take advantage of
growth opportunities while maintaining a strong balance sheet.
Net sales
+4.1%
2022-2023
2021-2023: +30.5%
Adjusted
operating profit*
(1.2%)
2022-2023
2021-2023: +39.4%
Adjusted
EPS — diluted*
+0.8%
2022-2023
2021-2023: +45.8%
2023
2023
2023
2022
2022
2022
2021
2021
2021
2023
2023
2023
2022
2022
2022
2021
2021
2021
2023
2023
2023
2022
2022
2022
2021
2021
2021
$29.7b
$29.7b
$29.7b
$28.6b
$28.6b
$28.6b
$22.8b
$22.8b
$22.8b
$2,917m
$2,917m
$2,917m
$2,951m
$2,951m
$2,951m
$9.84
$9.84
$9.84
$9.76
$9.76
$9.76
$2,092m
$2,092m
$2,092m
$6.75
$6.75
$6.75
* This is a non-GAAP measure. See pages XV to XVI for more information and a
reconciliation of the non-GAAP measure to the most comparable U.S. GAAP measure.
Ferguson Annual Report FY2023We are Ferguson XIII
Balanced approach
An industry leader
As a trusted partner, our customers look to us for innovative products and
solutions. With our Environmental Product Strategy, we work with supplier
partners to expand the range of available sustainable product choices for
our customers. Whether we are advising homeowners on high-efficiency
product rebates or helping large customers meet their carbon reduction
goals, we serve as strategic advisors by making product recommendations
and identifying alternative, sustainable project solutions. More information on
our Environmental Product Strategy can be found within our fiscal year 2023
Environmental, Sustainability and Governance (ESG) Report, titled “Building
momentum, sustainably.”
We also continued our commitment to becoming “First in Safety.” In fiscal
year 2023 our Total Recordable Injury Rate (TRIR) decreased 14% from 2.09
to 1.80, while our Lost Time Rate (LTR) lowered by 21% from 0.61 to 0.48.
We are proud of these results and continue to focus on the fundamentals of
health and safety.
North American milestones
This year we reached several milestones as a North American company.
Our New York Stock Exchange-listed shares (NYSE: FERG) were included
in the S&P Total Market Index (TMI), Morgan Stanley Capital International
(MSCI) Index, Center for Research in Security Prices (CRSP) Index and,
most recently—the Russell 1000® Index. Our inclusion in these indices is
a testament to the strength of our long-term financial performance and
business model and is expected to drive greater investor interest in our
company. This indexation is expected to drive greater brand recognition and
highlights the remarkable work our associates do for our customers and the
impact they have on the North American construction market.
Despite operating in a challenging macro-economic environment in fiscal
year 2023, our balanced business mix and agile business model allowed
us to deliver a strong financial performance and has positioned us well
for the future. We will continue to invest in our key strengths to build upon
our market-leading positions, while capturing new opportunities from
megaprojects and the growth of the dual-trade market for years to come.
Kevin Murphy
CEO
Our financial performance in fiscal year 2023 was supported by our balanced
business mix between residential and non-residential with greater exposure
to repair, maintenance and improvement (RMI) work (60% of our revenue)
compared to new construction work (40% of our revenue).
Residential end markets (52% of our revenue) were impacted by the
expected slowdown in new residential construction and in areas serving
the project-minded consumer. Meanwhile, RMI work proved more resilient,
particularly within our core trade professionals and in high-end remodel
project work. In total, our residential revenues grew by approximately 1%.
Overall non-residential end markets (48% of our revenue) saw the pace of
growth ease against strong prior year comparables. There was solid industrial
growth and our non-residential sales were approximately 9% higher than
prior year.
We are Ferguson
Our customer groups (see page V) have leading positions in large, growing
and fragmented markets with more than 75% of revenue coming from
#1 or #2 market positions. We leverage our core strengths, products and
services across all of our customer groups while achieving balanced end
market exposure. By doing so, we add value to our customers, selling “from
the ground up” solutions—focusing on the entire project rather than just
selling products.
From a residential perspective, the market is evolving, with a growing
proportion of our customers serving both HVAC and plumbing work as
dual-trade professionals. We estimate the total addressable market within
residential trade plumbing and HVAC combined is approximately $100 billion,
of which there are more than 65,000 dual-trade contractors servicing nearly
$30 billion of this market. We believe we are uniquely positioned to serve
these customers and believe there is a meaningful growth opportunity
because of the capabilities of our HVAC and Residential Trade Plumbing
customer groups.
From a non-residential perspective, we are beginning to see increased
bidding activity on megaprojects. Many large-scale manufacturing and
infrastructure projects are in planning or in process in the U.S., including
chip and semiconductor manufacturing facilities, electric vehicle and battery
plants, biotech facilities and waterworks plants. These are large complex
projects. We believe the incremental addressable market on megaprojects-
related work is $30+ billion over the next five years, which provides us
with a great opportunity to leverage our strategy across multiple customer
groups—from Waterworks to Industrial, Commercial/Mechanical and Fire &
Fabrication—to be more meaningful to the project as a whole and to capture
incremental growth.
Collectively, our scale and global supply chain capabilities allow us to
connect approximately 36,000 suppliers to deliver solutions to over 1 million
customers with a broad range of products and services. We continue to
invest in these capabilities to deliver our national scale locally through market
distribution centers (MDC). We intend to launch new MDCs at a pace of two
to three per year, with recent openings in Denver, Phoenix and Houston
(pictured on page XI). This strategy will help us leverage our scale within local
markets and accelerate market share growth. We have a pipeline for future
site locations, which will further strengthen the already extensive network that
places us within 60 miles of 95% of our customers.
Ferguson Annual Report FY2023We are Ferguson XIV
Executing in challenging
end markets
Net sales
Adjusted operating profit*
Net sales are derived primarily from the sale of a broad range of products and solutions.
Net sales excludes intra-group sales, estimated and actual sales returns, trade and
early settlements and early settlement discounts, and sales taxes.
Adjusted operating profit is defined as operating profit before acquisition related
intangible amortization and certain other non-GAAP adjustments.
$28,566m
$29,734m
$2,951m
$2,917m
$19,729m $19,940m
$22,792m
$2,092m
$1,539m
$1,587m
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
$29,734m
$2,917m
Net sales grew by 4.1% to $29.7 billion driven by price inflation, above market share
gains and continued market consolidation through high quality acquisitions.
Adjusted operating profit of $2,917 million was $34 million below last year as
we saw some normalization of adjusted operating margins after a record year in
fiscal 2022.
Adjusted EPS — diluted*
Return on capital employed (ROCE)*
Adjusted diluted EPS is defined as adjusted net income divided by the weighted
average diluted shares outstanding. Adjusted net income is defined as income from
continuing operations before amortization of acquired intangible assets (net of tax),
discrete tax items and any other items that are non-recurring (net of tax).
ROCE is calculated as adjusted earnings before interest and taxes (adjusted EBIT*)
divided by average capital employed*.
$9.76
$9.84
40.4%
34.5%
34.6%
29.4%
28.5%
$6.75
$4.90
$5.04
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
$9.84
34.6%
Adjusted EPS — diluted of $9.84 increased 0.8% from 2022 due to the favorable
impact of share repurchases, partially offset by lower adjusted operating profit and
higher interest expense.
ROCE decreased in the year principally as a result of increased average levels of net
debt, driven by continued execution of our capital allocation priorities, with a modest
decline in profit.
* This is a non-GAAP measure. See pages XV to XVI for more information and a reconciliation of the non-GAAP measure to the most comparable U.S. GAAP measure.
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(cid:71)(cid:58)(cid:69)(cid:68)(cid:71)(cid:73)(cid:62)(cid:67)(cid:60)(cid:1)(cid:56)(cid:68)(cid:66)(cid:69)(cid:54)(cid:67)(cid:78)(cid:89)(cid:1)(cid:54)(cid:67)(cid:57)(cid:1)(cid:88)(cid:58)(cid:66)(cid:58)(cid:71)(cid:60)(cid:62)(cid:67)(cid:60)(cid:1)(cid:60)(cid:71)(cid:68)(cid:76)(cid:73)(cid:61)(cid:1)(cid:56)(cid:68)(cid:66)(cid:69)(cid:54)(cid:67)(cid:78)(cid:89)(cid:1)(cid:62)(cid:67)(cid:1)(cid:44)(cid:74)(cid:65)(cid:58)(cid:1)(cid:16)(cid:17)(cid:55)(cid:12)(cid:17)(cid:1)(cid:68)(cid:59)(cid:1)(cid:73)(cid:61)(cid:58)(cid:1)(cid:31)(cid:77)(cid:56)(cid:61)(cid:54)(cid:67)(cid:60)(cid:58)(cid:1)(cid:27)(cid:56)(cid:73)(cid:13)(cid:1)
Ferguson Annual Report FY2023We are Ferguson UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from
to
Commission File Number: 001-40066
Ferguson plc
(Exact name of registrant as specified in its charter)
Jersey, Channel Islands
(State or other jurisdiction of
incorporation or organization)
98-1499339
(I.R.S. Employer Identification
Number)
1020 Eskdale Road, Winnersh Triangle, Wokingham,
Berkshire, RG41 5TS, United Kingdom
+44 (0) 118 927 3800
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive
offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Ordinary Shares of 10 pence
Trading Symbol:
FERG
Name of Each Exchange on Which
Registered:
The New York Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. ☐Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financing reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes
☒ No
The aggregate market value of the voting shares held by non-affiliates of the registrant, computed by reference to the closing
price as reported on the New York Stock Exchange, as of the last business day of Ferguson plc’s most recently completed
second fiscal quarter (January 31, 2023), was $29,332,352,096. Ferguson plc has no non-voting common equity. As of
September 11, 2023, the number of outstanding ordinary shares was 203,983,731.
Documents Incorporated by Reference:
The information required by Part III of this Annual Report, to the extent not set forth herein, is incorporated herein by reference
from the registrant’s definitive proxy statement relating to the Annual General Meeting to be held in 2023, which definitive
proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to
which this Annual Report relates (the “2023 Proxy Statement”).
TABLE OF CONTENTS
CERTAIN TERMS
MARKET AND INDUSTRY DATA
TRADEMARKS
FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Information about our Executive Officers
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
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CERTAIN TERMS
Unless otherwise specified or the context otherwise requires, the terms “Company,” “Ferguson,” “we,” “us,” and “our” and
other similar terms refer to Ferguson plc and its consolidated subsidiaries. Except as otherwise specified or the context
otherwise requires, references to years indicate our fiscal year ended July 31 of the respective year. For example, references to
“fiscal 2023” or similar references refer to the fiscal year ended July 31, 2023.
MARKET AND INDUSTRY DATA
The information in this Annual Report on Form 10-K (the “Annual Report”) that has been sourced from third parties has been
accurately reproduced and, as far as we are aware and able to ascertain from the information published by that third party, no
facts have been omitted that would render the reproduced information inaccurate or misleading. Industry publications generally
state that their information is obtained from sources they believe reliable but that the accuracy and completeness of such
information is not guaranteed and that the projections they contain are based on a number of significant assumptions. We are
not aware of any exhaustive industry or market reports that cover or address our specific markets.
TRADEMARKS
All trademarks, trade names and service marks appearing in this Annual Report are the property of their respective owners.
Solely for convenience, the trademarks and trade names in this Annual Report are referred to without the symbols ® and ™, but
such references should not be construed as any indication that their respective owners will not assert, to the fullest extent under
applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks or trade names to imply a
relationship with, or endorsement or sponsorship of us by, any other companies.
FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
Certain information included in this Annual Report is forward-looking, including within the meaning of the Private Securities
Litigation Reform Act of 1995, 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, statements or guidance regarding or relating to our future financial
position, results of operations and growth, projected interest in and ownership of our ordinary shares by investors including as a
result of inclusion in North American market indices, plans and objectives for the future including our capabilities and
priorities, risks associated with changes in global and regional economic, market and political conditions, ability to manage
supply chain challenges, ability to manage the impact of product price fluctuations, our financial condition and liquidity, legal
or regulatory changes, statements regarding our expectations for U.S. residential and non-residential growth drivers and other
statements concerning the success of our business and strategies.
Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as “believes,”
“estimates,” “anticipates,” “expects,” “forecasts,” “intends,” “continues,” “plans,” “projects,” “goal,” “target,” “aim,” “may,”
“will,” “would,” “could” or “should” or, in each case, their negative or other variations or comparable terminology and other
similar references to future periods. Forward-looking statements speak only as of the date on which they are made. They are not
assurances of future performance and are based only on our current beliefs, expectations and assumptions regarding the future
of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions.
Therefore, you should not place undue reliance on any of these forward-looking statements. Although we believe that the
forward-looking statements contained in this Annual Report are based on reasonable assumptions, you should be aware that
many factors could cause actual results to differ materially from those in such forward-looking statements, including but not
limited to:
• weakness in the economy, market trends, uncertainty and other conditions in the markets in which we operate, and
other factors beyond our control, including disruption in the financial markets and any macroeconomic or other
consequences of the current conflict in Ukraine or potential conflict between China and Taiwan;
•
•
failure to rapidly identify or effectively respond to direct and/or end customers’ wants, expectations or trends,
including costs and potential problems associated with new or upgraded information technology systems or our ability
to timely deploy new omni-channel capabilities;
decreased demand for our products as a result of operating in highly competitive industries and the impact of declines
in the residential and non-residential markets, as well as the repair, maintenance and improvement (“RMI”) and new
construction markets;
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changes in competition, including as a result of market consolidation or competitors responding more quickly to
emerging technologies (such as generative artificial intelligence (“AI”));
failure of a key information technology system or process as well as exposure to fraud or theft resulting from payment-
related risks;
privacy and protection of sensitive data failures, including failures due to data corruption, cybersecurity incidents or
network security breaches;
ineffectiveness of or disruption in our domestic or international supply chain or our fulfillment network, including
delays in inventory availability at our distribution facilities and branches, increased delivery costs or lack of
availability;
failure to effectively manage and protect our facilities and inventory or to prevent personal injury to customers,
suppliers or associates, including as a result of workplace violence;
unsuccessful execution of our operational strategies;
failure to attract, retain and motivate key associates;
exposure of associates, contractors, customers, suppliers and other individuals to health and safety risks;
inherent risks associated with acquisitions, partnerships, joint ventures and other business combinations, dispositions
or strategic transactions;
regulatory, product liability and reputational risks and the failure to achieve and maintain a high level of product and
service quality;
inability to renew leases on favorable terms or at all, as well as any remaining obligations under a lease when we close
a facility;
changes in, interpretations of, or compliance with tax laws in the United States, the United Kingdom, Switzerland or
Canada;
our indebtedness and changes in our credit ratings and outlook;
fluctuations in product prices (e.g., commodity-priced materials, inflation/deflation) and foreign currency;
funding risks related to our defined benefit pension plans;
legal proceedings as well as failure to comply with domestic and foreign laws, regulations and standards, as those
laws, regulations and standards or interpretations and enforcement thereof may change, or the occurrence of
unforeseen developments such as litigation;
our failure to comply with the obligations associated with being a U.S. domestic issuer and the costs associated
therewith;
the costs and risk exposure relating to environmental, social and governance (“ESG”) matters, including sustainability
issues, regulatory or legal requirements, and disparate stakeholder expectations;
adverse impacts caused by a public health crisis; and
other risks and uncertainties set forth under the heading “Risk Factors” in Item 1A of this Annual Report.
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 our legal or regulatory obligations, we undertake
no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events
or otherwise.
2
Item 1.
Business
Overview
Part I
Ferguson’s operations are based, through its subsidiaries, in North America. Ferguson is a leading value-added distributor in
North America providing expertise, solutions and products from infrastructure, plumbing and appliances to heating, ventilation
and air conditioning (“HVAC”), fire, fabrication and more. We exist to make our customers’ complex projects simple,
successful and sustainable. We sell through a common network of distribution centers, branches, counter service and specialist
sales associates, showroom consultants and e-commerce channels.
The Company has a long history and maintained businesses throughout Europe, Canada and the United States in the 1900s. In
the early 2000s, the Company’s focus shifted to attractive North American markets. As a result, the operating businesses across
Europe were disposed of through various transactions, most recently in 2021. As part of this transition and following a
corporate restructuring, the Company became the ultimate holding company for the business in 2019.
The Company was incorporated and registered in Jersey as Alpha JCo Limited on March 8, 2019 under the Companies (Jersey)
Law 1991, as amended (the “Jersey Companies Law”), as a private limited company with company number 128484. The
Company converted its status to a public limited company and changed its name, first to Ferguson Newco plc on March 26,
2019, and then to Ferguson plc on May 10, 2019. Our jurisdiction of organization is Jersey and we manage our affairs so that
we are centrally managed and controlled in the United Kingdom and therefore we are a tax resident of the United Kingdom.
The Company’s corporate headquarters is located at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire RG41 5TS
and its telephone number is +44 (0) 118 927 3800. The Company is also registered in the United Kingdom as Ferguson Group
Holdings, U.K. Establishment No. BR021199. Our management office in the United States is located at 751 Lakefront
Commons, Newport News, VA 23606.
Ferguson is listed on the New York Stock Exchange (NYSE: FERG) and the London Stock Exchange (LSE: FERG).
Business segments
The Company’s reportable segments are established based on how the Company manages its business and allocates resources,
which is on a geographical basis. The Company’s reportable segments are the United States and Canada. For further segment
information, see Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and
Note 2, Revenue and segment information of the Notes to the Consolidated Financial Statements in Part II, Item 8: Financial
Statements and Supplementary Data of this Annual Report (the “Consolidated Financial Statements”). Below is a description of
the Company’s reportable segments.
United States segment
The United States segment contributed 95%, 95% and 94% of net sales from continuing operations in fiscal 2023, 2022 and
2021, respectively.
The United States segment operates primarily under the Ferguson brand and provides expertise, solutions, and products, from
infrastructure, plumbing and appliances to HVAC, fire, fabrication and more, to residential and non-residential customers. Its
products are delivered through a common network of distribution centers, branches, counter service and specialist sales
associates, showroom consultants and e-commerce channels. As of July 31, 2023, the United States business operated 1,549
branches and 10 national distribution centers serving all 50 states with approximately 32,000 associates. These locations
provide same-day and next-day product availability, which we believe to be a competitive advantage and an important
requirement for customers. In addition, our United States business operates three market distribution centers (“MDCs”) in
Denver, Colorado, Houston, Texas and Phoenix, Arizona for branch replenishment and final mile distribution to customers.
Canada segment
The Canada segment contributed 5%, 5% and 6% of net sales from continuing operations in fiscal 2023, 2022 and 2021,
respectively.
3
The Canada segment operates primarily under the Wolseley brand and supplies plumbing, HVAC and refrigeration products to
residential and commercial contractors. The Canada segment also supplies specialist water and wastewater treatment products
to residential, commercial and infrastructure contractors, and supplies pipe, valves and fittings (“PVF”) solutions to industrial
customers. As of July 31, 2023, the Canada business operated 213 branches with one national distribution center and
approximately 3,000 associates.
Business model
We have a balanced approach to attractive end markets and serve customers principally in North America. Approximately 52%
of our net sales are to residential markets and 48% to non-residential markets with net sales within the residential and non-
residential markets balanced between RMI (approximately 60% of our net sales) and new construction (approximately 40% of
our net sales), based on management’s estimates.
Ferguson operates in highly fragmented markets, with no one market dominated by any single distributor. We are positioned as
one of the top distributors in most end markets we serve, including residential, commercial, civil/infrastructure and industrial.
Our business bridges the gap between a large and fragmented supplier base with an even larger and more fragmented customer
base. As of July 31, 2023, we had approximately 36,000 suppliers, with no supplier accounting for more than 5% of total
inventory purchases, which provides us access to a diverse and broad range of quality products. We serve our customers
through a network of 11 national distribution centers, three MDCs, 5,700 fleet vehicles, 1,762 branches and approximately
35,000 associates, in each case, as of July 31, 2023.
Customers
We exist to make our customers’ complex projects simple, successful and sustainable. We offer expertise and a broad range of
products delivered where and when our customers need them. Customers rely on us to help them deliver critical infrastructure
spanning almost every stage of projects within the residential and non-residential markets. We partner with our customers to
keep millions of homes and businesses operating while helping them to run their business more efficiently. No single customer
accounted for more than 1% of our net sales in fiscal 2023.
Value-added products and solutions
Our value-added solutions include a variety of sales channels available to our customers ranging from inside and outside sales
teams, sales centers, digital commerce capabilities, system-to-system capabilities, counter sales and showrooms. We also offer
customized solutions such as virtual design, fabrication, valve actuation, pre-assembly, kitting, installation and project
management services. With our value-added solutions, we aim to increase productivity for our customers and for the industry.
We source, distribute and sell products from domestic and international suppliers. Our products include branded products and
own brand products that the Company sells exclusively in the market. We purchase from approximately 36,000 suppliers. Over
95% of the products sold in the United States are sourced from U.S.-based suppliers, while approximately 90% of the products
sold in Canada are sourced from Canada-based suppliers.
Our branded and own brand products are generally available from several sources and are not typically subject to supply
constraints in normal market conditions. In the United States, approximately 14% of net sales are derived from basic products
containing significant amounts of commodity-priced materials, predominantly plastic, copper and steel, and other components
which can be subject to volatile price changes based upon fluctuations in the commodities market. To a lesser extent,
fluctuations in the price of fuel could affect transportation costs. In general, increases in such prices increase our operating costs
and negatively impact our operating profit to the extent that such increases cannot be passed on to customers. Conversely, if
competitive pressures allow us to hold prices despite relevant raw material prices falling, profitability can increase.
Fulfillment options for our customers include delivery, customer pick-up from our branches, counters and locker locations, and
direct shipments.
We also offer after-sales support that comprises warranty, credit, project-based billing, returns and maintenance, repair and
operations (“MRO”) support.
4
Global supply chain
We have a global supply chain which provides access to approximately 36,000 suppliers and we sell more than 1 million unique
products each year. We operate an extensive network across North America, including two import centers, 11 national
distribution centers and 1,762 branch locations as of July 31, 2023. Our network also includes three MDCs which provide
greater access to key strategic markets and allows us to bring our products closer to our customers. These MDCs include
automated picking and replenishment systems for the majority of items picked. This automation improves efficiency and
reduces manual handling of certain products which supports associate health and safety.
Competitive conditions
We believe we are well-equipped to win new customers and generate attractive returns. We have leading positions in the
residential and non-residential markets based on net sales as a percentage of overall market size. For fiscal 2023, approximately
52% and 48% of our net sales were derived from residential and non-residential end markets, respectively, and approximately
60% and 40% of our net sales were derived from the RMI and new construction sectors, respectively, based on management’s
estimates. We have chosen to operate in each of these markets because we believe we can generate strong growth, solid gross
and net margins and good returns on capital.
The markets we serve are highly fragmented with very few large competitors and a high number of small, local distributors, as
well as mid-size regional distributors. While our market positions can be expanded through growth of our existing business,
acquisitions also remain a core part of our growth strategy and we expect to focus on acquisitions that bolt-on to our existing
branch network as well as acquisitions that provide further capabilities to serve our customers. We believe there is a significant
opportunity for strong growth and continued consolidation within our markets.
Many customer projects require a range of products and solutions and we leverage our scale and expertise across the
organization for the benefit of our customers. Specifically, we believe our network of suppliers, associates and the number of
branches and distribution centers provides us with the scale and expertise to serve our customers better than our competitors do,
as many of these competitors operate only locally. In addition, we also benefit from significant synergies to help lower
operating costs and improve margins. We believe these factors enable continued growth in net sales as well as growth in cash
flow and, therefore, may better enable us to provide investment returns to shareholders.
Our scale and expertise position us to be involved in all stages of our customers’ projects, including design, staging, and project
management. Across all our customers, we take a consultative approach. We partner with our customers in an effort to guide
complex projects to a successful conclusion, and to make the entire project better because Ferguson was involved.
Contractual relationships and seasonality
We are not dependent on any material licenses, industrial, commercial or financial contracts (including contracts with
customers and suppliers) or new manufacturing processes. Our business is not highly seasonal although we generally
experience the highest volume of sales in our fourth fiscal quarter which begins during the spring season in North America.
Intellectual property
We rely on a combination of intellectual property laws, confidentiality procedures and contractual provisions to protect our
proprietary assets and our brands. We have registered or applied for registration of trademarks, service marks, and internet
domain names, both domestically and internationally.
Regulatory landscape
Our operations are affected by various statutes, regulations and standards in the countries and markets in which we operate,
including the United States and Canada. The amount of such regulation and the penalties for any breaches can vary. While we
are not engaged in a highly regulated industry, we are 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, payment terms
and other matters. We do not currently expect compliance with these laws and regulations to have a material effect on our
capital expenditures, results of operations, or competitive position as compared to prior periods.
Human capital management
Our associates are fundamental to the long-term success of the Company. We continue to invest in the development of our
associates and are committed to attracting, developing, engaging and retaining the best talent.
5
Our people
As of July 31, 2023, Ferguson employed approximately 35,000 associates, of which approximately 32,000 were in the United
States, 3,000 were in Canada and a small number of associates were in certain other jurisdictions, including Asia, Switzerland,
and the U.K.
The goal of our human capital management program is to attract diverse associates, develop associates to reach their full
potential, and engage and retain the best talent – all contributing towards creating and maintaining a culture of inclusion where
all associates can bring their true authentic selves to work every day.
Attracting diverse associates
Our hiring process is intended to reach a diverse talent pool to assist us in fostering a culture of innovation and acceptance
through differences in thought, experience and perspective. We believe that the range of perspectives and experiences fostered
by an inclusive and diverse organization gives us a competitive advantage, especially when it is shaped by a workforce that
reflects the communities we serve.
Talent development
We place great emphasis on our associates’ development and provide opportunities to help them reach their full potential.
Evidence of these opportunities can be seen in the career paths of our tenured leadership team. Through internal mobility, many
of our leaders shifted from frontline roles to managerial roles. We offer a variety of leadership and development programs that
develop skills and capabilities for our associates and leaders. These programs are tailored to associates’ leadership level and
potential. The Company also offers associates professional development courses, many of which are on-demand and targeted at
improving technical skills, sales, communication, well-being, critical thinking and relationship management skills. A mix of
internal opportunities and external hires, blended with new talent through acquisitions, allows us to broaden the experience,
knowledge and diversity of our leadership teams and overall workforce.
Associate engagement and retention
We champion engagement initiatives to further a culture where associates feel welcomed and valued. Our Business Resource
Groups (“BRGs”) provide associates with opportunities to network with other associates and leaders, share common
experiences, build allyship and strengthen Ferguson’s culture of inclusion and belonging within our organization. We currently
maintain five BRGs supporting our Black, Women, LGBTQ+, Veteran and Hispanic/Latin American associates. Membership
in our BRGs is open to all our associates. Each BRG is led by an executive sponsor, a chair and a leadership team who are
voted into their roles by their respective BRG members.
We are committed to supporting our associates as well as customers and people within our communities. Through a variety of
outreach efforts, we provide our associates with the opportunity to directly engage in community service and contribute to
Ferguson being a good corporate citizen.
We offer these development and engagement programs to aid in the growth, engagement and retention of our associates. We
believe that these programs, as well as our strategic focus on I&D, support our objective to retain the best talent.
Culture and values
We strive to maintain a culture of integrity and are committed to acting ethically in all our business activities. Our core values
provide guidance on ethical situations where there may be uncertainty over how to proceed and set out the standards that we
expect of our associates and those who may work on our behalf. Our Code of Business Conduct and Ethics (“Code of
Conduct”) is a resource dedicated to helping our associates live by our values and understand Ferguson’s commitment to
compliance with all applicable laws and regulations, our Code of Conduct and Company policies. We require all associates,
including new associates, to complete our Code of Conduct training on an annual basis.
6
Compensation and rewards
To help attract and retain the best talent available in the market, we offer our associates competitive rewards packages. We
regularly review the structure of our incentive programs for alignment with our talent attraction and retention policy, our
purpose and values, and our goal to incentivize associates to take ownership of their performance. We are committed to
rewarding our associates based on the delivery of business objectives, as well as outstanding individual performance. We offer
a wide variety of health, welfare, and financial benefits to our full-time and part-time associates, including health care and
insurance benefits, mental health and well-being resources, retirement plans, and an employee share purchase plan, among
others.
We currently have several established recognition programs, where our top performing sales associates and managers receive
recognition. The purpose of these programs is to demonstrate our appreciation for our associates and to recognize the
exceptional performance and outstanding contributions they make to help support profitable growth in our business.
Health and safety
We strive to drive continuous improvement in our health and safety performance by maintaining high standards for our health
and safety compliance programs and enforcing expected safe behaviors and global safety rules. We promote a culture of “first
in safety,” which is supported by a commitment from our executive leadership and through engagement with our associates. We
endeavor to ensure that at each location, our associates are well-informed about health and safety measures and are provided
with the appropriate equipment and tools to protect themselves and those around them. Our safety efforts are further supported
by the allocation of additional resources for safety improvements and the employment of dedicated safety professionals.
Through continuous investment in health and safety, we strive to mitigate the risk of on-the-job injuries.
ESG Report
Additional information regarding our activities related to ESG matters, including our people and human capital strategy, can be
found in our most recent ESG Report, which is available on our website. The contents of this report are not incorporated by
reference into this Annual Report or in any other report or document we file with the SEC.
Available information
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). In accordance with these requirements, the Company files reports and other information with the Securities and
Exchange Commission (the “SEC”). The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file electronically with the SEC. The Company’s
website is corporate.ferguson.com. The Company’s reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
any amendments thereto, are available, free of charge, through the Company’s website as soon as reasonably practicable after
the material is electronically filed with or furnished to the SEC.
Any references to the Company’s website contained herein do not constitute incorporation by reference of information
contained on such website and such information should not be considered part of this Annual Report.
7
Item 1A.
Risk Factors
Risk factors summary
For a summary of risk factors, see our “Forward-Looking Statements and Risk Factor Summary” on page 1.
Risk factors
In addition to the other information contained in this Annual Report, you should carefully consider the following risk factors
before investing in our ordinary shares. The risks and uncertainties we describe below are not the only ones we face. Additional
risks and uncertainties of which we are not aware or that we currently believe are immaterial may also adversely affect the
business, financial condition and results of operations of the Company. If any of the possible events described below were to
occur, the business, financial condition and results of operations of the Company could be materially and adversely affected. If
that happens, the market price of our ordinary shares could decline, and holders of our ordinary shares could lose all or part of
their investment.
This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various factors, including the risks
described below and elsewhere in this Annual Report.
Market conditions, competition, financial
Weakness in the economy, market trends, uncertainty and other conditions in the markets in which we operate, particularly
in the United States, may adversely affect the profitability and financial stability of our customers, and could negatively
impact our sales growth and results of operations.
Our financial performance depends significantly on industry trends and general economic conditions, including the state of the
residential and non-residential markets, as well as changes in gross domestic product in the geographic markets in which we
operate, particularly in the United States where we generated 95% of our net sales from continuing operations in fiscal 2023.
We serve several end markets in which the demand for our products is sensitive to the construction activity, capital spending
and demand for products of our customers. Many of these customers operate in markets that are subject to cyclical fluctuations
resulting from market uncertainty, costs of goods sold, rising interest rates, currency exchange rates, labor shortages including a
shortage of skilled trade professionals, work stoppages and strikes, foreign competition, offshoring of production, oil and
natural gas prices, geopolitical developments, wage inflation and a variety of other factors beyond our control. In addition,
geopolitical conflicts, such as the current conflict in Ukraine or potential conflict between China and Taiwan and any related
international response, may exacerbate inflationary pressures, including causing increases in commodity prices and energy
costs. Any of these factors could cause customers to idle or close facilities, delay purchases, reduce production levels or
experience reductions in the demand for their own products or services.
Adverse conditions in, or uncertainty about, the markets in which we operate, the economy or the political climate could also
adversely impact our customers and their confidence or financial condition, causing them to decide not to purchase our products
or alter the timing of purchasing decisions or construction projects, and could also impact their ability to pay for products
purchased from us. Other factors beyond our control, including but not limited to unemployment, interest rate and mortgage
rate fluctuation, mortgage delinquency and foreclosure rates, inventory loss due to theft, foreign currency fluctuations, labor
and healthcare costs, the availability of financing, disruption in the financial and credit markets, including as a result of
instability in the banking sector and the failure of financial institutions, changes in tax laws affecting the real estate industry,
product availability constraints as a result of ineffectiveness of or disruption to our domestic or international supply chain or the
fulfillment network, weather, cybersecurity incidents or network security breaches, natural disasters, acts of terrorism, global
pandemics, international trade tensions, and geopolitical uncertainties, could have a material adverse effect on our business,
financial condition and results of operations.
Any of these events could impair the ability of our customers to make full and timely payments for, or reduce the volume of,
products these customers purchase from us and could cause increased pressure on our selling prices and terms of sale.
Accordingly, a significant or prolonged slowdown in activity in our relevant end markets could negatively impact net sales
growth and results of operations. In addition, we have closed and may in the future have to close underperforming branches
and/or showrooms from time to time as warranted by general economic conditions and/or weakness in the end markets in which
we operate. Such closures could have a material adverse effect on our business, financial condition and results of operations.
8
We could be adversely impacted by declines in the residential and non-residential markets, as well as the RMI and new
construction markets.
Our end markets focusing on the residential and non-residential markets as well as the RMI and new construction markets are
dependent, in part, upon certain macroeconomic trends in these markets. In fiscal 2023, the Company’s net sales in the
residential and non-residential markets generated approximately 52% and 48%, respectively, of net sales from continuing
operations. Our sales within the residential and non-residential markets are divided further into RMI and new construction
markets, which represent approximately 60% and 40%, respectively, of net sales from continuing operations.
A slowdown in the residential and/or non-residential markets caused by inflation, higher interest or mortgage rates or other
issues in the market, may cause unanticipated shifts in our end market preferences and purchasing practices and in the business
models and strategies of our customers. Such shifts may alter the nature and prices of products demanded by the end consumer
and, in turn, our customers and could adversely affect our business, financial condition and results of operations.
The industries in which we operate are highly competitive, and changes in competition, including as a result of
consolidation, could result in decreased demand for our products and related service offerings and could have a material
effect on our sales and profitability.
We face competition in all markets we serve from wholesale distributors, supply houses, retail enterprises, online businesses
that compete with price transparency, and from manufacturers (including some of our own suppliers) that sell directly to certain
segments of the market. In particular, wholesale and distribution businesses in other industry sectors have been disrupted by the
arrival of new competitors with lower-cost non-value added transactional business models or new technologies to aggregate
demand away from incumbents. In the event that one or more online marketplace companies, which in some cases have larger
customer bases, greater brand recognition and greater resources than we do, focus resources on competing in our markets, it
could have a material adverse effect on our business, financial condition and results of operations. In addition, such competitors
may use aggressive pricing and marketing tactics (such as paid search marketing), devote substantially more financial resources
to website and systems development, or respond more quickly to emerging technologies (such as generative AI) and changes in
customer preferences than we do. It is expected that competition could further intensify in the future as online commerce
continues to grow worldwide. Increased competition may result in reduced net sales, lower operating margins, reduced
profitability, loss of market share and diminished brand recognition.
The industries in which we operate may be disrupted by non-traditional competitors through acquisitions of traditional
competitors to expand their capabilities. The industries in which we operate are also consolidating as customers are increasingly
aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. This competitor
consolidation could cause the industries to become more competitive as greater economies of scale are achieved.
Additionally, we have experienced competitive pressure from certain of our suppliers who are now selling their products
directly to customers. Suppliers can often sell their products at lower prices and maintain higher gross margins on their product
sales than we can. Continued competition from our suppliers may negatively impact our business and results of operations,
including through reduced sales, lower operating margins, reduced profitability, loss of market share and diminished brand
recognition.
In response to these competitive pressures, among other initiatives, we are applying technology as an important medium for
delivering better customer service alongside the supply of our products, and to create dedicated tools to save customers time
and money. However, we may not continue to realize benefits from such investments and such initiatives may not be
successful. In addition, failure to effectively execute our strategies, including the development and acquisition of such new
business models or technologies, or successfully identify future market and competitive pressures, could have a material
adverse effect on net sales and profitability.
9
Fluctuating product prices may adversely affect the Company’s business, financial condition and results of operations.
Some of our products contain significant amounts of commodity-priced materials, predominantly plastic, copper and steel, and
other components that are subject to price changes based upon fluctuations in the commodities market, which can arise from
changes in domestic and international supply and demand, general inflationary pressures, labor costs, competition, tariff and
trade restrictions and geopolitical conflict, among other factors. To a lesser extent, fluctuations in the price of fuel could affect
transportation costs. In addition, shipping capacity constraints and related fluctuations in shipping rates and space availability
further impact the product cost. Our ability to adjust prices in a timely manner to account for price fluctuations will often
depend on market conditions, our fixed costs, inflation and deflation, and other factors. In the event that circumstances require
us to adjust our product prices and operational strategies to reflect fluctuating prices (inflation/deflation), there can be no
assurance that such adjustments will be effective. For example, our inability to pass on all or a portion of product price inflation
to our customers in a timely manner could reduce our profit margins. Similarly, downward pressure on product prices due to
deflation could cause profit margins to decline. Moreover, our efforts to monitor for signs of moderation or deflation, which
would present risks that we may not be able to totally mitigate, may be ineffective. Any failure to appropriately address some or
all of these risks could have a material adverse effect on our business, financial condition and results of operations.
We have funding risks related to our defined benefit pension plans.
The Company operates a variety of pension plans, including funded and underfunded defined benefit schemes in Canada and
the United Kingdom. Our pension trustees and plan sponsors aim to match the liabilities with a portfolio of assets, comprising
equity and debt securities alongside diversified growth assets and further investments designed to hedge the underlying interest
and inflation risk inherent in the associated liabilities. The market value of these assets can rise and fall over time which
impacts the funding position of the plan. The United Kingdom defined benefit pension plan (the “United Kingdom Plan”), the
Company’s largest defined benefit plan, is closed to future service costs and has a buy-in insurance policy which covers a large
proportion of the existing participants. Following the completion of the Company’s disposal of Wolseley UK Limited (the
“U.K. business”) on January 29, 2021, the Company retained future responsibility for the United Kingdom Plan, as the ongoing
liabilities were not transferred to the purchaser.
As required by United Kingdom pensions regulation, the United Kingdom Plan completed its triennial actuarial valuation
exercise, which is measured on a technical provisions basis, based on the United Kingdom Plan’s financial position as of April
30, 2022. The triennial valuation resulted in a need for deficit reduction contributions by the Company of £133 million spread
over the period to January 31, 2026, of which the Company has paid £26 million as of July 31, 2023.
In addition to required contributions, the Company makes voluntary contributions at the discretion of management. The
requirement to pay such additional sums, due to factors such as a deterioration in economic conditions or changes in actuarial
assumptions, could have an adverse effect on our financial condition. In addition, actions by the U.K. Pensions Regulator or the
trustees of our pension plans or any material revisions to the existing pension legislation could result in us being required to
incur significant additional costs immediately or in short time frames. Such costs, in turn, could have an adverse effect on our
financial condition.
Changes in our credit ratings and outlook may reduce access to capital and increase borrowing costs.
Our credit ratings are based on a number of factors, including our financial strength and factors outside of our control, such as
conditions affecting our industry generally and the introduction of new rating practices and methodologies. A resurgence of the
COVID-19 pandemic or other public health crisis could negatively impact our credit ratings and thereby adversely affect our
access to capital and cost of capital. We cannot provide assurances that our current credit ratings will remain in effect or that the
ratings will not be lowered, suspended or withdrawn entirely by the rating agencies. If rating agencies lower, suspend or
withdraw the ratings, the market price or marketability of our securities may be adversely affected. Pressure on the ratings
could also arise from higher shareholder payouts or larger acquisitions than we have currently planned that result in increased
leverage, or in a deterioration in the metrics used by the rating agencies to assess creditworthiness. In addition, any change in
ratings could make it more difficult for the Company to raise capital on acceptable terms, impact the ability to obtain adequate
financing and result in higher interest costs on future financings.
10
We may not be able to access the capital and credit markets on terms that are favorable to us.
We may seek access to the capital and credit markets to supplement our existing funds and cash generated from operations for
working capital, capital expenditure and debt service requirements and other business initiatives. Capital and credit markets
may experience volatility and disruption from time to time, which can lead to uncertainty and liquidity issues for both
borrowers and investors. In the event of adverse market conditions, we may be unable to obtain capital or credit market
financing on favorable terms, which could materially adversely affect our business, financial condition and results of
operations.
Potential regional or global barriers to trade or a global trade war could increase the cost of our products, which could
adversely impact the competitiveness of our products and our financial results.
Trade tensions between the United States and China have escalated over the past several years which resulted in elevated tariffs.
The current U.S. presidential administration has not taken action to roll these back. However, in May 2022, the Office of United
States Trade Representative (the “USTR”) commenced its quadrennial review of the tariffs imposed on China-origin goods
pursuant to Section 301 of the Trade Act of 1974 (the “Trade Act”). The USTR initiated its review pursuant to Section 307(c)
of the Trade Act, which requires the USTR to review the “necessity of” Section 301 actions four years after their
implementation. In September 2022, the USTR announced that because requests for continuation were received, the tariff
actions had not terminated and the USTR would conduct a review of the tariff actions. In October 2022, the USTR announced
the public comment phase of its four-year, statutorily mandated review of the Section 301 tariffs. This process may or may not
change these tariff actions and it remains unclear what additional, new, or different actions, if any, will be taken by the United
States, China, or other governments with respect to international trade agreements, the imposition of tariffs on goods imported
into the United States, the erection of barriers to trade, tax policy related to international commerce, or other trade matters. The
potential removal of some of the tariffs and trade actions and the respective deflationary impact could have an effect on our
business, financial condition and results of operations. At this point in time, it remains to be seen what effects, if any, the
current administration will have on a long-term comprehensive agreement on tariffs between the United States and China.
The Company’s strategy could be materially adversely affected by its indebtedness.
As of July 31, 2023, we had total debt of $3.8 billion. We may incur substantial additional indebtedness in the future, in
particular in connection with future acquisitions which remain a core part of our strategy, some of which may be secured by
some or all of our assets. Our overall level of indebtedness from time to time may have an adverse effect on our strategy,
including requiring us to dedicate portions of our cash flow to payments on our debt, thereby reducing funds available for
reinvestment in the business; restricting us from securing the financing, if necessary, to pursue acquisition opportunities;
limiting our flexibility in planning for, or reacting to, changes in our business and industry; limiting our ability to purchase,
redeem or retire our ordinary shares; and placing us at a competitive disadvantage compared to our competitors that have lower
levels of indebtedness. In addition, our indebtedness exposes us to the risk of increased interest rates because a portion of our
borrowings are at variable rates of interest.
We may need to refinance some or all of our debt upon maturity either on terms which could potentially be less favorable than
the existing terms or under unfavorable market conditions, which may also have an adverse effect on our strategy. Our ability to
generate the amount of cash needed to pay interest and principal on our indebtedness and/or our ability to refinance all or a
portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Fluctuations in foreign currency may have an adverse effect on reported results of operations.
We are exposed to foreign currency exchange rate risk with respect to the U.S. dollar relative to the local currencies of our
international subsidiaries, predominantly the Canadian Dollar (“CAD”), and the British Pound Sterling (“GBP”), arising from
transactions in the normal course of business (such as sales and loans to wholly-owned subsidiaries, sales to third-party
customers, and purchases from suppliers). Our only significant foreign currency exchange exposure from a net sales perspective
is CAD. We also have foreign currency exposure to the extent that receipts and expenditures are not denominated in the
subsidiary’s functional currency, which could impact net sales, costs and cash flows. Fluctuations in foreign currency exchange
rates could affect the Company’s results of operations and impact reported net sales and net income.
11
Our ability to pay dividends or effect other returns of capital in the future depends, among other things, on our financial
performance.
There can be no guarantee that our historical performance will be repeated in the future, particularly given the competitive
nature of the industry in which we operate, and our net sales, net income and cash flow may significantly underperform market
expectations. If our cash flow underperforms market expectations, then our capacity to pay a dividend or effect other returns of
capital (including, without limitation, share repurchases) may be negatively impacted. Any decision to declare and pay
dividends or to effect other returns of capital will be made at the discretion of the Company’s Board of Directors (the “Board”)
and will depend on, among other things, applicable law, regulation, restrictions (if any) on the payment of dividends and/or
capital returns in our financing arrangements, our financial position, retained earnings/net income, working capital
requirements, interest expense, general economic conditions, effects from the outbreak or resurgence of a global health crisis,
and other factors that the Board deems significant from time to time.
We cannot guarantee that our share repurchase program will be fully consummated or that our share repurchase program
will enhance long-term shareholder value, and share repurchases could increase the volatility of the price of our ordinary
shares and could diminish our cash reserves.
We previously announced our intention to repurchase up to $3.0 billion of our ordinary shares. As of July 31, 2023, we have
completed $2.5 billion of this share repurchase program with approximately $0.5 billion remaining. The timing and actual
number of shares repurchased will depend on a variety of factors including the price, cash availability and other market
conditions. The share repurchase program, authorized by our Board and shareholders, does not obligate us to repurchase any
specific dollar amount or to acquire any specific number of shares. The share repurchase program could affect the price of our
ordinary shares and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the
trading price of our ordinary shares. The existence of our share repurchase program could also cause the price of our ordinary
shares to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our
ordinary shares. Additionally, repurchases under our share repurchase program will diminish our cash reserves.
The Company is a holding company with no business operations of its own and depends on its subsidiaries for cash,
including in order to pay dividends.
The Company is a holding company with no independent operations and is dependent on earnings and distributions of funds
from its operating subsidiaries for cash, including in order to pay dividends to its shareholders. The Company’s ability to pay
dividends to its shareholders therefore depends on the ability of its subsidiaries to distribute profits or pay dividends to the
Company, general economic conditions and other factors that the Board deems significant from time to time. The Company’s
distributable reserves can be affected by reductions in profitability, impairment of assets and severe market turbulence.
Ownership of Ordinary Shares
The obligations associated with being a public company in the United States require significant resources and management
attention and increase our legal and financial compliance costs, and changing laws, regulations and standards are creating
uncertainty for United States public companies.
As a public company with a recent U.S. listing of our ordinary shares in the United States, we continue to incur legal,
accounting and other expenses that we did not previously incur. We are subject to the reporting requirements of the Exchange
Act and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the listing requirements of the New York Stock Exchange
(the “NYSE”), and other applicable securities rules and regulations. The Exchange Act requires that we file annual and other
reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among
other things, that we establish and maintain effective internal controls and procedures for financial reporting. In addition, as of
January 31, 2023, we determined that we no longer qualify as a foreign private issuer, as defined under the Exchange Act. As a
result, effective as of August 1, 2023, we were no longer eligible to use the rules designed for foreign private issuers and are
considered a U.S. domestic issuer. As such, we are required to comply with, among other things, U.S. proxy requirements and
Regulation FD and our officers, directors and principal shareholders are subject to the beneficial ownership reporting and short-
swing profit recovery requirements under Section 16 of the Exchange Act. We are also no longer eligible to rely upon
exemptions from corporate governance requirements that are available to foreign private issuers or to benefit from other
accommodations for foreign private issuers under the rules of the SEC or NYSE and have modified certain of our policies to
comply with good governance practices applicable to U.S. domestic issuers.
12
The establishment and the maintenance of the corporate infrastructure demanded of a United States public company may, in
certain circumstances, divert management’s attention from implementing our strategy to drive profitable growth, which could
prevent us from improving our business, financial condition and results of operations. We have made, and will continue to
make, changes to our internal controls and procedures for financial reporting and accounting systems in order to meet our
reporting obligations as a public company in the United States with domestic issuer status. However, the measures we take may
not be sufficient to satisfy these obligations. In addition, compliance with these rules and regulations have increased, and
following loss of foreign private issuer status have further increased, our legal and financial compliance costs and have made
some activities more time-consuming and costly. These additional obligations may have a material adverse impact on our
business, financial condition, results of operations and cash flow.
In addition, changing laws, regulations and standards relating to corporate governance, ESG matters, and public disclosure are
creating uncertainty for public companies in the United States, increasing legal and financial compliance costs and making
some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many
cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and
higher costs necessitated by ongoing revisions to disclosure and governance practices. We have invested, and expect to
continue to invest, resources to comply with evolving laws, regulations and standards, and this investment may result in
increased operating expenses and a diversion of management’s time and attention from sales-generating activities to
compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate
legal proceedings against us and our business, financial condition, results of operations and cash flow could be adversely
affected.
Corporate responsibility, specifically related to ESG matters, may impose additional costs and expose us to new risks.
Public ESG and sustainability reporting is becoming more broadly expected by regulators, investors, shareholders and other
third parties. Ongoing focus on ESG matters by investors and other parties as described below may impose additional costs or
expose us to new risks. If we do not adapt to or comply with investor or other stakeholder expectations and standards on ESG
matters as they continue to evolve, and as they may diverge, or if we are perceived to have not responded appropriately or
quickly enough to growing concern for ESG and sustainability issues, regardless of whether there is a regulatory or legal
requirement to do so, we may suffer from reputational damage and our business, financial condition and/or the market price of
our ordinary shares could be materially and adversely affected.
Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have
developed, and others may in the future develop, scores and ratings to evaluate companies and investment funds based upon
ESG or “sustainability” metrics. Many investment funds focus on positive ESG business practices and sustainability scores
when making investments and may consider a company’s ESG or sustainability scores as a reputational or other factor in
making an investment decision. In addition, investors, particularly institutional investors, use these scores to benchmark
companies against their peers, and if a company is perceived as lagging, these investors may engage with such company to
improve ESG disclosure or performance and may also make voting decisions or take other actions to hold these corporations
and their boards of directors accountable. Board diversity and climate change ESG topics have, in particular, received
heightened attention from investors, shareholders, lawmakers and listing exchanges. In addition, the SEC has proposed rule
changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic
reports, including greenhouse gas emission data with third-party attestation and climate-related financial statement metrics in a
note to their audited financial statements. The adoption and expansion of ESG-related legislation and regulation may also result
in increased capital expenditures and compliance, operational and other costs to us. We may face reputational damage in the
event our corporate responsibility initiatives or objectives, including with respect to board diversity or climate, do not meet the
standards set by our regulators, investors, shareholders, lawmakers, listing exchanges or other constituencies, or if we are
unable to achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability rating
by a third-party rating service could also result in the exclusion of our ordinary shares from consideration by certain investors
who may elect to invest with our competition instead.
13
In addition, as we work to align with the recommendations of the Financial Stability Board’s Task Force on Climate-Related
Financial Disclosures, the Sustainability Accounting Standards Board, and our own ESG assessments and priorities, we have
expanded and, in the future, may continue to expand our disclosures in these areas. These ESG reporting disclosure frameworks
and reporting standards continue to evolve. Our selection of disclosure frameworks and reporting standards and information
voluntarily disclosed may change from time to time and may result in a lack of consistent or meaningful comparative data from
period to period, as well as significant revisions to ESG goals, initiatives, commitments, or objectives or reported progress in
achieving the same. Our failure to report accurately or achieve progress on our ESG-related goals, targets or metrics on a timely
basis, or at all, could adversely affect our reputation, business, financial condition and results of operations. Statements
regarding our ESG-related goals reflect our current plans and aspirations; our ESG-related policies, practices and goals are
voluntary and subject to change at our discretion. Further, our initiatives and goals may not be favored by certain stakeholders,
whose priorities and expectations may not align or may be opposed to one another, and could impact the attraction and retention
of investors, customers and employees. Efforts to achieve our initiatives and goals, including collecting, measuring and
reporting ESG information, involve operational, reputational, financial, legal and other risks and may result in additional costs
or delays, and as a result may have a negative impact on us, including our brand, reputation and the market price of our
ordinary shares.
Our ordinary shares are subject to market price volatility and the market price may decline disproportionately in response to
developments that are unrelated to our operating performance.
The market price of our ordinary shares has been and may in the future be volatile and subject to wide fluctuations. The market
price of our ordinary shares may fluctuate as a result of a variety of factors including, but not limited to, general economic and
political conditions, period to period variations in operating results, changes in net sales or net income estimates by us, industry
participants or financial analysts, our failure to meet our stated guidance, our failure to comply with the rules under the
Sarbanes-Oxley Act related to accounting controls and procedures, the discovery of material weaknesses and other deficiencies
in our internal control and accounting procedures, and the other factors discussed in this Item 1A. If we are unable to assert that
our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to
express an opinion as to the effectiveness of our internal control over financial reporting, when required, investor confidence in
us may be adversely affected and, as a result, the value of our ordinary shares may decline.
We currently maintain a standard listing on the London Stock Exchange (the “LSE”) in addition to our listing on the NYSE. As
a result of the transfer of our primary listing to the NYSE, there may be volatility in our share price as a result of turnover in our
shareholder base. In addition, the market price of our ordinary shares could also be adversely affected by developments
unrelated to our operating performance, such as the operating and share price performance of other companies that investors
may consider comparable to us, speculation about us in the press or the investment community, unfavorable press, strategic
actions by competitors (including acquisitions and restructurings), changes in market conditions, regulatory changes, broader
market volatility and movements and delay in our inclusion in North American indices. Any or all of these factors could result
in material fluctuations in the market price of our ordinary shares, which could lead to investors getting back less than they
invested or a total loss of their investment. In addition, where the market price of a company’s shares have been volatile, the
shareholders of such company may file securities class action litigation against that company based on various claims such as
securities fraud and other violations of securities laws. While we have not been a target of this type of litigation, we may be in
the future. The defense and disposition of litigation of this type could result in substantial costs and divert resources and the
time and attention of our management, which could materially and adversely affect our business or financial condition.
The rights afforded to our shareholders are governed by Jersey law. Not all rights available to shareholders under U.S. law
will be available to holders of our ordinary shares.
The rights of holders of our ordinary shares are governed by Jersey law and our Memorandum of Association and Articles of
Association (the “Articles”), which may not provide the level of legal certainty and transparency afforded by incorporation in a
U.S. state.
The Company is organized under the laws of Jersey, Channel Islands, a British crown dependency that is an island located off
the coast of Normandy, France. Jersey is not a member of the European Union. Jersey legislation regarding companies is
largely based on English corporate law principles. However, there can be no assurance that Jersey law will not change in the
future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States,
which could adversely affect the rights of investors.
14
Rights afforded to shareholders under Jersey law differ in certain respects from the rights of shareholders in typical U.S.
companies. In particular, Jersey law currently significantly limits the circumstances in which the shareholders of Jersey
companies may bring derivative actions (i.e., legal actions brought by a shareholder on behalf of a company against a third
party). Under Jersey law, in most cases, only the Company may be the proper plaintiff for the purposes of maintaining
proceedings in respect of wrongful acts committed against us (including breaches of directors’ duties) and, generally, neither an
individual shareholder, nor any group of shareholders, has any right of action in such circumstances. There are a number of
judicially accepted exceptions to this general rule, including what is known as “fraud on the minority,” being where there is a
prima facie case of equitable fraud on the part of the prospective defendant and the alleged wrongdoers themselves were in
control of the company and improperly preventing it from bringing proceedings.
Under Article 141 of the Jersey Companies Law, a shareholder may, however, apply to court for relief on the grounds that the
conduct of our affairs, including a proposed or actual act or omission by us, is “unfairly prejudicial” to the interests of our
shareholders generally or of some part of our shareholders, including at least the shareholder making the application. Under
Article 143 of the Jersey Companies Law (which sets out the types of relief a court may grant in relation to an action brought
under Article 141 of the Jersey Companies Law), the court may make an order regulating the affairs of a company, requiring a
company to refrain from doing or continuing to do an act complained of, authorizing civil proceedings or providing for the
purchase of shares by a company or by any of its other shareholders. In addition, Jersey law does not afford appraisal rights to
dissenting shareholders in the form typically available to shareholders in a U.S. company.
Jersey law does not preclude a shareholder from alleging a violation of federal securities laws in the United States.
Our ordinary shares are listed to trade on more than one stock exchange, and this may result in price variations.
Our ordinary shares are listed on both the NYSE and the LSE. Dual-listing may result in price variations between the exchanges
due to a number of factors. Our ordinary shares trade in U.S. dollars on the NYSE and in GBP on the LSE. In addition, the
exchanges are open for trade at different times of the day and the two exchanges also have differing vacation schedules.
Differences in the trading schedules, as well as volatility in the exchange rate of the two currencies, among other factors, may
result different trading prices for our ordinary shares on the two exchanges. Other external influences may have different effects
on the trading price of our ordinary shares on the two exchanges.
Operations and technology
If our domestic or international supply chain or our fulfillment network for our products is ineffective or disrupted for any
reason, or if these operations are subject to trade policy changes, our business, financial condition and results of operations
could be adversely affected.
We source, distribute and sell products from domestic and international suppliers, and their ability to reliably and efficiently
fulfill our orders is critical to our business success. We purchase from approximately 36,000 suppliers located in various
countries around the world.
Financial instability among key suppliers, political instability (including resulting from potential conflict between China and
Taiwan) and labor unrest in source countries or elsewhere in our supply chain, changes in the total costs in our supply chain
(including, but not limited, to changes in fuel and labor costs and currency exchange rates), port or rail labor disputes and
security, the outbreak or resurgence of pandemics, weather- or climate-related events, natural disasters, work stoppages or
strikes, shipping capacity constraints or embargoes, changes in trade policy, trade restrictions imposed by the United States,
Europe, China or another major source country, tariffs or duties, fluctuations in currency exchange rates and transport
availability, capacity and costs are all beyond our control and could negatively impact our business if they seriously disrupted
the movement of products through our supply chain or increased their costs. Additionally, as we add fulfillment capabilities or
pursue strategies with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating
it becomes more challenging. If our fulfillment network does not operate properly or if a supplier fails to deliver on its
commitments, we could experience delays in inventory availability at our distribution facilities and branches, increased delivery
costs or lack of availability, any of which could lead to lower net sales and decreased customer confidence, and adversely affect
our results of operations. Furthermore, our existing suppliers may decide to supply products directly to end users that are our
existing or potential customers, which could have a detrimental effect on our ability to keep and procure customers, and
maintain and win business, thereby having a material adverse effect on our business, financial condition and results of
operations.
15
Execution of our operational strategies could prove unsuccessful, which could have a material adverse effect on our
business, financial condition and results of operations.
To achieve our key priorities, we must drive profitable growth across our operational businesses by fulfilling customer needs,
capitalizing on attractive markets and growth opportunities and achieving planned execution. Meeting customer needs through
comprehensive and differentiated products and solutions that support our customers’ projects is a key part of our strategy to
drive profitable growth. If service levels were to significantly decrease, customers might purchase from our competitors instead,
resulting in reduced net sales, lower operating margins, reduced profitability, loss of market share and/or diminished brand
recognition.
Development of our operating model is a key part of driving profitable growth. If we are not sufficiently agile in adapting our
operating model, we may be unable to adapt to changing customer wants and/or to flex our cost base when required. Moreover,
we may not successfully execute our strategic initiatives on expected timelines or at all, including through failure to have the
right talent in place or to achieve internal alignment or coordination. Any failure to appropriately address some or all of these
risks could damage our reputation and have a material adverse effect on our business, financial condition and results of
operations.
We may not rapidly identify or effectively respond to direct and/or end customers’ wants, expectations or trends, which could
adversely affect our relationship with customers, our reputation, the demand for our products and our market share.
The success of our business depends in part on our ability to identify and respond promptly to evolving trends in demographics,
as well as customer wants, preferences and expectations, while also managing appropriate inventory levels and maintaining our
focus on delivering an excellent customer experience. For example, our customers are currently facing challenges in the form of
a shortage of skilled trade professionals and a need for improved construction productivity. It is also difficult to successfully
predict the products and solutions that customers will require. In addition, the customers in the markets we serve have different
needs and expectations, many of which evolve as the demographics in a particular market change. Inventory levels in excess of
customer demand due to the difficulty of calibrating demand for such products, the concentration of demand for a limited
number of products, difficulties in product sourcing, or rapid changes in demand may result in inventory write-downs, and the
sale of excess inventory at discounted prices could have an adverse effect on our operating results, financial condition and cash
flows. Conversely, if we underestimate customer demand for our products or if our manufacturers fail to supply products we
require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to
customers and negatively impact customer relationships.
We offer more localized assortments of our products to appeal to needs within each end market. If we do not successfully
evolve and differentiate to meet the individual needs and expectations of, or within, a particular end market, we may lose
market share.
We are continuing to invest in our e-commerce and omni-channel capabilities and other technology solutions, including
investments in significant upgrades to our enterprise-wide resource planning systems, to simplify our customer propositions and
to optimize the supply chain and branch network to be more efficient and to deliver a more efficient business for our customers.
The cost and potential problems and interruptions associated with these initiatives could disrupt or reduce the efficiency of our
online and in-store operations in the near term, lead to product availability issues and negatively affect our relationship with our
customers. Furthermore, accomplishing these initiatives will require a substantial investment in additional information
technology associates and other specialized associates. We may face significant competition in the market for these resources
and may not be successful in our hiring efforts. Failure to choose the right investments and implement them in the right manner
and at the right pace could adversely affect our relationship with customers, our reputation, the demand for our products and
solutions, and our market share. In addition, our branch and omni-channel initiatives, enhanced supply chain, and new or
upgraded information technology systems might not provide the anticipated benefits. For example, in fiscal 2023, the Company
determined that one of the solutions developed to target certain branch transactional processes did not meet our customer
service, speed and efficiency goals and, as a result, chose not to proceed with that component and recorded a non-cash
impairment charge of $107 million of previously capitalized software costs in the United States. It might take longer than
expected to realize the anticipated benefits, cost more than budgeted, or all or part of the initiatives might fail altogether, each
of which could adversely impact our competitive position and our business, financial condition, results of operations or cash
flows.
16
Acquisitions, partnerships, joint ventures, dispositions and other business combinations or strategic transactions involve a
number of inherent risks, any of which could result in the benefits anticipated not being realized and could have an adverse
effect on our business, financial condition and results of operations.
Acquisitions are an important part of our growth model and we regularly consider and enter into strategic transactions,
including mergers, acquisitions, investments and other growth, market and geographic expansion strategies, with the
expectation that these transactions will result in increases in sales, cost savings, synergies and various other benefits.
During fiscal 2023, 2022 and 2021, we completed a total of 8, 17 and 7 acquisitions, respectively. We may not realize any
anticipated benefits from such transactions or partnerships, or any future ones, and we may be exposed to additional liabilities
and risks from any acquired business or joint venture (including but not limited to risks associated with cybersecurity incidents,
unknown claims and disputes by third parties against the companies we acquire, and business disruption related to inability to
retain associates of the acquired entity). In addition, we may be exposed to litigation in connection with our acquisition and
partnership transactions. Our due diligence investigations may fail to identify all of the problems, liabilities or other challenges
associated with an acquired business which could result in an increased risk of unanticipated or unknown issues or liabilities,
including with respect to environmental, competition and other regulatory matters, and our mitigation strategies for such risks
that are identified may not be effective.
Furthermore, we may have trouble identifying suitable acquisition targets in the future. Our ability to deliver the expected
benefits from any strategic transactions that we do complete is subject to numerous uncertainties and risks, including our
acquisition assumptions; our ability to integrate personnel, labor models, financial, customer relationships, supply chain and
logistics, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring
additional management and other critical personnel; product quality compliance of new suppliers; and increasing the scope,
geographic diversity and complexity of our operations.
Effective internal controls are necessary to provide reliable and accurate financial reports, and the integration of businesses may
create complexity in our financial systems and internal controls and make them more difficult to manage. Integration of
businesses into our internal control system could cause us to fail to meet our financial reporting obligations. Moreover, any
failure to integrate, or delay in integrating, IT systems of acquired businesses could create an increased risk of cybersecurity
incidents. Additionally, any impairment of goodwill or other assets acquired in a strategic transaction or charges to earnings
associated with any strategic transaction, may materially reduce our profitability. Following integration, an acquired business
may not produce the expected margins or cash flows. Our shareholders, vendors or customers may react unfavorably to
substantial strategic transactions. Furthermore, we may finance these strategic transactions by incurring additional debt or
raising equity, which could increase leverage or impact our ability to access capital in the future.
If we fail to qualify for supplier rebates or are unable to maintain or adequately renegotiate our rebate arrangements, our
results of operations could be materially adversely affected.
Many of our products are purchased pursuant to rebate arrangements that entitle us to receive a rebate based on specified
purchases. Some arrangements require us to purchase minimum quantities and result in higher rebates with increased quantities
of purchases. These rebates effectively reduce the costs of our products, and we manage our business to take advantage of these
programs. Rebate arrangements are subject to renegotiation with our suppliers from time to time. In addition, consolidation of
suppliers may result in the reduction or elimination of rebate programs in which we participate. If we fail to qualify for these
rebates or are unable to renew rebate programs on desirable terms, or a supplier materially reduces or stops offering rebates, our
costs could materially increase, and our gross margins and net income could be materially adversely affected.
17
If we are unable to protect our sensitive data and information systems against data corruption, cybersecurity incidents or
network security breaches, or if we are unable to provide adequate security in the electronic transmission of sensitive data, it
could adversely affect the operations of our business.
We may face global cybersecurity threats, which may range from uncoordinated individual attempts to sophisticated and
targeted measures, known as advanced persistent threats, directed at us and our customers, suppliers, and service providers.
Cybersecurity incidents and network security breaches may include, but are not limited to, attempts to access or unauthorized
access of information, exploitation of vulnerabilities (including those of third-party software or systems), computer viruses,
ransomware, denial of service and other electronic security breaches. Cyber-attacks from computer hackers and cyber criminals
and other malicious internet-based activity continue to increase generally, and our services and systems, including the systems
of our outsourced service providers, have been and may in the future continue to be the target of various forms of cybersecurity
incidents such as DNS attacks, wireless network attacks, viruses and worms, malicious software, ransomware, application
centric attacks, peer-to-peer attacks, business email compromises and phishing attempts, backdoor trojans and distributed denial
of service attacks. Furthermore, given that new technologies continue to emerge, the methods used by computer hackers and
cyber criminals to obtain unauthorized access to data or to sabotage computer systems change frequently and continue to grow
in sophistication. Accordingly, we may be unable to anticipate or detect such attacks or promptly and effectively respond to
them.
While we have instituted safeguards for the protection of our information systems and believe we use reputable third-party
service providers, during the normal course of business, we and our service providers have experienced and expect to continue
to experience cyber-attacks on our information systems, and we and our service providers may be unable to protect sensitive
data and/or the integrity of our information systems. A cybersecurity incident could be caused by malicious third parties using
sophisticated methods to circumvent firewalls, encryption and other security defenses. Techniques used to obtain unauthorized
access or to sabotage systems change frequently and generally are not recognized until they are launched against a target.
Accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures.
As a result, we or our service providers could experience errors, interruptions, delays, or cessations of service in key portions of
our information technology infrastructure, which could significantly disrupt our operations and be costly, time-consuming and
resource-intensive to remedy. As a result, we could forego net sales or profit margins if we are unable to operate. Furthermore,
if critical information systems fail or otherwise become unavailable, our ability to process orders, maintain proper levels of
inventories, collect accounts receivable and disburse funds could be adversely affected. Any such interruption of our
information systems could also subject us to additional costs. Loss of customer, supplier, associate, or other business
information could disrupt operations, damage our reputation, and expose us to claims from customers, suppliers, financial
institutions, regulators, payment card associations, associates, and others, any of which could have a material adverse effect on
our business, financial condition and results of operations.
18
We are required to maintain the privacy and security of personal information in compliance with privacy and data
protection regulations worldwide. Failure to meet the requirements could harm our business and damage our reputation
with customers, suppliers, and associates.
We rely on IT systems, networks, products, and services, some of which are managed by service providers to protect our
information. Increased information security threats and more sophisticated threat actors pose a risk to our information security
program. Additionally, we collect, store, and process personal information relating to our customers, suppliers, and associates.
This information is increasingly subject to a variety of U.S. and international laws and regulations that are constantly changing
and becoming more complex, such as the General Data Protection Regulation, as enacted in the European Union and the United
Kingdom, Canada’s Personal Information Protection and Electronic Documents Act, and the California Consumer Privacy Act
(the “CCPA”). These laws and regulations may carry significant potential penalties for non-compliance. For example, in the
United States the CCPA, which came into effect in January 2020, has given California consumers more control over the
personal information that businesses collect about them. The law created new data privacy rights for California consumers and
requires certain businesses who collect personal information from California consumers to comply with various data protection
requirements. Further, on November 3, 2020, the California Privacy Rights Act (the “CPRA”) was voted into law by California
residents. The CPRA significantly amends the CCPA and imposes additional data protection obligations on companies doing
business in California, including additional consumer rights processes and opt outs for certain uses of sensitive data. It also
creates a new California data protection agency specifically tasked to enforce the law, which could result in increased
regulatory scrutiny of businesses conducting activities in California in the areas of data protection and security. The substantive
requirements for businesses subject to the CPRA became effective on January 1, 2023, and enforceable on July 1, 2023.
Businesses like ours that are subject to the CCPA who fail to comply with the CCPA may be subject to fines and penalties per
incident of non-compliance and class action lawsuits in the event of a data breach of sensitive personal information. Other U.S.
states continue to enact or are proposing or have enacted similar laws related to the protection of consumer personal
information.
Data privacy and data protection laws and regulations are typically intended to protect the privacy of personal information that
is collected, processed, transmitted, and stored in or from the governing jurisdiction. In many cases, these laws apply not only
to third-party transactions, but also to transfers of information between a company and its subsidiaries, including associate
information. While we have invested and continue to invest significant resources to comply with data privacy regulations, many
of these regulations are new, complex, and subject to interpretation. To maintain compliance with these laws, we may incur
increased costs to continually evaluate and modify our policies and processes and to adapt to new legal and regulatory
requirements. Non-compliance with these laws could result in negative publicity, damage to our reputation, penalties, or
significant legal liability. Our business and operations could also be adversely affected if legislation or regulations are expanded
to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations
in ways that negatively affect our business.
A failure of a key information technology system or process could adversely affect the operations of our business.
Technology systems and data are fundamental to the operations, future growth and success of our business. In managing our
business, we rely on the integrity and security of, and consistent access to, data from these systems such as sales, customer data,
merchandise ordering, inventory replenishment and order fulfillment. A major disruption of the information technology systems
and their backup mechanisms may cause us to incur significant costs to repair the systems, experience a critical loss of data
and/or result in business interruptions.
For these information technology systems and processes to operate effectively, we or our service providers must periodically
maintain and update them. Furthermore, we must retain and recruit information technology associates and other specialized
associates that can operate, maintain and update these systems. In addition, our systems and the third-party systems on which
we rely are subject to damage or interruption from a number of causes, including: power outages; computer and
telecommunications failures; cybersecurity incidents, including the use of ransomware; catastrophic events such as fires, floods,
earthquakes, tornadoes, hurricanes, or other natural disasters; a global pandemic outbreak or resurgence; acts of war or
terrorism; and design or usage errors by our associates, contractors or service providers. We and our service providers seek to
maintain our respective systems effectively and to successfully address the risk of compromise of the integrity, security and
consistent operations of these systems, utilizing all reasonable and appropriate means available. However, such efforts may not
be successful.
19
We rely on data centers and other technologies and services provided by third parties in order to manage our cloud-based
infrastructure and operate our business. If any of these services becomes unavailable or otherwise is unable to serve our
requirements due to extended outages, interruptions, facility closure, or because it is no longer available on commercially
reasonable terms, expenses could increase and our operations could be disrupted or otherwise impacted until appropriate
substitute services, if available, are identified, obtained, and implemented, which could have a material adverse effect on our
business, financial condition and results of operations.
We are subject to payment-related risks that could increase our selling, general and administrative expenses, expose us to
fraud or theft, subject us to potential liability, and potentially disrupt our business.
We accept payments using a variety of methods, including cash, checks, credit and debit cards, PayPal and electronic payment,
and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations,
contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security
standards and certification requirements, and rules governing electronic funds transfers. These requirements may change over
time or be reinterpreted, making compliance more difficult or costly. For certain payment methods, including credit and debit
cards, we pay interchange and other fees, which may increase over time and raise our selling, general and administrative
expenses. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards,
and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are
compromised, it could potentially disrupt our business.
The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly
more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in the payment systems. If we
fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is
compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other
third parties or be subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may
be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other
payment types, potential changes to our payment systems that may result in higher costs, or loss of business. As a result, our
business, financial condition and results of operations could be adversely affected.
Also, certain of the Company’s customers, suppliers or other third parties may seek to obtain products fraudulently from, or
submit fraudulent invoices to, the Company. The Company has sought to put in place a number of processes and controls to
minimize opportunities for fraud. However, if the Company is unsuccessful in detecting fraudulent activities, it could suffer
loss directly and/or lose the confidence of its customers and/or suppliers, which could have a material adverse effect on the
Company’s business, financial condition and results of operations.
In addition, our operations are working capital intensive, and our inventories, accounts receivable and accounts payable are
significant components of our net asset base. We manage our inventories and accounts payable through our purchasing policies
and our accounts receivable through our customer credit policies. We perform periodic credit evaluations of our customers’
financial condition, and collateral is generally not required. We evaluate the collectability of accounts receivable based on
numerous factors, including past transaction history with customers and their creditworthiness based on reports we receive from
independent external credit bureaus, and we provide a reserve for accounts that we believe to be uncollectible. A significant
deterioration in the economy, including as a result of any public health crisis or any geopolitical conflict, including the current
conflict in Ukraine or potential conflict between China and Taiwan, could have an adverse effect on collecting our accounts
receivable, including longer payment cycles, increased collection costs and defaults. In addition, if customers fail to pay within
terms of our customer credit policies, we may enforce lien and bond rights, which could lead to customer dissatisfaction and
loss. If we fail to adequately manage our product purchasing or customer credit policies, our working capital and financial
condition may be adversely affected.
A public health crisis could have a material adverse impact on our business and results of operations.
A public health crisis, and associated government restrictions to prevent its spread, could have a material adverse impact on our
business, results of operations and financial condition as well as the operations of some of our suppliers. For example, the
COVID-19 pandemic resulted in supply chain disruptions and caused significant disruption in the U.S. and Canadian
economies, including due to the restrictive measures adopted to prevent its spread and general market unpredictability.
20
A widespread public health crisis may decrease demand for our products and solutions due to public reaction to the health crisis
or actions taken by governmental or other regulatory organizations to control or otherwise limit the effects of the public health
crisis. This crisis may also limit labor availability that could adversely impact manufacturing and distribution throughout the
supply chain and limit the availability of product from our suppliers. Depending on the ultimate scope and duration of the
supply chain disruptions, we may experience increases in product costs which we may not be able to pass on to our customers,
loss of sales due to lack of product availability or potential customer claims from the inability to provide products in accordance
with contractual terms. In addition, if significant numbers of associates, key personnel and/or senior management become
unavailable due to sickness, legal requirements or self-isolation, our operations could be disrupted and materially adversely
affected. Measures taken in response to a public health crisis could adversely impact our ability to retain and attract associates,
including key personnel. While we are unable to predict the likelihood, timing, magnitude and duration of a public health crisis
and the associated effects to our business, a public health crisis and any associated supply chain disruption, labor market
impact, recession, or depression could have a material adverse effect on the Company’s business, financial condition and results
of operations and may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
People, products and facilities
In order to compete, we must attract, retain and motivate key associates, and the failure to do so could have an adverse effect
on our business, financial condition and results of operations.
We depend on our executive officers and senior management to run our business. As we develop new business models and new
ways of working, we will need to develop suitable skill sets within our organization. Furthermore, as we continue to execute
our operational strategies it is important that existing skill sets, talent and culture are retained. Failure to do so could delay the
execution of our operational strategies, result in loss of institutional knowledge and reduce our supply of future management
skill. In addition, our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified
and skilled employees, including those that work remotely. The current market for such positions is highly competitive.
Qualified individuals are in high demand and we may incur significant costs to attract and retain them. Moreover, the loss of
any of our senior management or other key employees or our inability to recruit and develop mid-level managers could
materially and adversely affect our ability to execute our business plan and we may be unable to find adequate replacements.
We customarily negotiate employment agreements and non-competition agreements with key personnel of the companies we
acquire in order to maintain key customer relationships and manage the transition of the acquired business. The loss of senior
management and other key personnel, or the inability to hire and retain qualified replacements, both generally and in
connection with the execution of key business strategies could adversely affect our business, financial condition and results of
operations.
Furthermore, our ability to provide high-quality products, advice and services on a timely basis depends, to a significant extent,
on having an adequate number of qualified associates, including those in managerial, technical, sales, marketing and support
positions. Accordingly, our ability to increase productivity and profitability and support our growth strategies may be limited by
our ability to employ, train, motivate and retain skilled personnel, which in turn may be hindered by any present or future
restructurings and cost savings initiatives. Due to the current tight labor market, we face significant competition in attracting
and retaining skilled personnel, such as personnel with specialized skills and hourly workers, and our recruiting cycle may be
longer as a result. While our retention rates have not changed materially, we have experienced, and may continue to experience,
extended lead times in backfilling our more transient roles. If the tight labor market persists, this may increase our costs to
maintain our workforce.
Our workforce constitutes a significant proportion of our cost base. Current wage inflation, as well as potential changes in
applicable laws and regulations or other factors, such as labor union activity, resulting in increased labor costs, could have a
material adverse effect on our business, financial condition and results of operations.
Failure to achieve and maintain a high level of product and service quality could damage our reputation and negatively
impact our business, financial condition and results of operations.
To continue to be successful, we must continue to preserve, grow and leverage the value of our brand in the marketplace.
Reputational value is based in large part on perceptions of subjective qualities. Even an isolated incident, such as a high-profile
product recall, or the aggregate effect of individually insignificant incidents, can erode trust and confidence, particularly if such
incident or incidents result in adverse publicity, governmental investigations or litigation, and, as a result, could tarnish our
brand and lead to adverse effects on our business.
21
In particular, product quality and service issues, including as a result of our suppliers’ or manufacturers’ acts or omissions,
could negatively impact customer confidence in our brands and our products. As we do not have direct control over the quality
of the products manufactured or supplied by third-party suppliers, we are exposed to risks relating to the quality of the products
we distribute. If our product or service offerings do not meet applicable safety standards or customers’ expectations regarding
safety or quality or are alleged to have quality issues or to have caused personal injury or other damage, or our supplier does not
meet our expectations on responsible sourcing outlined in our supplier code of conduct, we could experience lower net sales
and increased costs and be exposed to legal, financial and reputational risks, as well as governmental enforcement actions. In
addition, actual, potential or perceived product safety concerns could result in costly product recalls.
We seek to enter into contracts with suppliers which provide for indemnification from any costs associated with the provision
of defective products. However, there can be no assurance that such contractual rights will be obtained or adequate, or that
related indemnification claims will be successfully asserted by us.
The nature of our operations may expose our associates, contractors, customers, suppliers and other individuals to health
and safety risks and we may incur property, casualty or other losses not covered by our insurance policies and damage to
our reputation.
The nature of our operations can expose our associates, contractors, customers, suppliers and other individuals to risks,
including the motoring public to health and safety risks (including potential exposure to public health crises, infectious diseases
and viruses), which can lead to loss of life or severe injuries or illness. Such risks could harm our reputation and reduce
customer demand and expose us to the potential for litigation from third parties. In the United States, in particular, the risk of
litigation is generally higher than in other parts of our business in areas such as workers’ compensation, general liability, and
other related litigation.
Although we maintain insurance we believe to be sufficient to cover estimated health and safety risks including product
liability, health and safety in our operations, vehicle and driver related claims and other types of claims in various jurisdictions,
there can be no assurance that such insurance will provide adequate coverage against potential claims. If we do not have
adequate contractual indemnification or insurance available, such claims could have a material adverse effect on our business,
financial condition and results of operations.
We occupy most of our facilities under non-cancelable leases with terms of 10 years or less. We may be unable to renew
leases on favorable terms or at all. Also, when we close a facility, we may remain obligated under the applicable lease.
Most of our branches are located in leased premises. Many of our current leases are non-cancelable and typically have initial
terms of around 5 to 10 years, with options to renew for specified periods of time. There can be no assurance that we will be
able to renew our current or future leases on favorable terms or at all which could have an adverse effect on our ability to
operate our business and on our results of operations. In addition, we make decisions to close certain facilities from time to
time. When we close or cease to use a facility, we generally remain committed to perform our obligations under the applicable
lease, which include, among other things, payment of the base rent for the balance of the lease term.
We have risks related to the management and protection of our facilities and inventory, including risks of personal injury to
customers, suppliers or associates.
We have office, showroom, counter, warehouse and distribution facilities located in all regions in which we operate which may
be subject to a risk for crimes that could impact our operations, financial performance or reputation. No security or audit
program is 100% effective. There is a risk that our security programs will not prevent the occurrences of crimes of break-ins,
theft, property damage, and workplace violence, including violent criminal acts such as interpersonal violence or an active
shooter or mass casualty/damage event. Moreover, such programs may not be implemented as intended. In the current climate
of geopolitical uncertainty and social unrest, a security compromise could result in significant facility damage or loss, loss of
inventory or personal injury to customers, suppliers or associates. There is a risk that inventory controls and facility security
will fail resulting in inventory shrinkage or loss due to inadequate inventory tracking or misconduct of associates, customers,
vendors or other third parties. Moreover, our inventory is located across the Company’s distribution facilities and branches and
the disaggregated nature of our inventory could result in a failure to accurately record the existence and condition of our
inventory. Any such security incidents, inventory loss or failure to maintain accurate records related to our inventory could
have a negative effect on our business, financial condition, results of operations or reputation.
22
Regulatory and legal
Changes in, or interpretations of, United States, United Kingdom, Swiss or Canadian tax laws could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We are primarily subject to tax in the United States, the United Kingdom, Switzerland and Canada, and increases to tax rates in
the jurisdictions in which we operate or changes to the global tax framework could have an adverse effect on our business,
financial condition and results of operations. Tax laws, regulations and administrative practices in various jurisdictions may be
subject to significant change, with or without advance notice, due to economic, political and other conditions, including those
resulting from an outbreak or resurgence of a public health crisis. Significant judgment is required in evaluating and estimating
our provision and accruals for these taxes.
Our effective tax rates could be affected by changes in tax laws and regulations, administrative practices, principles and
interpretations, the mix and level of earnings in a given taxing jurisdiction or our ownership or capital structures. In December
2021, the Organisation of Economic Co-operation and Development (“OECD”) published model rules that provided a template
for countries to implement a new global minimum tax rate of 15%. In July 2022, the U.K. government issued draft legislation to
implement these rules, which was enacted (within Finance No 2 Act 2023) on July 11, 2023. The rules are effective for
accounting periods beginning on or after December 31, 2023. As a result, it is possible that the Company’s consolidated
effective tax rate will increase in the short term. It is difficult to predict whether and when tax law changes that will be enacted
or which have very recently been enacted without supporting regulations will have a material adverse effect on our business,
financial condition, results of operations and cash flows.
The Inflation Reduction Act was enacted on August 16, 2022. This law, among other provisions, provides a U.S. corporate
alternative minimum tax on adjusted financial statement income, which is effective for us beginning with fiscal 2024, and an
excise tax on certain stock repurchases by U.S. corporations (which the U.S. Department of Treasury indicated may also apply,
in certain circumstances, to stock repurchases of foreign corporations deemed funded by their U.S. affiliates). While we do not
expect that these tax law changes will have a material adverse effect on our results of operations going forward, it is unclear
how this legislation or administrative guidance thereunder will be implemented by the U.S. Department of Treasury and what,
if any, impact it will have on the Company, including our tax rate. We will continue to evaluate its impact as further
information becomes available.
In addition, our location of tax residence could be challenged. If the Company were to cease, or failed, to maintain our place of
central management and control in the location of our tax residency, our ability to rely on specific tax treaty benefits could be
impacted, potentially causing withholding taxes on dividends and interest payments made by certain of our subsidiaries to
increase while taxes on unrealized gains of the Company could possibly be imposed.
The application of tax law is subject to interpretation. Additionally, administrative guidance can be incomplete or vary from
legislative intent, and therefore the application of the tax law is uncertain. While we believe the positions reported by the
Company comply with relevant tax laws and regulations, we could be subject to tax audits and taxing authorities could interpret
our application of certain laws and regulations differently. Future tax controversy matters may result in previously unrecorded
tax expenses, higher future tax expenses or the assessment of interest and penalties which could have a material adverse effect
on our business, financial condition, results of operations and cash flows.
Our own brand products subject us to certain increased risks such as regulatory, product liability and reputational risks that
could have an adverse effect on our business, results of operations and financial condition.
As we expand our own brand product offerings organically and through acquisitions, we may become subject to increased risks
due to our greater role in the design, sourcing, marketing and sale of those products. The risks include greater responsibility to
administer and comply with applicable regulatory requirements, increased potential product liability and product recall
exposure, and increased potential legal and reputational risks related to the responsible sourcing of those products. To
effectively execute on our own brand product differentiation strategy, we must also be able to successfully protect our
proprietary rights and successfully navigate and avoid claims related to the proprietary rights of third parties. In addition, an
increase in sales of our own brand products may adversely affect sales of our suppliers’ products, which in turn could adversely
affect our relationships with certain of our suppliers. Further, the development of our own brand products may require us to
make investments in specialized personnel and operating systems, increase marketing efforts and reallocate resources away
from other uses. Any failure to appropriately address some or all of these risks could damage our reputation and have an
adverse effect on our business, results of operations and financial condition.
23
We are and may continue to be involved in legal proceedings in the course of our business, and while we cannot predict the
outcomes of those proceedings and other contingencies with certainty, some of these outcomes may adversely impact our
business, financial condition, results of operations and cash flows.
We are and may continue to be involved in legal proceedings such as consumer and employment and other litigation that arises
from time to time in the course of our business. In future periods, we could be subject to cash costs or non-cash charges to
earnings if any of these litigation matters are resolved on unfavorable terms, or if our estimates regarding legal provisions
accounting or our insurance coverage are incorrect. Various factors could cause actual results to differ from these estimates.
Litigation is inherently unpredictable, and the outcome of some of these proceedings and other contingencies could require us
to take or refrain from taking actions which could adversely impact the business or could result in excessive verdicts. Any such
outcome could have an adverse effect on our business, financial condition, results of operations and cash flows. Additionally,
involvement in these lawsuits and related inquiries and other proceedings may involve significant expense, divert
management’s attention and resources from other matters, and negatively affect our reputation.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex
accounting matters, could significantly affect our financial results or financial condition.
Accounting standards and related accounting pronouncements, implementation guidelines and interpretations with regard to a
wide range of matters that are relevant to our business, such as revenue recognition and net sales, asset impairment, impairment
of goodwill and other intangible assets, inventories, lease obligations, self-insurance, tax matters, pensions and litigation, are
complex and involve many subjective assumptions, estimates and judgments. Changes in accounting standards or their
interpretation or changes in underlying assumptions and estimates or judgments could significantly change our reported or
expected financial performance or financial condition.
We are subject to various risks related to the local and international nature of our business, including domestic and foreign
laws, regulations and standards. Failure to comply with such laws and regulations or the occurrence of unforeseen
developments such as litigation could adversely affect our business.
Our business operates in the United States and Canada and is subject to specific risks of conducting business in different
jurisdictions across these countries and other parts of the world, including China, Taiwan, India, Thailand, Vietnam, Italy,
Turkey, and South Korea. Our business is subject to a wide array of domestic and international laws, regulations and standards
in jurisdictions where we operate, including advertising and marketing regulations, anti-bribery and corruption/money
laundering laws, anti-competition regulations, data privacy and data protection (including payment card industry data security
standards) and cybersecurity requirements (including protection of information and incident responses), consumer protection
laws, cash and electronic payment regulations and industry standards, environmental protection laws, foreign exchange controls
and cash repatriation restrictions, government business regulations applicable to us as a government contractor selling to
federal, state and local government entities, import and export requirements, intellectual property laws, labor laws, product
compliance laws, fleet and driver related laws, supplier regulations regarding the sources of supplies or products, tax laws,
zoning laws, unclaimed property laws and laws, regulations and standards applicable to other commercial matters. In particular,
occupational health and safety or consumer product safety regulation may require that we take appropriate corrective action,
including but not limited to product recall, in respect of products that we have distributed. Managing a product recall or other
corrective action can be expensive and can divert the attention of management and other personnel for significant time periods.
Any product recall or other corrective action may negatively affect customer confidence in the Company’s products and the
Company itself, regardless of whether it is successfully implemented. Moreover, we are also subject to audits and inquiries by
government agencies in the normal course of business.
In recent years, a number of new laws and regulations have been adopted, and there has been expanded enforcement of certain
existing laws and regulations by federal, state and local agencies. These laws and regulations, and related interpretations and
enforcement activity, may change as a result of a variety of factors, including political, economic or social events. Changes in,
expanded enforcement of, or adoption of new federal, state or local laws and regulations could increase our costs of doing
business or impact our operations, including, among other factors, as a result of required investments in technology and the
development of new operational processes.
24
Failure to comply with any of these laws, regulations and standards could result in civil, criminal, monetary and non-monetary
penalties as well as potential damage to the Company’s reputation. Furthermore, while we have implemented policies and
procedures designed to facilitate compliance with these laws, regulations and standards, there can be no assurance that
associates, contractors or agents will not violate such laws, regulations and standards or our policies. Any failure to comply
with or violation of the various laws, regulations and standards to which we are subject could individually or in the aggregate
materially adversely affect our business, financial condition, results of operations and cash flows.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We maintain our principal executive offices at 1020 Eskdale Road, Winnersh Triangle, Wokingham, Berkshire, RG41 5TS,
United Kingdom, and our management office in the United States is located in Newport News, Virginia. We believe our
facilities are maintained in good operating condition and sufficient to meet our present operating needs.
The following tables presents our principal facilities as of July 31, 2023:
Location / Segment
United States
United States
United States
Canada
Canada
Facility & Use
National Distribution Centers(1)
Market Distribution Centers
Branches
National Distribution Center
Branches
Total
locations
10
3
1,549
1
213
Owned
locations
90%
67%
17%
—%
23%
Leased
locations
10%
33%
83%
100%
77%
Square Feet
6,541,697
1,603,988
45,285,226
292,395
2,989,375
(1) Includes one owned building on leased land.
Item 3.
Legal Proceedings
The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary
course of business. With respect to such lawsuits, claims and proceedings, the Company records reserves when it is probable a
liability has been incurred and the amount of loss can be reasonably estimated. The Company does not expect any of its
pending legal proceedings to have a material adverse effect on its results of operations, financial position, or cash flows. In
accordance with Item 103 of Regulation S-K, we have adopted a $1 million disclosure threshold for certain proceedings under
environmental laws to which a governmental authority is a party, as we believe matters under this threshold are not material to
the Company. The Company maintains liability insurance for certain risks that are subject to certain self-insurance limits.
Item 4.
Mine Safety Disclosures
Not applicable.
Information about our Executive Officers
Set forth below is a list of names and ages of the executive officers of the Company indicating all positions and offices with the
Company held by each such person and each person’s principal occupations or employment during the past five years unless
otherwise noted. Our executive officers do not have a specific term of office.
Kevin Murphy, age 53, Chief Executive Officer and Executive Director. Mr. Murphy was appointed as an Executive Director in
August 2017 and as Chief Executive Officer in November 2019. Mr. Murphy was chief executive officer of Ferguson
Enterprises, LLC (“FEL”), the Company’s U.S. business segment, from 2017 until his appointment as Chief Executive Officer
in 2019. Prior to that, he was chief operating officer of FEL from 2007 to 2017. Mr. Murphy joined Ferguson in 1999 as an
operations manager following Ferguson’s acquisition of his family’s business, Midwest Pipe and Supply, and went on to hold a
number of leadership positions before his eventual appointment as the Company’s Chief Executive Officer.
Bill Brundage, age 47, Chief Financial Officer and Executive Director. Mr. Brundage was appointed as an Executive Director
and Chief Financial Officer in November 2020. Mr. Brundage was the chief financial officer of FEL from 2017 to 2020, having
previously served as senior vice president of finance from 2016 to 2017 and vice president of finance since 2008. Mr. Brundage
joined Ferguson in 2003 as manager of finance and was promoted to corporate controller of FEL two years later. Previously,
Mr. Brundage spent five years at PricewaterhouseCoopers in the United States as a senior associate.
25
Ian Graham, age 55, Chief Legal Officer. Mr. Graham joined the Company as Chief Legal Officer in May 2019. Prior to
joining the Company, he was Senior Vice President, General Counsel and Secretary for BAE Systems, Inc. from 2010 to 2019.
Prior to that he held senior roles at EMCORE Corporation, UUNET Technologies, Jenner & Block LLP and McKenna &
Cuneo LLP.
Michael Jacobs, age 62, Senior Vice President of Supply Chain. Mr. Jacobs was appointed Senior Vice President of Supply
Chain in February 2017. He is responsible for managing all aspects of the supply chain processes within Ferguson and
developing a supply chain strategy that meets performance objectives and customer expectations. Prior to Ferguson, Mr. Jacobs
held various roles at Keurig Green Mountain, including Chief Product Officer and Chief Logistics Officer, where he led the re-
engineering of Keurig’s supply chain. Prior to Keurig, Mr. Jacobs served as Senior Vice President, Logistics for Toys “R” Us,
where he led store, ecommerce and omni-channel fulfillment globally.
Sammie Long, age 55, Chief Human Resources Officer. Ms. Long was appointed Chief Human Resources Officer in 2017.
Before joining the Company, Ms. Long was Chief Human Resources Officer for the Kellogg Company. Prior to her 14-year
career in human resources at Kellogg, Ms. Long held human resources positions at Sharp Electronics UK Ltd and Fujitsu
Services Europe.
Victoria Morrissey, age 56, Chief Marketing Officer. Ms. Morrissey was appointed as Chief Marketing Officer in May 2021.
With more than 20 years of diversified experience, Ms. Morrissey was most recently responsible for Global Marketing and
Brand at Caterpillar Inc. from 2017 to 2021, where she led a global team with oversight of brand, digital marketing, analytics,
customer insights and customer experience. Prior to this, she led brand and content marketing at Grainger. In addition to her
industry experience, Ms. Morrissey worked at several agencies, including WPP, one of the world’s largest advertising agencies.
Andy Paisley, age 55, Chief Digital and Information Officer. Mr. Paisley became the Chief Digital and Information Officer for
Ferguson in June 2023 after joining the Company in January 2023 as the Chief Information Officer. He is responsible for
overseeing Digital Commerce, Digital Engineering, Digital Data, User Experience and Commerce Operations. Prior to joining
Ferguson, Mr. Paisley served as the chief information officer of Dollar Tree, Inc. from December 2020 until 2022, Old
Dominion Freight Line, Inc. from 2017 to 2020 and Advance Auto Parts, Inc. from 2014 to 2017, where he aligned the
technology strategy with business strategy and improved the digital experience for associates and customers.
Jake Schlicher, age 59, Senior Vice President of Strategic Development. Mr. Schlicher was named Senior Vice President of
Strategic Development in February 2019. He focuses on developing strategies that help make our customers’ complex projects
simple, successful and sustainable. Mr. Schlicher joined Ferguson in 1999 through the acquisition of L&H Supply. Since then,
Mr. Schlicher has held numerous positions including Director of the Residential Business Group, Vice President of Private
Label, Vice President of the Strategic Products Group, and Vice President of the Commercial Business. In March 2016, he was
named Senior Vice President of Ferguson Facilities Supply and, in November 2017, he was named Senior Vice President
Strategic Brand Development.
Bill Thees, age 56, Senior Vice President of Business and Sales. Mr. Thees was promoted to Senior Vice President of Business
and Sales in 2018. He provides leadership and direction to the Waterworks and Fire & Fabrication customer groups, the Own
Brand Business, enterprise-wide Sales, Operations and Wolseley Canada. Mr. Thees began his career with Ferguson in 1990 as
a trainee at the Orlando, Florida Waterworks location. Since then, he has held several key positions, including Branch Manager,
General Manager and District Manager. Mr. Thees assumed leadership for the Waterworks Business Group in 2007 and was
promoted to Vice President in 2009.
Garland Williams, age 48, Senior Vice President. Mr. Williams serves as a Senior Vice President and previously served as the
Senior Vice President of Customer Experience and Canada between 2021 and 2022. He is responsible for Ferguson’s Blended
business and provides strategic leadership and has profit and loss (“P&L”) responsibilities for the Residential Trade, Residential
Building & Remodel, Commercial/Mechanical, HVAC, Industrial and Facilities Supply businesses. Mr. Williams joined the
organization as a trainee in July 1996 and has held several progressive roles over his 27-year career with Ferguson. This has
included inside and outside sales, Branch and Area Manager, General Manager, District Manager, Vice President of Residential
Trade, and, most recently, as Vice President of Customer Experience and Canada in 2020.
26
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Part II
Market information
The principal United States trading market for the Company’s ordinary shares is the NYSE, where the Company’s shares are
traded under the symbol “FERG.” The Company’s principal foreign public trading market for the Company’s ordinary shares is
the LSE, where the Company’s shares are traded under the symbol “FERG.”
Holders
As of September 11, 2023, there were 4,253 holders of record of our ordinary shares.
Dividends
The Company currently anticipates that cash dividends will continue to be paid on a quarterly basis in amounts comparable to
dividends paid in prior periods.
Performance graph
This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any
of our filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or
after the date hereof and irrespective of any general incorporation language in any such filing.
The performance graph below compares the cumulative total shareholder return of the Company’s ordinary shares since July
31, 2018, with the cumulative total return for the same period of the S&P 500 Stock Index and the S&P 500 Industrials Stock
Index. The graph assumes the investment of $100 in our ordinary shares at the closing price of our ordinary shares on the LSE
prior to the Company’s listing on the NYSE on March 11, 2021, and on the NYSE following such date, and in each of the
indices as of the market close on July 31, 2018 and also assumes the reinvestment of dividends. Performance data for the
Company is provided as of the last trading day of each relevant fiscal year. The share price performance graph is not
necessarily indicative of future share price performance.
As of July 31,
Ferguson plc(1)
S&P 500 Stock Index
S&P 500 Industrials Stock Index
2018
2019
2020
2021
2022
2023
$100
100
100
$98
108
104
$118
121
98
$190
165
143
$174
157
134
$230
178
158
(1) LSE data used from August 1, 2018 through March 10, 2021 with GBP values converted to USD using the daily foreign
exchange rate. NYSE data used from March 11, 2021 onwards.
27
Ferguson plcS&P 500 Stock IndexS&P 500 Industrials Stock Index07/31/1807/31/1907/31/2007/31/2107/31/2207/31/23$100$200$300
Unregistered sales of equity securities and use of proceeds
None.
Purchases of equity securities by the issuer and affiliated purchasers
(In millions, except share count and
per share amount)
May 1 - May 31, 2023
June 1 - June 30, 2023
July 1 - July 31, 2023
(a) Total
Number of
Shares
Purchased
(b) Average
Prices Paid per
Share
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced
Program(1)
(d) Maximum Value
of Shares that May
Yet To Be
Purchased Under
the Program(1)
327,968
311,055
202,063
841,086
$141.00
149.88
152.59
327,968
311,055
202,063
841,086
$618
571
540
(1) In September 2021, the Company announced a program to repurchase up to $1.0 billion of shares with the aim of
completing the purchases within 12 months. In March 2022, September 2022 and June 2023, the Company announced an
increase of $1.0 billion, $0.5 billion and $0.5 billion, respectively, bringing the total authorized share repurchases to $3.0
billion.
Taxation
United Kingdom taxation
The following statements are intended only as a general guide to certain U.K. tax considerations and do not purport to be a
complete analysis of all potential U.K. tax consequences of acquiring, holding or disposing of our ordinary shares. They are
based on current U.K. law and what is understood to be the current practice of His Majesty’s Revenue and Customs (“HMRC”)
as at the date of this Annual Report, both of which may change, possibly with retroactive effect. They apply only to
shareholders who are resident, and in the case of individuals domiciled, for tax purposes in (and only in) the U.K. (except
insofar as express reference is made to the treatment of non-U.K. residents), who hold their ordinary shares as an investment
(other than where a tax exemption applies, for example where the ordinary shares are held in an individual savings account or
pension arrangement) and who are the absolute beneficial owner of both the ordinary shares and any dividends paid on them.
The tax position of certain categories of shareholders who are subject to special rules is not considered (except insofar as
express reference is made to the treatment of exempt shareholders) and it should be noted that they may incur liabilities to U.K.
tax on a different basis to that described below. This includes persons acquiring their ordinary shares in connection with
employment, dealers in securities, insurance companies, collective investment schemes, charities, exempt pension funds, and
temporary non-residents and non-residents carrying on a trade, profession or vocation in the U.K.
The statements summarize the current position and are intended as a general guide only. Shareholders who are in any
doubt as to their tax position or who may be subject to tax in a jurisdiction other than the U.K. are strongly
recommended to consult their own professional advisers.
Income from ordinary shares
Ferguson is not required to withhold U.K. tax when paying a dividend. Liability to tax on dividends will depend upon the
individual circumstances of a shareholder.
U.K. resident individual shareholders
Under current U.K. tax rules specific rates of tax apply to dividend income. These include a nil rate of tax (the “dividend
allowance”) for the first £1,000 of non-exempt dividend income in any tax year and different rates of tax for dividend income
that exceeds the dividend allowance. No tax credit attaches to dividend income. For these purposes “dividend income” includes
U.K. and non-U.K. source dividends and certain other distributions in respect of shares.
An individual shareholder who is resident for tax purposes in the United Kingdom and who receives a dividend from Ferguson
will not be liable to U.K. tax on the dividend to the extent that (taking account of any other non-exempt dividend income
received by the shareholder in the same tax year) that dividend falls within the dividend allowance.
28
To the extent that (taking account of any other non-exempt dividend income received by the shareholder in the same tax year)
the dividend exceeds the dividend allowance, it will be subject to income tax at 8.75% to the extent that it falls below the
threshold for higher rate income tax. To the extent that (taking account of other non-exempt dividend income received by the
shareholder in the same tax year) it falls above the threshold for higher rate income tax then the dividend will be taxed at
33.75% to the extent that it is within the higher rate band, or 39.35% to the extent that it is within the additional rate band. For
the purposes of determining which of the taxable bands dividend income falls into, dividend income is treated as the highest
part of a shareholder’s income. In addition, dividends within the dividend allowance which would (if there was no dividend
allowance) have fallen within the basic or higher rate bands will use up those bands respectively for the purposes of
determining whether the threshold for higher rate or additional rate income tax is exceeded.
U.K. resident corporate shareholders
It is likely that most dividends paid on the ordinary shares to U.K. resident corporate shareholders would fall within one or
more of the classes of dividend qualifying for exemption from corporation tax. However, it should be noted that the exemptions
are not comprehensive and are also subject to anti-avoidance rules.
U.K. resident exempt shareholders
U.K. resident shareholders who are not liable to U.K. tax on dividends, including exempt pension funds and charities, are not
entitled to any tax credit in respect of dividends paid by the Company.
Non-U.K. resident shareholders
No tax credit will attach to any dividend paid by the Company. A shareholder resident outside the U.K. may also be subject to
non-U.K. taxation on dividend income under local law. A shareholder who is resident outside the U.K. for tax purposes should
consult his or her own tax adviser concerning his or her tax position on dividends received from the Company.
Disposal of shares
U.K. resident shareholders
A disposal or deemed disposal of ordinary shares by a shareholder who is resident in the U.K. for tax purposes may, depending
upon the shareholder’s circumstances and subject to any available exemption or relief (such as the annual exempt amount for
individuals), give rise to a chargeable gain or an allowable loss for the purposes of U.K. taxation of capital gains.
Non-U.K. resident shareholders
Shareholders who are not resident in the U.K. will not generally be subject to U.K. taxation of capital gains on the disposal or
deemed disposal of ordinary shares unless they are carrying on a trade, profession or vocation in the U.K. through a branch or
agency (or, in the case of a corporate shareholder, a permanent establishment) in connection with which the ordinary shares are
used, held or acquired. Non-U.K. tax resident shareholders may be subject to non-U.K. taxation on any gain under local law.
An individual shareholder who has been resident for tax purposes in the U.K. but who ceases to be so resident or becomes
treated as resident outside the U.K. for the purposes of a double tax treaty for a period of five years or less and who disposes of
all or part of his or her ordinary shares during that period may be liable to capital gains tax on his or her return to the U.K.,
subject to any available exemptions or reliefs.
Stamp duty and SDRT
No U.K. stamp duty or Stamp Duty Reserve Tax (“SDRT”) will be payable in respect of transfers of the ordinary shares,
provided that no written instrument of transfer is entered into (which should not be necessary). HMRC clearance was obtained
by the Company confirming that agreements to transfer ordinary shares which are traded on the LSE and settled by way of
depository interests (“DIs”) will not be subject to U.K. SDRT.
If the ordinary shares were transferred by way of written instrument, then U.K. stamp duty at the rate of 0.5% (rounded up to
the next multiple of £5) of the amount or value of the consideration given would in principle be payable, if the instrument of
transfer was executed in the U.K. or related “to any matter or thing done or to be done” in the U.K.
Inheritance tax
Liability to U.K. inheritance tax may arise in respect of ordinary shares on the death of, or on a gift of ordinary shares by, an
individual holder of such ordinary shares who is domiciled, or deemed to be domiciled, in the U.K.
29
The ordinary shares, if held directly, rather than as DIs, should not be assets situated in the U.K. for the purposes of U.K.
inheritance tax. Accordingly, neither the death of a holder of such ordinary shares nor a gift of such ordinary shares by a holder
should give rise to a liability to U.K. inheritance tax if the holder is neither domiciled nor deemed to be domiciled in the U.K.
However, DIs may be treated as assets situated in the U.K. for the purposes of U.K. inheritance tax. Accordingly, the death of a
holder of DIs or a gift of DIs by a holder may give rise to a liability to U.K. inheritance tax, even if the holder is neither
domiciled nor deemed to be domiciled in the U.K.
For inheritance tax purposes, a transfer of assets at less than full market value may be treated as a gift and particular rules apply
to gifts where the donor reserves or retains some benefit. Special rules also apply to close companies and to trustees of
settlements who hold ordinary shares, bringing them within the charge to inheritance tax. Shareholders should consult an
appropriate tax adviser if they make a gift or transfer at less than full market value or if they intend to hold any ordinary shares
or DIs through trust arrangements.
Jersey taxation
The following summary of the anticipated treatment of the Company and holders of ordinary shares (other than residents of
Jersey) is based on Jersey taxation law and practice as they are understood to apply at the date of this Annual Report and is
subject to changes in such taxation law and practice. It does not constitute legal or tax advice and does not address all aspects of
Jersey tax law and practice. Holders of ordinary shares should consult their professional advisers on the implications of
acquiring, buying, selling or otherwise disposing of ordinary shares under the laws of any jurisdiction in which they may be
liable to taxation.
Taxation of the Company
The Company is not regarded as resident for tax purposes in Jersey. Therefore, the Company will not be liable to Jersey income
tax other than on Jersey source income (except where such income is exempted from income tax pursuant to the Income Tax
(Jersey) Law 1961, as amended) and dividends on ordinary shares may be paid by the Company without withholding or
deduction for or on account of Jersey income tax.
The holders of ordinary shares (other than residents of Jersey) will not be subject to any tax in Jersey in respect of the holding,
sale or other disposition of such ordinary shares.
There is no reciprocal tax treaty between the United States and Jersey regarding withholding tax.
Stamp duty
In Jersey, no stamp duty is levied on the issue or transfer of the ordinary shares except that stamp duty is payable on Jersey
grants of probate and letters of administration, which will generally be required to transfer ordinary shares on the death of a
holder of such ordinary shares.
In the case of a grant of probate or letters of administration, stamp duty is levied according to the size of the estate (wherever
situated in respect of a holder of ordinary shares domiciled in Jersey, or situated in Jersey in respect of a holder of ordinary
shares domiciled outside Jersey) and is payable on a sliding scale at a rate of up to 0.75% of such estate and such duty is capped
at £100,000.
Jersey does not otherwise levy taxes upon capital, inheritances, capital gains or gifts nor are there other estate duties.
If you are in any doubt as to your tax position you should consult your professional tax adviser.
United States taxation
U.S. Holders
The following is a general summary based on present law of certain United States federal income tax considerations relevant to
the ownership and disposition of our ordinary shares by a U.S. Holder (as defined below). It addresses only U.S. Holders (as
defined below) that hold our ordinary shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the “Code”) and that use the U.S. dollar as their functional currency.
30
This summary is for general information only and is not a substitute for tax advice. It is not a complete description of all of the
tax considerations that may be relevant to a particular U.S. Holder. It does not address all of the considerations relevant to U.S.
Holders subject to special tax regimes, such as banks and other financial institutions, insurance companies, dealers in currencies
and securities, traders in securities that elect mark-to-market treatment, regulated investment companies, real estate investment
trusts, tax-exempt entities, retirement plans, individual retirement accounts or other tax-deferred accounts, pass-through entities
(including S-corporations), entities or arrangements treated as partnerships for United States federal income tax purposes,
United States expatriates, investors liable for alternative minimum tax, persons holding our ordinary shares as part of a hedge,
straddle, conversion or other integrated financial transaction, persons holding ordinary shares through a permanent
establishment or fixed base outside the United States, persons who acquired their ordinary shares through the exercise of an
employee share option or otherwise as compensation, or persons that own directly, indirectly or constructively 5% or more (by
voting power or value) of the equity interests of the Company. This summary does not address any United States federal taxes
other than the income tax (such as estate and gift tax), any United States state and local tax considerations, any non-United
States tax considerations, or any considerations relating to the Foreign Account Tax Compliance Act (“FATCA”) (by which we
mean Sections 1471 through 1474 of the Code, the Treasury regulations and administrative guidance thereunder, and any
intergovernmental agreement entered into in connection therewith). This summary also does not apply to any person other than
a U.S. Holder (as defined below).
The discussion is based upon the provisions of the Code, the Treasury regulations promulgated thereunder, the administrative
practices published by the United States Internal Revenue Service (the “IRS”) and U.S. judicial decisions, all of which are
subject to change. This discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
As used here, “U.S. Holder” means a beneficial owner of our ordinary shares that for United States federal income tax purposes
is (i) an individual citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States,
any State thereof, or the District of Columbia, (iii) a trust subject to the control of a United States person and the primary
supervision of a United States court or (iv) an estate the income of which is subject to United States federal income taxation
regardless of its source.
The United States federal tax consequences to a partner in a partnership generally will depend on the status of the partner and
the activities of the partnership. U.S. Holders that are partnerships are urged to consult their own tax advisers about the tax
consequences to their partners of owning or disposing of our ordinary shares.
The Company believes, and this discussion assumes, that the Company is not, nor has it been, a passive foreign investment
company (“PFIC”) for United States federal income tax purposes. In addition, the Company believes, and this discussion
assumes, that the Company will not be a PFIC for the current taxable year or in the foreseeable future. The Company’s status as
a PFIC must be determined annually, and it therefore could change. If the Company has been a PFIC for any year during a U.S.
Holder’s holding period, or if the Company were to be a PFIC in any year during any U.S. Holder’s holding period, such U.S.
Holder could suffer material adverse tax consequences. Each current or potential investor who is a U.S. Holder should consult
its own tax adviser regarding the application and tax consequences of the PFIC rules and the risk that the Company is or may
become a PFIC.
The Company also believes, and this discussion also assumes, that the Company will be treated as a non-U.S. corporation for
U.S. federal income tax purposes.
Dividends on ordinary shares
U.S. Holders generally must include dividends paid on our ordinary shares in their gross income as ordinary income from
foreign sources. Generally, distributions in excess of a corporation’s current and accumulated earnings and profits are treated as
a non-taxable return of capital to the extent of the shareholder’s basis in its shares, and thereafter as capital gain. However, the
Company does not maintain calculations of its earnings and profits in accordance with United States federal income tax
principles. U.S. Holders therefore should assume that any distribution by the Company with respect to our ordinary shares will
be treated as ordinary dividend income. Dividends will not be eligible for the dividends-received deduction generally available
to United States corporations. However, dividends should be eligible for the reduced rate on qualified dividend income
available to certain eligible non-corporate U.S. Holders that satisfy a minimum holding period and other generally applicable
requirements if the Company qualifies for benefits under the income tax treaty between the United Kingdom and the United
States (the “US-UK Treaty”). The Company expects to qualify for benefits under the US-UK Treaty.
31
Dividends paid to U.S. Holders in a currency other than U.S. dollars will be includible in income in a U.S. dollar amount
determined at the spot rate on the date of receipt whether or not converted into U.S. dollars at that time. A U.S. Holder will
have a basis in the non-United States currency received equal to its U.S. dollar value on the date of receipt. Gain or loss on a
subsequent conversion or other disposition of the non-United States currency for a different amount generally will be treated as
ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.
Dispositions of ordinary shares
U.S. Holders generally will recognize a capital gain or loss on the sale or other disposition of ordinary shares in an amount
equal to the difference between their adjusted tax basis in the shares and the U.S. dollar value of the amount realized. Any gain
will be a long-term gain if the U.S. Holder has held the ordinary shares for a period longer than one year. Any loss will be a
long-term loss if the U.S. Holder has held the ordinary shares for a period longer than one year. Deductions for capital losses
are subject to limitations. Any gain or loss generally will be treated as arising from United States sources. U.S. Holders should
consult their tax advisers regarding any special rules relating to “extraordinary dividends” that may be potentially applicable to
them if they have received a dividend from the Company in an amount greater than 10% of that U.S. Holder’s tax basis in its
ordinary shares.
A U.S. Holder that receives a currency other than U.S. dollars in exchange for its shares will realize an amount equal to the U.S.
dollar value of the currency received at the spot rate on the date of disposition (or, if the shares are traded on an established
securities market and a U.S. Holder is a cash-basis or electing accrual basis taxpayer, at the spot rate on the settlement date). A
U.S. Holder will have a tax basis in the currency received equal to the U.S. dollar value of the currency on the settlement date.
Any currency gain or loss realized on the settlement date or on a subsequent conversion or other disposition of the currency for
a different U.S. dollar amount generally will be United States source ordinary income or loss.
Gain or loss realized by a U.S. Holder on the sale or exchange of ordinary shares will generally be treated as US-source gain or
loss for U.S. foreign tax credit purposes.
Medicare tax on net investment income
Certain non-corporate U.S. Holders whose income exceeds certain thresholds generally will be subject to a 3.8% surtax on their
“net investment income” (which generally includes, among other things, dividends on, and capital and foreign currency gain
from, the sale or other disposition of the ordinary shares). Non-corporate U.S. Holders should consult their own tax advisers
regarding the possible effect of such tax on their ownership and disposition of the ordinary shares.
Information reporting and backup withholding
Dividends on our ordinary shares and proceeds from the disposition of such shares may be reported to the IRS. Backup
withholding tax may apply to amounts subject to reporting if the holder fails to provide an accurate taxpayer identification
number on a properly complete IRS Form W-9 or to meet other conditions (or, in the case of a beneficial owner of our ordinary
shares that is not a United States person for U.S. federal income tax purposes, if such beneficial owner fails to properly certify
its status as not a United States person, for example by providing an appropriate and properly completed IRS Form W-8, or to
otherwise establish an exemption). The amount of any backup withholding tax may be credited against or refunded to the extent
it exceeds the holder’s United States federal income tax liability, provided that the required information is timely furnished to
the IRS.
Certain U.S. Holders are required to report to the IRS information about their investment in ordinary shares not held through an
account with a domestic financial institution. Investors who fail to report required information could become subject to
substantial penalties. U.S. Holders should consult their tax advisers about these and any other reporting requirements arising
from their investment in our ordinary shares.
Item 6.
[Reserved].
32
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to convey
management’s perspective regarding operational and financial performance and should be read in conjunction with the
consolidated financial statements and related notes contained in this Annual Report. The discussion in this Annual Report
generally focuses on fiscal 2023 compared to fiscal 2022. A discussion of our results of operations and changes in financial
condition for fiscal 2022 compared to fiscal 2021 has been excluded from this report, but can be found in Part II, Item 7.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report for fiscal
2022.
The following discussion contains trend information and forward-looking statements. Actual results could differ materially
from those discussed in these forward-looking statements, as well as from our historical performance, due to various factors,
including, but not limited to, those discussed in the “Risk Factors” and “Forward-Looking Statements and Risk Factor
Summary” sections and elsewhere in this Annual Report.
Overview
Ferguson is a value-added distributor in North America providing expertise, solutions and products from infrastructure,
plumbing and appliances to HVAC, fire, fabrication and more. Ferguson is headquartered in the U.K., with its operations and
associates solely focused on North America and managed from Newport News, Virginia.
The following table presents highlights of our annual performance:
(In millions, except per share amounts)
Net sales
Operating profit
Income from continuing operations
For the years ended July 31,
2022
$28,566
2,820
2,099
2023
$29,734
2,659
1,889
2021
$22,792
1,950
1,630
Earnings per share from continuing operations - Diluted
Net cash provided by operating activities of continuing operations
Supplemental non-GAAP financial measures:(1)
Adjusted operating profit
Adjusted earnings per share - diluted
9.12
2,727
2,917
9.84
9.59
1,149
2,951
9.76
7.25
1,337
2,092
6.75
(1) The Company uses certain non-GAAP measures, which are not defined under accounting principles generally accepted in
the United States (“U.S. GAAP”). See the section titled “Non-GAAP Reconciliations and Supplementary Information.”
For fiscal 2023, net sales increased by 4.1%, which was primarily driven by price inflation (approximately 8%), as well as a
2.5% increase in sales from acquisitions, partially offset by lower volume compared with fiscal 2022.
For fiscal 2023, operating profit decreased 5.7% to $2.7 billion compared to $2.8 billion in fiscal 2022. This decline was
primarily due to impairment and other charges related to a certain IT project and branch closures. Adjusted operating profit
decreased by 1.2% to $2.9 billion compared to $3.0 billion in fiscal 2022.
For fiscal 2023, diluted earnings per share from continuing operations was $9.12 (adjusted diluted earnings per share: $9.84),
decreasing 4.9% over the prior year due to lower income from continuing operations, partially offset by the impact of the $0.9
billion in share repurchases as part of the Company’s $3.0 billion share repurchase program. Adjusted diluted earnings per
share increased 0.8%, primarily due to the slightly lower adjusted operating profit and higher interest expense, offset by the
impact of the Company’s share repurchases.
Net cash provided by operating activities from continuing operations increased to $2.7 billion for fiscal 2023 compared to $1.1
billion for fiscal 2022, primarily reflecting improved working capital management, particularly inventory. During fiscal 2023,
the Company invested $616 million in acquisitions and $441 million in capital expenditures to meet the Company’s strategic
objectives.
33
The table below summarizes the Company’s consolidated statements of earnings for the periods indicated.
Results of Operations
(In millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairments and other charges
Depreciation and amortization
Operating profit
Interest expense, net
Other (expense) income, net
Income before income taxes
Provision for income taxes
Income from continuing operations
Net sales
For the years ended July 31,
2022
2021
2023
$29,734
(20,709)
9,025
(5,920)
(125)
(321)
2,659
(184)
(11)
2,464
(575)
$28,566
(19,810)
8,756
(5,635)
—
(301)
2,820
(111)
(1)
2,708
(609)
$1,889
$2,099
$22,792
(15,812)
6,980
(4,732)
—
(298)
1,950
(98)
10
1,862
(232)
$1,630
Net sales were $29.7 billion in fiscal 2023, an increase of $1.2 billion, or 4.1%, compared with the same period in 2022. The
increase in net sales was primarily driven by price inflation of approximately 8%, as well as a 2.5% increase in sales from
acquisitions, partially offset by lower sales volume. The Company’s sales growth was driven by its United States segment,
which grew 4.5%, mainly due to growth in the non-residential end markets, as well as growth in RMI related sales within the
residential end market.
Gross profit
Gross profit was $9.0 billion in fiscal 2023, an increase of $0.3 billion, or 3.1%, compared with fiscal 2022, reflecting increased
net sales. Gross profit as a percent of sales was 30.4% in fiscal 2023 compared with 30.7% in the prior year. The decrease of
0.3% primarily reflected the price realization benefit in fiscal 2022 due to price inflation that exceeded the weighted average
cost of inventory sold in certain commodity categories.
Selling, general and administrative expenses (“SG&A”)
SG&A expenses were $5.9 billion in fiscal 2023, an increase of $285 million, or 5.1%, compared with fiscal 2022. SG&A as a
percentage of sales was 19.9% and 19.7% in fiscal 2023 and fiscal 2022, respectively. The increase in SG&A as a percent of
sales primarily reflects wage inflation that was offset, in part, by productivity and headcount management, as well as increased
infrastructure costs.
Impairments and other charges
Internal use software
The Company has been upgrading portions of its IT systems to enhance customer experience and associate productivity. One of
the solutions developed targeted certain branch transactional processes and was piloted at select locations. In the third quarter of
fiscal 2023, the Company determined that this solution did not meet our customer service, speed and efficiency goals. As a
result, the Company chose not to proceed with this component and recorded a non-cash impairment charge of $107 million of
previously capitalized software costs in the United States.
Branch closures
During fiscal 2023, the Company recorded charges of $18 million related to the closure of certain smaller, underperforming
branches in the United States, primarily related to impairment of lease assets and related fixed assets.
34
Net interest expense
Net interest expense was $184 million in fiscal 2023, an increase of $73 million, or 65.8% compared with fiscal 2022. The
change in net interest expense was primarily due to an increase in average debt, and to a lesser extent, the higher interest
expense compared to fiscal 2022 was due to increased interest rates on the Company’s variable rate debt.
Income tax expense
Income tax expense was $575 million for fiscal 2023, a decrease of $34 million, or 5.6%, compared with fiscal 2022. The
Company’s effective tax rate for continuing operations was 23.3% for fiscal 2023 compared with 22.5% for fiscal 2022. The
decrease in income tax expense was primarily driven by a decrease in pre-tax income in fiscal 2023 compared with fiscal 2022,
partially offset by the increase in the effective tax rate. The increase in the effective tax rate was mainly due to discrete tax
benefits recorded in fiscal 2022 related to prior year adjustments and releases of uncertain tax positions following the closure of
tax audits, and to a lesser extent, an increase in our statutory tax rates in specific jurisdictions.
Net income
Net income from continuing operations for fiscal 2023 was $1.9 billion, a decrease of $210 million, or 10.0%, compared with
fiscal 2022 due to the elements described in the sections above.
Segment results of operations for fiscal 2023 and fiscal 2022
The Company’s reportable segments are the United States and Canada based on how the Company manages its business and
allocates resources, which is on a geographical basis. The Company’s measure of segment profit is adjusted operating profit
which is defined as profit before tax, excluding central and other costs, restructuring costs, amortization of acquired intangible
assets, net interest expenses, as well as other items typically recorded in net other (expense) income such as (loss)/gain on
disposal of businesses, pension plan changes/closure costs and amounts recorded in connection with the Company’s interests in
investees. For further segment information, see Note 2, Revenue and segment information of the Notes to the Consolidated
Financial Statements in Part II, Item 8: Financial Statements and Supplementary Data of this Annual Report.
United States
(In millions)
Net sales
Adjusted operating profit
For the years ended July 31,
2023
2022
$28,291
2,892
$27,067
2,893
Net sales for the United States segment were $28.3 billion in fiscal 2023, an increase of $1.2 billion, or 4.5%, compared with
the prior year. The increase in net sales was primarily driven by price inflation of 8% as well as a 2.6% increase in sales from
acquisitions. These increases were partially offset by lower volume. Sales growth in the non-residential markets (comprising
approximately 48% of segment sales), was 8.5%, with growth in each of the civil/infrastructure, commercial and industrial end
markets. Sales growth in the residential markets (comprising approximately 52% of segment sales) increased by 1.1%, driven
by higher RMI sales, partially offset by lower sales in new construction in light of housing starts and permit activity that were
below prior year levels.
Adjusted operating profit in the United States of $2.9 billion was flat compared with the prior year, as sales growth was
generally offset by higher SG&A costs, primarily reflecting wage inflation that was offset, in part, by productivity and
headcount management, as well as increased infrastructure costs.
Canada
(In millions)
Net sales
Adjusted operating profit
For the years ended July 31,
2023
2022
$1,443
76
$1,499
112
Net sales for the Canada segment were $1.4 billion in fiscal 2023, a decrease of $56 million, or 3.7%, compared with the prior
year. This decrease in net sales was primarily due to lower sales volumes, as well as a 5.5% unfavorable impact from foreign
currency exchange rates. These impacts were partially offset by sales price inflation of approximately 8%.
Adjusted operating profit for the Canada segment decreased compared with the prior year, primarily due to lower sales and
associated lower gross profit, as well as higher SG&A costs due to intentional infrastructure investments in new branches.
35
Non-GAAP Reconciliations and Supplementary Information
The Company reports its financial results in accordance with U.S. GAAP. However, the Company believes certain non-GAAP
financial measures provide users of the Company’s financial information with additional meaningful information to assist in
understanding financial results and assessing the Company’s performance from period to period. These non-GAAP financial
measures include adjusted operating profit, adjusted net income, adjusted earnings per share (“adjusted EPS”) - diluted.
Management believes these measures are important indicators of operations because they exclude items that may not be
indicative of our core operating results and provide a better baseline for analyzing trends in our underlying businesses, and they
are consistent with how business performance is planned, reported and assessed internally by management and the Company’s
Board of Directors. Such non-GAAP adjustments include amortization of acquired intangible assets, discrete tax items, and any
other items that are non-recurring. Non-recurring items may include business restructuring charges, corporate restructuring
charges, which includes costs associated with the Company’s listing in the United States, gains or losses on the disposals of
businesses which by their nature do not reflect primary operations, as well as certain other items deemed non-recurring in
nature and/or that are not a result of the Company’s primary operations. Because non-GAAP financial measures are not
standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures
having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute
for results reported under U.S. GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of
operations that, when viewed with U.S. GAAP results, provide a more complete understanding of the business. The Company
strongly encourages investors and shareholders to review the Company’s financial statements and publicly filed reports in their
entirety and not to rely on any single financial measure.
Reconciliation of net income to adjusted operating profit
The following table reconciles net income (U.S. GAAP) to adjusted operating profit (non-GAAP):
(In millions)
Net income
(Income) loss, discontinued operations (net of tax)
Income from continuing operations
Provision for income taxes
Interest expense, net
Other expense (income), net
Operating profit
Business restructurings(1)
Corporate restructurings(2)
Impairments and other charges(3)
Amortization of acquired intangibles
Adjusted operating profit
For the years ended July 31,
2022
2021
2023
$1,889
—
1,889
575
184
11
2,659
—
—
125
133
$2,917
$2,122
(23)
2,099
609
111
1
2,820
—
17
—
114
$2,951
$1,472
158
1,630
232
98
(10)
1,950
(11)
22
—
131
$2,092
(1) For fiscal 2021, business restructuring reflects the release of provisions in connection with previously anticipated
COVID-19 cost actions recorded in fiscal 2020.
(2) For fiscal 2022 and 2021, corporate restructuring costs primarily related to the incremental costs of the Company’s listing
in the United States.
(3) For fiscal 2023, impairments and other charges related to the $107 million in software impairment charges and $18
million in charges associated with the closure of certain smaller, underperforming branches in the United States.
36
Reconciliation of net income to adjusted net income and adjusted EPS - diluted
The following table reconciles net income (U.S. GAAP) to adjusted net income and adjusted EPS - diluted (non-GAAP):
(In millions, except per share amounts)
For the years ended July 31,
2022
2023
2021
Net income
(Income) loss from discontinued operations (net of tax)
Income from continuing operations
Business restructurings(2)
Corporate restructurings(3)
Impairments and other charges(4)
Amortization of acquired intangibles
Discrete tax adjustments(5)
Tax impact on non-GAAP adjustments(6)
$1,889
—
1,889
—
—
125
133
(36)
(73)
$2,122
per share(1)
$9.12
—
9.12
—
—
0.60
0.64
(0.17)
(0.35)
$9.84
per share(1)
$9.69
(0.10)
9.59
—
0.08
—
0.52
(0.33)
(0.10)
$9.76
$1,472
158
1,630
(11)
22
—
131
(203)
(51)
$1,518
per share(1)
$6.55
0.70
7.25
(0.05)
0.10
—
0.58
(0.90)
(0.23)
$6.75
(23)
2,099
—
17
—
114
(72)
(21)
Adjusted net income
$2,038
$2,137
Diluted weighted average shares outstanding
207.2
218.9
224.8
(1) Per share on a dilutive basis.
(2) For fiscal 2021, business restructuring reflects the release of provisions in connection with previously anticipated
COVID-19 cost actions recorded in fiscal 2020.
(3) For fiscal 2022 and 2021, corporate restructuring costs primarily related to the incremental costs of the Company’s listing
in the United States.
(4) For fiscal 2023, impairments and other charges related to the $107 million in software impairment charges and $18
million in charges associated with the closure of certain smaller, underperforming branches in the United States.
(5) For fiscal 2023, discrete tax adjustments primarily related to the release of uncertain positions following the lapse of
statute of limitations, as well as adjustments in connection with amended returns. In fiscal 2022, the discrete tax
adjustments primarily related to the release of uncertain tax positions following the closure of tax audits and prior year
adjustments, including amended tax return items. In fiscal 2021, the discrete tax adjustments primarily related to the
release of uncertain tax positions following the closure of tax audits, as well as the impact of changes in tax rates.
(6) For fiscal 2023, the tax impact on non-GAAP adjustments primarily related to the impairments and other charges and
amortization of acquired intangibles. For fiscal 2022 and 2021, the tax impact of non-GAAP adjustments primarily related
to the amortization of acquired intangibles.
37
Liquidity and Capital Resources
The Company believes its current cash position coupled with cash flow anticipated to be generated from operations and access
to capital should be sufficient to meet its operating cash requirements for the next 12 months and will also enable the Company
to invest and fund capital expenditures, dividend payments, acquisitions, announced share repurchases, required debt payments
and other contractual obligations through the next several fiscal years. The Company also anticipates that it has the ability to
obtain alternative sources of financing, if necessary.
Cash flows
As of July 31, 2023 and 2022, the Company had cash and cash equivalents of $601 million and $771 million, respectively. In
addition to cash, the Company had $2.4 billion of available liquidity from undrawn debt facilities as of July 31, 2023.
As of July 31, 2023, the Company’s total debt was $3.8 billion. The Company anticipates that it will be able to meet its debt
obligations as they become due.
Cash flows from operating activities
(In millions)
Net cash provided by operating activities
2023
As of July 31,
2022
2021
$2,723
$1,149
$1,382
Net cash provided by operating activities was $2.7 billion in fiscal 2023 and $1.1 billion in fiscal 2022. The $1.6 billion
increase was primarily driven by improved working capital management, particularly inventory and receivables, compared with
fiscal 2022 when the Company made strategic investments in working capital to better serve customers during times of
significant supply chain disruption. These improvements were partially offset by a net decrease in payables, due to the timing of
vendor payments and obligations, as well as higher cash paid for interest.
Cash flows from investing activities
(In millions)
Net cash used in investing activities
2023
As of July 31,
2022
2021
($1,054)
($922)
($125)
Net cash used in investing activities was $1.1 billion in fiscal 2023 compared with $0.9 billion in fiscal 2022.
Capital expenditure totaled $441 million and $290 million in fiscal 2023 and fiscal 2022, respectively. These investments were
primarily for strategic projects to support future growth, such as new market distribution centers, our branch network and new
technology. In addition, the Company invested $616 million and $650 million in new acquisitions in fiscal 2023 and fiscal
2022, respectively.
Cash flows from financing activities
(In millions)
Net cash used in financing activities
2023
($1,807)
As of July 31,
2022
($744)
2021
($2,051)
Net cash used in financing activities was $1.8 billion and $0.7 billion in fiscal 2023 and 2022, respectively.
Dividends paid to shareholders were $711 million and $538 million in fiscal 2023 and 2022, respectively.
Share repurchases under the Company’s announced share repurchase program were $908 million and $1,545 million in fiscal
2023 and 2022, respectively.
Net repayments of debt were $155 million compared to net proceeds from debt of $1,444 million in fiscal 2023 and 2022,
respectively. In fiscal 2023, the Company borrowed $500 million of term loans, partially offset by the repayment of $250
million due to the maturity of certain Private Placement Notes (as defined below) and $405 million in net repayments of the
Receivables Facility. In fiscal 2022, the Company received $989 million in connection with the issuance of its unsecured senior
notes, as well as net proceeds of $455 million under the Receivables Facility.
38
Reinvestment of unremitted earnings
We consider foreign earnings of specific subsidiaries to be indefinitely reinvested. As of July 31, 2023 and 2022, these
permanently reinvested earnings of foreign subsidiaries amounted to $725 million and $658 million, respectively. If at some
future date, the Company ceases to be permanently reinvested in these specific foreign subsidiaries, the Company may be
subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for
any outside basis difference on these specific foreign subsidiaries.
Debt facilities
The following section summarizes certain material provisions of our long-term debt facilities and current obligations. The
following description is only a summary, does not purport to be complete and is qualified in its entirety by reference to the
documents governing such indebtedness.
(In millions)
Short-term debt
Long-term debt
Total debt
Private Placement Notes
As of July 31,
2023
2022
$55
3,711
$3,766
$250
3,679
$3,929
In June 2015 and November 2017, Wolseley Capital, Inc. (“Wolseley Capital”), a wholly-owned subsidiary of the Company,
privately placed fixed rate notes in an aggregate principal amount of $800 million and $355 million, respectively (collectively,
the “Private Placement Notes”). In September 2022, the Company repaid $250 million in maturing fixed rate notes. In
November 2023, an additional $55 million of such notes will mature.
Unsecured Senior Notes
Ferguson Finance plc (“Ferguson Finance”) has issued $2.35 billion in various issuances of unsecured senior notes
(collectively, the “Unsecured Senior Notes”) as follows:
•
•
•
April 2022: $300 million of 4.25% notes due April 2027 and $700 million of 4.65% notes due April 2032. The
combined net proceeds were $989 million;
June 2020: $600 million of 3.25% notes due June 2030; and
October 2018: $750 million of 4.50% notes due October 2028.
The Unsecured Senior Notes are fully and unconditionally guaranteed on a direct, unsubordinated and unsecured senior basis
by the Company and generally carry the same terms and conditions with interest paid semi-annually. The Unsecured Senior
Notes may be redeemed, in whole or in part, (i) at 100% of the principal amount on the notes being redeemed plus a “make-
whole” prepayment premium at any time prior to three months before the maturity date (the “Notes Par Call Date”) or (ii) after
the Notes Par Call Date at 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest on the
principal being redeemed. The Unsecured Senior Notes include covenants, subject to certain exceptions, which include
limitations on the granting of liens and on mergers and acquisitions.
Term Loan
In October 2022, the Company and Ferguson UK entered into, and Ferguson UK borrowed in full, the $500 million of term
loans available under the Term Loan Agreement (as defined below). The proceeds of the term loans may be used for general
corporate purposes. The Term Loan Agreement will mature on October 7, 2025. The benchmark rate is Term SOFR (as defined
in the Term Loan Agreement) plus a credit spread adjustment of 10 basis points plus a margin ranging from 100 to 150 basis
points, determined on the basis of the Company’s corporate credit ratings (or if public credit ratings are not published, senior
unsecured debt ratings).
39
Revolving Credit Facility
The Company maintains a revolving credit facility (the “Revolving Facility”) under the Revolving Facility Agreement (as
defined below) with aggregate total available credit commitments of $1.35 billion. The benchmark rate applicable to U.S. dollar
denominated loans is Term SOFR (as defined in the Revolving Facility Agreement) plus a credit spread adjustment of 10 basis
points plus a margin ranging from 20 to 75 basis points, determined on the basis of the Company’s corporate credit ratings (or if
public credit ratings are not published, senior unsecured debt ratings)..
As of July 31, 2023, no borrowings were outstanding under the Revolving Facility.
Receivable Securitization Facility
The Company maintains a Receivables Securitization Facility (as amended from time to time, the “Receivables Facility”) with
an aggregate total available amount of $1.1 billion, including a swingline for up to $100 million in same day funding. The
Company has the ability to increase the aggregate total available amount under the Receivables Facility up to a total of $1.5
billion from time to time, subject to lender participation. The benchmark rate is Term SOFR (as defined in the Receivables
Facility) plus a credit spread adjustment of 10 basis points.
As of July 31, 2023, $50 million in borrowings were outstanding under the Receivables Facility.
The Company was in compliance with all debt covenants for all facilities as of July 31, 2023.
See Note 9, Debt to the Consolidated Financial Statements contained in this Annual Report for further details regarding the
Company’s debt.
There have been no significant changes during the fiscal year to the Company’s policies on accounting for, valuing and
managing the risk of financial instruments.
40
Contractual obligations
The table below sets forth the Company’s anticipated contractual cash outflows on an undiscounted basis as of July 31, 2023:
(In millions)
Debt - principal(a)
Debt - interest only(b)
Operating leases
Leases not yet commenced
UK pension contributions(c)
Share repurchase liability(d)
Other purchase obligations(e)
Total
As of July 31, 2023
Total
Fiscal 2024
$3,805
1,037
1,689
223
137
84
1,842
$8,817
$55
178
377
174
31
84
1,842
$2,741
Fiscal
2025 & 2026
$1,100
301
646
49
56
—
—
$2,152
Fiscal
2027 & 2028
$600
211
371
—
50
—
—
$1,232
Fiscal
2028 & beyond
$2,050
347
295
—
—
—
—
$2,692
(a) See Note 9, Debt to our consolidated financial statements contained in this Annual Report for further detail related to debt.
(b) Interest on debt is calculated using the prevailing spot interest rate as of the balance sheet date.
(c) As required by United Kingdom pensions regulation, the United Kingdom Plan completed its triennial actuarial valuation
exercise, which is measured on a technical provisions basis, based on the United Kingdom Plan’s financial position as of
April 30, 2022. The triennial valuation resulted in a need for deficit reduction contributions by the Company of
£133 million spread over the period to January 31, 2026, of which the Company has paid £26 million as of July 31, 2023.
The related obligations in the table above have been converted to U.S. dollars using a year-end spot rate, which may be
different when amounts are actually paid.
(d) Share repurchases are being made under an authorization that allows up to $3.0 billion in share repurchases. The Company
is currently purchasing shares under an irrevocable and non-discretionary arrangement with $84 million in accrued
repurchases remaining, which is recorded as a current liability in the consolidated balance sheets.
(e) Other purchase obligations primarily include commitments to purchase inventory and other goods and services and
uncompleted additions to property, buildings and equipment that are expected to be satisfied within the next 12 months.
Purchase obligations are made in the normal course of business to meet operating needs. While purchase orders for both
inventory purchases and non-inventory purchases are generally cancellable without penalty, certain vendor agreements
provide for cancellation fees or penalties depending on the terms of the contract.
Tax obligations
At July 31, 2023, the Company had aggregate liabilities for unrecognized tax benefits totaling $144 million, none of which are
expected to be paid in the next 12 months. The timing of payment, if any, associated with our long-term unrecognized tax
benefit liabilities is unknown. See Note 4, Income Tax to the Consolidated Financial Statements in this Annual Report for
further discussion of our unrecognized tax benefits.
41
Critical Accounting Estimates
In applying the Company’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 fiscal year.
The Company’s significant accounting policies that require estimates include the allowance for doubtful accounts, inventories,
considerations around goodwill impairment, leases and revenue recognition. These policies and related estimates are described
in Note 1, Summary of significant accounting policies to the Consolidated Financial Statements. Some of these accounting
policies may require management to make difficult, subjective or complex judgments about the Company’s estimates.
The Company considers an accounting policy to be a critical estimate if: (1) it involves assumptions that are uncertain when
judgment was applied, and (2) changes in the estimate assumptions, or selection of a different estimate methodology, could
have a significant impact on the Company’s consolidated financial position and results. The Company has determined that its
estimates around inventories and pension obligations represent its most critical accounting estimates.
Inventories
Inventory reserves are recorded against slow-moving, obsolete and damaged inventories for which the net realizable value is
estimated to be less than the cost. The reserve is estimated based on the Company’s current knowledge with respect to
inventory levels, sales trends and historical experience.
Pensions
The Company considers that the most sensitive assumptions are the discount rate on the benefit obligation, the wage inflation
growth rate and life expectancy in connection with the Company’s pension plan in the U.K. Changes in the assumption related
to the pension plan in Canada do not result in significant changes.
The Company measures discount rates by reference to corporate bond yields, which can also vary significantly between
reporting periods, particularly in light of macroeconomic factors that can impact corporate bond yields. The most senstitive
assumption used for the Company’s U.K. pension plan were as follows:
Rate assumption:
Discount rate, benefit obligation
2023
2022
2021
5.05 %
3.45 %
1.70 %
The sensitivity analyses below show the (increase)/decrease in the Company’s defined benefit plan net asset/liability of
reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other
assumptions constant.
(In millions)
Discount rate, benefit obligation
Wage inflation growth rate, benefit obligation
Life expectancy
Accounting developments and changes
Change
U.K.
+0.25 %
(0.25) %
+0.25 %
(0.25) %
+1 year
($39)
42
37
(30)
51
Refer to Note 1, Summary of significant accounting policies to the Consolidated Financial Statements for a discussion of new
accounting pronouncements.
42
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks arising from changes in foreign currency exchange rates, interest rates and commodity
prices. The Company has well-defined risk management policies, which have been consistently applied during fiscal years
2023, 2022 and 2021. We use derivative and non-derivative instruments to hedge a portion of our risks, none of which are for
trading or speculative purposes. There have been no changes since the previous year in the major financial risks faced by the
Company.
Foreign currency exchange rates risk
We are exposed to risks from foreign currency exchange rate fluctuations on the translation of our foreign operations into U.S.
dollars and on the purchase of goods and services by these foreign operations that are not denominated in their local currencies.
Our foreign currency related hedging arrangements outstanding at the end of fiscal 2023 and 2022 were not material. A
hypothetical 10% change in the relative value of the U.S. dollar would not materially impact the Company’s net earnings for
2023.
Interest rate risks
The Company is exposed to interest rate risk on its debt. In connection with certain of its Private Placement Notes, the
Company entered into interest rate swaps, designated as fair value hedges, to manage its exposure to interest rate movements on
its debt. If short-term interest rates varied by 10%, the impact on the Company’s variable-rate debt obligations would not have a
material impact on the Company’s net earnings.
Commodity price risk
Some of the Company’s products contain significant amounts of commodity-priced materials, predominantly plastic, copper
and steel, and other components which are subject to price changes based upon fluctuations in the commodities market. The
Company is also exposed to fluctuations in the price of fuel, which could affect transportation costs. This price volatility could
potentially have a material impact on our financial condition and/or our results of operations. The Company regularly monitors
commodity trends and has alternative sourcing plans in place to mitigate the risk of supplier concentration, passing commodity-
related inflation to customers or suppliers, and continuing to scale its distribution networks, including its transportation
infrastructure.
Safe harbor
Quantitative and qualitative disclosures about market risk include forward-looking statements with respect to management’s
opinion about risks associated with the Company’s operations, debt and derivative positions. Actual results may differ
materially from these forward-looking statements due to the inherent limitations associated with predicting the timing and
amount of changes in interest rates, foreign currency exchange rates, prices of raw materials and the Company’s actual
exposures and positions.
43
Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 1147)
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1. Summary of significant accounting policies
Note 2. Revenue and segment information
Note 3. Earnings per share
Note 4. Income tax
Note 5. Property, plant and equipment
Note 6. Leases
Note 7. Goodwill
Note 8. Other intangible assets
Note 9. Debt
Note 10. Fair value measurements
Note 11. Commitments and contingencies
Note 12. Accumulated other comprehensive loss
Note 13. Retirement benefit obligations
Note 14. Shareholders’ equity
Note 15. Share-based compensation
Note 16. Acquisitions
Note 17. Discontinued operations and disposals
Note 18. Related party transactions
45
47
48
49
50
51
52
53
53
59
61
62
64
65
66
67
68
71
71
72
73
77
78
79
82
82
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Ferguson plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ferguson plc and subsidiaries (the
“Company”) as of July 31, 2023, the related consolidated statements of earnings, comprehensive income,
shareholders' equity, and cash flows for the year ended July 31, 2023, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of July 31, 2023, and the results of its operations and its cash flows for
the year ended July 31, 2023, in conformity with accounting principles generally accepted in the United States
of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2023, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated September 26, 2023, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audit also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Inventory Reserves— Refer to Note 1 to the financial statements
Critical Audit Matter Description
The Company had inventories of $3.9 billion as of July 31, 2023.
Inventory reserves are recorded against slow-moving, obsolete, and damaged inventories for which the net
realizable value is estimated to be less than the cost. The reserve is estimated based on the Company’s current
knowledge with respect to inventory levels, sales trends, and historical experience.
We identified certain components of the inventory reserve as a critical audit matter due to the inherent
uncertainty and higher degree of auditor judgment and effort needed to evaluate sales trends and experience that
were used in determining the inventory reserve.
45
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to certain components of the inventory reserve included the following:
•
•
•
tested the Company’s process for determining the inventory reserve by recalculating the inventory
reserve for a sample of certain inventory items;
developed an independent expectation of the inventory reserve at year end based on historical ratios
and compared the inventory reserve against our expectation; and
for a selection of prior year inventory items, evaluated management’s estimated sales activity by
comparing actual subsequent sales activity to management’s prior year estimate of sales used in
developing certain inventory reserves
/s/ Deloitte & Touche LLP
Richmond, VA
September 26, 2023
We have served as the Company's auditor since 2022.
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Ferguson plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ferguson plc and subsidiaries (the "Company") as of July 31,
2022, the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash flows, for each of
the two years in the period ended July 31, 2022, and the related notes (collectively referred to as the "financial statements"). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31,
2022, and the results of its operations and its cash flows for each of the two years in the period ended July 31, 2022, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte LLP
London, United Kingdom
September 27, 2022
We began serving as the Company's auditor in 2016. In 2022 we became the predecessor auditor.
47
Ferguson plc
Consolidated Statements of Earnings
(In millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairments and other charges
Depreciation and amortization
Operating profit
Interest expense, net
Other (expense) income, net
Income before income taxes
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations (net of tax)
Net income
Earnings per share - Basic:
Continuing operations
Discontinued operations
Total
Earnings per share - Diluted:
Continuing operations
Discontinued operations
Total
Weighted average number of shares outstanding:
Basic
Diluted
For the years ended July 31,
2022
2021
2023
$29,734
(20,709)
9,025
(5,920)
(125)
(321)
2,659
(184)
(11)
2,464
(575)
1,889
—
$1,889
$9.15
—
$9.15
$9.12
—
$9.12
206.4
207.2
$28,566
(19,810)
8,756
(5,635)
—
(301)
2,820
(111)
(1)
2,708
(609)
2,099
23
$2,122
$9.64
0.11
$9.75
$9.59
0.10
$9.69
217.7
218.9
$22,792
(15,812)
6,980
(4,732)
—
(298)
1,950
(98)
10
1,862
(232)
1,630
(158)
$1,472
$7.29
(0.70)
$6.59
$7.25
(0.70)
$6.55
223.5
224.8
See accompanying Notes to the Consolidated Financial Statements.
48
Ferguson plc
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive (loss) income:
Foreign currency translation adjustments
Pension (loss) income, net of tax benefit (expense) of $16, ($11)
and ($17), respectively.
Total other comprehensive (loss) income, net of tax
Comprehensive income
For the years ended July 31,
2022
2021
2023
$1,889
$2,122
$1,472
(9)
(49)
(58)
(24)
(10)
(34)
$1,831
$2,088
170
79
249
$1,721
See accompanying Notes to the Consolidated Financial Statements.
49
Ferguson plc
Consolidated Balance Sheets
(In millions, except share amounts)
Assets
Cash and cash equivalents
Accounts receivable, less allowances of $27 and $27, respectively
Inventories
Prepaid and other current assets
Assets held for sale
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Deferred income taxes, net
Goodwill
Other intangible assets, net
Other non-current assets
Total assets
Liabilities and shareholders' equity
Accounts payable
Short-term debt
Current portion of operating lease liabilities
Share repurchase liability
Other current liabilities
Total current liabilities
Long-term debt
Long-term portion of operating lease liabilities
Other long-term liabilities
Total liabilities
As of July 31,
2023
2022
$601
3,597
3,898
953
28
9,077
1,595
1,474
300
2,241
783
524
$15,994
$771
3,610
4,333
834
3
9,551
1,376
1,200
177
2,048
782
527
$15,661
$3,408
55
366
84
1,516
5,429
3,711
1,126
691
10,957
$3,607
250
321
324
1,297
5,799
3,679
878
640
10,996
Shareholders’ equity:
Ordinary shares, par value 10 pence: 500,000,000 shares authorized, 232,171,182 shares issued
Paid-in capital
Retained earnings
Treasury shares, 27,893,680 and 21,078,577 shares, respectively at cost
Employee Benefit Trust, 274,031 and 846,491 shares, respectively at cost
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
$30
809
8,557
(3,425)
(46)
(888)
5,037
$15,994
$30
760
7,594
(2,782)
(107)
(830)
4,665
$15,661
See accompanying Notes to the Consolidated Financial Statements.
50
Ferguson plc
Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
Balance at July 31, 2020
Share-based compensation
Net income
Other comprehensive loss
Cash dividends: $4.611 per share
Share repurchases
Shares issued under employee share
plans
Other
Balance at July 31, 2021
Share-based compensation
Net income
Other comprehensive income
Cash dividends: $2.505 per share
Share repurchases
Shares issued under employee share
plans
Other
Balance at July 31, 2022
Share-based compensation
Net income
Other comprehensive loss
Cash dividends: $4.160 per share
Share repurchases
Shares issued under employee share
plans
Balance at July 31, 2023
Ordinary
Shares
Paid-in
Capital
Retained
Earnings
Treasury
Shares
Employee
Benefit
Trust
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
$30
—
—
—
—
—
—
—
$30
—
—
—
—
—
—
—
$30
—
—
—
—
—
$624 $5,658
—
1,472
—
(1,034)
—
80
—
—
—
—
—
—
(51)
9
$704 $6,054
—
2,122
—
(550)
—
56
—
—
—
—
($570)
—
—
—
—
(400)
39
—
($931)
—
—
—
—
(1,872)
—
—
21
(51)
—
19
$760 $7,594 ($2,782)
—
—
—
1,889
—
—
—
(858)
(667)
—
49
—
—
—
—
($88)
—
—
—
—
—
30
—
($58)
—
—
—
—
(92)
43
—
($107)
—
—
—
—
—
—
$30
—
24
(68)
$809 $8,557 ($3,425)
61
($46)
($1,045)
—
—
249
—
—
—
—
($796)
—
—
(34)
—
—
—
—
($830)
—
—
(58)
—
—
—
($888)
$4,609
80
1,472
249
(1,034)
(400)
18
9
$5,003
56
2,122
(34)
(550)
(1,964)
13
19
$4,665
49
1,889
(58)
(858)
(667)
17
$5,037
See accompanying Notes to the Consolidated Financial Statements.
51
Ferguson plc
Consolidated Statements of Cash Flows
(In millions)
Cash flows from operating activities:
Net income
(Income) loss from discontinued operations
Income from continuing operations
Depreciation and amortization
Share-based compensation
Non-cash impact of impairments
Changes in deferred income taxes
Decrease (increase) in inventories
Increase in receivables and other assets
(Decrease) increase in accounts payable and other liabilities
Increase (decrease) in income taxes payable
Other operating activities
Net cash provided by operating activities of continuing operations
Net cash (used in) provided by operating activities of discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of businesses acquired, net of cash acquired
Capital expenditures
Other investing activities
Net cash used in investing activities of continuing operations
Net cash provided by investing activities of discontinued operations
Net cash used in investing activities
Cash flows from financing activities:
Purchase of own shares by Employee Benefit Trust
Purchase of treasury shares
Proceeds from sale of treasury shares
Repayments of debt
Proceeds from debt
Change in bank overdrafts
Cash dividends
Other financing activities
Net cash used in financing activities
Change in cash, cash equivalents and restricted cash
Effects of exchange rate changes
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental Disclosures:
Cash paid for income taxes
Cash paid for interest
Accrued capital expenditures
Accrued dividends
For the years ended July 31,
2022
2023
2021
$1,889
—
1,889
321
51
125
(104)
607
(1)
(196)
24
11
2,727
(4)
2,723
(616)
(441)
3
(1,054)
—
(1,054)
—
(908)
17
(2,930)
2,775
(15)
(711)
(35)
(1,807)
(138)
22
785
$669
$656
182
17
152
$2,122
(23)
2,099
301
57
15
41
(927)
(780)
436
(103)
10
1,149
—
1,149
(650)
(290)
(6)
(946)
24
(922)
(92)
(1,545)
13
(575)
2,019
(4)
(538)
(22)
(744)
(517)
(40)
1,342
$785
$670
94
16
—
$1,472
158
1,630
298
77
—
(185)
(748)
(756)
1,012
15
(6)
1,337
45
1,382
(286)
(241)
12
(515)
390
(125)
—
(400)
18
(375)
4
(213)
(1,036)
(49)
(2,051)
(794)
6
2,130
$1,342
$404
104
10
—
See accompanying Notes to the Consolidated Financial Statements.
52
Ferguson plc
Notes to the Consolidated Financial Statements
Note 1: Summary of significant accounting policies
Background
Ferguson plc (the “Company”) (NYSE: FERG; LSE: FERG) is a public company limited by shares incorporated in Jersey
under the Companies (Jersey) Law 1991 (as amended). The Company is a value-added distributor in North America providing
expertise, solutions and products from infrastructure, plumbing and appliances to HVAC, fire, fabrication and more. We exist
to make our customers’ complex projects simple, successful and sustainable. Ferguson is headquartered in the U.K., with its
operations and associates solely focused on North America and managed from Newport News, Virginia. The Company’s
registered office is 13 Castle Street, St Helier, Jersey, JE1 1ES, Channel Islands.
Basis of consolidation
These consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All
intercompany transactions are eliminated from the consolidated financial statements.
In the current year, the Company has disaggregated the Increase (decrease) in income taxes within Cash flows from operating
activities into Changes in deferred income taxes and Increase (decrease) in income taxes payable. Prior year amounts have also
been disaggregated to conform to current year presentation. The disaggregation did not result in any changes to total Cash flows
from operating activities.
Fiscal year
Except as otherwise specified, references to years indicate our fiscal year ended July 31 of the respective year. For example,
references to “fiscal 2023” or similar references refer to the fiscal year ended July 31, 2023.
Use of estimates
The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes.
Actual results may differ from those estimates.
Accounts receivables
Accounts receivables are stated at their estimated net realizable value. An allowance for doubtful accounts is estimated based
on historical write-offs, the age of past due receivables, as well as consideration for forward-looking expectations where
appropriate. Accounts receivables are written off when recoverability is assessed as being remote. The charges associated with
the allowance for doubtful accounts are recognized in selling, general and administrative expenses (“SG&A”). Subsequent
recoveries of amounts previously written off are credited to SG&A.
Advertising and marketing costs
Advertising costs, including digital, television, radio and print, are expensed when the advertisement first appears. Certain
marketing, or co-op, contributions are received to fund marketing activities of specific, incremental, and identifiable costs
incurred to promote suppliers’ products or activities, which are recorded in SG&A as reductions of the related marketing costs.
The following table presents net advertising expenses included in SG&A:
(In millions)
Net advertising and marketing costs
Business combinations
For the years ended July 31,
2023
2022
2021
$403
$389
$299
The assets and liabilities of acquired businesses are recorded at their fair values at the date of acquisition. The excess of the
purchase price over the fair value of the identifiable assets acquired and liabilities assumed is recorded as goodwill. During the
measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets
acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period, any
subsequent adjustments are recorded to earnings.
53
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits with banks with original maturities of three months or less and
overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances.
Restricted cash consists of deferred consideration for business combinations, subject to various settlement agreements, as well
as funds used to collateralize certain letters of credit. These amounts are recorded in prepaid and other current assets and other
non-current assets in the Company’s consolidated balance sheets.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated
balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
(In millions)
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Concentrations of credit risk
As of July 31,
2023
2022
$601
68
$669
$771
14
$785
The Company monitors credit risk associated with those financial institutions with which it conducts significant business.
Credit risk, including but not limited to counterparty non-performance under derivative instruments and our credit facilities, is
not considered significant, as we primarily conduct business with large, well-established financial institutions. This risk is
managed by setting credit and settlement limits for approved counterparties. In addition, the Company has established
guidelines that it follows regarding counterparty credit ratings which are monitored regularly, seeking to limit its exposure to
any individual counterparty. The concentration of credit risk was deemed not significant as of July 31, 2023 and 2022.
Cost of sales
Cost of sales includes the cost of goods purchased for resale, net of earned rebates, and the cost of bringing inventory to a
sellable location and condition. As the Company does not produce or manufacture products, its inventories are finished goods
and therefore depreciation related to warehouse facilities and equipment is presented separately within operating expenses.
Derivative instruments and hedging activity
Derivative financial instruments, in particular interest rate swaps and foreign exchange swaps, are used to manage the financial
risks arising from the Company’s business activities and the financing of those activities. Derivatives are not used for
speculative purposes or trading activities and have generally not been significant.
Derivatives are measured at their fair values and included in other assets and other liabilities in the consolidated balance sheets.
When the hedging relationship is classified as an effective fair value hedge, the carrying amount of the hedged asset or liability
is adjusted by the change in its fair value attributable to the hedged risk and the resulting gain or loss is recognized in the
consolidated statements of earnings where it will be offset by the change in the fair value of the hedging instrument.
When the hedging relationship is classified as an effective cash flow hedge or as a net investment hedge, changes in the fair
value of the hedging instrument arising from the hedged risk are recorded in other comprehensive income. When the hedged
item is recognized in the financial statements, the unrealized gains and losses in accumulated other comprehensive loss are
either recognized in the consolidated statements of earnings or, if the hedged item results in a non-financial asset, are
recognized as an adjustment to its initial carrying amount.
Discontinued operations
When the Company has disposed of, or classified as held for sale, a business component that represents a strategic shift with
significant effect on the Company’s operations and financial results, it classifies that business component as a discontinued
operation and retrospectively presents discontinued operations for the comparable periods. The post-tax income, or loss, of
discontinued operations are shown as a single line on the face of the consolidated statements of earnings. The disposal of the
discontinued operation would also result in a gain or loss upon final disposal.
54
Fair value measurements
The applicable accounting guidance for fair value measurements established a fair value hierarchy. The fair value hierarchy
established under this guidance prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to
unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis.
Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted
prices, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other
relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term
of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed
in the marketplace.
Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in management's best estimate of fair value from the perspective of
a market participant.
Foreign currency
The consolidated financial statements are presented in U.S. dollars.
Results of operations of foreign subsidiaries are translated into U.S. dollars using average exchange rates during the year. The
assets and liabilities of those subsidiaries are translated into U.S. dollars using exchange rates at the current rate of exchange on
the last day of the reporting period. These foreign currency translation adjustments are included in accumulated other
comprehensive loss. Foreign currency transaction gains and losses are not material.
In the event that the Company disposes of a subsidiary that uses a non-U.S. dollar functional currency, the gain or loss on
disposal recognized in the consolidated statements of earnings includes the cumulative currency translation adjustments
attributable to the subsidiary.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable
assets of the acquired business at the date of acquisition. Goodwill is not amortized but is carried at cost less accumulated
impairment losses. The Company performs an annual impairment assessment in the fourth quarter of each fiscal year, or more
frequently if changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount.
The annual impairment assessment begins with an option to assess qualitative factors to determine whether a quantitative
evaluation is appropriate for determining potential goodwill impairment. The quantitative impairment assessment compares the
fair value of the reporting unit to its carrying value. The reporting units represent the lowest level within the Company at which
the associated goodwill is monitored for management purposes and are based on the markets where the business operates.
The fair value of a reporting unit is determined using the income approach, which requires significant assumptions regarding
future operations and the ability to generate cash flows. These assumptions include a forecast of future operating cash flows,
capital requirements and a discount rate. Where the carrying value of a reporting unit exceeds the fair value, an impairment loss
is recorded in the consolidated statements of earnings.
Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold.
55
Other intangible assets
Definite-lived intangible assets are primarily comprised of customer relationships, trade names and other intangible assets,
acquired as part of business combinations and are capitalized separately from goodwill and carried at cost less accumulated
amortization and accumulated impairment losses.
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 may 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.
Customer relationship amortization is calculated using a systematic, accelerated approach based on the timing of future
expected cash flows. The straight-line method is used for all other intangible assets.
The estimated useful life of the respective intangible assets are as follows:
Customer relationships
Trade names and brands
Software
Other
Impairment of long-lived assets
4 – 15 years
1 – 15 years
3 – 5 years
1 – 5 years
The recoverability of long-lived assets, including property, plant and equipment, right of use assets and definite-lived intangible
assets, is evaluated when events or changes in circumstances indicate that the carrying amounts of an asset group may not be
recoverable. Long-lived depreciable and amortizable assets are tested for impairment in asset groups, which are defined as the
lowest level of assets that generate identifiable cash flows that are largely independent of the cash flows of other asset groups.
A potential impairment has occurred for an asset group if projected future undiscounted cash flows expected to result from the
use and eventual disposition of the assets are less than the carrying amounts of the assets.
During fiscal 2023, the Company recorded charges of $18 million related to the closure of certain smaller, underperforming
branches in the United States, primarily related to impairment of lease assets and related fixed assets. This item was included in
the Impairments and other charges line of the Company’s consolidated statements of earnings.
Inventories
Inventories, which comprise goods purchased for resale, are stated at the lower of cost or net realizable value. Cost is primarily
determined using the average cost method. 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 and rebates. Net realizable value is
the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
Inventory reserves are recorded against slow-moving, obsolete and damaged inventories for which the net realizable value is
estimated to be less than the cost. The reserve is estimated based on the Company’s current knowledge with respect to
inventory levels, sales trends and historical experience.
Leases
The Company enters into contractual arrangements for the utilization of certain non-owned assets. These principally relate to
property for the Company’s branches, distribution centers and offices which have varying terms including extension and
termination options and periodic rent reviews.
The Company determines if an arrangement is a lease at inception. Leases are evaluated at commencement to determine proper
classification as an operating lease or a finance lease. The Company’s leases primarily consist of operating leases. The
Company recognizes a right-of-use (“ROU”) asset and lease liability at lease commencement based on the present value of
lease payments over the lease term.
The Company generally uses its incremental borrowing rate as the discount rate as most of the Company’s lease arrangements
do not provide an implicit borrowing rate. The incremental borrowing rate is estimated using a combination of U.S. Treasury
note rates corresponding to lease terms, as well as a blended credit risk spread.
56
For operating leases, fixed lease payments are recognized on a straight-line basis over the lease term. The Company has elected
to not separate lease and non-lease components. Certain lease agreements include variable lease payments that depend on an
index, as well as payments for non-lease components, such as common area maintenance, and certain pass-through operating
expenses such as real estate taxes and insurance. In instances where these payments are fixed, they are included in the
measurement of our lease liabilities, and when variable, are excluded and recognized in the period in which the obligations for
those payments are incurred. The Company’s leases do not contain any material residual value guarantees or payments under
purchase and termination options which are reasonably certain to be exercised.
Lease terms are initially determined as the non-cancelable period of a lease adjusted for options to extend or terminate a lease
that are reasonably certain to be exercised. Generally, the Company’s real estate leases have initial terms of three to 10 years
and up to four extension periods that range from two to five years each. Renewal options are typically not included in the lease
term as it is not reasonably certain at commencement date that the Company would exercise the extension options. Lease
liabilities are subsequently measured at amortized cost using the effective interest method.
Right of use assets are carried at cost less accumulated amortization, 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. The Company recognizes minimum rent
expense on a straight-line basis over the lease term.
Leases that have an original term of 12 months or less are not recognized on the Company’s consolidated balance sheet, and the
lease expense related to those short-term leases is recognized over the lease term.
Property, plant and equipment (“PPE”)
PPE is recorded at cost less accumulated depreciation. Cost includes expenditures necessary to acquire and prepare PPE for its
intended use. In addition, subsequent costs that increase the productive capacity or extend the useful life of PPE are capitalized.
The cost of repairs and maintenance are expensed as incurred.
Assets are depreciated to their estimated residual value using the straight-line method over their estimated useful lives as
follows:
Owned buildings
Leasehold improvements
Plant and machinery
Computer hardware
Furniture, fixtures, equipment
Vehicles
Rebates
20 - 50 years
Period of lease
10 years
3 - 5 years
5 - 7 years
4 years
The Company has agreements (“supplier rebates”) with a number of its suppliers whereby volume-based rebates and other
discounts are received in connection with the purchase of goods for resale from those suppliers.
The majority of volume-based supplier rebates are determined by reference to guaranteed rates of rebate. These calculations
require minimal judgment. A small proportion of volume-based supplier rebates are subject to tiered targets where the rebate
percentage increases as volumes purchased reach agreed targets within a set period of time. The Company estimates supplier
rebates based on forecasts which are informed by historical trading patterns, current performance and trends.
Rebates relating to the purchase of goods for resale are accrued as earned and are recorded initially as a deduction to the cost of
inventory with a subsequent reduction in cost of sales when the related goods are sold. When the Company has the right to
offset and net settles with the supplier, the supplier rebate receivables are offset with amounts owed to the supplier at the
balance sheet date and are included within accounts payable. When the Company does not have the legal right of offset, the
supplier rebate receivables are recorded in prepaid and other current assets in the consolidated balance sheets.
57
Revenue recognition
The Company recognizes revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), the
transaction price is fixed or determinable, collection of consideration is probable and the Company has satisfied its performance
obligation per the sales arrangement. The majority of the Company’s revenue originates from sales arrangements with a single
performance obligation to deliver products, whereby performance obligations are satisfied when control of the product is
transferred to the customer which is the point they are delivered to, or collected by, the customer. Therefore, shipping and
handling activities are not deemed a separate performance obligation. Payment terms between the Company and its customers
vary by the type of customer, country of sale and the products sold. The Company does not have significant financing
components in its contracts and the payment due date is typically shortly after sale.
In some limited cases, the Company’s contracts contain services and products that are deemed one performance obligation as
the services are highly interdependent and interrelated with the products or are significantly integrated with the products.
Contracts in which services provided are a separately identifiable performance obligation are not material.
In some instances, goods are delivered directly to the customer by the supplier. The Company has concluded that 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 Company offers a right of return to its customers for most goods sold. Revenue is reduced by the amount of expected
returns in the period in which the related revenue is recorded with a corresponding liability recorded in other current liabilities.
The Company also recognizes a returned asset in prepaid and other current assets with a corresponding adjustment to cost of
sales, for the right to recover the returned goods, measured at the former carrying value, less any expected recovery costs.
Share-based compensation
Share-based incentives are provided to associates under the Company’s long-term incentive plans and all-employee sharesave
plans. The Company recognizes a compensation cost in respect of these plans that is primarily based on the fair value of the
awards. For equity-settled plans, the fair value is determined at the date of grant and is not subsequently remeasured unless the
conditions on which the award was granted are modified. For liability-settled plans, the fair value is initially determined at the
date of grant and is remeasured at each balance sheet date until the liability is settled. The related liability is recorded in other
current liabilities and other long-term liabilities. Generally, the compensation cost is recognized on a straight-line basis over the
vesting period, utilizing cumulative catch-up for changes in the liability-settled plans. Estimates of expected forfeitures are
made at the date of grant based on historical experience to appropriately reduce expense for those grants expected not to satisfy
service conditions, or based on expected performance for non-market performance conditions. The estimated forfeitures are
adjusted when facts and circumstances indicate the prior estimate is no longer appropriate.
Tax
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax
assets (“DTAs”) and deferred tax liabilities (“DTLs”) for the expected future tax consequences of events that have been
included in the financial statements. Under this method, the Company determines DTAs and DTLs on the basis of the
differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year
in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income
in the period that includes the enactment date.
The Company recognizes DTAs to the extent that it believes these assets are more likely than not to be realized. In making such
a determination, the Company considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under
the tax law, and results of recent operations. If the Company determines that it would be able to realize our DTAs in the future
in excess of their net recorded amount, the DTA valuation allowance would be appropriately adjusted, which would reduce the
provision for income taxes.
The Company records uncertain tax positions in accordance with Accounting Standard Codification (“ASC”) 740 on the basis
of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the
basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition
threshold, the Company recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate
settlement with the related tax authority.
58
Recently issued accounting pronouncements
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2022-04, “Liabilities—Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations.” The
standard aims to enhance transparency of supplier finance programs used in connection with the purchase of goods and
services. The standard requires entities to disclose the key terms, including a description of payment terms, the confirmed
amount outstanding under such programs, a description of where those obligations are presented on the balance sheet, and an
annual rollforward, including the amount of obligations confirmed and the amount paid during the period. The guidance does
not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance
programs. ASU No. 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years, except for the required rollforward information, which is effective for fiscal years beginning after December
15, 2023. The Company will adopt ASU No. 2022-04 as of August 1, 2023. As of July 31, 2023, activity under the Company’s
supplier finance agreements was not material. The Company will continue to evaluate for future disclosure.
Recent accounting pronouncements pending adoption that are not discussed above are either not applicable, or will not have, or
are not expected to have, a material impact on our consolidated financial condition, results of operations or cash flows.
Note 2: Revenue and segment information
The Company reports its financial results of operations on a geographical basis in the following two reportable segments:
United States and Canada. Each segment generally derives its revenues in the same manner as described in Note 1, Summary of
significant accounting policies. The Company uses adjusted operating profit as its measure of segment profit. Adjusted
operating profit is defined as profit before tax, excluding central and other costs, restructuring costs, amortization of acquired
intangible assets, net interest expenses, as well as other items typically recorded in net other (expense) income such as (loss)/
gain on disposal of businesses, pension plan changes/closure costs and amounts recorded in connection with the Company’s
interests in investees. Certain income and expenses are not allocated to the Company’s segments and, thus, the information that
management uses to make operating decisions and assess performance does not reflect such amounts.
Segment results were as follows:
(In millions)
Net sales:
United States
Canada
Total net sales
Adjusted operating profit:
United States
Canada
Central and other costs
Business restructurings(1)
Corporate restructurings(2)
Impairment and other charges(3)
Amortization of acquired intangible assets
Interest expense, net
Other (expense) income, net
Income before income taxes
For the years ended July 31,
2023
2022
2021
$28,291
1,443
$29,734
$2,892
76
(51)
—
—
(125)
(133)
(184)
(11)
$27,067
1,499
$28,566
$2,893
112
(54)
—
(17)
—
(114)
(111)
(1)
$2,464
$2,708
$21,478
1,314
$22,792
$2,070
76
(54)
11
(22)
—
(131)
(98)
10
$1,862
(1) For fiscal 2021, business restructuring reflects the release of provisions in connection with previously anticipated
COVID-19 cost actions recorded in fiscal 2020.
(2) For fiscal 2022 and 2021, corporate restructuring costs primarily related to the incremental costs of the Company’s listing
in the United States.
(3) See Note 8, Other intangible assets for further information.
59
An additional disaggregation of net sales by end market for continuing operations is as follows:
(In millions)
United States:
Residential
Non-residential:
Commercial
Civil/Infrastructure
Industrial
Total Non-residential
Total United States
Canada
Total net sales
For the years ended July 31,
2023
2022
2021
$14,820
$14,657
$11,990
9,213
2,344
1,914
13,471
28,291
1,443
$29,734
8,600
2,163
1,647
12,410
27,067
1,499
$28,566
6,661
1,506
1,321
9,488
21,478
1,314
$22,792
No sales to an individual customer accounted for more than 10% of net sales during any of the last three fiscal years.
The Company is a value-added distributor in North America of products from infrastructure, plumbing and appliances to
HVAC, fire, fabrication and more. We offer a broad line of products, and items are regularly added to and removed from the
Company's inventory. Accordingly, it would be impractical to provide sales information by product category due to the way the
business is managed, and the dynamic nature of the inventory offered.
Capital expenditures and depreciation and amortization by segment were as follows:
(In millions)
Capital expenditures:
United States
Canada
Total capital expenditures
Depreciation and amortization:
United States(1)
Canada
Corporate
Total depreciation and amortization
For the years ended July 31,
2023
2022
2021
$423
18
$441
$313
8
—
$321
$283
7
$290
$292
9
—
$301
$232
9
$241
$288
9
1
$298
(1) Includes amortization of acquired intangible assets of $133 million, $114 million and $131 million in 2023, 2022 and 2021,
respectively. These amounts are not included in the United States segment adjusted operating profit.
Assets by segment included:
(In millions)
Assets:
United States
Canada
Corporate
Total assets
As of July 31,
2023
2022
$14,167
795
1,032
$15,994
$13,747
802
1,112
$15,661
As of July 31, 2023 and 2022, long-lived assets located in the United States were $1,545 million and $1,336 million,
respectively.
60
Note 3: Earnings per share
Basic earnings per share is calculated using our weighted average outstanding common shares. Diluted earnings per share is
calculated using our weighted average outstanding common shares including the dilutive effect of share awards as determined
under the treasury stock method.
The following table shows the calculation of diluted shares:
(In millions, except per share amounts)
Income from continuing operations
Income (loss) from discontinued operations (net of tax)
Net income
Weighted average number of shares outstanding:
Basic weighted average shares
Effect of dilutive shares
Diluted weighted average shares
Earnings per share - Basic:
Continuing operations
Discontinued operations
Total
Earnings per share - Diluted:
Continuing operations
Discontinued operations
Total
Excluded anti-dilutive shares
For the years ended July 31,
2023
2022
2021
$1,889
—
$1,889
$2,099
23
$2,122
$1,630
(158)
$1,472
206.4
0.8
207.2
$9.15
—
$9.15
$9.12
—
$9.12
0.1
217.7
1.2
218.9
$9.64
0.11
$9.75
$9.59
0.10
$9.69
0.1
223.5
1.3
224.8
$7.29
(0.70)
$6.59
$7.25
(0.70)
$6.55
0.1
61
Note 4: Income tax
Income before income tax by geographical area consisted of the following:
(In millions)
United Kingdom
United States
International
Total
Provision for income taxes consisted of the following:
(In millions)
Current:
United Kingdom
Federal and state (U.S.)
International
Total current
Deferred:
United Kingdom
Federal and state (U.S.)
International
Total deferred
For the years ended July 31,
2023
2022
2021
$80
2,011
373
$2,464
$102
2,222
384
$2,708
$123
1,385
354
$1,862
For the years ended July 31,
2023
2022
2021
$—
624
55
$679
$17
(120)
(1)
($104)
($18)
528
58
$568
$20
20
1
$41
$5
364
48
$417
($8)
(176)
(1)
($185)
Provision for income taxes
$575
$609
$232
The following is a reconciliation of income tax expense with income taxes at the U.K. statutory rate:
(In millions)
Provision for income taxes at U.K. statutory rate(1)
Non-U.K. tax rate differentials
Impact of change in reserves
Tax rate change
Tax credits
Non-taxable income
Other
Income tax expense
For the years ended July 31,
2023
2022
2021
$518
68
8
—
(15)
(6)
2
$575
21.0 %
2.8
0.3
—
(0.6)
(0.2)
—
23.3 %
$515
127
8
—
(9)
(9)
(23)
$609
19.0 %
4.7
0.2
—
(0.3)
(0.3)
(0.8)
22.5 %
$354
68
(138)
(29)
(12)
(18)
7
$232
19.0 %
3.7
(7.4)
(1.6)
(0.6)
(1.0)
0.4
12.5 %
(1) Ferguson plc is tax resident in the U.K. Therefore, the Company has utilized the U.K. statutory rate. Since the change
in statutory rate transitioned between fiscal years, the Company utilized a prorated statutory rate during fiscal 2023.
62
Deferred Taxes
Significant components of the Company’s deferred tax assets and liabilities are as follows:
(In millions)
Assets:
Deferred compensation
Tax loss carryforwards
Lease liabilities
Sales returns and other liabilities
Inventory
Capitalized research and development
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Liabilities:
Right of use assets
Goodwill and intangible assets
Property, plant and equipment
Tax method change
Total deferred tax liabilities
Net deferred tax assets
As of July 31,
2023
2022
$69
186
378
123
46
44
48
894
(81)
$813
($374)
(118)
(21)
—
(513)
$300
$48
184
306
103
50
—
51
742
(77)
$665
($306)
(119)
(14)
(49)
(488)
$177
We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion,
or all, of a deferred tax asset will not be realized. Our valuation allowance at July 31, 2023 and 2022 relates to foreign net
capital loss carryforwards in the U.K. and Canada which are not expected to be realizable. For the year ended July 31, 2023,
there was a $4 million change in the valuation allowance (2022: $0 million and 2021: $30 million).
As of July 31, 2023, the Company had $720 million of loss carryforwards related to the United Kingdom operations. At July
31, 2023, the Company had U.S. federal and state operating loss carryforwards for income tax purposes of $15 million and $19
million, respectively. Some of the loss carryforwards may expire at various dates through 2039. At July 31, 2023, the Company
had $8 million of loss carryforwards related to international operations. A portion of these losses related to capital losses were
offset with valuation allowances.
Unrecognized Tax Benefits
The following table reconciles the beginning and ending amount of our gross unrecognized tax benefits:
(In millions)
Unrecognized tax benefits at beginning of fiscal year
Additions based on tax positions related to current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions due to lapse of statute of limitations
Unrecognized tax benefits
For the years ended July 31,
2023
2022
2021
$140
27
2
—
(25)
$144
$132
27
11
—
(30)
$140
$245
28
2
(8)
(135)
$132
63
As of July 31, 2023, the unrecognized tax benefits that, if recognized, would impact the effective tax rate were $144 million
(2022: $140 million and 2021: $132 million). The Company recognizes interest and penalties in the income tax provision in its
consolidated statements of earnings. As of July 31, 2023, the Company had accrued interest of $23 million (2022: $17 million
and 2021: $16 million). For the year end July 31, 2023, the interest included in income tax expense was an expense of $6
million (2022: expense $1 million and 2021: benefit $42 million). Penalties related to these positions were not material for all
periods presented.
The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future
events including, but not limited to, the settlement of ongoing tax audits and assessments and the expiration of applicable
statutes of limitations. The Company anticipates that the balance of gross unrecognized tax benefits, excluding interest and
penalties, will be reduced by $12 million during the next 12 months, primarily due to the anticipated settlement of tax
examinations and statute of limitation expirations. However, the outcomes and timing of such events are highly uncertain and
changes in the occurrence, expected outcomes and timing of such events could cause the Company’s current estimate to change
materially in the future.
Reinvestment of Unremitted earnings
We consider foreign earnings of specific subsidiaries to be indefinitely reinvested. These permanently reinvested earnings of
foreign subsidiaries at July 31, 2023 amounted to $725 million (2022: $658 million). The Company is not recording a deferred
tax liability, if any, on such amounts. If at some future date, the Company ceases to be permanently reinvested in these specific
foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and
may need to record a deferred tax liability for any outside basis difference on these specific foreign subsidiaries.
Tax Return Examination Status
The Company files income tax returns in the U.K., U.S. and in various foreign, state and local jurisdictions. We are subject to
tax audits in the various jurisdictions until the respective statutes of limitation expire. The Company is no longer subject to U.K.
examinations by tax authorities for fiscal years before 2020 and U.S. federal income tax examinations by tax authorities for
fiscal years before 2020. There are ongoing U.S. state and local audits and other foreign audits covering fiscal 2008-2020. We
do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition,
results of operations or cash flows.
Note 5: Property, plant and equipment
Property, plant and equipment consisted of the following:
(In millions)
Land
Buildings
Leasehold improvements
Plant and machinery
Other equipment
Property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment, net
As of July 31,
2023
2022
$348
1,134
529
834
156
3,001
(1,406)
$1,595
$273
1,103
455
719
146
2,696
(1,320)
$1,376
Depreciation related to property, plant and equipment included in operating costs for fiscal 2023 was $148 million (2022: $140
million and 2021: $130 million).
64
Note 6: Leases
Lease-related assets and liabilities consisted of the following:
(In millions)
Assets:
Operating lease right-of-use assets
Liabilities:
Current portion of operating lease liabilities
Long-term portion of operating lease liabilities
Total lease liabilities
The components of leasing costs, included in SG&A, consisted of the following:
As of July 31,
2023
2022
$1,474
$1,200
$366
1,126
$1,492
$321
878
$1,199
(In millions)
Operating lease costs
Variable lease costs
Short-term lease costs
Total lease costs
For the years ended July 31,
2022
2021
2023
$390
85
23
$498
$349
72
14
$435
$318
62
1
$381
Variable lease costs represent costs incurred in connection with non-lease components, such as common area maintenance, and
certain pass-through operating expenses such as real estate taxes and insurance.
The weighted average remaining lease terms and discount rates for the Company’s operating leases were as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
As of July 31,
2023
2022
5.5
4.0 %
5.1
3.3 %
The future minimum rental payments under operating lease obligations, having initial or remaining non-cancelable lease terms
in excess of one year are summarized as follows:
(In millions)
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments
Less: imputed interest
Present value of liabilities
As of July 31,
2023
$377
357
289
214
157
295
1,689
(197)
$1,492
The future minimum lease payments in the table above exclude payments for leases that have not yet commenced.
65
Supplemental cash flow information related to leases from continuing operations consisted of the following:
(In millions)
Cash paid for operating leases (operating cash flows)
Lease assets obtained in exchange for new operating lease liabilities (non-cash)
For the years ended July 31,
2022
2023
2021
$379
309
$337
362
$321
158
As of July 31, 2023, the Company had $223 million of non-cancelable operating leases with terms similar to the Company’s
current operating leases that have not yet commenced. Of this amount, $174 million is expected to commence in fiscal year
2024 with the remaining $49 million expected to commence in fiscal year 2025.
Note 7: Goodwill
The Company completed its annual impairment analysis for goodwill during the fourth quarter of fiscal 2023. Based on the
results of the Company’s analysis, the Company concluded that the fair value of each reporting unit was substantially in excess
of its respective carrying value. There were no impairment charges related to goodwill in fiscal 2023, 2022 or 2021.
The following table presents the changes in the net carrying amount of goodwill allocated by reportable segment for the years
ended July 31, 2023 and 2022:
(In millions)
Balance as of July 31, 2021
Acquisitions
Effect of currency translation adjustment
Balance as of July 31, 2022
Acquisitions
Effect of currency translation adjustment
Balance as of July 31, 2023
Cumulative goodwill impairment as of July 31, 2023
United States
$1,670
224
—
1,894
198
—
$2,092
$108
Canada
Total
$158
—
(4)
154
—
(5)
$149
$11
$1,828
224
(4)
2,048
198
(5)
$2,241
$119
Cumulative balance of historical goodwill impairments as of July 31, 2023, as shown above, was the same for all periods
presented herein. See Note 16, Acquisitions for further information on the additions to goodwill in fiscal 2023 and 2022.
66
Note 8: Other intangible assets
The Company's major categories of definite-lived intangible assets and the respective weighted average remaining useful lives
consisted of the following:
(In millions, except remaining
useful life)
Software
Customer relationships*
Tradenames and brands*
Other*
Total intangible assets
* Acquired intangible assets
Weighted average
remaining useful
life (years)
4
8
4
3
As of July 31, 2023
As of July 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$283
1,345
268
209
$2,105
($197)
(750)
(200)
(175)
($1,322)
$370
1,138
258
206
$1,972
($198)
(662)
(171)
(159)
($1,190)
Amortization expense of intangible assets for the year ended July 31, 2023 was $173 million (2022: $161 million and 2021:
$168 million).
As of July 31, 2023, expected amortization expense for the unamortized definite-lived intangible assets for the next five years
and thereafter is as follows:
(In millions)
2024
2025
2026
2027
2028
Thereafter
Total
Impairments
As of July 31,
2023
$164
160
123
103
85
148
$783
The Company has been upgrading portions of its IT systems to enhance customer experience and associate productivity. One of
the solutions developed targeted certain branch transactional processes and was piloted at select locations. In the third quarter of
fiscal 2023, the Company determined that this solution did not meet its customer service, speed and efficiency goals. As a
result, the Company chose not to proceed with this component and recorded a non-cash charge of $107 million of previously
capitalized software costs in the United States. This item was included in the Impairments and other charges line of the
Company’s consolidated statements of earnings.
In the second quarter of fiscal 2022, the Company recorded a $15 million non-cash impairment charge in SG&A related to
internal use software projects in the United States as the Company determined the benefits of the work capitalized would not be
realized.
67
Note 9: Debt
The Company’s debt obligations consisted of the following:
(In millions)
Variable-rate debt:
Receivables Facility
Term Loan
Private Placement Notes:
3.43% due September 2022
3.30% due November 2023
3.44% due November 2024
3.73% due September 2025
3.51% due November 2026
3.83% due September 2027
Unsecured Senior Notes:
4.50% due October 2028
3.25% due June 2030
4.25% due April 2027
4.65% due April 2032
Subtotal
Less: current maturities of debt
Unamortized discounts and debt issuance costs
Interest rate swap - fair value adjustment
Total long-term debt
Private Placement Notes
As of July 31,
2023
2022
$50
500
—
55
150
400
150
150
750
600
300
700
$3,805
(55)
(22)
(17)
$3,711
$455
—
250
55
150
400
150
150
750
600
300
700
$3,960
(250)
(24)
(7)
$3,679
In June 2015 and November 2017, Wolseley Capital, Inc. (“Wolseley Capital”), a wholly owned subsidiary of the Company,
privately placed fixed rate notes in an aggregate principal amount of $800 million and $355 million, respectively (collectively,
the “Private Placement Notes”). Interest on the Private Placement Notes is payable semi-annually. During the first quarter of
fiscal 2023, the 3.43% notes due in September 2022 were repaid at maturity.
As of July 31, 2023 and 2022, the Company had interest rate swaps with a notional value of $355 million in connection with the
Private Placement Notes entered into in November 2017. See Note 10, Fair value measurements for further information.
Wolseley Capital’s obligations under the note and guarantee agreements are unconditionally guaranteed by the Company and
Ferguson UK Holdings Limited (“Ferguson UK”). Wolseley Capital may repay the outstanding Private Placement Notes, in
whole or in part, at any time at a price equal to 100% of the principal amount being prepaid plus a “make-whole” prepayment
premium.
The note and guarantee agreements relating to the Private Placement Notes contain certain customary affirmative covenants, as
well as certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s
non-guarantor subsidiaries’ ability to incur indebtedness and the Company’s ability to enter into affiliate transactions, grant
liens on its assets, sell assets, or engage in acquisitions, mergers or consolidations. In addition, subject to certain exceptions, the
note and guarantee agreements require us to maintain a leverage ratio.
The outstanding Private Placement Notes also contain customary events of default. Upon an event of default and an
acceleration of the Private Placement Notes, the Company must repay the outstanding Private Placement Notes plus a make-
whole premium and accrued and unpaid interest.
68
Unsecured Senior Notes
Ferguson Finance, plc (“Ferguson Finance”) has issued $2.35 billion in unsecured senior notes (collectively, the “Unsecured
Senior Notes”) which are guaranteed by the Company and Ferguson UK.
The Unsecured Senior Notes are fully and unconditionally guaranteed on a direct, unsubordinated and unsecured senior basis
by the Company and generally carry the same terms and conditions with interest paid semi-annually. The Unsecured Senior
Notes may be redeemed, in whole or in part (i) at 100% of the principal amount on the notes being redeemed plus a “make-
whole” prepayment premium at any time prior to three months before the maturity date (the “Notes Par Call Date”) or (ii) after
the Notes Par Call Date at 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest on the
principal being redeemed. The Unsecured Senior Notes include covenants, subject to certain exceptions, which include
limitations on the granting of liens and on mergers and acquisitions.
Term Loan Agreement
The Credit Agreement, dated October 7, 2022, among the Company, Ferguson UK, the lenders party thereto and the agent of
the lenders party thereto (the “Term Loan Agreement”) provides for term loans in an aggregate principal amount of $500
million, the proceeds of which may be used for general corporate purposes. The Term Loan Agreement will mature on October
7, 2025.
Term loans will bear interest at a rate per annum of the Term SOFR Rate, as defined in the Term Loan Agreement, plus a credit
spread adjustment of 10 basis points plus a margin ranging from 100 to 150 basis points, determined on the basis of the
Company’s corporate credit ratings (or if public credit ratings are not published, senior unsecured debt ratings). Interest rates
for the term loans ranged from 4.4% to 6.4% during fiscal 2023.
Ferguson UK may voluntarily prepay the term loans, in whole or in part, without premium or penalty, but subject to
reimbursement of funding losses with respect to certain prepayments. Term loans that are prepaid may not be reborrowed.
The Term Loan Agreement contains representations and warranties and affirmative and negative covenants and events of
default, including, but not limited to, restrictions on the incurrence of non-guarantor subsidiary indebtedness, additional liens,
mergers and sales of assets and changes in nature of business, in each case, subject to certain conditions, exceptions and
thresholds. The Term Loan Agreement also requires the Company to maintain on a consolidated basis, as of the last day of each
fiscal quarter, a maximum net leverage ratio of 3.50 to 1.00, with a step-up to 4.00 to 1.00 with respect to each of the four fiscal
quarters ending immediately after certain material acquisitions. The Company unconditionally and irrevocably guarantees the
term loans.
Revolving Credit Facility
The Company maintains a revolving credit facility (the “Revolving Facility”) under the Amendment and Restatement
Agreement, dated October 7, 2022, among the Company, Ferguson UK, the lenders party thereto, and the agent of the lenders
party thereto (as amended from time to time, the “Revolving Facility Agreement”). The Revolving Facility has aggregate total
available credit commitments of $1.35 billion. Borrowings under the Revolving Facility bear interest at a per annum rate of
Term SOFR (as defined in the Revolving Facility Agreement) plus a credit spread adjustment of 10 basis points plus a margin
ranging from 20 to 75 basis points, determined on the basis of the Company’s corporate credit ratings (or if public credit ratings
are not published, senior unsecured debt ratings).
The Company is required to pay a quarterly commitment fee and utilization fee in certain circumstances. All obligations under
the Revolving Facility Agreement are unconditionally guaranteed by the Company and Ferguson UK, to the extent each entity
is not the borrower with respect to such obligation.
The Revolving Facility Agreement contains affirmative and negative covenants that, among other things, restrict, subject to
certain conditions, exceptions and thresholds, the ability of the Company and its subsidiaries to incur indebtedness, grant liens
on present or future assets or revenues, sell assets or engage in mergers or consolidations. The Revolving Facility Agreement
also contains events of default, including, among others, cross-default and cross-acceleration provisions, in each case, subject to
grace periods and thresholds. The Revolving Facility terminates in March 2026.
As of July 31, 2023 and 2022, no borrowings were outstanding under the Revolving Facility.
69
Receivables Securitization Facility
The Company maintains a Receivables Securitization Facility (the “Receivables Facility”) which is primarily governed by the
Receivables Purchase Agreement, dated July 31, 2013, as amended from time to time, among the Company, Ferguson
Enterprises, LLC and certain of its subsidiaries; the conduit purchasers, committed purchasers, and letter of credit banks from
time to time party thereto; and Royal Bank of Canada, as administrative agent.
The Receivables Facility consists of funding for up to $1.1 billion, including a swingline for up to $100 million in same day
funding, terminating on October 7, 2025. The Company has available to it an accordion feature whereby the facility may be
increased up to $1.5 billion subject to lender participation. Interest is payable under the Receivables Facility at a rate of Term
SOFR (as defined in the Receivables Facility) plus a credit spread adjustment of 10 basis points plus a margin or, in the case of
the lending banks that fund, through a conduit, by the issuance of commercial paper, at a rate equal to the per annum rate
payable of the related commercial paper issued by such conduit plus a margin. Interest rates under the Receivables Facility
ranged from 3.4% to 6.2% during fiscal 2023. The Company does not factor its accounts receivable.
The Receivables Facility contains affirmative and negative covenants that, among other things, restrict, subject to certain
exceptions, the ability of the Company and its subsidiaries party thereto from granting additional liens on the accounts
receivable, selling certain assets or engaging in acquisitions, mergers or consolidations, or, in the case of the borrower,
incurring other indebtedness.
The Receivables Facility also contains events of default and cross-default provisions, including requirements that our
performance in relation to accounts receivable remains at set levels (specifically, among other things, relating to timely
payments being received from debtors on the accounts receivable and to the amount of accounts receivable written off as bad
debt) and that a required level of accounts receivable be generated and available to support the borrowings under the
arrangements.
The Company pays customary fees regarding unused amounts to maintain the availability under the Receivables Facility.
The Company was in compliance with all debt covenants for all of these debt obligations and facilities that were in effect as of
July 31, 2023.
Debt maturities, exclusive of unamortized original issue discounts, unamortized debt issuance costs, fair-value hedge
adjustments, and finance lease obligations, for the next five fiscal years and thereafter are as follows:
(In millions)
2024
2025
2026
2027
2028
Thereafter
Total
As of July 31,
2023
$55
150
950
450
150
2,050
$3,805
70
Note 10: Fair value measurements
Derivative Instruments
The Company’s derivatives relate principally to interest rate swaps, designated as fair value hedges, to manage its exposure to
interest rate movements on its debt. They are measured at fair value on a recurring basis through profit and loss using forward
interest curves which are Level 2 inputs. The Company’s derivatives are not material. The notional amount of the Company’s
outstanding fair value hedges as of July 31, 2023 and 2022 was $355 million.
Equity investments
The fair value of the Company’s equity investments is measured on a recurring basis using market derived valuation methods
upon occurrence of orderly transactions for identical or similar assets which is deemed a Level 3 input. The fair value of equity
investments was $34 million and $26 million as of July 31, 2023 and 2022, respectively, and the activity during fiscal 2023 was
not material.
Other Fair Value Disclosures
Due to their short maturities, or their insignificance, the carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and short-term debt approximated their fair values at July 31, 2023 and 2022.
Non-recurring fair value measurements
Fair value estimates are made in connection with the Company’s acquisitions. See Note 16, Acquisitions for further details.
Liabilities for which fair value is only disclosed
Carrying amounts and the related estimated fair value of the Company’s long-term debt were as follows:
As of July 31,
2023
2022
(In millions)
Unsecured Senior Notes
Private Placement Notes
Carrying Amount
Fair Value
Carrying Amount
Fair Value
$2,330
904
$2,195
871
$2,328
1,153
$2,350
1,142
The difference in fair values results from changes, since issuance, in the corporate debt markets and investor preferences. The
fair value of the Unsecured Senior Notes and Private Placement Notes are classified as Level 2 fair value measurements, and
were estimated using observable market prices as provided in secondary markets that consider the Company’s credit risk and
market-related conditions.
Note 11: Commitments and contingencies
The Company is, from time to time, involved in various legal proceedings considered to be normal course of business in
relation to, among other things, the products that we 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 probable. In the case
of unfavorable outcomes, the Company may benefit from applicable insurance protection. The Company does not expect any of
its pending legal proceedings to have a material adverse effect on its results of operations, financial position or cash flows.
71
Note 12: Accumulated other comprehensive loss
The change in accumulated other comprehensive loss was as follows:
(In millions, net of tax)
Balance at July 31, 2020
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income
Balance as of July 31, 2021
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive loss
Balance as of July 31, 2022
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive loss
Balance as of July 31, 2023
Foreign
currency
translation
Pensions
Total
($566)
35
135
170
($396)
(24)
—
(24)
($420)
(9)
—
(9)
($429)
($479)
66
13
79
($400)
(18)
8
(10)
($410)
(57)
8
(49)
($459)
($1,045)
101
148
249
($796)
(42)
8
(34)
($830)
(66)
8
(58)
($888)
Amounts reclassified from accumulated other comprehensive loss related to pension and other post-retirement items include the
related income tax impacts. Such amounts consisted of the following:
(In millions)
Amortization of actuarial losses
Tax benefit
Amounts reclassified from accumulated other comprehensive loss, net of tax
For the years ended July 31,
2023
2022
2021
$11
(3)
$8
$10
(2)
$8
$18
(5)
$13
72
Note 13: Retirement benefit obligations
The Company provides various retirement benefits to eligible employees, including pension benefits associated with defined
benefit plans, contributions to defined contribution plans, post-retirement benefits and other benefits. Eligibility requirements
and benefit levels vary depending on associate location.
The Company provides defined benefit plans to its employees in Canada. In the United Kingdom there is a legacy defined
benefit plan which is closed to further benefit accrual.
The majority of the Canadian defined benefit plans are funded. Post-retirement benefit obligations are not material and have
been included in all amounts presented herein.
The principal U.K. 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 plan was closed to new entrants in 2009,
closed to future service accrual in December 2013 and closed to future non-inflationary salary accrual on the disposal of the
U.K. business in 2021.
In 2017, the Company secured a buy-in insurance policy with Pension Insurance Corporation for the U.K. defined benefit plan.
This policy covers all benefit payments to a certain portion of participants in the plan. The insurance asset is exactly equal to
the related insured liabilities.
In 2021, prior to the disposal of the U.K. business, Wolseley UK Limited, the liabilities of the disposed entities to the U.K.
defined benefit plan were transferred to Ferguson UK Holdings Limited.
The funded status of the Company’s plans was as follows, valued with a measurement date of July 31 for each year:
(In millions)
Change in net benefit obligations:
Beginning balance
Interest cost
Actuarial gain
Benefits paid
Exchange rate adjustment
Ending balance
Change in assets at fair value:
Beginning balance
Actual return on plan assets
Company contributions
Benefits paid
Exchange rate adjustment
Ending balance at fair value
Funded status of plans
For the years ended July 31,
2023
2022
$1,402
51
(245)
(57)
67
$1,218
$2,208
41
(554)
(71)
(222)
$1,402
$1,508
$2,304
(279)
24
(57)
74
$1,270
$52
(506)
15
(71)
(234)
$1,508
$106
As required by United Kingdom pensions regulation, the United Kingdom Plan completed its triennial actuarial valuation
exercise, which is measured on a technical provisions basis, based on the United Kingdom Plan’s financial position as of April
30, 2022. The triennial valuation resulted in required contributions by the Company of £133 million to be spread over the
period to January 31, 2026, of which the Company has paid £26 million as of July 31, 2023.
Total expected employer contributions to the defined benefit plans for the year ending July 31, 2024 are estimated to be
$35 million, which includes amounts due from the triennial funding valuation.
73
Amounts recognized in the consolidated balance sheets consisted of:
(In millions)
Non-current asset
Non-current liability
Amounts recognized in accumulated other comprehensive loss:
(In millions)
Net actuarial loss
Income tax impact
Accumulated other comprehensive loss
Components of other comprehensive loss (income) consisted of the following:
As of July 31,
2023
2022
$55
(3)
$114
(8)
As of July 31,
2023
2022
$602
(143)
$459
$537
(127)
$410
(In millions)
Net actuarial loss (gain)
Amortization of net actuarial loss
Impact of exchange rates
Income tax impact
Other comprehensive loss (income), net of tax
For the years ended July 31,
2023
2022
2021
$83
(11)
(7)
(16)
$49
($3)
(10)
12
11
$10
($78)
(18)
—
17
($79)
The components of net periodic pension costs associated with all of the Company’s plans were as follows:
(In millions)
Selling, general and administrative expenses
Service costs
Other expense (income), net
Amortization of net actuarial losses
Interest cost
Expected return on plan assets
Net periodic cost (income)
Weighted average assumptions:
Discount rate, net periodic benefit cost
Discount rate, benefit obligations
Expected return on plan assets
Wage inflation growth rate
For the years ended July 31,
2023
2022
2021
$—
11
51
(49)
$13
3.53 %
5.05 %
3.41 %
2.50 %
$—
10
41
(45)
$6
1.78 %
3.53 %
2.12 %
2.35 %
$3
18
32
(60)
($7)
1.56 %
1.78 %
2.60 %
2.13 %
The Company determines the discount rate primarily by reference to rates on high-quality, long-term corporate and government
bonds that mature in a pattern similar to the expected payments to be made under the various plans.
74
The Company has established strategic asset allocation percentage targets for significant asset classes with the aim of achieving
an appropriate balance between risk and return. The Company periodically revises asset allocations, where appropriate, in an
effort to improve return and/or manage risk. The expected return on plan assets is determined based on the expected long-term
rate of return on plan assets and the market-related value of plan assets. The market-related value of plan assets is based on
long-term expectations given current investment objectives and historical results.
Investment Strategy
The Company’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 Company’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.
For the U.K. plan, the guaranteed insurance policy represents approximately 35% of the plan assets. For the remaining assets,
the strategy is to invest in a mix of equities, bonds and other income-generating asset classes so that expected cash flows
broadly match a high proportion of the cash flows of the plan’s expected liabilities. The investment strategy is subject to regular
review by the trustees of the plan in consultation with the Company.
For the plans in Canada, the investment strategy is to invest predominantly in equities and bonds.
The Company’s weighted average asset allocations by asset category were as follows:
Asset category:
Equity securities
Fixed income securities
Cash, cash equivalents and other short-term investments
Guaranteed insurance policies
Total
As of July 31,
2023
2022
3 %
61
2
34
100 %
2 %
67
2
29
100 %
The following tables present the fair value of the Company’s plan assets using the fair value hierarchy:
(In millions)
U.K. Plan assets:
Fixed income securities:
Corporate
Asset backed
Government
Cash, cash equivalents and other short-term investments
Insurance policies
Canada Plan assets:
Equity securities
Fixed income securities:
Corporate
Government
Cash and cash equivalents
Other
As of July 31, 2023
Total
Level 1
Level 2
Level 3
$2
—
406
28
—
33
—
—
1
11
$481
$224
1
4
1
—
—
9
32
—
8
$279
$93
—
—
—
417
—
—
—
—
—
$510
$319
1
410
29
417
33
9
32
1
19
$1,270
75
(In millions)
U.K. Plan assets:
Fixed income securities:
Corporate
Asset backed
Government
Cash and cash equivalents
Insurance policies
Canada Plan assets:
Equity securities
Fixed income securities:
Corporate
Government
Cash and cash equivalents
Other
As of July 31, 2022
Total
Level 1
Level 2
Level 3
$639
80
246
25
418
35
7
32
1
25
$8
16
—
22
—
35
—
—
1
14
$492
58
239
3
—
—
7
32
—
11
$139
6
7
—
418
—
—
—
—
—
$1,508
$96
$842
$570
The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using
significant unobservable inputs (Level 3):
(In millions)
Beginning balance
Transfers into Level 3
Transfers out of Level 3
Actual returns
Purchases, sales and settlements, net
Impact of exchange rates
Ending balance
For the years ended July 31,
2023
2022
$570
67
(131)
1
(24)
27
$510
$786
—
—
(108)
(20)
(88)
$570
The Company expects the following benefit payments related to its defined benefit pension plans over the next 10 years:
(In millions)
2024
2025
2026
2027
2028
2029-2033
Total
76
As of July 31,
2023
$60
61
63
64
66
351
$665
Defined Contribution Plans
The principal plans operated for employees in the United States are defined contribution plans, which are established in
accordance with 401(k) rules in the United States. The Company’s Canadian employees are covered by defined contribution
plans including a Post Retirement Benefit Plan and Supplemental Executive Retirement Plan. Under the Canadian plans, the
Company’s employees are able to make personal contributions.
Total expense related to defined contribution plans in fiscal 2023 was $93 million (2022: $87 million and 2021: $74 million).
In addition, Ferguson Enterprises, LLC, a subsidiary of the Company, sponsors a non-qualified deferred compensation plan for
the benefit of U.S.-based executives and certain other senior associates. For the year ended July 31, 2023, the Company’s
obligations related to the plan total $323 million (2022: $297 million), including a current portion of the liability of $16 million
(2022: $29 million). The Company has investments in Company-owned life insurance policies that are intended to fund these
obligations, however, these assets are subject to the general claims of the Company’s creditors. The assets are recorded at cash
surrender value with changes recognized in earnings. The non-current assets total $322 million (2022: $295 million).
Note 14: Shareholders’ equity
The following table presents a summary of the Company’s share activity:
Ordinary shares:
Balance at beginning of period
Change in shares issued
Balance at end of period
Treasury shares:
Balance at beginning of period
Repurchases of ordinary shares
Treasury shares used to settle share-based compensation awards
Balance at end of period
Employee Benefit Trust:
Balance at beginning of period
New shares purchased
Employee Benefit Trust shares used to settle share-based compensation awards
Balance at end of period
Total shares outstanding at end of period
For the years ended July 31,
2022
2023
2021
232,171,182
—
232,171,182
232,171,182
—
232,171,182
232,171,182
—
232,171,182
(21,078,577)
(9,862,816)
(7,022,242) (11,413,180)
207,139
197,419
(27,893,680) (21,078,577)
(7,280,222)
(3,020,368)
437,774
(9,862,816)
(846,491)
—
572,460
(274,031)
(833,189)
(600,000)
586,698
(846,491)
(1,277,347)
—
444,158
(833,189)
221,475,177
204,003,471
210,246,114
Two Employee Benefit Trusts have been established in connection with the Company’s discretionary share option plans and
long-term incentive plans. Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the
provisions of the trust deeds. At July 31, 2023, the shares held in trusts had a market value of $44 million (2022: $107 million).
Share Repurchases
Share repurchases are being made under an authorization that allows up to $3.0 billion in share repurchases. As of July 31,
2023, the Company has completed $2.5 billion of the total announced $3.0 billion share repurchase program. The Company is
currently purchasing shares under an irrevocable and non-discretionary arrangement with $84 million in accrued repurchases
remaining as of July 31, 2023, which is recorded as a current liability in the consolidated balance sheet.
77
Note 15: Share-based compensation
Background
The Ferguson Group International Sharesave Plan 2019 (the “2019 ISP”), the Ferguson Group Ordinary Share Plan 2019 (the
“OSP”), the Ferguson Group Performance Ordinary Share Plan 2019 (the “POSP”), and the Ferguson Group Long Term
Incentive Plan 2019 (the “LTIP”) were amended by the Board in July 2023 to include specific limits on the number of ordinary
shares that can be awarded under the subject plan. As amended, the number of ordinary shares that can be awarded under the
2019 ISP, the OSP, the POSP and the LTIP are 12,000, 300,000, 1,200,000, and 200,000 ordinary shares, respectively.
Additionally, notwithstanding these share limits, the Ferguson Group International Sharesave Plan 2011, the 2019 ISP and the
LTIP provide guidelines to determine the maximum number of ordinary shares that can be granted under each plan. Under
these plans, the Company cannot grant equity awards that would result in the issuance of ordinary shares that, when aggregated
with awards issued and outstanding under all of the Company’s other equity plans, would exceed 10% of the Company’s issued
ordinary share capital (adjusted for share issuance and cancellation) in any rolling 10-year period. In addition, as applicable, the
Company is committed to not issuing new shares or reissuing treasury shares to executives under these equity plans that, when
aggregated with issued and outstanding awards held by executives under all of the Company’s other equity plans, would exceed
5% of the issued ordinary share capital of the Company (adjusted for share issuance and cancellation) in any rolling 10-year
period.
Share-based compensation awards
Awards granted under the OSP vest over a period of time (“time vested”), typically three years. Dividends do not accrue during
the vesting period. The fair value of the award is derived from the closing share price on the date of grant.
Awards granted under the POSP vest at the end of a three-year performance cycle (“performance vested”). The number of
ordinary shares that vest vary with the Company’s performance against an adjusted operating profit measure. Dividends do not
accrue during the vesting period. The fair value of the award is derived from the share price on the date of grant.
Awards granted under the LTIP vest at the end of a three-year performance period. For grants awarded prior to fiscal 2023, the
number of ordinary shares that vest will vary based on Company measures of inflation-indexed earnings per share (“EPS”),
cash flow and total shareholder return (“TSR”) compared to a peer company set. Based on the performance conditions of these
awards granted prior to fiscal 2023, these LTIP grants are treated as liability-settled awards. As such, the fair value of these
awards is initially determined at the date of grant, and is remeasured at each balance sheet date until the liability is settled.
Dividends accrue during the vesting period. As of July 31, 2023 and 2022, the total liability recorded in connection with these
grants was $13 million and $11 million, respectively.
In the first quarter of fiscal 2023, the Company granted awards under the LTIP in which the ordinary shares to be issued upon
vesting vary based on fixed measures of Company defined EPS and return on capital employed (“ROCE”), as well as TSR
compared to a peer company set. Dividend equivalents accrue during the vesting period. Based on these defined performance
conditions, these grants are treated as equity-settled awards (“LTIP, equity-settled”) with the fair value determined on the date
of grant. Specifically, the fair value of such awards that vest based on achievement of the EPS and ROCE measures was equal
to the closing share price on the date of grant. The fair value of the awards that vest based on TSR was determined using a
Monte-Carlo simulation, which estimated the fair value based on the Company's share price activity relative to the peer
comparative set over the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of
the shares of the Company and that of the peer company set.
The following table summarizes the share-based incentive awards activity for fiscal 2023:
78
Outstanding as July 31, 2022
Time vested grants
Performance vested grants
LTIP, equity settled grants
Share adjustments based on performance
Vested
Forfeited
Outstanding at July 31, 2023
Number of Shares
Weighted Average
grant date fair value
1,576,554
119,470
279,310
37,676
(138,795)
(620,200)
(95,342)
1,158,673
$100.03
100.71
100.71
91.84
103.24
75.74
112.83
$111.57
The following table relates to time vested, performance vested and long-term incentive awards activity:
(In millions, except per share amounts)
Fair value of awards vested
Weighted average grant date fair value per share granted
The following table relates to all share-based compensation awards:
(In millions)
Share-based compensation expense (within SG&A)
Income tax benefit
For the years ended July 31,
2023
2022
2021
$67
$99.95
$94
$134.88
$60
$98.53
For the years ended July 31,
2023
2022
2021
$51
11
$57
20
$77
20
Total unrecognized share-based payment expense for all share-based payment plans was $52 million at July 31, 2023, which is
expected to be recognized over a weighted average period of 1.5 years.
Employee share purchase plan
The Ferguson Group Employee Share Purchase Plan 2021 provides for a limit of 20 million ordinary shares that can be
awarded under the plan subject to certain guidelines set forth in the plan that are consistent with the limits as described above.
As of July 31, 2023, 19.6 million ordinary shares remain available for allotment under the rules of the Ferguson Group
Employee Share Purchase Plan 2021. The exercise price per ordinary share will be prescribed by the Board for each offering
period and may not be less than 85% of the lesser of the market value of an ordinary share on the date of grant and the market
value of an ordinary share on the date of exercise. During fiscal 2023, there were approximately 151,034 shares purchased
under the employee share purchase plan at an average price of $111.75.
79
Note 16: Acquisitions
The Company acquired the following businesses during fiscal 2023. Each of the acquired businesses are engaged in the
distribution of plumbing and heating products and was acquired to support growth, primarily in the United States. While many
of our acquisitions are structured as asset transactions, the Company substantially purchased the acquiree's business and
therefore all transactions have been accounted for as a business combination pursuant to ASC 805.
Name
Monark Premium Appliance
Guarino Distributing Company, L.L.C.
Airefco, Inc.
Power Process Equipment, Inc.
Pipelines, Inc.
S.G. Torrice, LLC
Bruce Supply Corp.
Kennedy Culvert & Supply Company
Date of acquisition
August 2022
November 2022
December 2022
December 2022
January 2023
June 2023
July 2023
July 2023
Country of
incorporation
USA
USA
USA
USA
USA
USA
USA
USA
Acquired %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
The following table summarizes the preliminary purchase price allocations for the assets acquired and liabilities assumed in
regards to the Company's acquisitions occurring in fiscal 2023 and 2022:
(In millions)
Intangible assets:
Trade names and brands
Customer relationships
Other
Operating lease right-of-use assets
Property, plant and equipment
Inventories
Receivables and other assets
Cash and cash equivalents
Lease liabilities
Trade and other payables
Deferred tax
Provisions
Total
Goodwill
Consideration
Satisfied by:
Cash
Deferred consideration
Total consideration
Acquisitions occurring in
2023
2022
$9
207
4
66
11
180
134
3
(66)
(80)
—
(4)
464
198
$662
$619
43
$662
$27
282
17
65
11
139
91
18
(65)
(68)
(17)
(1)
499
224
$723
$668
55
$723
The fair values of the assets acquired in fiscal 2023 are considered preliminary and are based on management’s best estimates.
Further adjustments may be necessary in connection with acquisitions completed in fiscal 2023 when additional information
becomes available about events that existed at the date of acquisition. Amendments to fair value estimates may be made to
these figures during the measurement period following the date of acquisition. There were no material adjustments in fiscal
2023 related to the closing of the measurement period of acquisitions made in fiscal 2022. As of the date of this Annual Report,
the Company has made all known material adjustments related to acquisitions in fiscal 2023.
The fair value estimates of intangible assets are considered non-recurring, Level 3 measurements within the fair value hierarchy
and are estimated as of each respective acquisition date.
80
The goodwill on these acquisitions is attributable to the anticipated profitability of the new markets and product ranges to which
the Company has gained access and additional profitability, operating efficiencies and other synergies available in connection
with existing markets. All goodwill acquired during fiscal 2023 is in the United States segment with all goodwill expected to be
deductible for tax purposes.
Deferred consideration represents the expected payout due to certain sellers of acquired businesses that is subject to either 1) a
contractual settle-up period or 2) a contingency related to contractually defined performance metrics. If the deferred
consideration is contingent on achieving performance metrics, the liability is estimated using assumptions regarding the
expectations of an acquiree’s ability to achieve the contractually defined performance metrics over a period of time that
typically spans one to three years. When ultimately paid, deferred consideration is reported as a cash outflow from financing
activities.
The businesses acquired in fiscal 2023 contributed $238 million to net sales and $3 million to the Company’s income before
income tax, including acquired intangible asset amortization, transaction and integration costs for the period between the date of
acquisition and July 31, 2023. Acquisition costs in fiscal 2023 was $5 million (2022: $10 million). Acquisition costs are
expensed as incurred and included in SG&A in the Company’s consolidated statements of earnings.
The net outflow of cash in respect of the purchase of businesses is as follows:
(In millions)
Purchase consideration
Cash and cash equivalents acquired
Cash consideration paid, net of cash acquired
Deferred and contingent consideration paid for prior years’ acquisitions(1)
Net cash outflow in respect of the purchase of businesses
(1) Included in other financing activities in the consolidated statements of cash flows
Pro forma disclosures
For the years ended July 31,
2023
2022
$619
(3)
616
34
$650
$668
(18)
650
22
$672
If each acquisition had been completed on the first day of the prior fiscal year, the Company’s unaudited pro forma net sales
would have been:
(In millions)
Pro forma net sales
Year ended July 31,
2023
2022
$30,299
$29,354
The impact on income before income tax in fiscal 2023 and 2022, including additional intangible asset amortization, transaction
and integration costs, would not be material.
The unaudited pro forma results presented herein do not necessarily represent financial results that would have been achieved
had the acquisition actually occurred at the beginning of the prior fiscal year.
81
Note 17: Discontinued operations and disposals
On January 29, 2021, the Company disposed of the shares in its U.K. business, Wolseley UK Limited. As such, the disposal
group has been presented as a discontinued operation.
The results from discontinued operations, which have been included in the consolidated statements of earnings are as follows:
(In millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Gain (loss) on disposal of business, net
Income (loss) before income tax
Provision for income taxes
Income (loss) from discontinued operations
Earnings per share - Basic
Earnings per share - Diluted
Year ended July 31,
2022
2021
$—
$1,138
—
—
—
—
23
23
—
(879)
259
(194)
(11)
(200)
(146)
(12)
$23
($158)
$0.11
$0.10
($0.70)
($0.70)
In fiscal 2022, the gain on disposal of business comprised a gain on the sale of land in connection with the Company’s former
Nordic operations that were disposed of in a prior year, generating $24 million in cash flow from investing activities.
In fiscal 2021, the net loss on disposal of business primarily related to the disposal of the U.K. business, Wolseley UK Limited,
comprising a loss on disposal of $449 million of the U.K. business, partially offset by a $235 million gain from the
reclassification of currency translation adjustments from accumulated other comprehensive loss into income following the
abandonment of former financing subsidiaries, as well as a $14 million gain on a prior year’s disposal of assets.
The Company had no material activity related to discontinued operations in fiscal 2023.
Note 18: Related party transactions
For fiscal 2023, the Company purchased $27 million (2022: $22 million and 2021: $24 million) of delivery, installation and
related administrative services from companies that are, or are indirect wholly owned subsidiaries of companies that are,
controlled or significantly influenced by a Ferguson Non-Employee Director. No material amounts are due to such companies.
The services are purchased on an arm’s-length basis.
82
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
As of the end of the period covered by this Annual Report, our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of our disclosure controls and procedures,
as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act as of July 31, 2023. The term “disclosure
controls and procedures” means controls and other procedures that are designed to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit
under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well conceived
and operated, can only provide reasonable assurance that the objectives of the disclosure controls and procedures are met.
Based on their evaluation as of the end of the period covered by this Annual Report, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s report on internal controls over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) promulgated under the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of July 31, 2023 based on the framework in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
our evaluation, our management concluded that our internal control over financial reporting was effective as of July 31, 2023 in
providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP.
The effectiveness of our internal control over financial reporting as of July 31, 2023 has been audited by Deloitte LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended July 31, 2023 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Ferguson plc
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Ferguson plc and subsidiaries (the “Company”) as of July 31,
2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of July 31, 2023, based on criteria established in Internal Control —
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended July 31, 2023, of the Company and our report
dated September 26, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report
on internal controls over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Richmond, VA
September 26, 2023
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10.
Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
Part III
Information required by this item will be contained in the 2023 Proxy Statement under the headings “Board Committees and
Oversight” and “Resolution 1: Election of Directors,” which information is incorporated herein by reference.
Item 11.
Executive Compensation
Information required by this item will be contained in the 2023 Proxy Statement under the headings “Board Committees and
Oversight” and “Executive Compensation,” which information is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item will be contained in the 2023 Proxy Statement under the headings “Security Ownership of
Certain Beneficial Owners and Management” and “Executive Compensation— Equity Compensation Plan Information,” which
information is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions
Information required by this item will be contained in the 2023 Proxy Statement under the headings “Corporate Governance—
Director Independence” and “Board Committees and Oversight—Related Party Transactions,” which information is
incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
Information required by this item will be contained in the 2023 Proxy Statement under the heading “Independent Registered
Accountants,” which information is incorporated herein by reference.
Item 15.
Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report:
Part IV
(1) Financial Statements:
The following Consolidated Financial Statements of Ferguson plc and Report of Independent Registered Public Accounting
Firm are included in this Annual Report under Item 8:
•
•
•
•
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Earnings, Comprehensive Income, Shareholders’ Equity and Cash Flows for the years
ended July 31, 2023, 2022 and 2021.
Consolidated Balance Sheets as of July 31, 2023 and 2022.
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules:
85
All schedules are omitted as the required information is inapplicable or the information is presented in the Company’s audited
consolidated financial statements or notes thereto.
(3) Exhibits
The exhibits listed below are filed or incorporated by reference as part of this Annual Report.
3.1
4.1*
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Memorandum and Articles of Association of the Company (incorporated by reference to Exhibit 3.1 of the
Registrant’s Form 8-K (File No. 001-40066), filed with the SEC on December 1, 2022).
Description of Ferguson plc share capital.
Amendment and Restatement Agreement, dated October 7, 2022, by and among Ferguson plc, Ferguson UK
Holdings Limited, each of the lenders party thereto, and ING Bank N.V., London Branch, as agent of the
lenders (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No.
001-40066), filed with the SEC on October 13, 2022).
Credit Agreement, dated October 7, 2022, by and among Ferguson plc, as parent guarantor, Ferguson UK
Holdings Limited, as borrower, each of the lenders party thereto and PNC Bank, National Association, as
administrative agent (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-
K (File No. 001-40066), filed with the SEC on October 13, 2022).
Receivables Purchase Agreement, dated as of July 31, 2013, among Ferguson plc, Ferguson Receivables, LLC
as seller, Ferguson Enterprises, Inc. as servicer, the originators, the lenders as conduit purchasers and
committed purchasers, letters of credit banks, and facility agents party each thereto, Royal Bank of Canada, as
administrative agent, SunTrust Bank, as co-administrative agent, and Wolseley plc, as parent (as further
amended, supplemented and restated, the “Receivables Purchase Agreement”) (incorporated by reference to
Exhibit 4.3 of the Registrant’s 20FR12B (File No. 001-39301), filed with the SEC on February 12, 2021).
Purchase and Contribution Agreement, dated as of July 31, 2013, among Ferguson Receivables, LLC as
purchaser, Ferguson Enterprises, Inc., as servicer, and its various subsidiaries party thereto as originators (as
further amended, supplemented or restated, the “Purchase and Contribution Agreement”) (incorporated by
reference to Exhibit 4.4 of the Registrant’s 20FR12B (File No. 001-39301), filed with the SEC on February
12, 2021).
First Amendment to Receivables Purchase Agreement, dated as of December 6, 2013, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, Inc., as servicer, the originators, the facility agents party
each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-administrative agent, and
Wolseley plc, as parent, amending the Receivables Purchase Agreement (incorporated by reference to Exhibit
10.6 of the Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September
27, 2022).
Omnibus Amendment to Receivables Purchase Agreement and Purchase and Contribution Agreement, dated
as of September 23, 2014, among Ferguson Receivables, LLC, as seller, Ferguson Enterprises, Inc., as
servicer, the originators, the lenders as conduit purchasers and committed purchasers, letters of credit banks
and facility agents party each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-
administrative agent, and Wolseley plc, as parent, amending the Receivables Purchase Agreement and the
Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.7 of the Registrant’s Annual
Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
Third Amendment to Receivables Purchase Agreement, dated as of December 22, 2014, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, Inc., as servicer, the originators, the facility agents party
each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-administrative agent, and
Wolseley plc, as parent, amending the Receivables Purchase Agreement (incorporated by reference to Exhibit
10.8 of the Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September
27, 2022).
Omnibus Amendment to Receivables Purchase Agreement and Purchase and Contribution Agreement, dated
as of September 11, 2015, among Ferguson Receivables, LLC, as seller, Ferguson Enterprises, Inc., as
servicer, the originators, the lenders as conduit purchasers and committed purchasers, letters of credit banks
and facility agents party each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-
administrative agent, and Wolseley plc, as parent, amending the Receivables Purchase Agreement and the
Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.9 of the Registrant’s Annual
Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
Second Omnibus Amendment to Receivables Purchase Agreement and Purchase and Contribution Agreement,
dated as of December 31, 2015, among Ferguson Receivables, LLC, as seller, Ferguson Enterprises, Inc., as
servicer, the originators, the lenders as conduit purchasers and committed purchasers, letters of credit banks
and facility agents party each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-
administrative agent, and Wolseley plc, as parent, amending the Receivables Purchase Agreement and the
Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.10 of the Registrant’s Annual
Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
86
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18†
10.19
Fifth Amendment to Receivables Purchase Agreement, dated as of December 16, 2016, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, Inc., as servicer, the originators, the facility agents party
each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-administrative agent, and
Wolseley plc, as parent, amending the Receivables Purchase Agreement (incorporated by reference to Exhibit
10.11 of the Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September
27, 2022).
Sixth Amendment to Receivables Purchase Agreement, dated as of December 8, 2017, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, Inc., as servicer, the originators, the facility agents party
each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-administrative agent, and
Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase Agreement (incorporated
by reference to Exhibit 10.12 of the Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed
with the SEC on September 27, 2022).
Seventh Amendment to Receivables Purchase Agreement, dated as of December 20, 2018, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, Inc., as servicer, the originators, the facility agents party
each thereto, Royal Bank of Canada, as administrative agent, SunTrust Bank, as co-administrative agent, and
Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase Agreement (incorporated
by reference to Exhibit 10.13 of the Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed
with the SEC on September 27, 2022).
Eighth Amendment to Receivables Purchase Agreement and Consent to Assignment by Parent, dated as of
May 10, 2019, among Ferguson Receivables, LLC, as seller, Ferguson Enterprises, LLC (formerly Ferguson
Enterprises, Inc.), as servicer, the originators, the facility agents party each thereto, Royal Bank of Canada, as
administrative agent, SunTrust Bank, as co-administrative agent, and Ferguson Holdings Limited, as assignor
parent, and Ferguson plc, as assignee parent, amending the Receivables Purchase Agreement (incorporated by
reference to Exhibit 10.14 of the Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed with
the SEC on September 27, 2022).
Ninth Amendment to Receivables Purchase Agreement, dated as of April 17, 2020, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, LLC (formerly Ferguson Enterprises, Inc.), as servicer, the
originators, the facility agents party each thereto, Royal Bank of Canada, as administrative agent, Truist Bank
(formerly SunTrust Bank), as co-administrative agent, and Ferguson plc (formerly Wolseley plc), as parent,
amending the Receivables Purchase Agreement (incorporated by reference to Exhibit 10.15 of the Registrant’s
Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
Tenth Amendment to Receivables Purchase Agreement, dated as of July 22, 2020, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, LLC (formerly Ferguson Enterprises, Inc.), as servicer, the
originators, the facility agents party each thereto, Royal Bank of Canada, as administrative agent, Truist Bank
(formerly SunTrust Bank), as co-administrative agent, and Ferguson plc (formerly Wolseley plc), as parent,
amending the Receivables Purchase Agreement (incorporated by reference to Exhibit 10.16 of the Registrant’s
Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
Omnibus Amendment and Consent, dated as of May 19, 2021, among Ferguson Receivables, LLC, as seller,
Ferguson Enterprises, LLC (formerly Ferguson Enterprises, Inc.), as servicer, the originators, the lenders as
conduit purchasers and committed purchasers, letters of credit banks and facility agents party each thereto,
Royal Bank of Canada, as administrative agent, Truist Bank (formerly SunTrust Bank), as co-administrative
agent, and Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase Agreement
and the Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.17 of the Registrant’s
Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
Omnibus Amendment to Receivables Purchase Agreement and Purchase and Contribution Agreement, dated
as of December 8, 2021, among Ferguson Receivables, LLC as seller, Ferguson Enterprises, LLC (formerly
Ferguson Enterprises, Inc.) as servicer, the originators, the lenders as conduit purchasers and committed
purchasers, letters of credit banks and facility agents party each thereto, Royal Bank of Canada, as
administrative agent, and Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase
Agreement and the Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.18 of the
Registrant’s Annual Report on Form 10-K (File No. 001-40066), filed with the SEC on September 27, 2022).
Thirteenth Amendment to Receivables Purchase Agreement, dated October 7, 2022, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, LLC (formerly Ferguson Enterprises, Inc.), as servicer, the
originators, the lenders as conduit purchasers and committed purchasers, letters of credit banks and facility
agents party each thereto, Royal Bank of Canada, as administrative agent, and Ferguson plc (formerly
Wolseley plc), as parent, amending the Receivables Purchase Agreement (incorporated by reference to Exhibit
10.3 of the Registrant’s Current Report on Form 8-K (File No. 001-40066), filed with the SEC on October 13,
2022).
Omnibus Amendment to Receivables Purchase Agreement and Purchase and Contribution Agreement, dated
December 29, 2022, among Ferguson Receivables, LLC, as seller, Ferguson Enterprises, LLC (formerly
Ferguson Enterprises, Inc.), as servicer the originators, the lenders as conduit purchasers and committed
purchasers, letters of credit banks and facility agents party each thereto, Royal Bank of Canada, as
administrative agent, and Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase
Agreement and the Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.1 of the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-40066), filed with the SEC on March 8, 2023).
87
10.20
10.21*
10.22+*
10.23+*
10.24+*
10.25+*
10.26+*
10.27+*
10.28+*
10.29+*
10.30+*
10.31+*
10.32+*
10.33+*
10.34+*
10.35+*
10.36+
10.37+
10.38+
10.39+*
10.40+*
10.41+*
10.42+*
10.43+*
10.44+*
10.45+*
10.46+*
10.47+*
10.48+*
10.49+*
21.1*
23.1*
23.2*
24.1*
31.1*
Omnibus Amendment to Receivables Purchase Agreement and Purchase and Contribution Agreement, dated
February 10, 2023, among Ferguson Receivables, LLC, as seller, Ferguson Enterprises, LLC (formerly
Ferguson Enterprises, Inc.), as servicer, the originators, the lenders as conduit purchasers and committed
purchasers, letters of credit banks and facility agents party each thereto, Royal Bank of Canada, as
administrative agent, and Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase
Agreement and the Purchase and Contribution Agreement (incorporated by reference to Exhibit 10.2 of the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-40066), filed with the SEC on March 8, 2023).
Omnibus Amendment and Consent (Ferguson Receivables, LLC), dated as of June 23, 2023, among Ferguson
Receivables, LLC, as seller, Ferguson Enterprises, LLC, as servicer, the originators, the conduit purchasers,
committed purchasers, letters of credit banks, and facility agents party each thereto, Royal Bank of Canada, as
administrative agent, and Ferguson plc (formerly Wolseley plc), as parent, amending the Receivables Purchase
Agreement and the Purchase and Contribution Agreement.
Ferguson Enterprises, Inc. Executive Retirement Plan I.
Ferguson Enterprises, Inc. Executive Retirement Plan II.
Amendment No. One to Ferguson Enterprises, Inc. Executive Retirement Plan II.
Amendment No. Two to Ferguson Enterprises, Inc. Executive Retirement Plan II.
Amendment No. Three to Ferguson Enterprises, Inc. Executive Retirement Plan II.
Amendment No. Four to Ferguson Enterprises, Inc. Executive Retirement Plan II.
Amendment No. Five to Ferguson Enterprises, Inc. Executive Retirement Plan II.
Ferguson Enterprises, Inc. Executive Retirement Plan III.
Amendment to the Ferguson Enterprises, Inc. Executive Retirement Plan III, effective as of January 1, 2017.
Amendment to the Ferguson Enterprises, Inc. Executive Retirement Plan III, effective as of January 1, 2019.
Ferguson Group International Sharesave Plan 2019.
Ferguson Group Long Term Incentive Plan 2019.
Ferguson Group Ordinary Share Plan 2019.
Ferguson Group Performance Ordinary Share Plan 2019.
Ferguson Group Employee Share Purchase Plan 2021 (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form S-8 (File No. 333-263084), filed with the SEC on February 28, 2022).
Ferguson Non-Employee Director Incentive Plan 2022 (incorporated by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K (File No. 001-40066), filed with the SEC on December 1, 2022).
Form of Restricted Stock Unit Award Agreement Pursuant to the Ferguson Non-Employee Director Incentive
Plan 2022 (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (File No.
001-40066), filed with the SEC on December 1, 2022).
Amended & Restated Employment Agreement, dated as of September 1, 2022, by and between the Registrant
and Kevin Murphy, as amended August 30, 2023.
Amended & Restated Employment Agreement, dated as of September 1, 2022, by and between the Registrant
and William Brundage, as amended August 30, 2023.
Amended & Restated Employment Agreement, dated as of August 1, 2022, by and between the Registrant and
Ian Graham, as amended August 30, 2023.
Amended & Restated Employment Agreement, dated as of August 29, 2022, by and between the Registrant
and Samantha Long, as amended August 30, 2023.
Amended & Restated Employment Agreement, dated as of June 1, 2022, by and between the Registrant and
William Thees, as amended August 30, 2023.
Form of Non-Executive Director Appointment Letter.
Change in Control Policy for Executive Officers.
Retirement Policy for Ferguson Group Share Plans.
Ferguson Enterprises Inc. Executive Life Insurance Plan II.
Amendment No. 1 to Ferguson Enterprises Inc. Executive Life Insurance Plan II.
Amendment No. 2 to Ferguson Enterprises, LLC Executive Life Insurance Plan II.
List of Significant Subsidiaries.
Consent of Deloitte & Touche LLP.
Consent of Deloitte LLP.
Power of Attorney (included on signature page).
Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
88
31.2*
32.1**
32.2**
97*
101.INS*
101.SCH*
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
Executive Compensation Clawback Policy.
Inline XBRL Instance Document—this instance document does not appear in the Interactive Data File because
XBRL tags are embedded within the Inline XBRL document
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith
** Furnished herewith
† Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Item 601(b)(10) of Regulation S-K.
+ Indicates a management contract or compensatory plan or arrangement
The Registrant agrees to furnish to the SEC, upon request, copies of any instruments that define the rights of holders of long-
term debt of the Registrant that are not filed as exhibits to this Annual Report.
Item 16.
Form 10-K Summary
None.
89
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
September 26, 2023
SIGNATURES
Ferguson plc
/s/ William Brundage
Name: William Brundage
Title:
Chief Financial Officer
(Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT that each person whose signature appears below hereby constitutes and appoints Kevin Murphy
and William Brundage as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her in any and
all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto such attorneys and agents full power and authority to
do any and all acts and things necessary or advisable in connection with such matters, and hereby ratifying and confirming all that the
attorneys and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as of September 26, 2023.
Name
/s/ Kevin Murphy
Kevin Murphy
/s/ William Brundage
William Brundage
/s/ Richard Winckler
Richard Winckler
/s/ Geoffrey Drabble
Geoffrey Drabble
/s/ Kelly Baker
Kelly Baker
/s/ Catherine Halligan
Catherine Halligan
/s/ Brian May
Brian May
/s/ James S. Metcalf
James S. Metcalf
/s/ Alan Murray
Alan Murray
/s/ Thomas Schmitt
Thomas Schmitt
/s/ Nadia Shouraboura
Nadia Shouraboura
/s/ Suzanne Wood
Suzanne Wood
Position
Chief Executive Officer and Executive Director
(Principal Executive Officer)
Chief Financial Officer and Executive Director
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
XV
Non-GAAP reconciliations
Management has added the following non-GAAP measures to this Annual Report and reconciled them below. See page 37 of the Form 10-K included within
this Annual Report for more information on management’s use of non-GAAP items.
($ millions, except per share amounts)
Net Income
Income (loss) from discontinued operations
(net of tax)
Income from continuing operations
Business restructurings (2)
Corporate restructurings (3)
Impairments and other charges (4)
Gain on disposal of business
Gain on disposal of interests in associates and
other investments
Income/loss/impairment of equity method
investments
Amortization of acquired intangibles
Discrete tax adjustments(5)
Tax impact on non-GAAP adjustments(6)
Adjusted Net Income
Diluted weighted average shares outstanding
2023
per share(1)
$9.12
–
9.12
–
–
0.60
–
$1,889
–
1,889
–
–
125
–
2022
per share(1)
$9.69
(0.10)
9.59
–
0.08
–
–
$2,122
(23)
2,099
–
17
–
–
July 31,
2021
per share(1)
$6.55
0.70
7.25
(0.05)
0.10
–
–
$1,472
158
1,630
(11)
22
–
–
2020
per share(1)
$4.24
0.05
4.29
0.32
0.13
–
–
$961
12
973
72
29
–
–
2019
per share(1)
$4.84
(0.29)
4.55
0.35
–
–
(0.16)
$1,122
(66)
1,056
81
–
–
(38)
–
–
–
–
–
–
(7)
(0.03)
(3)
(0.01)
–
133
(36)
(73)
$2,038
–
114
(72)
(21)
$2,137
–
0.64
(0.17)
(0.35)
$9.84
207.2
–
0.52
(0.33)
(0.10)
$9.76
218.9
–
131
(203)
(51)
$1,518
–
0.58
(0.90)
(0.23)
$6.75
224.8
22
114
(3)
(56)
$1,144
0.10
0.50
(0.01)
(0.26)
$5.04
226.8
9
110
(33)
(46)
$1,136
0.04
0.47
(0.14)
(0.20)
$4.90
231.9
(1) Per share on a dilutive basis.
(2) For fiscal 2021, business restructuring reflects the release of provisions in connection with previously anticipated COVID-19 cost actions recorded in fiscal 2020. For fiscal 2020, business
restructuring principally comprised costs incurred in the United States and Canada in respect of cost actions taken to ensure the business is appropriately sized for the post COVID-19
operating environment. For fiscal 2019, business restructuring primarily comprised costs incurred in the United States and Canada in respect of business transformation strategies and costs
relating to the change in the Company’s headquarters.
(3) For fiscal 2022, 2021 and 2020, corporate restructuring costs primarily related to the incremental costs of the Company’s listing in the United States.
(4) For fiscal 2023, impairments and other charges related to the $107 million in software impairment charges and $18 million in charges associated with the closure of certain smaller,
underperforming branches in the United States.
(5) For fiscal 2023, discrete tax adjustments primarily related to the release of uncertain positions following the lapse of statute of limitations, as well as adjustments in connection with amended
returns. For fiscal 2022, the discrete tax adjustments primarily related to the release of uncertain tax positions following the closure of tax audits and prior year adjustments, including
amended tax return items. For fiscal 2021, the discrete tax adjustments primarily related to the release of uncertain tax positions following the closure of tax audits, as well as the impact of
changes in tax rates. For fiscal 2020, the discrete tax adjustments primarily related to changes in tax rates. For fiscal 2019, the discrete tax adjustments primarily related to the release of
uncertain tax positions.
(6) For fiscal 2023, the tax impact on non-GAAP adjustments primarily related to the impairments and other charges and amortization of acquired intangibles. For fiscal 2022, 2021, 2020 and
2019, the tax impact of non-GAAP adjustments primarily related to the amortization of acquired intangibles.
91
Ferguson Annual Report FY2023We are Ferguson XVI
Non-GAAP reconciliations continued
US$ (In millions)
2023
2022
2021
2020
2019
July 31,
Net income
(Income) loss, discontinued operations (net of tax)
Income from continuing operations
Provision for income taxes
Interest expense, net
Other expense (income), net
Operating profit
Business restructurings(1)
Corporate restructurings (2)
Impairments and other charges (3)
Gain on disposal of business
Adjusted EBIT(4)
Amortization of acquired intangibles
Adjusted operating profit
Depreciation, amortization & impairment
Adjusted EBITDA
Net Debt (5):
Long-term debt
Short-term debt
Bank overdrafts(6)
Derivative liabilities (assets)
Cash and cash equivalents
Net Debt
Net Debt : Adjusted EBITDA
$1,889
–
1,889
575
184
11
2,659
–
–
125
–
2,784
133
$2,917
188
$3,105
$3,711
55
17
18
(601)
$3,200
1.0x
$2,122
(23)
2,099
609
111
1
2,820
–
17
–
–
2,837
114
$2,951
202
$3,153
$3,679
250
32
4
(771)
$3,194
1.0x
$1,472
158
1,630
232
98
(10)
1,950
(11)
22
–
–
1,961
131
$2,092
167
$2,259
$2,512
–
36
(21)
(1,335)
$1,192
0.5x
$961
12
973
299
93
7
1,372
72
29
–
–
1,473
114
$1,587
168
$1,755
$2,617
531
–
(39)
(2,115)
$994
0.6x
$1,122
(66)
1,056
254
72
4
1,386
81
–
–
(38)
1,429
110
$1,539
150
$1,689
$2,282
25
–
(22)
(1,133)
$1,152
0.7x
Total shareholders’ equity
Net assets held for sale - discontinued operations
$5,037
–
$4,665
–
$5,003
–
$4,609
433
$4,407
400
Average Capital Employed(7):
Average net debt(8)
Average shareholders’ equity(8)
Average net assets held for sale(8)
Average Capital Employed
Return on Capital Employed (ROCE)(9)
$3,197
4,851
–
$8,048
34.6%
$2,193
4,834
–
$7,027
40.4%
$1,093
4,806
(217)
$5,683
34.5%
$1,073
4,508
(417)
$5,165
28.5%
$1,077
4,249
(468)
$4,857
29.4%
(1) For fiscal 2021, business restructuring reflects the release of provisions in connection with previously anticipated COVID-19 cost actions recorded in fiscal year 2020. For fiscal 2020,
business restructuring principally comprised costs incurred in the United States and Canada in respect of cost actions taken to ensure the business is appropriately sized for the post
COVID-19 operating environment. For fiscal 2019, business restructuring primarily comprised costs incurred in the United States and Canada in respect of their business transformation
strategies and costs relating to the change in the Company’s headquarters.
(2) For fiscal 2022, 2021 and 2020, corporate restructuring costs primarily related to the incremental costs of the Company’s listing in the United States.
(3) For fiscal 2023, impairments and other charges related to the $107 million in software impairment charges and $18 million in charges associated with the closure of certain smaller,
underperforming branches in the United States.
(4) Adjusted EBIT is defined as operating profit excluding certain non-recurring items (non-GAAP adjustments) and including the impact of acquisition related intangible amortization.
(5) Net debt comprises bank overdrafts, bank and other loans and derivative financial instruments, excluding lease liabilities, less cash and cash equivalents. Long-term debt is presented net of
debt issuance costs.
(6) Bank overdrafts are included in other current liabilities in the Company’s Condensed Consolidated Balance Sheet.
(7) Management employs the following averaging method: beginning balance plus ending balance divided by two.
(8) Net debt, shareholders’ equity and net assets held for sale in fiscal 2018 were $1,000 million, $4,091 million and $536 million, respectively.
(9) ROCE is calculated as adjusted EBIT divided by average capital employed.
Ferguson Annual Report FY2023We are Ferguson XVII
Leading Ferguson together
Board of Directors
Geoff Drabble
Chairman
Kevin Murphy
Chief Executive Officer
Bill Brundage
Chief Financial Officer
Kelly Baker
Independent
Non-Employee Director
Catherine Halligan
Independent
Non-Employee Director
Brian May
Independent
Non-Employee Director
M C
N
NC
A C N
A M N
James S. Metcalf
Independent
Non-Employee Director
Alan Murray
Independent
Non-Employee Director
Employee
Engagement Director
Thomas Schmitt
Independent
Non-Employee Director
Nadia Shouraboura
Independent
Non-Employee Director
Suzanne Wood
Independent
Non-Employee Director
Kate McCormick
Company Secretary
NC
N A
C
NC
A
Executive Officers
Kevin Murphy
Chief Executive Officer
Bill Brundage
Chief Financial Officer
Ian Graham
Chief Legal Officer
Michael Jacobs
Senior Vice President
Sammie Long
Chief Human
Resources Officer
Victoria Morrissey
Chief Marketing Officer
Andy Paisley
Chief Digital and
Information Officer
Jake Schlicher
Senior Vice President
Bill Thees
Senior Vice President
Garland Williams
Senior Vice President
Learn more about our leadership on our website
(corporate.ferguson.com).
Key to Board
Committee
membership
A Audit
C Compensation
M Major Announcements
N Nominations
and Governance
Committee Chair
Ferguson Annual Report FY2023We are Ferguson
Forward-looking statements
United Kingdom regulatory required disclosures
See “Forward-Looking Statements and Risk Factor Summary” and “Part I—Item 1A.
Risk Factors” of the Form 10-K included within this Annual Report for a description
of the various risks and uncertainties that could cause our actual results to differ
materially from those expressed or implied by our forward-looking statements in this
Annual Report.
Market and industry data
The information in this Annual Report that has been sourced from third parties has
been accurately reproduced and, as far as we are aware and able to ascertain from
the information published by that third-party, no facts have been omitted that would
render the reproduced information inaccurate or misleading. Industry publications
generally state that their information is obtained from sources they believe reliable but
that the accuracy and completeness of such information is not guaranteed and that
the projections they contain are based on a number of significant assumptions. We are
not aware of any exhaustive industry or market reports that cover or address our
specific markets.
Trademarks
All trademarks, trade names and service marks appearing in this Annual Report are
the property of their respective owners. Solely for convenience, the trademarks and
trade names in this Annual Report are referred to without the symbols ® and ™, but such
references should not be construed as any indication that their respective owners
will not assert, to the fullest extent under applicable law, their rights thereto. We do
not intend to use or display other companies’ trademarks or trade names to imply a
relationship with, or endorsement or sponsorship of us by, any other companies.
As a company with a standard listing on the London Stock Exchange, Ferguson plc
is required to make certain disclosures under the U.K. Listing Rules and Disclosure,
Guidance and Transparency Rules. Set out below are details of where such disclosures
can be found:
• Our Corporate Governance Statement as required under DTR 7.2 is available on
our website at corporate.ferguson.com/investor/corporate-governance/governance-
documents/default.aspx
• Our Board Diversity Statement and associated numerical data as required under LR
14.3.33R is available in our FY2023 ESG Report at page 61.
• Further to LR 14.3.27R, the Company has included in its FY2023 ESG Report climate related
disclosures consistent with the four recommendations and the eleven recommended
disclosures set out in the June 2017 report of the Task Force on Climate-related Financial
Disclosures entitled “Recommendations of the Task Force on Climate-related Financial
Disclosures.” For ease of review and given the detailed and technical content of these
disclosures, we considered the FY2023 ESG Report to be the most appropriate location
for the disclosures.
• The FY2023 ESG Report provides an overview of our commitments to responsible
conduct and sustainable business practices, as well as our ESG priorities. It is available on
our website at corporate.ferguson.com/esg/#esg_report
Credits
Design and production: Radley Yeldar
ry.com
Paper and Printing
This year’s report is printed on paper that is FSC® Certified.
The paper is also fully biodegradable and recyclable.
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Ferguson plc
Registered Office
13 Castle Street
St Helier
Jersey
JE1 1ES
Channel Islands
Registration No. 128484 Jersey
Corporate Headquarters
and Group Services Office
1020 Eskdale Road
Winnersh Triangle
Wokingham RG41 5TS
Telephone +44 (0) 118 927 3800
Ferguson plc is registered in the UK
as Ferguson Group Holdings,
United Kingdom Establishment
No. BR021199
Company contacts
Investor relations (investor@ferguson.com)
Brian Lantz
Vice President IR and Communications
Legal Counsel
Carey Olsen Jersey LLP
Freshfields Bruckhaus Deringer LLP
Kirkland & Ellis LLP
Pete Kennedy
Director Investor Relations
Company secretariat
Kate McCormick
Company Secretary
Company advisers
Auditor
Deloitte & Touche LLP
Deloitte LLP
Transfer Agent, Registrar and Dividend
Disbursing Agent
Computershare Trust Company N.A.
150 Royall St., Suite 101
Canton, MA 02021
United States
Telephone (Inside U.S. and Canada)
+1 866 742 1064
Telephone (U.K.) +44 (0) 370 703 6203
Telephone (Outside U.K., U.S. and Canada)
+1 781 575 3023
Annual General Meeting
The Annual General Meeting of the Company
will take place on November 28, 2023.
Visit corporate.ferguson.com for details.
About Ferguson
Ferguson plc (NYSE: FERG; LSE: FERG) is a
leading value-added distributor in North America
providing expertise, solutions and products from
infrastructure, plumbing and appliances to HVAC,
fire, fabrication and more. We exist to make our
customers’ complex projects simple, successful and
sustainable. Ferguson is headquartered in the U.K.,
with its operations and associates solely focused on
North America and managed from Newport News,
Virginia. For more information, please visit: corporate.
ferguson.com
Follow us on LinkedIn:
linkedin.com/company/ferguson-enterprises/