Ian Meakins – Group Chief Executive John Martin – Chief Financial Officer.

Gregor Kuglitsch – UBS Andy Murphy – Bank of America Merrill Lynch Howard Seymour – Numis Securities Rajesh Kumar – HSBC Charlie Campbell – Liberum John Messenger – Redburn Paul Checketts – Barclays Capital Kevin Cammack – Cenkos.

All right. Good morning, everybody. Apologies from our Chairman this morning. He's been taken down with a dose of the flu and he's normally here. So, apologies from the Chairman. We will get stuck into the results. Last year, overall, was a good year. We improved service, again, across the group and made decent share gains in our key businesses.

We increased our top-line growth rate but also margin – increased gross margin by 10 basis points and delivered good flow through of nearly 11% excluding acquisitions, and achieved a record margin of 6.4%. Performance in the U.S. was really very good across all dimensions and I'll give you some more detail on this later.

UK performance was disappointing driven by slow growth in the core markets and a difficult trading environment where, again, pricing was very competitive. This led to gross margin reduction and the year-on-year trend that is improving as we went through the year after a relatively poor start.

Nordics, performance improved gradually in H2 after our poor first half, and we did deliver improved profit in H2 on the back of better top-line growth driven by better markets in Sweden, Norway and Denmark, some share gains and good cost control.

We continue to invest in the business to make our business models more productive, and John will give you some more details about how we're deploying the capital. M&A spend of £105 million was a bit disappointing. We would've liked to deploy more on bolt-on acquisitions. We were very active in trying to generate deals but with only limited success.

We'll continue to push hard knowing that good bolt-on M&As value – very value enhancing for us, but we will remain disciplined in our approach. Cash generation was strong, and the balance sheet remains in good shape, and we're announcing today a buyback of £300 million.

In terms of outlook, we still expect to generate good growth in the first half with like-for-like growth of about 4% and deliver good progress overall. Our core markets in the U.S. are robust except for industrial where we've seen some weakness across the whole of North America.

In the UK, the markets have been a bit subdued, whereas in Nordics, our businesses have continued to grow well. Let me pass overt to John and then I'll come back and give you a bit more detail on the strategy in the U.S..

Thank you very much, Ian, and good morning, everybody. Last year was another year of good steady progress for the group. Like-for-like growth was pretty robust to just over 7% and that was boosted by some small acquisitions taking the overall growth rate to 10% at constant rates.

Import prices across the group was slightly lower, but despite that in a pretty challenging environment in Europe, we continue to make measurable progress on the gross margins which were up 10 basis points. Ongoing trading profit of £857 million was 11.4% ahead at constant rate, plus £17 million from favorable FX movements.

The trading margin at 6.4% is now back to its former previous peak level. Headline EPS is up 18% and that's – though 14% there from ongoing trading profit, plus slightly better finance charges, and we got some accretion as well from last year's buyback. Working capital was well managed.

We hit our target and we finished the year with £800 million of net debt. The growth rate for the year as a whole was the best for several years that we dipped to 5.4% in the final quarter with slightly lower rates across the board. It is worthwhile reflecting for a minute on the group's performance over the previous three years.

We achieved an average growth rate over that three-year period of 4.3%. We still managed to achieve good profit growth and a flow-through overall in those years of 11% to trading profit. If we do enter a period of lower growth, we still expect to grow our profits. We've been consistent in aiming for double-digit flow-through on incremental revenue.

For every £10 million more at the top line, we expect at least £1 million more at the bottom line. And again, looking back over the last five years, in decent economic conditions with reasonable market growth, we've managed to grow our profits on a pretty consistent basis. This is FX adjusted.

The trading profit has grown by about £18 million a year now over the last five years. Just on to the regional review. Ferguson performed really well throughout the year, posting like-for-like growth of 9.6%.

Good progress on the gross margin and careful control of operating costs led to good flow-through, nearly 20% – flow-through, nearly 20% increase in trading profits. The dollar strengthened, adding 5% to that and £29 million to reported trading profits. We also added 50 basis points to the trading margin, which hit a new high of 8.2%.

We acquired 27 branches and we selectively invested in a further 14, so to 41 new branches overall in the states. Growth across the region was very broadly based. Our Blended branch network, which is the largest and most profitable business in the group, grew well across all three regions, with very good flow-through to trading profit.

Market share gains continued, with growth of about 4% ahead of the rest of the markets. Waterworks grew really nicely, particularly impressive given really strong comparative numbers last year and, again, excellent flow-through to trading profit.

Fire & Fabrication, which principally serves the new commercial markets, continued its impressive performance, and Build.com generated double-digit growth throughout the whole of the year, both businesses with very good flow-through.

Weaker conditions in the oil and manufacturing sector impacted our industrial business in the second half, and we had a challenging final quarter. Industrial sales account for 15% of Ferguson's overall sales.

This chart is just a reminder of Ferguson's growth record over the last five years, with like-for-like growth averaging 8.5% over that period, total growth of more than 10%. And that growth has been converted into excellent growth in trading profits and margins.

You know Ferguson has a strong cultural focus on value on margins and efficiency gains, and we've been channeling also more investments into new business models that Ian is going to talk about later. In the UK, we made good progress at the top line, adding 3.6% of like-for-like growth.

Plumbing and Heating, Pipe and Climate grew nicely in lukewarm market conditions. [After that] [ph] utilities business which includes the Burdens and Fusion acquisitions. Overall, though, the UK market weakened in the final quarter. Gross margins were under pressure throughout the year but lower overall.

We are working very hard now to simplify, to standardize and improve our pricing to make sure that we recover the value that we provide to our customers. We're also sharpening our focus on higher margin categories, especially plumbing and also the small customer segment where our service is most highly valued.

After an increasing technology investment of £6 million and £2 million of restructuring costs, trading profit was £6 million lower. In the Nordic region, markets in Sweden and Denmark recovered progressively over the year, and with a strong focus on the sales, we got like-for-likes sales growth in the region at 5.5%.

In Finland, the economic conditions remain pretty challenging that held our performance spark, and there are no real signs of recovery yet in Finland. We did make excellent progress integrating the Puukeskus acquisition which we bought the year before. In the second half in the Nordics, we drove better growth.

We improved our gross margin performance and we controlled costs tightly to improve the flow through. So, over the year as a whole, trading profit was slightly ahead before foreign exchange movements. It's been a tough year in Canada. In our western heartlands, Industrial and Waterworks markets this calendar year are down now between 15% and 20%.

Now, that has been mostly offset so far by resilience in the larger plumbing, heating and HVAC markets. Gross margins were slightly ahead and costs were well-controlled. FX was a £2 million headwind, and in the final quarter, we charged a £5 million restructuring charge. In the short term, the outlook remains challenging.

We told you at interim, we expect underlying sales and profits to be lower in the year ahead. We did sell a small industrial business in Canada. It didn't justify our ongoing investments, but we did complete two small acquisitions.

In Central Europe, Switzerland was hit by the sharp movements in the Swiss franc and that led to significant product deflation. Construction volumes since the turn of the year are now being contracting at between 8% and 9%. Gross margins were lower. Cost reductions were not sufficient to offset the shortfall in trading profit.

In Holland, our business, Wasco, continue to perform very well. I’d like to move on to the revenue and trading profit waterfall here. We added £85 million from organic growth. That's the most significant driver of value by far with acquisitions adding another £15 million.

Average exchange rates, they were in our favor, giving us £17 million of ongoing profitability. Once again, we managed to edge our margins up to 10 basis points worth £12 million. In an environment of tumbling commodity prices, we were pretty pleased with that performance. We invested a further £30 million in business model improvement.

That's predominantly in technology investments. We'll come back to those shortly. And we also invested £11 million towards the end of the year in restructuring costs. Other cost increases, as you can see from the chart, were more than offset by efficiency gains, and that's partly a payback from earlier investments.

The overall flow-through of incremental trade – of incremental revenue to incremental trading profit, before acquisitions and restructuring, was 10%. And at the bottom of the chart here, you can see the flow-through of gross profit to trading profit, which increased to 23%. That again is back to former peak levels for the group.

In the first half, we took an impairment charge against Nordic goodwill and an exceptional charge on the Wood business in France. In the second half, we made good progress now towards the exit of the remaining business in France. We're taking a number of parties at the moment through that process.

We've got a view now on what a transaction will look like. And as we talked about in March, we've written down the value of the assets of that business through our view of the likely recoverable amount. We've booked a charge for that at £67 million. The FX recycling charge that you see on their arises on the liquidation of dormant companies.

It has no impact on group net assets. We received £31 million of cash for last year's disposal in France which generated a £16 million gain and offsetting that with a £9 million loss on disposal of the EPG business in Canada. The cash impact of all of those items was a small cash inflow.

Central costs last year included a £5 million one-off gain, and in the current year, we had £3 million of restructuring and transaction costs. Central costs in the current year now are expected to be about £42 million. Finance charges in the year were a little lower, and that's principally due to falling discount rates applied to pension assets.

We also established two new financing facilities. We're now holding $800 million of term debt at fixed rates, so finance costs in the years ahead will be about £10 million per year higher. And the effective tax rate, as you can see from that chart, is just under 28%. Our teams work really hard again in controlling working capital.

You'll see on the chart here a net investment in working capital of £48 million. That would have been about £16 million higher at constant exchange rates. We've added inventory to make sure that we drive great availability across the group, and we've carefully controlled receivables. Overall, we achieved our cash-to-cash target of 49 days.

The only other item I'd like to mention on this chart, if you look down there on the disposals, is a useful £86 million inflow from disposals. Net debt at the end of the year was £805 million, with an underlying position of about £130 million higher.

Despite continuing falling bond yields, the overall pension position on an IAS 19 basis is close to breakeven. The new facilities that we've put in place over the summer include a five-year £800 million revolving credit facility, and the $800 million term debt in the U.S. private placement market that I've mentioned before.

That's got a maturity of between 7 and 12 years. The increase in operating lease commitment, that reflects the expansion of our network in America, with the new ship hub at Secaucus being the most significant addition. As Ian mentioned, we wanted to touch a bit more on organic investment.

We stepped up the pace of organic investment this year, and this chart shows how that's analyzed by category. About a third of all investment now relates to technology, infrastructure and systems, and there are some examples on the chart of some of the major systems investments that we've made over the period.

We're building a new platform for Ferguson's e-commerce channel. And that's to drive future growth but also to make sure that we've got the set of security, scalability and flexibility going forward.

First-class Master Data management is a cornerstone of the future states architecture strategy, so that we can manage our data assets in the best possible way. And we've also been investing heavily in telecoms infrastructure to make sure that we support the need both of our associates of branch level and also our customers.

Ian presented last time on some of the opportunities to grow in markets where we're currently under represented such as New York. And we invested heavily in the DC and hub infrastructure to support a differentiated offering in some of those markets. The investments that you see on the chart include a number of pretty meaty freehold properties.

And the final example there on the right at the bottom is the ongoing refurbishment of the whole of our showroom estate in Ferguson which is supporting impressive growth north of those normal Ferguson growth rates across the country.

Going forward over all in capital investment, we expect capital investment to continue in the range of £200 million to £220 million a year. Acquisition investment can be very lumpy. We have no targeted spend. We're just focused on buying good businesses where we can add value to them and avoiding the duds.

We invested just over £100 million in 18 small acquisitions in the year with one more as Central Pipe completing since year-end. All told, they added annualized sales of £220 million and trading profit of £8 million. We've got a pipeline of bolt-on acquisitions as we speak. They are pretty modest in size, but we are working hard to land the good ones.

Moving on capital structure, we're recommending an increase in the final dividend of 10% to £0.605, and that will bring the full year payout to just over £0.90. That's covered 2.5 times by headline EPS. We ended the year with net debt to EBITDA of 0.8 times, and even on an underlying basis, that's less than 1 times EBITDA.

Our clear focus on cash has provided the opportunity for further capital returns. And we intend now to do a buyback of £300 million this financial year. Finally, I'd like to take you through the guidance for this year. The like-for-like growth rate, so far, this year has been about 4%, and that's broadly what we expect for the next six months.

We do expect Ferguson to continue to grow well except for industrial where the market remains challenging. Our current growth rate in the U.S. is about 6%. Nordics is also expected to continue to grow overall. In the UK, we expect the heating market to remain pretty flat, and Canada is expected to be weak due to that oil and mining exposure.

There's one fewer trading date. That'll cost us about £6 million. But at current FX rates, FX should be broadly neutral. If we need to protect profitability, we will do. We will also invest where there's potential for growth in the long term. If we need to do selective restructuring, we will.

And you should expect up to £20 million of charges to go straight to the trading profit. We do expect to get double-digit flow through from our incremental revenue. Financing charges will be about £10 million and we'll pay taxes about 28%. Finally, we'll keep a conservative balance sheet.

We'll maintain an investment-grade credit metrics and keep net debt to EBITDA in the range 1 to 2 times. Thank you very much. I'll hand you back to Ian..

great top line growth, small gross margin uplift, good control of costs, even though we have continued to invest, significantly improving our business for the longer term.

We also managed to improve productivity in terms of converting gross profit into trading profit, which meant that our gross profit per employee was up over 6%, and trading profit per employee was up over 15%. The flow-through was consistent at 12.2%, in line with our usual guidance and at the similar level to last year in constant currency.

But we did also invest more than £130 million in CapEx and £20 million in operating cost to support the improvement in our business models. Lastly, the cash flow was, again, very good with conversion of trading profit to cash of 98%.

And even though our cash-to-cash base went slightly backwards, we believe the extra investment in working capital will deliver good returns.

Just to give you a bit more flavor as to how the growth is spread broadly across the whole of the U.S., looking at our main Plumbing and Heating business, Blended Branches, which outgrew the market by about 5% in total, here is the growth of the top five states versus the local market which represents about 40% of our total Blended Branch business.

We've grown share in all these key states, by Texas, as well as overall in the U.S., revenue growth outside these top five states was up 11%. In California, we beat the market by 3%; in Florida, by nearly 7%; in Virginia, by 5%; and in Tennessee by 5%. Texas was the only area where we lost a bit of share, even though we still grew by over 8% in total.

And here, we did take share in the residential segment, but we lost out on some very large new commercial projects which we judged would not be sufficiently profitable for us.

Occasionally, these types of projects very much influence and determine the market growth, and we are very careful not to get too sucked into very large low-margin contracts which can cause a loss of focus on our small and more profitable and loyal customers.

Turning back to our strategy and how we are executing against it, we have been absolutely consistent and clear that customer service is fundamental to driving profitable top line growth. We know the satisfied customers will reward us in terms of share of their work and maintaining decent margins, and so I wanted to give you an update on progress.

At the last results meeting, I used this chart to explain how we are driving six separate initiatives to accelerate profitable growth. In March, I explained what progress we've made and what were our plans in the areas of sales management and also network expansion.

Today, I want to focus on service and also what we are doing to segment and better address different customer needs as part of upping our service game.

Whilst improving our service offering is so fundamental to profitable growth when you get the service, when we get the service right for our customers they can complete their jobs on time and in full for their customers and, of course, get paid on time themselves without any time penalties.

We know from our research and transactional data that customers who rate us highly do increase the share of their wallet with us. Most customers will use at least two distributors to support their business, so they can easily move volumes from one to the other.

Many customers are also willing to reward us with better more consistent margins because we are helping to profitably expand their business.

Further, we can, with some customers, organize the value chain, so that by better delivery scheduling and reducing the amount of returned product and better sourcing of special products, we can lower the total end-to-end cost for our customers and ourselves. Now to better our service, the more likely our customers will choose us versus competition.

We'll start significant opportunities to improve customer service, as well as performing consistently across our networks and by improving our understanding and analysis of customers, as well as just being great operators and building our own capabilities in terms of training and developing great tools to improve our performance.

Across the group, where we deliver great service, we also deliver very good profitable growth. We have improved our customer data and knowledge massively over the past few years. Historically, we did not have sufficient rigor and analysis in the area.

Across the group, we now have a similar approach to customer understanding based on significant quantitative and qualitative data. We make sure we can triangulate this with what our own staff tell us.

In Ferguson, for example, we've done nearly 17,000 surveys across our active customer base, many secret shopper visits through our and competitors' branches as well as many qualitative interviews with customers and our own staff to make sure we do really deeply understand the drivers of service and satisfaction.

Our service performance over the recent years across the group has improved significantly as we've shown you in the past. And that trend has continued in the last year. As I said earlier in the U.S., we are now running at a level of 65 across Ferguson, which we know is better than most of the competition and certainly drives our share gains.

What is encouraging is that the performance is very consistent across all the business units in the States and also better on average within the e-commerce channels in part explaining our rapid growth there. A score of 65 is getting harder to beat but we believe our planned actions will continue to allow us to make marginal gains.

In the UK, we've made real progress but we still have further to go. A rating of about 40 for our distributor in our industry is good, but it does not differentiate us from competition. We've up weighted our programs in the UK, again, based on our U.S.

success to ensure better performance based on better availability of a larger range of core SKUs, more tailored promotional promotions for smaller customers, more emphasis on growing the plumbing category and our showroom business as well as better alignment of our sales teams to the best opportunities coupled with better pricing management.

All this is supported by more training for our teams replicating our U.S. program. In the rest of the group, our performance has improved, and in all businesses, we have programs in place to move us ahead again. We've said before, there's no magic bullet here.

We know we have patiently worked through our programs and grind our better service year-in, year-out. That is what is fundamental to our profitable growth. The drivers of customer satisfaction are a mix of factors. I've used here, the U.S. data, but we find almost identical data in all of our other business units.

Although these factors vary by different customer segments, which you will see later, in general, we find that the overall experience, as well as range and availability of products, leads with knowledgeable and experienced associates next, and pricing coming close behind.

A majority of customers tell us that when we have a – when we have to be competitive on pricing, but provided we are in the range, service can outweigh pricing. Again, we find the same feedback across the rest of the group.

Based on our much-improved customer data set, all of our businesses have specific tailored programs designed to keep tackling these drivers of customer satisfaction. However, we know there's plenty of scope for improvement even in our U.S.

business, where our NPS scores range from 53 to 83; in the UK, our range is 25; in the Nordics, about 15, as well as in Canada in total. Scoring consistently across our networks is critical to gaining wallet share of existing customers. Many of our customers use several of our branches across a wide geographic range, depends on their business needs.

Being able to meet their needs consistently on service, availability and price is the best way for us to beat the small, local, well-run competitor. Consistency of pricing is often a bigger issue for our customers than absolute level.

Not surprisingly for a customer being quoted different prices for a bath or a boiler in separate branches does undermine our service promise. The next stage of improving our service is segmenting our customers so that we have different propositions to more accurately meet their specific needs.

We have now completed detailed segmentation studies in our businesses to understand better specific customer needs and on our developing and executing plans to address the major segments.

This is not a quick fix and requires substantial training of our people, so that they really do understand how to treat customers differently with tightly-targeted propositions.

Across the group, we have basically found that there are fundamentally four to five different segments requiring different approaches to how to serve them, be it different order capture, product mix, pricing levels or cost to serve. Again, just taking the U.S.

example and a few segments, the deal segment, the price segment, and the inventory segments, for the deal customer, it's likely to be a small or a mid-size plumber or a mid-size mechanical contractor. He values knowledge and service but insists on value for money and will actively split business between distributors.

Here, customers want a knowledgeable outside sales team but value highly the e-commerce channel for price checking. Unlike the price-focused channel, though, these customers are prepared to pay more for value-added services and bundle opportunities for the key categories that they buy from us.

The price-focused customer is often a new build contractor, who has the ability to plan ahead and has had to bid very competitively for all of his work. Hence, he's very keen on price and doesn't need or want salespeople calling. He does want to look at prices and compare online, and also he's very interested in promotions that will save him money.

Although a lower-margin business, we can still do well in this segment provided we keep our cost to serve low, hence, we increasingly don't use our outside sales teams to call. We handle with an inside sales rep and encourage the price customer to trade through our most efficient e-commerce channel.

The inventory customer is often a plumber focused on breakdowns and repairs. He doesn't know what job he will be on tomorrow and does know that speed of response will be critical to it.

Therefore, product availability of a core range delivered or picked up is essential in being able to discuss tricky problems with our knowledgeable stuff and being able to check inventory wherever he wants especially from the job site, clearly, price is less of a factor here. These segments exist to a greater or lesser extent in our other markets.

And we've completed the work across the group and found out that there are these four to five segments that have similar features. Just taking a few examples, we found that proportionally given the fragmented customer base in the U.S. and our historic focus on the service-oriented customer, our U.S. business is less skewed to the price segment.

This is part of the reason for our higher gross margins in the U.S. It is different in Europe where because of consolidation we cannot deliver leadership without tackling the large, more price sensitive customers so there – a greater mix of our business in Europe. And this, in part, explains the gross margin pressure that we're under.

This overall approach has allowed us to develop specific propositions for each segment to make sure we're new and we'd retain existing customers efficiently. Further, specific propositions can be proven out in one market and then rolled out to other markets with just some minor modifications.

We're at the early stage in this process, but over time, this ability to transfer proven propositions from one market to another will become an important profit lever for the group. Here are some examples of how we tailored our customer propositions directly to the needs of the individual segments.

In the U.S., we have a one-hour promise for all of the reliability-seeking customers, so that if they call in advance we can pick and pack their product and they can collect from the warehouse without entering the branch at all. This is also better for us.

It allows us to spread the workload throughout the day and also make sure the product is available or a substitute found. Will Call is now active across the bulk of the U.S. It represents over 10% of our blended branch business and other markets are developing similar offerings.

In the U.S., without most – as most of other markets, we have a loyalty program designed to address the partnership segment who greatly values the e-commerce channel in particular. Currently, the pro plus program offers members discounts economy services. They need to manage better market and promote their business.

We also provide incentives for members to engage in and transact online by earning points for repeated purchases. We can also tailor specific promotions in products they value. In the e-commerce channel, we also have improved our category landing pages aimed at the inventory-seeking segment.

Improving the architecture of our websites, helping customers quickly navigate and choose within categories where there are large number of similar products but with slightly different specifications.

Our industrial customers who told us they wanted an easier way to buy ball valves and after redesigning the landing page to incorporate brand, material type and specifications, we've doubled the online sales in this category alone.

In Canada, we are now working with partnership customers to integrate bar coding into their operations so they can scan products remotely based on our free app. Customer's uptake has been good because they can replenish stock quickly and easily while at the same time it lowers our cost to serve.

The service has only gone live recently, but the percentage of online orders has increased from 16% to 26% with our existing customers. In the UK, for our large price-sensitive customers, we're working with them increasingly on EDI solutions as part of our overall e-commerce offering.

This gives customer the ability to process high volumes of orders consistent, eradicate manual handling errors, electronically track orders and improve cash-to-cash base through electronic invoicing and delivery notes. We also benefit by being more integrated with our customers' business, allowing us to gain wallet share and reduce our cost to serve.

Our EDI sales grew 70% last year, and we took over £0.5 million EDI orders. Also in the UK, our small heating specialist, who are often in the inventory-seeking segment, install, maintain and fix a huge range of domestic boilers. They need quick availability, especially for emergency repairs, which is a great margin business for them.

We've developed the Parts Arena application to serve them. This allows a customer to see online parts, images and explore the diagrams of heating systems. This enables fast and accurate identification of spare parts and accessories at the job site. The app has live inventory and products can be purchased from desktop, tablet or mobile device.

It's still early days, having launched the new mobile Parts site in April, but we've already had 15,000 orders in the last month.

In Finland, when we – where we integrated Puukeskus last year with our existing Starkki business, we launched a menu of new service guarantees aimed at the partnership segment who are looking in particular for high availability of everyday items and correct and efficient deliveries. They are less price sensitive.

The guarantees cover product categories and next-day delivery and the ability to select 60-minute delivery slots. To meet the guarantees, a step-change in our execution was required as they also include penalties such as free shipping if we fail to deliver on time. This has differentiated us form competition and has been well received by this segment.

Our like-for-like revenue growth in this segment has outperformed the market by more than 10%. In Wasco, like Finland, we have also a menu of propositions that customers can select from targeted at the partnership and reliability segments. The promises are again guarantees and penalties for us if we fail to deliver.

This has been the foundation of gaining share, especially in the smaller customer segment, and we've put on an extra 8% more customers over the last year.

In summary then, we have specific actions across all our business units built on common principles to improve our service offering and ensure over time, we do offer greater consistency and at a higher level. We benchmark ourselves versus our best and also other great competitors. The plans tackle all the key elements that I've highlighted earlier.

We are now developing and executing specific propositions that are tailored to meet segmental needs and also address our customers and are costly served.

We're continuing down the path to investing more in building better skills and capabilities by hiring in experienced talents from outside our industry in the areas of sales management, marketing, pricing, ecommerce and data management.

We're also segmenting our sales resources in varying the inside outside sales mix to address the five main key customer segments. We are increasingly centralizing some key sales resources. For example, pricing centers for tenders and projects that can be used across the whole network.

Finally, we continue to work hard on developing our people and making sure we don't lose our great folk. We've improved the effectiveness of our appraisal system. We're making sure people are aware and very engaged in career development conversations. We also make sure our staff are well-trained in product knowledge.

And we have action plans in place following engagement service to ensure we listen to our people an act on their feedback. Our service has improved over the past few years, but there's still large potential for improvements. And this will be a critical part of what drives future profitable share gain. Turning finally to the outlook then.

Overall, we expect, as John said, in 2016 will be a year of decent progress for the group. We expect to continue to make good progress in the U.S. across all of our business, apart from industrial weather market, did decline in the fourth quarter and we expect that to continue for a while.

UK market remain tough, but we expect to continue to see decent recovery in the Nordics. So, whilst we have some market headwinds, we still expect to generate good growth over the coming period of about 4%. On that, we will happily take questions. If you could give us your name and who you represent, that'd be great and put the microphone first.

We start one down here..

It's Greg Kuglitsch from UBS. The first question is on the U.S. and the Industrial. Can you give us a little bit more color where you exited in that business in terms of sort of exit run rate and how you see it shaping up into the first half? Obviously, there's some material change going on there.

And if you can give us some detail to what extent this business directly impacted or directly exposed, rather, to the oil and gas segment or to what extent the slowdown is indirect. And sort of a related question on the growth, it's obvious that your comparison basis in the first half is quite challenging in the U.S..

Yes..

And I know that you tend not to give 12 months outlook on growth.

But if you can give us a sense of whether you expect the sort 6% that you flagged in the U.S., is that the new normal or do you think that's now sort of a [indiscernible] in the oil and gas adjust and subsequently perhaps we go back to higher growth? And then, the second question is on the UK.

I think it's the only segment where so your top line was up but your profit was down. I understand there's some gross margin pressure. I guess the question is do you think that this is now going to start stabilizing and you can start converting some growth into profit or do you think is not going to trend? Thanks..

Okay. Just sort of overall in the U.S. – just before we talk Industrial – let me just stress, I mean the rest of the business, Blended Branches, Waterworks, HVAC, Fire and Fabrication, our B2C business, all continue to grow very well. We haven't seen any material change in the performance of those businesses.

And so, therefore, the only area of concern, clearly, is the Industrial area. And if you look at all of the stats around commercial and residential in the U.S., there's still good growth projected for the rest of this year. We look at all of the data you do, and that still looks very robust for the overall U.S. market.

And we have two other indicators ourselves. Our order book, which is still in very good shape, and we survey our customers very regularly and ask them how optimistic are they, how did they see the next 6 to 12 months. And again, there's been no change in their degree of optimism. So you're right, the issue is very much I think around industrial.

It is about 15% of our total business. I think in H1, we've called out that we would expect to see some slowing directly from the oil and gas segment. It's actually a relatively small part of our total business, only about 4% in the U.S..

4% in group, 6%....

Sorry..

6% across North America and U.S..

In the U.S. And we've seen – but what we have now seen is a bit of a slowdown in the rest of the industry segment and you've seen that in the data. In terms of U.S. comparators, honestly, we're seeing, as John said, 6% at the moment. That's what we see for the next six months.

Our order book does not go out more than that, okay? But that's what we would call at the moment. And I think in terms of the UK, yes, I mean, we are a bit disappointed in the performance in the UK. We've got good top line growth. We didn't manage to get the gross margin improvement that we would have liked.

It has stabilized as we've gone through the last 12 months. It is getting marginally better now, but it's hard work at the moment.

I mean, we face a consolidated market, consolidated customer base, a relatively-consolidated supply base, and, obviously, ourselves, Travis, Saint Gobain and Grafton, there are four or five well-funded competitors out there. I think it's exacerbated though.

And if you go back, when you have government intervention, you have Eco 1, which pulled forward. A lot of business going back 24 months ago till 12 months ago. You could go back to the stats and the market was growing very fast. In the last six months, we've seen actually the market flat or a little bit declining.

So, it's been a tough market for us in the UK. Look, we've got a lot plans in place to get that business back into growth, and that's absolutely what we anticipate we can do..

Thank you..

Okay. Let's move across in the middle..

Thanks. Good morning. It's Andy Murphy from Merrill Lynch. Just three quick questions.

Could you just give us a bit of flavor for the FX impact that you highlighted particularly in the industrial space and how's that affecting your customers? Secondly, can you just give us a flavor for any more heavy lifting that you likely to anticipate? I mean, I think in the past you perhaps suggested that most or all of it is done, but given one or two headwinds that you're talking about I was wondering whether you're considering doing anything else.

And then just finally on organic investment, you highlighted quite a lot of very useful information about initiatives that you're working on.

I just wondered what scope there was for greater investment than what you've highlighted or other investments fairly well budgeted?.

You got those three, John..

The FX impact on industrial is actually quite difficult to call. So, as Ian said, we got 6% of the U.S. overall business into oil and gas and another 9% into non-oil and gas industrial.

And it's a little bit unclear at the moment as to what's being caused by oil and gas, what's being caused by FX, by – and anecdotally for other manufacturers like, for example, China. So, it is quite difficult to know that.

One thing that I would say, Andy, and that is the other thing that has had an impact during the period is falling commodity prices. That has had an impact on our gross margins. It also has an impact on our top line. Commodities represent about 15% of overall Ferguson sales. Commodities are the biggest element of the cost of goods sold.

So, those are the things. But it's very difficult to separate out the individual contributors to weakness in Industrial. The last quarter, I think, to Gregor's question, last quarter, we were down about, we were down sort of mid-single digits in Industrial.

But I couldn't say how – whether that was FX, whether that was oil and gas, whether that's China or all of the above. In terms of the heavy lifting and the structuring, look, I mean, you know you've see us doing this successively over the last few years.

Firstly, we need to have a cost base commensurate with the gross profit that we can deliver and, therefore, the top line as well. I think at the moment, around most of the business, having the right cost base is really a question of controlling the rate of growth of costs..

Yeah..

You'd still have 6% growth from the U.S. We need to see the rate of cost growth commensurate with that top line growth. We have proven sort of good, like in the past, but it doesn't come easy. We have to work hard at it with the teams. There are a couple of areas where there are more active programs.

Clearly, we're taking costs at the moment out in Canada that will continue over this year. We are looking very carefully at the cost base in the UK more widely. And we are also taking some costs out in Switzerland specifically. So, there are some very specific areas and I wouldn't be surprised if there are more. I don't think it will be a huge scale.

And I don't think it's likely to be in the sort of north of what we've indicated. But it will depend on top line growth. And the scope for further growth, I mean it's a great question because the constraining factor is probably our technology resources internally.

We have been recruiting a lot more technology resources over the last sort of three or four years. And I think that will probably continue because it seems to us quite clear that building a better business for the future need you to continue to reinvest in the technology side of the business.

All the things that Ian was talking about through from – we talked and we laughed about [e-polls] [ph] stuff like that and CRM and the e-commerce platforms. You know because we put one or two numbers in e-commerce but there's a lot of other stuff. The master data management stuff is big and expensive.

The whole of future state architecture, any of my technology friends that are in the room, it's big and expensive. We'd love to step on it. I don't think we can go any faster than we are broadly at the moment without existing resources..

Thank you..

Okay. Good..

Okay. Howard Seymour from Numis. Apologies. I'm going to hop on in just really again from my first question.

And fairly obvious question I suppose, but is there any areas that are of specific concern falling further than anywhere else and whether there'd be any sort of gross margin or EBIT impact because there is sort of variability in terms of the returns you get out with all the businesses?.

The areas that are most hit are where we have most density of industrial operations seen at the central belt of the U.S., North Central, specifically, which is still growing over all but at lower rates.

The gross margin impact, I mean, yes, they are around the edges but again, back to Andy's question, not sure how much of that is related to the demand itself and how much of it is related to the impact of copper particularly over the year. So – but if you look at the sub-segments of industrial, clearly, oil and gas is the most reacted by far.

There are plenty of those sub-segments. And by the way, those sub-segments there have been paper and pulp, energy and power, pharmaceuticals. So, it's quite a broad range of sub-segments. There are plenty that are still growing sort of reasonably.

And I don't think there is today – there's certainly is a doom and gloom amongst our management team on this. The outlook, they don't think is terrible. There's just a feeling that this is weak demand at the moment..

And then secondly, just you mentioned, John, regarding the sort of the drop through, the 10% drop through. Do you still see that there will be a variance in that because obviously, the U.S.

has been, for example of 12? Are you just sort of saying across the globe, does that – and you'd still, obviously the variances are that the U.S., because of this, the drop through would potentially drop back to that sort of level?.

Well, yes. I mean, quite possibly in the short term, I mean specifically by business. I think the U.S. flow through might be slightly weaker going into the New Year. But we do expect, for example, we expect better flow through in Nordics. And we expect better flow-through in the UK.

I mean, it's disappointing to get 3% top line growth and not get profit growth..

Yeah. So there will be variability. There will be variability around the business. But just to reiterate, Ian, to earlier point, we still see residential and commercial just three quarters of our U.S. business.

We still see the indicators that's pretty robust and there's no reason for the flow through in those businesses not to be – not to continue to be just as attractive..

Yeah. I think I have the point that John has already made but just to reemphasize is that when we talk about slightly lower top-line growth, say, in the U.S. of, say, 6%, that just means we have to grow our cost base by 4% and we still get good flow through.

So, we're not actually about – and to your point Andy, we're not in the case of taking a lot of costs out. We just have to grow them proportionally less, okay. So, now, clearly, we'll keep a very close eye on industrial in both the U.S.

and Canada in terms of – if those trends do continue, we will have to take some costs out, but we'll be very sensible. It will be a very targeted activity..

Thank you..

Okay. Thanks, Howard. Yeah. Let's go back..

Good morning. It's Rajesh Kumar from HSBC. Just in terms of your discussions with your suppliers and vendors.

Do you see any benefit in difficult times from having a market-leading position in terms of what sort of rebates you can pick up going forward?.

Yeah. I mean, throughout all of our businesses, I mean, by an absolute sort of fundamental principle for us was to have businesses that ideally had market-leading positions. Now, nearly 90% of our businesses are either number one or number two in their markets.

And we know when we are the market leader, we do get better terms because when we acquire other small companies, we see the difference in the gross margins that we are able to get from our sourcing benefits compared to the smaller companies. It can range from about 2 to 4 percentage points, so there is really quite a material difference.

It obviously depends on supply, it depends on country. But it's a sort of rule of thumb, 2 to 4 percentage points benefit is what we'd expect to see in terms of sourcing benefits of our scale versus a very small local player.

Does that make sense?.

Yeah. Thank you..

Come back into the middle here..

It's Charlie Campbell of Liberum. Two unrelated questions. First one, I'm afraid going back to U.S. Industrial. But on the U.S.

Industrial side, does that business make a higher gross margin in average for the U.S., so, is there a disproportionate gross margin effect? And then, also, is there is perhaps substitution effects we should think about in doing so as people are selling less, less materials into oil and gas, say, do they push harder into other areas [indiscernible] away? And then, the second unrelated question was on the share buyback program.

You alluded in the statement to saying that you've, maybe, not been as active in terms of acquisitions as you'd have liked.

Should we start to think of those two things as linked going forward? So, was it acquisition spend is lower than usual, perhaps, we should expect buybacks sort of the two, perhaps, to have a constant total, is that how we should look at things?.

Let me do the first one, John. You do the buyback. Just on the gross margin in Industrial note, it's about in line with the rest, marginally lower. These are often larger projects. I mean you're putting many kilometers of steel pipe into a processing plant. But the gross margin is slightly lower than the average, but no material difference there.

In term of the substitution, I mean, it'd be a wonderful thing if it happened. But clearly, if activity in Houston declines, overall, it declines. So, of course, our customers will then, obviously, go and try and find pockets of growth in the market.

But when you have rig countdown from whatever it was, 1,600 rigs down to about 500 rigs, I mean, it's a big hit in the – as John has already said, specifically in the oil and gas areas. But, no, our customers, and we, will go and search very hard for other activity. I think we've made the point that the rest of our business is growing very well.

Therefore, clearly, any of our customers who have a mixed portfolio of residential and some industrial work, they will focus hard back on to the residential. And commercial in these states is growing now very well. It's probably its highest growth that's been for the last five years. In terms of the buyback, John, do you want to....

Yeah. I mean, I think in relation to the buyback, if you look back over the last sort of three or four years of the capital returns that we've done, a chunk of those has come from proceeds of disposal of businesses, about half overall. And, yes, I think you're right.

I mean, the rest is surplus that we have not been able to find a suitable investment home for. So, I think that is a – that's the reason that we don't issue a buyback this year. If we've done £300 million or £400 million of acquisitions, I don't think we'd be in that position. So, yes. I think they're absolutely linked in that sense.

Qualitatively, they're linked, and you can work out in material terms the numbers. I wouldn't like to give you a fixed link..

Good. Thanks..

Sure. Yes. Do you want to go along to the end? Yeah, John..

Thanks. It's John Messenger from Redburn. Three, if I could, Ian and John. First one was just on the slide that talked about CapEx. There was the – for Houston and Basildon, what have you been doing in Houston? And just thinking about DCs and the U.S.

in particular given the volume growth you've had, obviously, a lot put into New York, but is there somewhere in the next 12 to 18 months where you lead to our DC capacity or are you kind of comfortable with that 7 million square meters – square feet as you are now? Second one, sorry to flog the dead horsey on industrial, but when we look at the back slide in the pack, am I right to thinking about industrial at 2015.

Is that broadly split in the non-res RMI and non-res new, if that's where it belongs? And is it kind of two-thirds RMI, one-third new or is some of it in civils I suppose? Just for us to try and think around when we're thinking about the future forecasts.

And then the final one, Net Promoter Scores which kind of separates from what the markets are doing in volumes, maybe impact on people's confidence and whether they want to talk nicely about your people or not.

But, when I see those bar charts and looked at the different countries, it kind of reflects pretty much for the view outside of those businesses. I think Ferguson is very good, UK less than impressive, different pictures in the Nordic countries, and Canada.

When you look at them, what is it that differentiates – and I seem it's down to people, but is it – when you look at that, is it training or is it about how you incentivize in there? Is this something that really stands out that means Ferguson is so much further ahead, and do you need to do more so that you created kind of owner-driver culture in those people in the other businesses, because it just looks kind of structurally as Ferguson in the states, so much better than the rest.

And are there bigger changes you need to make, to make – to motivate people who work inside Wolseley?.

[Indiscernible]. So you do – John, you do CapEx, industrial, and I'll do NPS..

Yeah. So I think on the CapEx side, we haven't got any major DC capacity going in the near future, John. There will always be some hub reorganization. You mentioned sort of Houston. Look, that was a specific investment opportunity.

Actually that, and it's proven to be a very good one, and it was one single site similarly to the Appleton where our UK [indiscernible] business just had an inappropriate location. So, those things come along but infrequently. We're not talking about adding in a lot of capacity in the near future.

On the flogging the dead horse, just to remind you, this is a very profitable business. So, our industrial business is a good profitable business with excellent returns on capital. It just so happens we've had a quarter of sort of weak growth. And just – the applications – it is – they're going into a combination of new and repair maintenance.

And – but they are into industrial applications. So, they are into manufacturing and power-type applications.

Does that answer the question, John? Did I get the question right?.

Okay. In terms of – John, in terms of NPs, I mean, just to be clear, going back, and I've said this many times before, going back five or six years ago, we didn't even measure it across the group, so then we started measuring it. All the scores in the countries have all got a lot better.

So, if you go back five, six years ago with the Ferguson scores, we're down about 40. They've now cranked them up to 65. We've actually made similar sort up progress in terms of delta on NPS scores in all the other countries. So, I did take a bit of offense when you described the UK as – I didn't know what it was but not very good.

Actually, a score of 40 is good in our industry, okay? The point you rightly made, though, where I do agree is that it's not differentiated. Now, the UK scores come up a long way, same in the Nordics, same actually in CE, and when you're hitting scores of sort of 40 to 45, you are as good as the other distributors.

And we know from mystery shopping scores and things like that, it's exactly how we would sort of rate ourselves. We don't have a point of differentiation, okay? So, the scores are now good across the group.

They are, I think, very good in Ferguson, and the score of 65 puts you well up there in the top, sort of decile of companies across all industries in the U.S. That's clearly where we've got to get to. But you can see it's taking us far here to get from 40 to 65. That's a sort of progress if we make 5 NPS score, points a year growth. That's good going.

And to your earlier – to your question, it's just not [indiscernible], it's a whole of combination of things of getting it right. You've got to have absolutely – you've got to have the right product availability. As the drivers of customer satisfaction, you've got to have the right staff in terms of their knowledge and their drive.

You absolutely got to have people in the right locations as well. And you've got to be competitive in terms of pricing. And when you have a complaint, you've got to work it bloody hard, and so forth and so forth. When you have project contract, you've got to make sure that your salespeople are the people who are there first.

We know when we've done a lot of pipeline analysis. It doesn't necessarily make any sense but the salespeople when we called the day after we've made the bid, were far more likely to get the bid. I'm not sure that the logic of it doesn't matter. That's just the truth of the market. So, if there is one – and to your point about remuneration, yes.

I think the focus in remuneration scheme is more geared to sales commission, and in the countries we have absolutely replicated that. So, I think it's a fair challenge to us which is if we think about we've done very well in the states, obviously what we're trying to do now and with success is replicate that program in the other countries.

Of course, I'd like to do it faster. That's my frustration. That's for me and John and the executive team and all the leadership to do it faster. But that's absolutely what we're after.

That makes sense?.

Thank you..

Good. Come back in here from Mr. Checketts..

Good morning. It's Paul Checketts from Barclays Capital. Three questions from me, please. The first is on the U.S. but a couple of areas where you've been investing. Can you enlighten us in terms how you're performing in the MRO space and also in New York? And then the second question is about the customer segmentation that you talked about, Ian..

Yeah..

Is it – how new is this? Perhaps you could just explain a bit more about what is it you're actually doing and what the benefits could be from it? And then the last one is on the capital structure. John, you talked about the extra interest related to fixing interest rates.

How long you're locked in for now and what's the blended rate do you think? Thanks..

Yeah. Look in terms of U.S., the FM business in the U.S., it's now around about just over $550 million in total. Split roughly half what we sell through the blended branch network and half from the acquisitions that we made. It's actually growing very well. It's up at double-digit like-for-like growth.

So, we're very happy with the progress that we're making on the FM business. We now have nearly 250 salesman out on the street with a national call center, and I think we see, therefore, a lot of progress that we made in that area. And actually the M&A pipeline in that area is looking a bit better as well. So, I think that's good.

New York is going well. We're now up to nearly 10% market share. John mentioned we've just opened a new ship hub there in Secaucus which, in fact, if anyone is coming over to the U.S. in six weeks' time you will see the wonderful new Secaucus ship hub. So, you'll hear all about it then. The start-up was a bit tricky around the edges.

I mean this was a big change for us. We weren't opening at DC. We were opening a ship hub, so delivering direct to customer from a major warehouse. But we're working our way through that but the top-line performance is looking pretty good in New York and I think we're very pleased by what we've done.

And certainly, the showroom business is going well in New York, so that's good. In terms of segmentation, it's not, by definition, it's not brand new. I mean, we've talked in the past about small customers and big customers.

The difference with that is that correlation doesn't actually work well in terms of what a small-jobbing customer wants as opposed to a small, new-build customer wants. Their needs are quite different.

So, I think it's really in the last sort of couple of years that we've been doing all the work, and we're now getting into really embedding the work and driving the propositions deep into the organization.

So, that when a new customer comes to us, we ask them the right questions so that we can segment them into the right area and then make sure we have a very targeted proposition. Exactly, I think as I sort of explained, I mean, a new build, someone building 5, 10 new houses is a contract he would have been bid against by five other contractors.

He will put his work out to five distributors. It's a bloody, competitive, tender process. Therefore, price is fundamental. But he can plan his work, okay? So, he's got the next year or two years when he knows when he's going to be needing the kit from distributors like ourselves.

Clearly contrasting that, we say a very large customer who may have 200, 300 plumbing and heating tradesmen out on the road doing emergency repairs, that's a very different need because you don't know what boiler is going to break down tomorrow. So, for those customers, clearly, we want to integrate as much as we can.

If we can, e-commerce, EDI, linkage with them so that we have real visibility of their inventory. What they need, we can replenish that. So, it really does end up with very different propositions over time. But I think, Paul, to your point, we're kind of into the first year of that now.

It's how I describe it, really making it actionable and executable on the ground. Clearly, we've had to do a lot of training with our folks as well because they're used to dealing with customers sort of just as they come into the branch. We're now trying to train our people as well to be [indiscernible].

Are you looking for price? Are you looking for service? Are you looking for inventory? So that we, again, get the right price for the inventory seekers and make sure we are competitive in price for the price pointers.

Does that make sense?.

Yeah..

Okay..

Yeah. I mean, the pricing on the U.S. private placement, this is the $800 million which is 7 to 12 years, was treasuries plus $135 million to treasuries plus $150 million is the range on those, which is an all-in cost of $365 million, Paul..

Thanks..

Good..

It's Kevin Cammack, Cenkos. Two really.

Firstly, when I'm looking at the slightly softer sales growth that you are talking about for the group in the first six months, to what extent in your eyes is that potentially a reflection of the price deflation as opposed to volume? And if there is any sense of that, that is the case, does it equally have slightly more challenging implications for gross margin in the half? And second more specific question, you've obviously seen a very – well, the beginnings of what appears to be a good recovery coming through back in the Nordics, could you possibly give us any view on where you can see margin recovering in that market over the next, say, 12 to 24 months?.

Do you want to take the question?.

Yeah. I mean, I think on the deflation side, that's a good question. I mean, there clearly has been an impact of deflation in the second half and the drag of that on the top line in, for example, U.S. blended branches is about 1.5%, so this is not an insubstantial impact. That is principally from copper by the way.

That's the biggest individual contributor. But we should have seen the impacts of that on margin. So, the drag of that at bottom line is probably about £10 million on the group numbers. Now, really, a question going forward, if commodities are stable at where they are, that washes through our inventory pretty quickly.

We only keep 30, 40 days of commodity type inventory around at any point in time. So, by the end of September – if prices stabilize on the 1st of August, by the end of September, you wash it all through on average. So, I'm not sort of excessively worried about the gross margin.

It is just something that we have to manage with, and as you know, we do manage with over time..

In terms of the Nordics....

Yeah..

the market helped us a bit. We've gained good share. It comes back to John's point, we did work hard around the service, the product availability, the core range that we had in the branches. And I think that we've talked about this in H1. We put more resources in terms of sales resources out in to the field which have given us good growth.

And I think the teams did a good job holding on to the gross margin at a time when the market was growing and we were beginning to get a little bit more of new build coming back our way so that we'd expect to continue to make decent progress in terms of margin growth and margin expansion in the Nordics.

We're down now at around about 4%, so we're 3 percentage points off with our peak. Now, the peak was very peaky given that it was a P/E business, we've the business for Wolseley at the time. But anyway, we're still a long way off. But we do now need four odd years of good market growth to be able to recover to those sorts of margins.

I mean, I think if you look back in the past, we've shown that we can recover sort of 30% – 0.3%, 0.5% of our margin point when we hit good top line growth and keep our cost base well under control. That's the sort of growth we'd expect to see..

Thank you..

Anymore? All right. Thank you very much. Thank you..