Mike Powell - CFO John Martin - Group Chief Executive.

Howard Seymour - Numis Aynsley Lammin - Canaccord Genuity Gregor Kuglitsch - UBS Charlie Campbell - Liberum Capital Limited Chirag Vadhia - HSBC Karl Green - Credit Suisse Clyde Lewis - Peel Hunt John Messenger - Redburn Ami Galla - Citi.

Good morning everybody and welcome to our Full-Year Results Presentation. You’ve got Mike and I presenting this morning. You’ve got our Chairman, Gareth Davis, he is not presenting, but he is here with us too, and Tessa is with us somewhere in the audience as well. So nice to have some of the non-execs along.

Look, from a performance perspective, our strong organic growth of 7.5% last year, that arose from a combination of good market conditions and continued outperformance across North America, particularly in the U.S where we posted organic growth just shy of 10% and we continues to take market share across the business.

We are very pleased with our gross margin performance, up 30 basis points over the year and ahead of our expectations. That really reflects two things. Firstly, it reflect our compelling value proposition, but it also reflects the ability of our sales associates to capture a fair share of the value that we add in the pricing to our customers.

Costs were in line, so trading profit was up nearly 15% and our cash conversion was good, despite some headwinds from tariffs in the second half. Later on Mike is going to explain the rationale for the rebating of the dividend, which we grew 21%.

This does reflect our confidence in the business going forward and our confidence in the long-term growth and profitable growth opportunities in the business.

You already know about the substantial capital returns that we made during the year, continuing our policy of returning surplus cash to shareholders and rewarding them for their continuing support of our company.

From a corporate perspective, we continue to focus both on management and our financial resources where we are best equipped to win over the long [technical difficulty]. During the year, we successfully completed the exit of the Nordics and we returned the proceeds to shareholders. We've also started to -- the process to sell Wasco in Holland.

This is a really good business with excellent management, but we got no route through to market leadership. We can generate better returns in North America. During the year, we also got out of the wholesale business in the U.K. that just generated returns for shareholders which were below our threshold.

The most significant progress, though, last year, it isn't in the P&L or the balance sheet, but it is in the continued strategic development of our business. It's that that we’re most proud of and that’s where we are going to spend a little bit of time talking about today.

But first, Mike is going to take us through the operating and financial review..

Morning. So 2018 has been another good year for Ferguson, had revenue growth driven by the U.S and Canadian businesses. We delivered revenue of $20.8 billion. Gross margin 30 basis points ahead, as we continue to deliver incremental year-on-year improvement. Operating costs well-controlled and we achieved good flow through in the year.

Trading profit just over $1.5 billion, $200 million ahead of the prior year with a trading margin of 7.3%. Headline EPS up 21.4%, net debt at the end of the year touch under $1.1 billion and we’ve increased the dividend by 21%.

Getting into some of the detail of that and you can see on Slide 7, revenue growth in the U.S continue to improve through the year. Supported markets, we’ve some inflation in the U.S., but increased during the year. It is about 1% in Q1 growing to about 3.5% in Q4.

We presented the U.K on a like-for-like basis on the slide to remove the impact of those branch closures, and the exit of the low margin business that John just touched on, that really helps to provide a better view of the underlying business and you can see on a like-for-like basis therefore in the U.K broadly flat for the year, pretty tough markets, inflation around 3% in the U.K.

Canada and Central Europe revenue grew well, slightly lower level of growth in the second half as that laps tougher comps, inflation in Canada and Central Europe around 2%.

And as John just mentioned, we initiate the process to sell Wasco, the remaining business in Central Europe just so we’re really clear, given that decision was made after the balance sheet date, those numbers are included in the numbers that I present today, clearly the next set of numbers, the next time I talk to you we will exclude Wasco and show it as a [non] [ph] ongoing business.

So moving to the breakdown of revenue and trading profit, on the left we bridge the 10.1% revenue growth from the 18,845 million last year to the 20,752 of this year.

You can see the adjustment for foreign exchange of $229 million, giving constant currency growth of 8.8%, acquisitions were 1.3% and therefore the underlying -- the organic growth of our business at 7.5% for the group. On the right-hand side, a similar chart bridges the 1,307 of prior year to the 1,507 just delivered.

FX adding 7, acquisitions adding 8, and the organic growth adding $185 million of trading profit. So moving to the regional performance, first our largest the USA, which delivered a great performance. We’ve continued to outgrow those supportive markets in all of our businesses to deliver good revenue growth.

Gross margins ahead due to improvements in procurement and disciplined pricing. And as we guided at the beginning of the year, labor cost inflation was 3% to 4%, operating expenses well controlled leading to good flow through slightly better than we guided at the beginning of the year.

Trading profit came in at $1,406 million, $202 million ahead of the prior year and trading margin of 8.4%, 40 basis points ahead of last year. And you can see the breadth of that organic growth in the U.S on Page 10. It was broadly based geographically and across all of our businesses. Blended Branches growth across the country was good.

As you can see in the chart, on Waterworks continued to grow well. Turning to the end markets in the U.S., we’ve shown the market growth and separately our organic growth here. Residential markets have continued to grow well, driven by the strong growth in RMI that represents the majority of our revenue.

Commercial growth has increased slightly towards the end of the year and our growth has increased in line with that. Infrastructure markets also growing. We had a pick up towards the end of the year and industrial markets continue to improve as the year progressed.

And overall, importantly, you can see that we've outgrown the market, again we’ve over performed those markets by some 3% to 4% overall. In the U.K., we are disappointed with the results. We’ve continued to execute the restructuring program against the backdrop of a tough market that’s showing few signs of improvement.

The restructuring actions will help us build a better business here, though that will take some time, and John will cover more on the U.K a little later in the presentation. Revenue in the U.K was lower at constant currency from the impact of those closures and the exit of the low margin business that happened midway through the year.

Gross margins broadly flat. Costs a little lower and therefore trading profit of $73 million, some $29 million lower than the last year on a constant currency basis. In Canada and Central Europe, good solid year of revenue and profit growth in good markets. All businesses generated good revenue growth with industrial growing strongly.

Gross margins up on last year due to improved procurement and mix. Operating costs well-controlled and we benefited from a one-off legal settlement here of about $6 million, which is in the numbers. Trading profit was $83 million, $17 million ahead of last year on a constant currency basis and excluding that one-off gain.

On to Slide 14, during the year, our Swiss associate made a number of market announcements regarding difficult trading conditions, which generated a trigger for management to reassess the recoverability of our investment. We’ve assessed the carrying value of the investment and taken an impairment charge of $122 million.

Exceptional costs in line with expectations totaling $82 million, most of those in the U.K. as expected. Financing and tax on the next slide, financing charges came in as expected, slightly lower than last year.

This was in the main due to the lower level of average net debt through the year, as of course we have the proceeds from the Nordics before we gave those back to shareholders and tax was as expected with the ongoing effective tax rate of 25% for the full-year, lower than last year due to the reduction in the U.S corporate tax rate.

Good cash generation continues to be a key strength of our business. Cash flow from operations of $1,323 million also includes an additional $99 million that we chose to put into the pension fund this year.

Interest and tax outflows materially lower year-on-year, reflecting the reduction of the U.S corporate tax rate and also the timing of some payments, and capital investments pick back up to the level as we guided. Good year of acquisitions. As guided at Q3, we close a number of acquisitions in the final months, total 13 acquisitions in the year.

John will talk about strategy behind a couple of those later on. And the cash received from disposals you can see on the slide predominantly relates to the Nordics business. Returns to the shareholders just over $2 billion through dividends and buybacks, and we finished the year with a net debt just over $1.1 billion.

So on Slide 17, that all means that we finish the year with a strong balance sheet, net debt to EBITDA of 0.6x. The pension liability of previous years is turning to an asset, that was mainly due to the contributions we put into the pension fund.

And I’ve also included here operating lease commitments remained pretty similar to the year before at [technical difficulty] billion. So looking ahead to next year, we thought it would be helpful to give some [technical difficulty]. I’ve included the effect of the completed acquisitions. Most of those were in the USA.

I’ve also included the details of Wasco there as well, so we can pull that out into non-ongoing. U.K. exceptional costs, I would expect both income statement exceptional costs and cash of about $30 million. Most of that will be in the first half of the year as we continue with the restructuring program.

And with the recent acquisitions and with the recent capital deployed, the average net debt will be higher this year and I would expect interest therefore to be nearer the $80 million mark. Effective tax rate for FY '19, I would expect to be between 22% and 23% as we get the full-year benefit of that reduction in the U.S corporate tax rate.

Due to Swiss tax reform announced last week, we do expect the tax rates will push higher by about 3% to the mid 20s in the medium-term. Timing is uncertain on that legislation, but it could be as early as FY '20. Capital investment will be higher in FY '19 as we invest in new facilities, particularly new distribution center in Paris.

Again more of which later and under working -- underlying working capital assumption, I don't see any change to normal absorption rates as we grow the business of around 12% to 13%. So, finally, I want to remind you of our capital allocation priorities. You can see that on the top off the slide and I’ve covered these in previous sessions.

No change to our capital allocation policy. We continue to generate strong cash flow and the balance sheet remains strong.

However, having reviewed previous cash generation and future projections, we have increased the level of dividend paid by rebating upwards the dividend by 10% and then applying 10% growth to that, and that compounds to a 21% increase in the year.

So given our cash generation qualities, balancing the capital requirements of the business, we believe that rebating is entirely appropriate, and at this level entirely sustainable moving forward and also reflects our view of the ongoing strength of the underlying business.

The Board remains committed to a progressive dividend policy and we expect to grow dividends through the cycle in line with long-term earnings growth. So with that, let me wrap up. Very pleased with the 2018 results. Good earnings, strong cash flow and a strong balance sheet, and therefore in good shape going into 2019. Thank you..

Thanks very much, Mike. Now these are the strategic priorities that we’ve set out before we are going to focus on today, particularly, on those strategies which are -- which we are using to generate the best profitable growth in U.S. When I joined the company back in 2010, the Group had more than 50 businesses across 20 countries.

Now we are focused on 15 businesses across 3 countries, where we're well-equipped to win and also to make most attractive returns. Upfront on this chart, just a reminder of the markets that we operate in the U.S. This chart shows our nine strategic business units with our estimated market share in each one.

We are the market leader in a number of these. Where we aren't the market leader, we've helpfully named them on those charts. You can also see the other large competitors in the space. Those are in that mid blue color with a number of large competitors, that’s any competitor with broadly speaking more than 1% of market share.

The message here, there is a lot of gray on this chart. And that’s because we generally operate in very fragmented markets.

Why does each of these businesses make sense to us? Well firstly, from the circles on this chart, you can see the extent of the shared infrastructure between those nine business units, leveraging our assets across those business units generate very attractive financial returns.

Secondly, just down at the bottom, if you see our other large independent competitors operate across the first six of these businesses. That’s because some of our customers also operate across some of those segments. And if we didn't operate in them, we would be at a competitive disadvantage. Thirdly, all of these markets are attractive to us.

We generate strong growth. We took market share in the -- in each of these markets. We generate decent gross margins, good net margins and excellent returns on capital in each of these segments. That was good for our customers, it's good for our suppliers, it's good for our associates and it's also good for our shareholders.

Now all the focus on financial results, we don't spend too much time with investors, with analysts, with yourselves talking about some of the cultural aspects of our business, which really differentiates us in the marketplace, even though these things are very important, we showed on the charts last time.

Looking back over last year, last year was a year of significant change in the leadership of our business. After several years as COO of Ferguson Enterprises, it was Kevin Murphy's full-year as the leader of the U.S business. That handover from Frank Roach was seamless.

You can tell that from the excellent financial results in the U.S., which the U.S team has produced under Kevin's leadership. The whole of the U.S team should be very proud of that. But just as significantly has been the progress in developing and implementing our operational strategies, that has been truly outstanding.

In Canada, Kevin Fancey joined as MD of Canada. He has bought a really fresh perspective and a real operational focus to the Canadian business, which also had its best year ever. And in March, Mark Higson joined as MD of Wolseley U.K.

He's been very focused on getting clear accountability and driving availability and service, which are now improving rapidly. We decided last year to relocate some of our support functions, the functional leadership of technology, of HR, of legal and compliance over in Virginia.

And that substantially improved the leverage that those functions have within our business sharpened our focus on what's most important for our business.

Our strategic initiative in innovation and our renewed focus on own brand, I’ve been brought to life by allocating some of our most senior and best talented associates to those initiatives, both very significant commitments.

And in addition, we bought more senior operational resource on to the executive committee from Ferguson Enterprises, really reflecting the shape of the group going forward. All of those leaders now, they’ve been focused on making sure that their teams a well-equipped and properly organized to drive our business over the coming years.

But what about the leadership in 10 or 20 years time in our group? We recruited 2.5 thousand associates last year. The recruitment, the training, the development of talented graduates has been a cornerstone of our culture since the foundation of Ferguson Enterprises.

This year we are recruiting a further 600 graduates from some of the top universities in America. As they join our company they get five months of specialist training in their chosen discipline in groups of about 10, in training centers around the country.

And there they learn about our service culture, they learn about our sales process, they learn how to use our technology, they learn how to run our branches and showrooms. Trainees are also supported by an assigned mentor.

That mentor guides and inspires them during that training program, so that they can have maximum impact when they move into the field. And when they’re in the field they can expect to move between inside and outside sales, between the counter, the warehouse, credit management, anywhere else in the business.

Later on many of them will pursue opportunities either in other business units or in other disciplines or geographies across the company. Ferguson is a great place to develop a career in a service oriented business with a passion to support our customers to grow profitably and the ambition to be number one in our marketplace.

Our culture and values are very attractive to bright ambitious people who want to work in a customer centric organization. That’s why more than 7,500 graduates chosen to join Ferguson and to develop their careers with us. If you look at our latest associates survey, this gives a glimpse of the type of company that we are.

Over 90% of our associates feel confident to recommend Ferguson to potential customers and the overwhelming majority of our associates feel that Ferguson is a good company to work for.

Now it's our job and our commitments to take the actions that move those ratings up even higher as we go forward and to make sure that the leadership lives up to the expectations of our associates as well as our customers and suppliers.

Now I would like to touch on some of the other drivers of profitable growth today, which are particularly relevant right now. As Mike said, we’ve been pretty busy on acquisitions last year, particularly in Q4, since then we’ve done another $240 million of acquisitions across the group.

Going forward, we got a number of pretty attractive acquisitions in the pipeline. Several of those we expect to conclude later this year. They would add $300 million to $400 million to that total investment, and of course further opportunities might arise going forward.

That would bring in the last 14 months that 650 plus that $300 million or $400 million, that would bring us to a $1 billion shortly this -- later this year. Most of the opportunities in the pipeline now offer bolt-ons that would expand our existing branch network.

Another part of our strategy is to accelerate penetration of own brand products and categories. You might remember two years ago, we bought Signature Hardware. This is a high-end own brand bathroom business based in Cincinnati. We took the Board there, actually earlier in the summer.

It was great to see that the progress the business has made, particularly in making products available to distribute through our channel through the showrooms and also to our online customers. Just on two other great acquisitions in the own brand space.

Safe Step specializes in walk-in tubs and showers that provide easier access often to customers with restricted mobility. So if any of you are interested, there are buying opportunities available. The business has a direct sales model that utilizes independent sales reps, which fits neatly with our ambition to leverage more of the rep community.

The equipment installed by third-party installers and that will extend our installation capabilities, we will also leverages through our showrooms, through our residential and commercial channels, and our supply chain to generate synergies. All the manufacturing in the Safe Step is contracted out onshore in the U.S.

Now Jones Stephens, we’ve just completed this acquisition. This supplies distributors and retailers with own brand residential and light industrial rough plumbing and some specialty plumbing products, both sourced in the U.S and overseas. These business is a very high-quality businesses with good margins and a strong track record of profitable growth.

Now we still expect the majority of our own brands expansion to come from organic investments and that’s particularly in the people needed to both design, source, QA, import, market sell these products in our chosen categories.

In our own brand products what they do for us? They extend the range that we can offer to our customers ensuring great value and great quality. Just take more work on our part and it also means that we have to make a larger investment in inventory.

On the slide here you can see some of the own brands that we use in the U.S., but we could've included Frederick York or Meridian Valves or Soak or anyone of a number of brands that we also use in Canada and the U.K. Let me just touch on a couple of examples.

FNW, which you can see there, this is a brand which focuses on commercial mechanical applications. It includes a range of valves, hangers, clamps, support systems, really recognized in the industry as quality products, backed up by excellent technical and specification support.

ProFlow, which is up there on your right, this provides trade plumbers and builders with a wide range of quality fixtures, faucets, rough and specialty plumbing products, which represent really great value, particularly in the commercial space. We plan to extend our lighting range.

We will develop categories are underserved by suppliers or where there is insufficient choice for our customers, including groove fittings, push fittings, PVC fittings, fastenings, clips, hinges and also further expansion of our JanSan range of papers and lines.

Now in recent presentations, we focused on the opportunities to significantly expand our share in markets like New York and in adjacencies like Waterworks. We want to focus a little bit more today on another market, which is Miami. This is a huge market for us.

The eighth largest metro area in the U.S with growth both from immigration and migration from other cooler parts of the country. Local development -- developers sorry, got very ambitious plans here both for commercial and for high-rise residential developments in the Downtown area.

We already have an exceptional business here worth more than $400 million a year. And we have good market share in Waterworks, you can see it on the chart in commercial and showroom. But if we can move our residential trade to what we refer to as best-in-class, that’s another $400 million opportunity.

Now in Miami, demand for luxury condos is growing very strongly. These projects are large, yes, we’re usually supporting general contractors, helping them to win in a competitive auction and then supplying them over quite long construction cycles. These projects fit into this chart last time on customer wants in many places.

Let's just dig into the project support role. These large-scale projects, we don't just take orders and get the product out of the door as quickly as possible. We have specialist project managers. They’re equipped with the right software to make sure that customers can control the call up of orders throughout the project.

We got specific delivery and install managers making sure that all the various parts of the project to delivered at the right time and the right place on the site to minimize double handling for the customer.

Specialist contract administrators make sure that change orders, cancellations, returns are processed efficiently, they’re billed accurately and also that the accounts are appropriately reconciled. And all the tools, some of which you see on the chart, we share these collaboratively with the customer.

It gives them the best visibility and the best service. Now last year we’ve also continued to drive e-commerce. This is now 23% of sales. We implemented new B2B platforms in the U.S and Canada and the U.K last year with no interruption to our service.

That’s enabled customers to enhance the -- to access enhanced functionality some of which you can see on the slide. They demand, they need this more sophisticated functionality to add value to their business and that's a key area of focus for the team.

We are focused on driving not just the transactional aspects of ecommerce, but improving the customer experience through the use of technology. Now Mike reminded you of the investment priorities. The first and most important priority being reinvestments in organic growth.

We talked about investments in new associates, we’ve also made some substantial capital investments and capital commitments during the year. And just to give you a flavor of some of them, we have a 1 million square-foot distribution center in Paris.

I got a call earlier that said, are you going back into Paris? No, this is Paris, Southern California, okay? That’s going to come on stream next year. That will serve all of our business units across the region. In Baton Rouge, we are developing a 70,000 square-foot facility to accommodate the strong growth in our industrial markets.

In Holly Springs, North Carolina, we are building a 100,000 square-foot primary ship hub servicing the branches in the Raleigh area. In Indianapolis, 120,000 square-foot facility. That’s a ship hub, which consolidates a number of other small units. Those four investments represent $170 million of investments.

They include a number of hubs and that's important, because this enables us to consolidate final mile delivery in metropolitan areas giving customers the best access to the deepest range of inventory and also providing greater opportunities for efficiency in our distribution.

And to all this, we continue to review the suitability of all of our sites we actively look to relocate facilities where there are better sites available and also, of course to support the future growth ambitions wherever that’s appropriate. As we grow, we also continue to invest in working capital. This is needed to support our customers.

We added $400 million during the year of additional inventory and receivables. Now clearly part of that is financed by payables, but we do have to make these investments as we go along.

Couple of years ago when we had headwinds from industrial slowdown in commodities, we were rather keen to get back to business as usual and get our growth rate back up. You can see now it's great to be back north of that 8% level.

Even if that was partly attributable in the second half of the year both to some inflation and strong recovery of industrial markets. Right, moving on to the U.K. As Mike said, firstly, we are disappointed. We are very disappointed in the financial results of the business last year.

The results do reflect a difficult and very competitive underlying market. We made some good progress in some key areas, but there are a number of things, frankly that we need to do much better. Sign-on glass technology has been implemented across the network that is delivering results.

Branch replenishment has been moved to in right, that’s a big investment, but that also will yield significant service benefits going forward. The Wholesale business is being closed. That was painful, but it was necessary. And we significantly reduced headcount in the support functions to reduce the cost base by $30 million.

In the second half, we recruited a new management team. And that was to improve the execution, the pace and the focus of the business. They’ve reorganized their leadership team and created original structure to drive performance. Some of the other valuable initiatives are in process, but frankly should've been completed before now.

The range has been simplified and revised, rebranding will be complete now in the first half and we piloted the destination branch formats. We need to make sure now that those are going to yield the appropriate benefits before rolling those out. We've introduced non-discounted pricing, but there's a lot more work frankly to do in that area.

Most importantly, though, Mark and the team, they are rebuilding availability and developing service levels.

So there are some important parts of the transmission now that are going to be complete at this year including the closure of excess DC capacity and the relocation of the U.K support center in Leamington, also improved pricing and rebate controls and implementing better demand management systems.

As Mike said, we do think that the central principles of the transformation plan remain valid, and they will lead to a more robust and better business. As an aside in the U.K., the infrastructure business and also soak U.K., those businesses have continued to do very well increasing -- both growing and increasing profitability during the year.

Wolseley Canada had another great year. Good growth and a supported market and impressive gross margin expansion. We are pursuing some clear and very valuable strategies here both to develop our service proposition and also to improve the quality and sustainability of the business.

But the new warehouse management system implemented in Montréal, in the new DC there, an improved demand management software that’s continuing to drive availability. We’ve also got implemented new systems for rebate management and a new customer loyalty platform.

We joined the OCTO buying group and that’s enabled both benefits of scale and also further improvements in gross margins. We invested in more resources to drive own brand sales, including a new sanitary brand and a new hand tools range.

And as I said before, the business also implemented a new e-commerce platform that’s continued to expand usage, got an exit rate there of more than 15%. And the team has also won and renewed some very important accounts during the year.

The business now is better positioned than it's ever been to execute bolt-on acquisitions and the team completed three smaller ones during the year, one since year-end.

Now on the innovation front, our customers facing today unprecedented challenge is with the shortage of skilled trade professionals and also the needs to improve productivity in the construction cycle.

We created Ferguson Ventures to help us to discover, to invest in and partner with companies from startup states to accelerate the use of emerging technologies and new business models in our business. The team is based on the West Coast.

Its partnered with Rocket Space, which is a Silicon Valley accelerator and that’s brought some startups and us together in our chosen areas of focus. We've also created an innovation lab, and the purpose of that is to explore industry changing technology and business models and to do specific trials within our business.

Ferguson Ventures, we made our first investments. That includes, for example, here on this chart you can see a company that provides software and services in the bin space.

Yes, they’ve got a cloud-based solution and that assists mechanical, electrical, plumbing professionals to develop workflow solutions to help them to plan to collaborate to order fabricated track jobs.

It's very early days for Ferguson Ventures and also for our innovation, but we are learning what is out there, and we will figure out how to capitalize on it. Let me finish up with the outlook. Look, Mike showed the market growth in the U.S over the last year. Just touch on what we are seeing right now.

Regarding the residential markets, new residential volumes are pretty steady and selling prices have risen. More importantly for us the RMI market remains good with growth around 7%. Commercial markets ticked up a bit actually over the second half of the year.

So the full-year growth rate were about 6%, and industrial markets also continue to grow strongly into the double digits in the second half of the year. The Canadian market also continues to grow well, slightly softer there towards the end of the year. In the U.K., the heating market remained pretty flat at best. Let me also touch on tariffs.

These originally targeted commodities now put up the cost for example of imported steel pipe, domestic manufacturers absolutely followed suit. Since then, there have been three rounds of tariffs, applied to finish products. The latest of which was introduced last week, that will have the widest impact.

The most significant impact interestingly so far has been on Canadian importers of U.S manufactured goods, because of course they -- essentially their supply chain is impacted by tariffs in two places. [Technical difficulty] on customers [technical difficulty] materially impacted by this.

[Technical difficulty] customers, we’ve let them know what's going on. We told them we don't expect supply to be disrupted in any area. We do expect one or two prices to go up. You can get an idea of the magnitude of that from the data that we put into the appendix, which covers direct imports.

Regarding the impact on Ferguson, look, we expect to recover increased input prices in our selling price, and today we don't expect this to impact our P&L in any significant way. Finally, look, the outlook. During September -- sorry, August and September, growth rates, broadly in line with growth rates last year.

August is a little bit higher, September is a little bit lower, order books, they’ve continued to grow absolutely commensurate with decent continued growth rates going forward in the coming months. Thank you all very much for listening. Now, Mike and I would be very happy to take all of your questions..

Hi. Howard Seymour from Numis. It's a couple really. I suppose one is partly on the tariffs, which you alluded to the fact that the industrial has been stronger and growing and also price inflation has been strong. [Indiscernible] some of this is a sort of lapping of what we’ve seen on the weakness over the past two years.

As you look forward, when do the comps start getting tougher on that? Do you perceive that this is sort of the growth in the industrial, because you alluded the fact that it's actually accelerated, can continue i.e.

its underlying growth and similarly on the tariffs with the tariff position, does the price inflation remain at similar levels to where it is at the moment?.

Thanks, Howard. On the industrial side, we saw a tick up in the markets in the second half and also growth rates. So our overall industrial growth rate was 20%. If you look where that growth -- I’m sorry, that’s in the standalone industrial branches, which is three quarters of the industrial product that we sell.

That growth came really from three areas. There were a couple of larger projects in there worth bottom line $5 million. There has been some decent growth in Texas, which I think we could say it was oil and gas related, that’s probably about a third of that growth, and the rest is more broadly across the industrial customer base.

Does that answer your question? Does that? And I think it's not really until the second half this year that we will face, sort of those comps.

Go on, sorry your second was on tariffs?.

Pricing, because obviously what you’ve seen a price recovery oil related.

There was an element of lapping [indiscernible], do you see the price inflation will remain at the sort of levels that you’re seeing at the moment?.

More broadly or for industrial?.

More broadly, sorry..

Yes, we’ve asked a lot of our suppliers what their intentions are with regarding tariffs. Now actually more modest than you expect, there's still a lot of our product which is manufactured domestically, the large majority of our product is manufactured domestically in the U.S.

There are some suppliers that are looking to put up prices higher than usual, but if you look at the -- if you look across the larger vendors, they’re talking sort of 3%, 4%, 5% even when they have quite a lot of imported products. There are quite a few vendors who have no intention of doing anything unusual with pricing.

So, Mike, in terms of the overall, do you want to just give a comment on the overall inflation, Mike?.

Yes, I mean, nothing -- it was probably behind your question Howard, which is we saw the second half inflation increased and therefore you probably see the harder comps come through in the second half just building on what John said.

So does that help?.

Yes..

Thanks. Aynsley Lammin from Canaccord, just two, please. Wondering if you could just give a bit more context around the absence of any share buyback or special dividend? Does that just reflect the fact that the pipeline on acquisitions is stronger? Is there an element of caution just where we are in the cycle? Just interested in your thoughts there.

And then, secondly, just on cost inflation, maybe the ease of finding kind of drivers and labor inflation rates in the U.S. wonder what your views are of the trends over the next 12 months? Thanks..

Yes, the interest in your phrase of absence of buybacks, we’ve only just finished the last set. I think we’ve absolutely delivered. We’ve got a very clear capital allocation policy.

I think your question is probably relating to the net debt EBITDA being at 0.6 at the end of the year, is that correct? Yes, so if you just -- let me share how I think about that. If you add on the acquisitions that we’ve done since the year-end that 0.6 [indiscernible]. I’ve got a good pipeline of acquisitions ahead of ourselves.

And of course we always have our busy season of investment in working capital up to the sort of December, January.

So I think I would be sat here at the half year talking to you with the net debt EBITDA of one point something, somewhere between 1 and 1.5, that’s sort of how I tend to think of ourselves as being checked today rather than the 0.6 that you might see in the accounts. That’s absolutely within our range.

I think also you've heard John talk about, we have got something like $450 million of CapEx guidance investing in the organic part of the business. That’s what I call box number one on our capital allocation. We talked about the dividend already. So we are increasing the dividend and the pipeline looks pretty good. We just talked about that.

So I think with all that told, that really says that we always continue to monitor. None of those are mutually exclusive. As a Board, we continue to review, do we have surplus capital? Nothing. We’ve also got a record of demonstrating that when we believe that we do have surplus capital we do get it back on a reasonable prompt basis.

So again, I think we keep it front and center. I don’t think you should be too worried that we're at 0.6, and underlevered. We’ve got good uses of that cash. And if that pipeline does dry up or we can't execute on it, clearly we will continue to look through those -- throughout that waterfall as we call it. Does that help? Okay. Cost inflation.

Should I carry on? Cost inflation, I think it's pretty similar to last year. I think labor, we would expect to be in the U.S. about 3 to 4, and we have managed drivers very well actually.

We -- some couple years ago brought a lot of our drivers in-house partly because we wanted to control those drivers and for health and safety reasons actually, as it happens in this recent period, that’s actually benefited us too. So I think there's no change in our cost inflation base sort of '19 over '18. We clearly keep an eye on that.

But as John says, whether it's tariffs or cost inflation, our job daily is to make sure that we're helping our customers win business and making sure we are passing through those cost increases and helping our customers to do that as well with our service levels, okay?.

Gregor Kuglitsch from UBS.

Can I just comeback on the acquisitions? I don’t know if it's as simple as dividing roughly the $650 by the $40 million to kind of get us into the multiples that you're paying? I’m probably not quite accurate, but if you can give us may be some color on what kind of multiples you’re paying, I guess, that's on pre-synergy basis, and then how you think over time those multiples evolve as you integrate the bolt-on? That’s question number one.

Question number two is, on the flow-through rate, I guess overall you’ve given some color on cost inflation. Obviously, last year was a good year. Any color you would like to provide for the year ahead would be helpful? Obviously, I guess it does depend a little bit on the level of growth as well, especially in the U.S., and I will leave it there.

Thanks..

So I will do the first one. You do the second one, good. I think on the acquisitions, they really fall into two categories. There are -- and we're only talking about buying quality businesses.

But it is important that we get them integrated and those integration costs, we routinely -- as you know, in the U.S., we’ve always charged those directly to P&L and we get on with this.

There was one acquisition in the year which was at a reasonably sizable which was not at that point profitable, but we were very, very positive with that synergies that we were going to generate from that business. Other than that sort of an outlier like that, the multiples haven't really moved very much.

We are still paying normal multiples that we paid over several years and we expect to get benefits usually that are buying benefits for bolt-on -- for bolt-ons of a couple of percent on gross margin and then we are more efficient on the back office there.

So usually multiples are coming down by sort of 2x -- in a multiple of 2x or 3x earnings within the first 12 months, that's pretty typical. But there's no change really overall on the multiples that we’ve paid for good quality businesses..

In terms of the flow-through, I mean, again, I think we have been consistent that in good markets we would expect the flow-through to be high single-digit, whether that’s 9, 10 or 11, there's no change to that guidance at all. So I think -- and certainly the notes I’ve seen this morning, I think are expecting us to flow-through.

It's about 10% in good markets. So no change there..

Morning. This is Charlie Campbell from Liberum. I’ve got three. One of the first one is quite quick, just following on the acquisitions, obviously a step up in activity.

Is that because vendors are becoming -- choosing to sell as it were or you were looking harder? Is there an element of that there? And the second question, I suppose, which may be related just thinking about the U.S residential RMI cycle.

You’ve told us you’re very confident, the strength of that, but clearly mortgage rates rising and others perhaps less confident. So just wonder where the mortgage rate ties in with confidence on U.S RMI? Then the third question on the U.K. You talked about another $30 million I think of restructuring this year, if I heard right.

Just wondering where that is.

Is that really further more branch closures? Should we be thinking of that when we’re modeling the U.K going forward?.

Yes, thanks. Look, on the M&A we have absolutely been looking hard and working hard and trying to find the acquisitions that we wants to do, that's the key here. So there is part of that -- part of this is just -- what did you say last time? It's like buses. They come along in threes or whatever.

There are sometimes even more, but so we’ve absolutely been working hard to find the acquisitions that we wanted to do. First point. There has been a step up in opportunities. There has been a marked step up for example in the industrial space. You'll see we haven't really done a lot in there.

We are very selective about what we're pursuing here, very selective. So whilst there is a step up, it's a step up that we absolutely wants to do, we’re in control off. This isn't just people putting their businesses for sale and hey let's buy anything in our space. It needs to fit culturally with our organization.

It needs to be a quality business, people need to wants to join. They need to want to be part of the Ferguson story. For example, all of those things are very important to us having the right margins and the capability for us to add value through synergies as well.

On the sort of RMI, I think if you look at some of the lead indicators, for example, LIRA, we still see that remaining a pretty positive indicator today.

Clearly, if you look back, I remember sort of four or five years ago, we said well, if we are not going to get 10% growth in new build, how is the market going to carry on [indiscernible] whatever else. And -- but I think that we’ve shown that in a market of 1.2 million or 1.3 million new starts in the U.S., we can do very well.

So we don't need to see those new starts really stepping up. You can see new starts in the U.S., it's about 70% of our business. Fine, that’s good. Its good business. We like doing it. Its good margin. We can do it well. Absolutely, our customers want the service.

But it's not at levels that it was at a decade ago, but prior to the year-end financial crisis. I think the other sort of indicators in an RMI, affordability. To us when you look at the affordability levels, they still seem to be okay, actually close to the long-run average.

And so most of those indicators to us still suggest continuing decent demand and certainly they are suggestive of a market which we can continue to press on and do well with.

Mike, do you want to cover the …?.

Yes, in terms of the U.K., as I said, I would expect all of those P&L and cash cost to be in the first half of the year. That’s where the balance of the program that was announced a couple of years ago. The three main items in that are all public and are being worked on already and it's really three main buckets.

One is the rebranding and getting the sites under one brand and in fit the purpose state with the new product range in them. The second one is the closure of the national distribution center up in Leamington Spa and the sale of that land at Leamington Spa. That land is held in assets held for sale.

And the third one is the continuing roll out of the IT system. Those are the three main buckets of which we’ve got left to complete by the end of the half year..

Chirag Vadhia, HSBC.

Could you talk a little bit more about the investment in the organic expansion that you have, just some details on whether what the $400 million is going into in the inventory types? And then also little bit perhaps on what sort of savings you see from any of the branch closures and where that's being spent into the expansion? Thanks..

Yes. So -- we got the chart with the four specific projects on, that’s $170 million actually of the $400 million. And then there is a fairly normal mix of technology, refurbs, some new for example showrooms and those types of investments. So I don’t think there's anything out of the ordinary.

It looks a little bit strange this year because it's sort of a little bit higher, but we were a bit lower last year. So I think we just got -- that is just because one or two of these are a bit lumpy, I’m afraid.

If you look at the investments in working capital, just a reminder, our investments in working capital is absolutely proportionate really to the growth. We make incremental improvements, but it's really pretty proportional to the growth in the business. I think going forward, there's a little bit more inventory required for our own brand investment.

But from a big sweep of the -- of history and a balance sheet perspective, it won't make any difference to the investment returns..

Thank you. This is Karl Green from Credit Suisse. Just a couple of questions on own brand, following on from that point. Can you indicate how fast it's growing overall including the M&A. And also organically I guess thinking about the penetration is proportionate to the other overall sales.

It's probably we haven't run quite hard to keep up with the good growth that the U.S is seeing overall.

So just some indications as to how that’s performing, because I’m wondering if it had any obvious or notable impact on the gross profit margin or indeed the EBITDA margin? And then following on for that, just to your comment about most of the own brand manufacturing or contract manufacturing taking place in the U.S., are you minded at all to consider perhaps cheap M&A opportunity overseas where there might be a discount available for the uncertainty around tariffs? Thank you..

Yes. It's a great point about the growth.

We did struggle last year actually to stay up with the growth, but we were putting resources in throughout last year for this initiative, which really if you look it just takes time frankly to do all of this specification, the design work to go out there source product through all the QA, all the importation stuff that you need.

And then actually interesting, one of the things that we've learned along the way is you can't just land this product into a distribution center and think it's going to sell itself. Our vendors travel around all of our branches constantly trying to excite our salespeople and our branch people to sell their products.

And we have to do the same slightly strangely, with our own product, just telling people, oh, here's a product please go and sell it.

No, actually they need to believe this is a good quality product with a good pricing point and it's suitable for this application in the circumstances you got to go and provide all the support that’s needed to sell that into the business.

But what I will tell you is my challenge to all of our teams is that I want us to get own brand growth at double the rate of growth of the business. We are not there yet, all right. Now what that would actually tell you if you work the math back, with the acquisitions we’ve just done, I think we’re at 8%, Mike.

So, it would tell you that we were gently drift up from 8% to 9% to 10%, 1% broadly a year I think it's the way it sort of broadly would work. I would love to see that. We didn't achieve that last year, but actually if you look back over three years we went from 5.6, I think to 7, now to 8.

So -- but it's still a relatively modest part of the part of the business. It does -- it is accretive to gross margins, but of course we have to do more work down beneath the gross margin line. All of that resource that we have to put in, we just have to do more work. There is a reason that margins are higher, let's put it that way.

Does that answer your first -- your first question? Look, on the second, yes, we have resources out in the Far East that are sourcing, actually not just one group this we’ve got them in slightly different places. And that’s entirely supporting of the own brand that we import into the U.S., which is now running at $600 million, $700 million a year.

But that’s still -- there is still plenty of opportunity there. And I would still say, if you compare that to for example in a big U.S retail DIY chain, we have a long way to go. So I don't think I'm being unreasonable asking our teams to get there double the growth rates, let's put it that way.

And yes, that will be a mix of on shore and low cost country. I think it will be more low cost country..

Clyde Lewis at Peel Hunt. Three, if I may. One, I think in Canada you mentioned that you’ve joined a buying group, which surprise me a little bit for some time, I heard a major, major, major materials' merchant joining a buying group.

Could you just maybe explain the thinking behind that obviously what the savings might be as well? The second was on facility supply in the U.S. Obviously, low market share, huge market, can you maybe just sort of say a little bit more about the strategy of what you’re hoping to do to try and grow that market share? And the last one was the U.K.

You’ve announced obviously the plans to sell Wasco.

U.K looks increasingly like again, lost soul, and has it got future within the new Ferguson?.

You can help me out there. I wish I would had the inflation work. Yes, look, OCTO, it was very interesting. It came along as an opportunity. We talk to them over quite a considerable period of time. Their members originally had similar market share to us. We actually went through a clean room due diligence process. So there's no data leakage.

So we got a third-party professional services firm to do all that. We like the people there doing some sensible things and we felt this was an eminently sensible thing to do.

We do maintain if we can negotiate better, we still maintain the terms, say, for example, we maintain our own payment terms, for example and of course if there is unbundling because we are going through a central distribution center rather than to branch than we retain those benefits as well, but it just made sense.

Interestingly, it wasn't the only time in the group that we joined the buying group, because we did it in France a number of years ago when we own the business in France, in the South which we did for a while as well just pooling our -- essentially pooling our buying resources with other people. So it makes sense.

It gives us economic advantage and we will see how it goes. We don't have a lifetime's commitment to this. Our commitment is really -- and their commitment as well is, yes, it works whilst it works. And today it works.

So I’m very pleased with the team for being imaginative and also for implementing, because it clearly had a favorable impact on our business last year. Facility supply business did really well actually last year, very pleased.

So last year when we sat here, I said the focus at that time was to -- was 100% organic last year to make sure that we could mold the business, mold what we’ve got we’ve done too earlier, smaller acquisitions, we need to make sure that those were servicing well and also that we were focused on improving the gross margin of what we’ve got.

That really meant selling the right mix of products. And I'm really pleased with the team this year. We did -- we ended the year $550 million, so it's good growth. Grew even faster than the rest of Ferguson, which was great.

Did exactly what they were meant to do with the gross margin and just very, very pleased with the performance of bringing the gross margins up. That was important and this is a nice decently profitable business. It's not quite at the -- our average margin yet, but I'm pretty sure it will get there.

So continuing to make good progress there and I think the key there is to make sure that your -- you mean something to the group that you are addressing.

So for example, if we are selling to multifamily, to multi-occupancy homes or if we're selling to government or hospitality to the hotel chains to make sure that you tailor your offering really well and you serve those customers really well, that’s the key I think in that space. The U.K., look, today this is the way that we see it.

We got a strategy that we believe is going to deliver us a better business. We need to execute that strategy. Today I do feel good with the management changes that we made during the year, I feel very good about that. The team are driving absolutely the right things, driving in availability and driving service. That's what we get paid for.

If we continue to make the progress that we’re making now, I feel very positive and yes, we need to achieve that because you saw the results last year, the results are not acceptable. But we are going to keep the business.

We are going to grow the business, we are going to develop business, we are going to develop its service, that's the way to grow the business, service upwards, all right..

Thanks. John Messenger from Redburn. Three, if I could. First, could you just give us a bit of flavor on how build.com has done in overall terms, John. And are you happy with kind of a 13% organic growth? It kind of -- it's not that different to the rest of the division, I guess is.

Just to understand if that’s something that you’re comfortable with and for that business unit. And if I’m right, does it need to get bigger and broader quicker, I guess is my question, particularly given the costs of pay-per-view and the rest of it goes with that business unit.

So -- and is its profitability broadly in line at margin with the rest of the U.S or is it better or worse? Second one was just on obviously the M&A. We can see from the numbers that your kind of pre-tax return on what you’re spending '17 in the first full-year it was about 11% pre-tax return. Now historically you've shot for a 15% number.

Clearly we’re in a low inflation, a low rate world.

Is double-digit or 11%, 12%, the right kind of number in terms of hurdle that you’re using in reality today? And the final one, just its domicile and its listing, and sorry to come back to it, but on the domicile point, given the tax changes, would it makes sense to re-domicile back to the U.K or jump and go straight to the U.S? And secondly on the listing, is the Board at least going to actually be in a position maybe to move quicker and that obviously politics is changing? Brexit risks are there, but if the lunatics take over the asylum, shouldn't you be ready or maybe move in advance of that, given what we heard about over the last couple of weeks.

So, if you wait too long, is there not a logic here rather than any of giving 10% to the share base away for example to share to the employees or to the government in reality, should you not move and make preparations?.

Right. Yes, got of those. Yes, Build, let's start with Build. Look, am I pleased with 13% growth? I would like more growth. It's not my nature to be either patient or tolerance as you know.

So, I would like a stronger growth here, but here is the thing and Mike, myself, Kevin, the rest of the team we absolutely we want to grow a -- we've always said it is profitable growth that we want. We don’t want the other type, all right.

Today I think we have a decent -- we’ve a good business, which is differentiated from the other operators in that space. And it had good double-digit growth for a long time, but it is important that we maintain the profitability from that business, okay.

You asked a question about its margin, actually gross margins are slightly lower than the business, not a long way off, but they’re slightly lower. Net margins are also slightly low, but not a long way off, okay.

So I think it's important for us that we have the same -- we apply the same principles to build.com and the other B2C businesses that we have for the rest of the business. I don't think it needs to be. I don’t think it needs to do something dramatic scale wise to be a sensible business for us.

If you go back to why we acquired the business and why we’ve grown it since, we did that because it's synergistic with the business to use our distribution centers, use our access to products. We use some of our back office too. So that’s -- it does not need to be the size of Amazon or Wayfair or whatever else.

And it definitely doesn’t need to burn that type of expense. The key to us is to be differentiated I think because otherwise if you're just bidding on search terms forever, those search terms get more expensive over time. We've seen that, we know that. And so we need to be smarter than that.

Remember, we do have call centers, so -- and we do also have quite a lot of repeat custom from trade buyers in that space. I think both of those things are cause for optimism that we can continue to make a good return from that part of the business. Does that cover off your build.com question, John? Is that okay? Yes.

M&A, Mike, do you want cover the hurdle rate or …?.

So you were going to give me lunatics and asylum..

Actually, yes. [Multiple speakers]..

The metrics for us haven't changed at all, John. Again, we do have, I think, John mentioned, we do have some first year integration costs on some of the acquisitions, not all. It tends to depend on the type of acquisition.

But I mean, we always say sort of 15% second year, the ones that we have recently done I would expect those to absolutely deliver that, if not some more. So no change to the metrics or our thinking, or the multiples going back to the last -- to the previous question, either..

When you think of the -- the way we try I always think of the 15% is as we talk before about the turns of synergies that you get. If we get three turns of synergies, 15% is six -- just over 6x, you get three turns of synergies. You can sort of get back to the types of multiples that are normal for good quality businesses.

Does that make sense?.

[Indiscernible]..

Well, you do the domicile..

Let me do the domicile and you can do the lunatics. The tax domicile, again just going back on Switzerland, because I’m sure most of you aren't plugged into Swiss parliament and tax. So last Friday, the government passed legislation on a whole range of Swiss tax measures that they would like to enact.

In Switzerland they have a 100 days for the public to get enough signatures, if they want to take it to a public vote. That public vote if they get enough signatures, will go to a public vote in May and they will either accept or reject it. If it doesn’t go to a public vote, then the Act will pass.

As with most tax legislation, it's unclear when it's likely to be enacted which is why I’ve guided to FY '20. It certainly won't come in before our FY '20 year, is our belief. It could be later. And I think that will add about 3% to our tax rate as we go into the out years.

I think as before, John, there's really no change, but clearly its higher up the list. And we continue to keep our tax domicile sort of front and center to see where else provides us with stability both politically and economically.

Switzerland has been very good to us and clearly we will continue to put that higher at the list given the recent changes. So I think the U.S is unlikely to work and I think there are other jurisdictions that we will continue to look at, okay..

Go on. And then the lunatics and the asylum, were you talking about the Birmingham or the Manchester mob which ….

[Indiscernible] more and more in terms of obviously shareholding and ownership and the price which [indiscernible]..

Look, John, I’m not sure that anything which has happened sort of politically in the recent past should color our view or will color our view over the short-term. I definitely wouldn’t like to be making headlines on that one. Any others? One other, and then we will pack up..

Ami Galla from Citi. Just two questions from me. First one a clarification on your guidance on the operating profit drop through in the U.S.

Is this the underlying flow through that you’re talking about, would this include the acquisitions that you've made and which also a follow-up question is your underlying drop through actually much higher than the 10% level that we are talking about. My second question is rally on the competitive side in the U.S.

I mean we’ve always talked about how the market is fragmented, but the competition is also quite tough.

Home Depot rolling out next day delivery across 35 metropolitan cities, it grabs headlines to what extent does this impact your business on an ongoing basis?.

Yes, so on the flow through, we always generally guide overall. Of course, that’s never quite right because it also depends on the types of acquisitions that we do. You’ve heard us do some own brand, but clearly if we do some bolt-on classic bricks and mortar, it does slightly change, because on some you tend to have more first-year costs than others.

So I think overall it is the best guidance we tend to think off around 10% both last year and the year ahead of us.

You do the second?.

Yes, I mean, the -- you saw on the chart, of the nine business units there, Home Depot was really competing with the residential trade column on the left, which is our counter business, okay? That’s where they compete and then a little bit in the -- on the B2C side, which is one on the far right.

Not really in areas like Waterworks or HVAC, they're rather specialists. I think with all of our competitors -- and by the way Home Depot has always been -- Home Depot and Lowe's are there as -- as competitors in that bar and have been for a generation, okay? So there's nothing new or significantly changing about that.

We have to absolutely stay ahead of the game. Ours -- we have to offer the best service. If our service isn't as good as Home Depots, we deserve to die at their hands.

So the only way -- we don't have a right to exist every day, we don’t have any contracted business, we haven't got any contractual protection for that business every day whether somebody goes right to Home Depot or left the Ferguson depends on us and our service.

But I would say with things like delivery, we already do a phenomenal amount of our delivery is either next day or same day. We do a lot of same day deliveries, okay? There are lots -- I don’t know whether you saw the spider chart last time we put up, there are lots of attributes of our service that are not very easily replicatable.

Just a little example. When I go to our branches, our customers have almost always got a mobile number of our associates, someone who can go and open the branch out of hours. I don’t see that in my local Tesco. It just doesn’t happen. When they close their doors, they close their doors and that’s done.

20% of our product is non-inventory product that we access for people. We find for them. Again, that just doesn't happen in a usual sort of retail environment, those types of things that -- the support with bidding and tendering over half of our business is bid intended. It's already highly competitive. Those bids are going out too, I don’t know.

Sometimes it doesn't different -- a dozen different supply houses. So all of those things, we have to be really good at servicing the customers in those ways and many, many more to make sure that we stay ahead of the competition. Are we blasé? Absolutely, not.

We truly have to be better than the local competition, whether that’s Home Depot or whether its someone whose name you’ve never heard as a local -- as a small local independent. They can both be very good. So we just have to make sure that we got the right service for our customers, okay? All right. We will call it a day there.

Thank you all very much indeed for coming along this morning..

Thank you..