Ferguson on track with demerger

What would life be like without UK-based Wolseley? Strip out its contribution and ongoing half-year trading profit was up 9.5 per cent to $782m (£638m). An intensified focus on cost control ensured that profit growth outstripped the rate of top-line expansion, while the gross margin remained steady at 30.2 per cent. Reported profits contracted due to a $19m exceptional charge and an impairment linked to an associate.

Comparative sales into the US residential and commercial sectors – which collectively account for 85 per cent of the group total – both crept up by 3 per cent. Management will be hoping that double-digit sales growth in the smaller civil/infrastructure segment represents the shape of things to come. Presumably, the legislative imperative for Donald Trump’s infrastructure bills has taken on new urgency of late.  

Liquidity, always a key consideration, will be analysed even more keenly than usual, given the current disruption to commercial life. Receivables, inventory and trade debtors were broadly flat on the 2019 half-year and the cash drag linked to acquisitions came in at $141m, against $589m in the corresponding interim period. Operating cash flow more than doubled to $636m, but an outflow of $350m linked to the purchase of treasury shares resulted in a reduction of cash/equivalents at the period end. Net debt (ex-lease liabilities) edged up slightly to $1.94bn, but it still represents 1.1 times cash profit, or 47 per cent of shareholders’ funds – manageable, at any rate.

Ferguson has agreed a larger, $1.1bn credit facility from a syndicate of 11 banks, which offers an additional buffer during the current crisis. The group’s chief executive, Kevin Murphy, declined to second-guess prospects through the remainder of FY2020, stating that “due to the dynamic situation unfolding with Covid-19 it is too early to understand its impact on current trading”. He appears cognisant of the need to keep shareholders on board, though, judging by the fact that a significant fall in reported net earnings was accompanied by a 7 per cent hike in the half-year dividend.