Ferguson Enterprises Inc (FERG) 2016 Q4 法說會逐字稿

Good morning, everybody, and welcome. First the introductions. Very pleased to have Gareth Davis, our Chairman, here down in the front row. And not further away, Dave Keltner. Now, some of you know Dave from his fulltime role as the CFO of Ferguson. I'm really delighted Dave has been able to stand in as the Group's CFO whilst we complete our search. He's already doing a much better job than his predecessor.

I will kick off today just by sharing a few highlights. Dave'll take you through the financials today in a bit more detail. And we'll talk about some of the priorities for the year ahead.

Firstly, on the financials, we made some progress in the year. Not as much as we planned at the start of the year. Like-for-like revenue growth was 2.4%. Volumetric growth in sales in Ferguson's commercial and residential markets continues to be very impressive. But demand in industrial markets was weaker. And we experienced some pretty unprecedented deflation. We also got no growth out of the international businesses.

Gross margin development was good again, up 30 basis points, and we feel good about that. And, overall, our teams responded very professionally as costs were brought into line with the lower-growth environment. And cash flow was excellent. Dave'll take you through the details shortly.

We have been reviewing our UK operations and you'll see this morning we are now executing a strategy that we've announced today. Nordic markets have been challenging. Our performance reflects that. It's time to review how we do business there and we're starting that review now as we speak.

We made excellent progress on e-commerce, in technology investment, and infrastructure investment. We're really pleased as well with our progress on acquisitions.

Those are some of the highlights. Now I'll hand you over to Dave for the financial review.

Thank you, John, and good morning, everyone. We did make reasonable progress this year against a backdrop of mixed markets overall. Our like-for-like revenue growth was 2.4%, despite deflation knocking 1.5% off our revenue growth rate. Total growth at constant currency was 4.2%.

We made good progress on gross margins, which were up 30 basis points, as John mentioned. And ongoing trading profit of GBP917 million was a new record high with growth at constant currency of 1.6% and GBP46 million boost from foreign-exchange movements.

Headline EPS was up 7.6%, reflecting profit growth in the year, and accretion from the buybacks. Working capital was very well managed with net debt at GBP936 million at year end. And we are proposing a 10% increase to our ordinary dividend, increasing it to 100p.

As we told you at Q3, our final quarter started slowly, but finished in line with our full-year average. So, Q4, like-for-like was 1.5%. Commodity deflation had its biggest impact in Q4, knocking 2.4% off the US growth rate and 1.5% off the Group rate.

Overall, revenue growth in the period was 8.5%, which was really comprised of the following: like-for-like growth of 2.4%; actually volumetric growth of 3.9%, less deflation of 1.5%, to get to the 2.4% like-for-like; acquisitions, which contributed 1.8%, and new branches which added 0.3%. There was one fewer trading day which knocked 0.3% off the top line. So, a total growth at constant currency was 4.2%.

The impact of translating overseas revenue into sterling added 4.3% to the reported growth rate. We generated GBP45 million of organic trading-profit growth, plus a further GBP40 million from gross-margin expansion. Acquisitions added GBP6 million; foreign exchange GBP46 million.

We continue to invest in our business, adding GBP36 million. One fewer trading day took GBP6 million off trading profit. And we will have one more day next year. Commodity deflation took GBP35 million off our trading profit in the year and I will talk more about that on the next slide.

We've seen really an unprecedented period of commodity-price deflation over the year with the impact increasing throughout the year. This has principally impacted the US, with smaller levels in the UK and Switzerland. The principle driver has been sharp falls in our commodity -- copper, steel and plastic commodities' prices with some FX impact in Switzerland. Commodity-price deflation cost us GBP193 million in reported revenue, equivalent to 1.5% of growth at the Group level. The lost margin of GBP35 million flowed straight through, reducing trading profit by the same amount.

As you can see, the impact of commodity deflation has been strong in all four quarters on the chart. And if commodity prices stay at current levels we expect the impact of deflation to last for another three to six months.

The other significant headwind we have been facing in 2016 has been industrial. The last year has seen an industrial recession in both the US and Canada. And industrial represents 12% and 10% respectively in each country. Despite this, we have generated good profits from the -- these businesses, and continue to generate strong returns. Industrial was also the hardest hit on commodity deflation, with a full-year impact of minus 7%.

As you can see, industrial end markets knocked over 1% off the US-revenue growth in the year. We are starting to see an improvement in industrial, partially due to lapping easier comps, and partially due to the markets stabilizing somewhat. And we would expect to see a better performance this next year; still somewhat weak.

The recent foreign exchange movements have had a significant impact on our results in the year. And if they continue at current levels will do so again next year. The impact of retranslating overseas results to sterling added GBP552 million, or 4.3%, to revenue and GBP46 million to trading profit.

There is also an impact on our balance sheet. The impact of retranslating overseas-denominated debt to sterling increased net debt by GBP149 million at year end. Due to our hedging policy, where we essentially place debt in countries in proportion to revenues and profits earned, there has been minimal impact on our net debt to EBITDA ratio.

Ferguson had a very good year, especially when considering the deflation and headwinds in some of its markets. Like-for-like growth was 4.1%. And gross margins were very strong, up 40 basis points, due to better purchasing, improvements with our pricing, and growth in our higher-margin businesses such as showroom -- the showroom channel.

The strengthening of the dollar added GBP47 million to trading profit. And the impact of commodity deflation knocked 2.2% off revenue growth and GBP36 million off trading profit. Net of deflation, like-for-like revenue growth would have been 6.3% and trading profit grown 12%, at constant currency.

Despite the lower revenue growth, investments in operating expenses and the impact of deflation flow-through at constant currency was a respectable 8.3%. Trading margin was consistent with last year's at 8.2%. We acquired 26 branches in the year and invested in a net 21 branches.

Ferguson -- the growth in Ferguson was broadly based across all the businesses except industrial, as you can see on the chart, growing on a like-for-like revenue basis. Blended branch, our largest US business, grew well across the west, the east, and the south central but declined in the north central as it has a higher concentration of industrial customers in that region.

Waterworks had another very good year despite strong comps from last year. And HVAC and our B2C business both performed strongly. The weak industrial market led to a decline of 7.8% in our standalone industrial business.

From an end-market perspective, we saw good growth across the board, with the exception of industrial. Blended branches serve some industrial end markets and, including this with the standalone industrial-business units, we saw a 10% decline overall in that market. Residential, which is 45% of our business, continued to grow very well through 2016 up 10%. And commercial as well, 28% of our business, also grew at a 7% clip. Municipal, which is our waterworks business, also continued to grow well up 6%.

Switching to the UK, the UK had a tough year, with like-for-like decline of 1.6%. Both plumbing and heating and pipe and climate declined with modest growth in our infrastructure business. And after a disappointing first half, pipe and climate had a much better second half, in a reasonable commercial market.

We've worked really hard in very competitive markets to protect our gross margins. So, we are really pleased to see gross margins 10 basis points ahead, due to improved mix of business. Operating costs were higher as a result of acquisitions. And trading profit of GBP74 million was GBP16 million behind last year.

It's worth mentioning that the results are before a $10 million -- GBP10 million restructuring cost charged in 2016 that were classified as exceptional in Q4. And John'll cover the results of that in the UK operational review later.

In the Nordics we had a disappointing result this year. Like-for-like revenue growth finished up at 0.6% for the year after a strong first half. Sweden remained a good market during the year and we progressed well. Finland, however, remained challenging all year with limited signs of improvement. The market in Denmark, where we generate half of the Nordic revenue, deteriorated in the second half, particularly in the consumer sector, which represents about 30% of the Nordic revenue.

Overall, gross margins declined. And we increased our investment in operating expenses by 3%. Trading profit was GBP60 million, GBP12 million behind last year.

We have appointed a new Director, Simon Oakland, to lead the Canadian and the Central Europe plumbing and heating activities. And have such -- therefore, combined the business into a single region for reporting purposes. So, we'll report it this way, going forward.

Canada and Central Europe revenue declined 1.1% in the year. Plumbing and heating markets were okay in Canada and we achieved growth. But this was offset by declines in industrial. Switzerland remains weak and the Netherlands decent. Overall, gross margins declined slightly. And after a GBP1 million adverse impact from foreign exchange, trading profit was GBP2 million behind last year.

We had -- for the year we had GBP8 million of exceptional income in the year, which relates to disposals, and GBP10 million of UK restructuring costs we incurred in the year were classified as exceptional. We also performed our annual review process regarding the carrying value of goodwill, as required by the accounting rules. And the UK performance has deteriorated this year and, as a result, we have impaired GBP94 million of goodwill.

As we previously told you, underlying finance charges this year were higher as a result of long-term financing that we put in at fixed rates last summer. The effective tax rate was 28.3% and will continue to be around 28.5% over the next couple of years as the proportion of US profit continues to grow.

As John mentioned, we had an excellent year with regard to cash generation. We worked very hard to control working capital this year and generated cash from operations of just over $1 billion. Disposals netted us GBP65 million and we invested GBP113 million in acquisitions and GBP218 million in capital investment. We also returned GBP538 million to shareholders through dividends and the stock buybacks.

The seasonal working capital flow was as expected. And we finished the year with net debt of GBP936 million, but the underlying figure being $120 million higher, for the seasonal impact.

As a result of the hard work over the last few years, M&A spend in fiscal-year 2017 is already higher than last year and after the completion of two deals in August this year, which is really good news.

The net pension liability, on an IAS 19 basis, has increased really due to the decline in the bond yields to GBP147 million. We're currently completing the triennial review of our defined-benefit pension scheme and have agreed a funding plan of $25 million -- GBP25 million per year for the next three years. And this is consistent with our last valuation.

We have increased the dividend this year by just over 10% to 100p.

Acquisitions was again a good story for the year. We invested GBP113 million on 16 small acquisitions, primarily in the US market, and together had annualized revenue on these of GBP197 million and annualized trading profit of GBP11 million. Since year end we've had more success and completed two acquisitions and have approved a number of others which, if completed, will bring our H1 investment this year to GBP300 million.

Lastly, on some technical guidance, next year we get back the day we lost in fiscal-year 2016, which will add GBP6 million to trading profit. If current exchange rates prevail for the remainder of the year they'll add GBP93 million to our trading profit. And, as we've seen, acquisitions completed so far in 2017 will add GBP19 million of trading profit this year.

We expect to charge at least GBP100 million of restructuring cost. John will cover this again in more detail. And our effective tax rate is expected to be 28.5%. We will continue to invest capital in the businesses and this will be in the range of GBP220 million to GBP240 million. And we expect working-capital investment to roughly be 12% to 13% of incremental revenue.

I'll now hand you back to John.

Dave, thanks very much. Before we launch into the strategy and the priorities, I'll just take a step back for a minute and reflect on the principles that the executive team and I are going to adopt in managing the business now, going forward.

We've got a great set of businesses and a good growth record in our core US market. Organic growth, which is measured by our ability to win market share from our existing assets, is the most valuable way of creating shareholder value. That's going to remain our primary focus, going forward.

When we talk about adjacencies, think of the huge shareholder value that's been generated over the years in the waterworks business in Ferguson. Not a massive strategic gamble, just really, I think, the smart pursuit of synergies with our core business. Today the commercial MRO market, which is a market that we already service very effectively, is a really attractive opportunity which we're going to invest in.

We'll carry on working hard to identify bolt-on acquisitions. And that's where we can generate strong synergies. We'll also target niche businesses that can add capability to our business. But we're only going to do those where we've got the management bandwidth and also the trading momentum in our business.

There's a great service effort that runs really wide and deep through our organization. Great people deliver great service and that's a really good starting point in our attempts to secure value from those services in our pricing.

Throughout Ferguson we have a really strong sales culture. Most senior managers have spent part of their careers on the road at some point. Elsewhere, we've got opportunities to improve. But if we deliver great service we shouldn't be apologetic in selling that service and recovering the value.

The dispassionate allocation of resources; that's been a real cornerstone of our progress in the last few years. We're going to carry on adopting that discipline throughout the business, just allocating resources where we can generate the strongest return.

Now, in our industry, business is very often done in a traditional way. But, where we are successful, we've got some pretty -- we've got a pretty progressive improvement culture in the business. We need to leverage that widely. We need to create more effective and more efficient ways of serving our customers, of optimizing channel mix, and developing our operating processes.

Where we're not performing we need to figure out why, and put it right, promptly. I will not be tolerant of underperformance for very long. Demand for our products is partly cyclical and we're going to continue to operate a conservative balance sheet. And that means that we'll be able to invest and continue to pay dividends throughout the cycle.

Now, what outcomes should we expect from all that? We expect to take market share, to grow ahead of the market. We expect to incrementally grow our margins and, of course, all the time we expect to convert that profitability strongly to cash.

This simple chart is a really simple reminder, I think, of what Wolseley is today. We are Ferguson, a large, successful, specialist US distribution businesses with some proportionately much smaller international operations. That's the lens through which we're going to manage the business, and the Group, going forward.

So, what are our priorities now? By far the most important and value-generating priority in the business today is to get the very best growth rate out of Ferguson whilst maintaining and incrementally growing our margins. Ferguson's a great business. We've got a really strong culture of recruiting, developing and retaining great people, who develop the expertise and the relationships to deliver the best service in our industry and to execute our strategies successfully.

Our associates work hard. They hold themselves accountable for performance. Their personal, their business, their financial discipline has built a really a really good margin business with very good returns on capital. We've got significant benefits of scale. That's in knowhow, in procurement, in technology, in supply chain.

The US is a huge market with strong growth characteristics. We have leading market positions in many states. And the markets remain highly fragmented, so there's bags of opportunity, both for organic growth and also from the bolt-on M&A. And we service residential, commercial, municipal, and industrial customers both in the RMI market and also in the new-construction market.

Today we're just going to touch on some of the drivers and some of the opportunities for continued strong growth, going forward. Underpinning our growth story is the best and most consistent service in our industry, without which we wouldn't be able to consistently grow our market share or defend our margins.

We don't take this for granted. We're constantly polling our customers. We do focus groups. We do surveys. We do interviews. We do secret-shopper programs. And we use that feedback to address any local issues quickly, but also to systematically improve our operations, to drive customer segmentation and also to drive our business plans.

But it's not enough to simply have the best service. We also have to be prepared to go out there and sell it. Ferguson, we said, has a very strong sales culture. In addition to traditional sales channels like counter, outside/inside sales, the omni-channel approach also includes sales centers.

We've expanded our national sales center in Virginia to 350 associates. And that provides coast-to-coast support for our larger customers. It also supports the rapid rollout of new initiatives like the commercial MRO business. The sales center also lets us, or helps us, to make sure that we can roll out quotations for our showroom business from coast to coast.

The overall market share of our blended-branch network is estimated at 17%. That's considerably larger than the next specialist operator. You can see from the map here we've got significant opportunities to expand our presence through organic growth. And that includes adding sales associates, adding branches.

We plan to grow in all of our 19 districts. But, to put the organic growth opportunity into context, we're underweight in some significant areas. If you look at the chart here, and you look at those red bubbles on the map, each of those is economically the size of a large European country.

We're really proud of our approach to acquisitions in Ferguson. It is firmly rooted in one principle, which is to generate shareholder value. We've not been distracted and we've not been distracted by the lure of easy money. Acquisitions make sense only where we can retain the associates, we can retain the customers, and also retain the vendor relationships; where we can integrate them and generate good synergies.

You can see from the chart, as Dave was talking about, in the first two months of this year we've invested more than in the whole of last year. And, as Dave talked about, we've approved and expect to close a few more.

In addition to the traditional plumbing and heating range, our blended-branch network also serves waterworks, HVAC, industrial and other product lines. And where there's potential we've also opened standalone specialist branches for those products. Those adjacent markets provide really significant opportunities for growth. And they allow us to leverage our asset base across the country.

We currently serve customers in the commercial MRO market and over the last couple of years we've got to $440 million of sales. But the addressable facilities-maintenance market is estimated at $90 billion. It's highly fragmented. We're bringing additional resources, including an additional $10 million this year in OpEx, to focus more sharply on this market. We do expect over time for margins to be at least as attractive as in the rest of our business.

Last year was an excellent year for the growth and development of Ferguson's B2B and B2C e-commerce channels. We invested in a new platform for Ferguson online and developed a number of new apps and services to help customers do their business with us more conveniently. Those include, for example, functionality to turn a quotation into an order.

E-commerce now accounts for 20% of sales. That's continuing to grow faster than the other channels. This year we're going to step up our brand building with a further $11 million investment. And that's really to make sure that our customers recognize our online presence, ferguson.com, build.com and our other online brands, and can access them directly.

Our business model's evolving. A great example has been the reorganization this year into 19 districts that we just completed. The purpose of this really was to align our customer needs and to make sure that we can get the fastest execution of initiatives throughout the country. This was accompanied by the rollout of CRM and the comms tools needed to provide the best service in the industry.

But our channel strategy is not about betting the ranch that our customers are going to select any one individual channel to do business. It's about providing them with the opportunity to do business with us in the way that they choose. And it's about making sure that we service them as seamlessly as we possibly can across all of those channels.

Across residential, commercial, municipal and industrial sectors we serve customers from the moment the shovel's in the ground through waterworks, through fire protection, plumbing, heating and HVAC installation. After construction is complete, we also provide them with the products they need for the ongoing maintenance and operations of their properties. That is Ferguson. 81% of our trading profit. The most significant priority in the Group today is to ensure that we can grow Ferguson profitably faster than the market.

Now, the second priority in the Group today is to turn around the UK business. Standing back from it all, we have got a great team of people, going the extra mile for our customers day after day. Associate engagement is really good. And our team has made really excellent progress in the last year driving service, really impressive improvements actually in the Net Promoter Score in the year.

We've also made really good progress in the adoption of e-commerce. We're doing some things really well. So, why the strategy review? Well, bluntly, we're not happy. I am not happy with this performance; the financial performance of the business.

We need to be confident that our resources are focused on a winning strategy. And that the proposition to our customers is differentiated; that our customers need our services and are prepared to pay for them. We need to return the business to profitable growth.

So, throughout this year we have done a bundle of customer research and data analysis to make sure that that strategy doesn't just follow our simple prejudice. The first data check here was encouraging. This is a large and pretty stable market. The gross-profit pool of our addressable market is about GBP3 billion. And we are about one-sixth of that.

There's plenty of opportunity for profitable growth in good margin categories like plumbing, like PVF, and like drainage. We're going to allocate more resources to them. That doesn't mean we're going to exit any of the other categories.

We've actually made really good progress this year refocusing our resources on our core independent, specialist trade customers. That segment of our customers, which is about GBP350 million worth of sales, grew 8% last year and there is plenty more potential.

Some of the detailed analysis, though, has identified opportunities to better align our resources with customer needs. And our customer research identified two clear propositions to develop.

Firstly, smaller specialist trade customers, they need local branches to immediately fulfill their needs and also as a source of advice. They want competitive pricing. And they're becoming increasingly sophisticated in their use of digital tools.

Larger customers may need a broader network of branches to fulfill their needs across a region or across the country. They need experienced account managers to ensure that our services to them are provided seamlessly. And they also, of course, want bespoke pricing to support them in their bidding process.

Now, for many years we have run several different formats to cater for different specialist trades; Plumb Center, Parts Center, Drain Center, Pipe Center. Times change. Today 80% of Drain Center customers also shop at Plumb Center. And 70% of Drain Center SKUs are also available in Plumb Center. So, those two formats now are being fully integrated.

The branch network is absolutely fundamental to our customer service. But it is very expensive and we need to make sure that we use is wisely and we configure it properly.

Going forward, we'll operate a single branch network. There'll be two formats depending primarily, really, on population density. There'll be about 440 local branches. They're going to service the everyday needs of local customers with about 4,000 stock units in each branch.

And there'll be about 80 large destination branches, if you want. They'll have a broader stock range of about 9,000 SKUs and also much broader access to expertise in drain, in parts, in plumbing and heating. Those branches will also generally have a showroom attached and they'll be open on Sundays too.

Of course, all of our customers will have access to our central range of over 80,000 SKUs for next-day delivery.

A high proportion of our demand is pre-ordered for delivery either the following day or later. Those orders don't need to be picked at a specific branch. Logistics in future will be more centralized. Picking, packing, and final-mile delivery is going to be done more from distribution centers and hubs and more picking will be done in night.

Hubs will deliver pre-packed orders to branches for pick-up by our customers 7 a.m. when we open in the mornings. That's going to enable us to have even higher fill rates and to provide economies of scale to drive down our costs. Those changes are going to allow us to simplify our branch network and let our associates focus more of the time on serving customers and selling.

We'll accelerate our investment in technology and tools which help our customers to manage their business more effectively.

Now, on pricing, look, we always aim to be fair and consistent with our pricing. This year we've introduced a defined range of products to which we have applied the same non-negotiable price across the whole network. And that range will be expanded. We'll also develop our category-management expertise and our own-label offering.

As a result of all of this, we do expect to close about 80 branches and one distribution center. Regrettably, we expect to lose up to 800 jobs. We'll deal with those job losses sensitively. And we'll redeploy associates wherever we can and use natural attrition.

Exceptional charges will be about GBP100 million, of which GBP70 million will be cash. But the whole of the cash cost will be offset by lower working capital and property-disposal proceeds.

Over the next three years we'll also invest an incremental GBP40 million over and above the normal reinvestment rate in the UK refurbishing the ongoing network and developing the required technology platforms. All the CapEx investment is within the range that Dave showed you before.

And these initiatives will reduce our cost base by between GBP25 million and GBP30 million a year net.

So, in summary in respect to the UK, the financial performance has deteriorated and that's not where we want it to be. But there is a large gross profit pool and there are attractive growth opportunities. We also have a significant market position to defend.

The new strategy is well-researched and is based on customer insight. And we are going to invest in our branch network, going forward. That will be simplified and aligned with our customer needs. It won't be done overnight. There'll be bumps along the way. But it is executable and we're getting on with it.

Now, the third priority in the Group is to return our Nordics business to sustainable, profitable growth. Our management team there is focusing now on a few priorities that will make a difference in the short term.

We lost some momentum in Sweden in the second half of the year, after a very good period of growth. We're going to invest more now, we are investing more now, in sales resources and focusing on returning that top-line growth to where it should be. That is a good margin business.

In Denmark, our margins have been under pressure and we're bringing renewed discipline there to the pricing process. In Finland, the market's been challenging for four years. We're looking again now at our network to see whether there are opportunities to reconfigure that network at lower cost.

And, finally, we're reducing our central cost. That will make more funds available for investing in sales and marketing resources at the front end of the business. All good stuff.

But the financial performance has gone backwards and we're not happy with that. We need to make sure that the actions that we're taking are sufficient to deliver sustainable, profitable growth. So, we're starting a review of the operating strategy at Nordics to make sure that we understand customer needs, that we align our resources with those needs, and that we can recover the value that we add to them. We expect that review to be completed by the spring.

We touched on the business priorities. How are we going to allocate our capital, going forward? The top priority is to invest in profitable organic growth, both in our current branches, new branches, new channels we talked about and adjacencies. That is the most profitable and lowest-risk investment we can make.

Secondly, good businesses should pay a decent ordinary dividend and that should grow broadly in line with the underlying earnings. We aim to run our businesses and manage our balance sheet so that dividends can be sustained and grown through the cycle.

Thirdly, we'll carry on identifying and negotiating bolt-on acquisitions where we can generate synergies. We're only going to do that where we've got the management bandwidth and momentum to develop them. We'll work hard on the right opportunities and we'll also work hard to avoid poor, risky, or overpriced assets.

At the moment, the pipeline is pretty healthy. We expect to complete a number of transactions that we're working on now. The health of the pipeline is not a result really of a change in appetite. It may be partly due to the hard work that we've put into this in the last two or three years, because some of those transactions take quite a long time to come to fruition.

We'll keep a conservative balance sheet. That means we will head for investment-grade credit metrics and net debt in the range 1 to 2 times EBITDA. If we have surplus cash, you know we'll get that back to shareholders promptly. The fact that we've not announced further capital returns today is due to the scale of the acquisitions, both that we've done in the last couple of months, and also the health of the acquisition pipeline.

Regarding the outlook, the last six or seven weeks like-for-like growth has been 1.5% across the Group, 4.5% in Ferguson. And the market environment looks pretty consistent in the US. Residential and commercial markets continue to grow, despite the ongoing impact of commodity deflation, that Dave touched on earlier.

Demand from our industrial customers remains weak. Elsewhere market conditions are more mixed. We have planned for and we do expect profitable growth this year. And we're confident that we'll make progress on our three priorities.

Thank you very much. Now Dave and I will take any of your questions.

Good morning, Rajesh Kumar from HSBC. Could you give us some color on how the supplier negotiations move when commodity price deflation occurs? How do you treat your inventory write-downs? And basically, is all the effect reflected in the balance sheet on the inventory?

Sure, we move -- we don't hold much inventory on the commodity. So they move through the system pretty quickly. Clearly, with any major short-term moves, we'll adjust to market. But normally, it's flowing through our system a pretty fair rate. And so our cost is reflective of the market cost.

And how do you negotiate with your suppliers, vendor rebates and things like that?

I don't think the negotiation side changes tremendously. Obviously, we're always trying to get the best transaction value that we can. But traditionally, as we're dealing with our vendors, we normally agree pricing at the beginning of the year. With commodities, obviously, they're more based on the market and whatever commitments we've had with each other in terms of how they'll be priced throughout the year. So a lot of it's set in agreements.

So are they set on the value of the sales or the volume of the sales?

Well, if you're talking broader than just commodities, if you're talking in general, typically we have pricing that's set based on the volume that we purchase. And some of those have tiers, so that they will have a step up when we hit certain levels we'll receive additional rebates on the pricing side.

And they tend to be settled at year-end normally?

Well, a lot of them are settled -- some of them are settled monthly. A lot of them are settled quarterly. And there are some settled at year end.

Thank you.

Sorry, just to put that into context. We hold GBP100 million-and-something of commodities at any time and broadly that's going to be five weeks' sales or something. So there's no write down, if you think about the margins that we recover on them. They're still sold at a profit; it's just the margin is narrower.

Good morning, Yves Bromehead from Exane. A few questions on the US. A number of your competitors have mentioned slower US trends in July and August. But you're suggesting that your like-for-like is accelerating. Is this more a function of market share gains or end market exposure? And does this acceleration seem sustainable?

Well, we did have -- we had a pretty slow May, but June and July bounced back in line with our full-year average. And as John mentioned, August and so far, in September, we've been running about 4.5%.

So we definitely think we're taking market share. I think last year, we believe we took 2% to 3% market share which is pretty much in line with where we've been traditionally. And I think in that sense, we're not seeing any other signs of a slowdown from what we're seeing right now. And so we are pretty optimistic in terms of being able to maintain that level of like for like.

And in terms of margin expansion again in the US, there was a slowdown sequentially in Q4 versus Q3. Does this suggest that further profit improvement will become more challenging? And if so, how should we think about the long-term margin for the US business?

We remain very confident on our margin progression. We've got a long history of increasing margins. We were up 40 basis points last year, which was a good move. And we remain both committed and believing that we can continue to make margin improvements on a yearly basis. Not necessarily 40 basis points. But clearly some improvement every year is what we shoot for and what we believe we can drive.

And maybe one last question if I may. Just in terms of the new year, you showed the like for like plus 4.5% in the US, plus 1.5% in the rest of the Group. Could you give a bit more granularity and precision on what you saw in the other markets? The UK, for example, and the Nordics?

Yes, the growth rates remain poor. If you look at those Q4 growth rates, we have certainly not seen any improvement on those Q4 growth rates in the UK and Nordics.

Okay, thank you.

Thank you, it's Gregor Kuglitsch from UBS. I've got a few questions. Can I just go back on the slide on M&A.? Can I just be 100% clear, the GBP300 million, is that compared with the GBP19 million or is there some additional profit that you've acquired but on deals perhaps you haven't actually closed?

And perhaps as a small follow up to that, I think the acquired businesses suggests it's nearly a 20% margin. I may have done that math slightly incorrectly. But if that's true, what is that business, because obviously pretty unusual for distribution.

Second question is on deflation. Can you just give us a sense -- you said you expect the effect to dissipate over the next two quarters? Can you give us, within the US, perhaps the current run rate 4.5%, how much deflation is within there? And perhaps how you see that trending?

Third question is on the UK. So I think you're shutting around 10% of your branches. So should we be, effectively, knocking off 10% of the revenue? Or are you trying to retain some of that elsewhere within the system?

And within that, when you talk about a GBP25 million, GBP30 million cost saving, should we be then also, I suppose on the offsetting side, taking off the gross profit lost on the shut branches? In other words, do you believe coming out of this that you'll have a smaller business that has a higher margin? Do you actually think your profitability will be up in absolute terms because here you're shrinking it?

I'll leave it there. Thanks.

Do you want to cover the margin and deflation and I'll do the UK, David?

That's fine. So first of all, I think your one question was how the GBP19 million related to the GBP300 million in acquisitions. So we have either closed or approved GBP300 million since the beginning of the year. The GBP19 million are only for those that have closed so far. And so you should expect some increase for the remainder of those deals, if and when they do close.

The business that we acquired at the beginning of August was a business called Signature Hardware. They are a kitchen and bathroom high-end private label, B2C business. So their margins are accretive to us. And it's a very strong business with a good management team. We're very happy to have them join the team.

Okay, so deflation was the second one.

Yes, so deflation in the fourth quarter was about 2.4%. In the first couple of months, I think it's slightly below that. But it's still roughly in that 2% range.

Okay, and then coming to the UK question. The closure of the branches, we're going to fight to retain every single pound of sales that we possibly can from those branches that we shut.

If you think about why we are making the change to the branch network, we're making the change to the branch network because we think we can service our customers from a more compact branch network. So we absolutely will have plans in every single branch to make sure that we retain as much of that revenue as we possibly can.

Second point, the whole of the repositioning, the transformation of the UK business, this is not just a cost-out operation. This is designed to give us the best service in the industry and to differentiate us from the other competitors. Now, sure, that needs to be executed and sure that'll take time. But that is it in design. So whilst in the short term, if we shut a branch and it's just inconvenient for any one individual customer, I'm sure there will be some of those, but the purpose of those process is to make sure that we get the UK back into an area where it can grow profitably, which is what we've really been short of in the last few years.

Hence, coming over back to the cost savings, are we trying to cut our way to a higher margin business? No, that's not the purpose of this. We are trying to design a business that we'll be able to grow. At the same time, we do expect those cost savings.

We haven't given guidance on the revenue line because frankly, that is going to take some time. If you think about it, if we're designing a better platform to service our customers, we've got to implement that. And then we've got to go out there and sell that strongly before the sales growth is going to come through. So hence we've just given guidance on the cost side.

Can I just go back on the M&A point? Maybe you can give us the annualized revenues and profit of the GBP300 million? Because I guess that's what we'll be plugging into our models. So (multiple speakers) --?

Well, you've got the ones that we've completed.

How much of that?

The ones -- sorry?

How much of that GBP300 million have you completed?

Oh, the numbers? GBP187 million, sorry. Yes.

Thank you.

Good morning, it's Paul Checketts from Barclays. I think I've got three. To go back to the UK, John, what do you think is a realistic timeline for the different stages of the turnaround and repositioning? And there's then the GBP40 million if incremental investment, how does that split between CapEx and OpEx? And maybe you could just elaborate on exactly what that is going to be going on?

And then with regards to the US, when I look at the regional growth, I can see that in the second half, the south central region actually accelerated, which includes Texas and Louisiana, which is slightly surprising given the macro there. Could you perhaps explain why that is?

And then the other thing that stood out to me is that you've had growth of 11.7% like for like in that division that you booked in HVAC, fire & fab, etc. If you looked at those individual parts, which are going well?

Sure. Look, the timeline in the UK, there are eight detailed work streams. They've all got individual timelines. I don't want to announce today the timeline on closures. That's for the team to work through. And there's a consultation process that we need to go through for all of that, Paul. Yes, I think the whole program is going to take two to three years. Clearly, we would like to -- we'd like to compress that as much as we can. But it needs to be done properly, diligently and quickly.

So I wouldn't want to delay the cost initiatives because trading today is very weak. But at the same time, a lot of the technology-enabled stuff, in particular the logistics stuff, that is going to take time because of the implementation of systems.

The GBP40 million investment is all CapEx. So it's the incremental CapEx. We have a run rate in the UK at the moment of GBP20 million, GBP25 million a year. This is on top of that. And it's a combination of some refurbishment in those ongoing branches which need refurbishing, and technology. About 50-50 on those.

The US, south central, yes, it has been -- it's actually been remarkably resilient given the industrial -- there isn't as much industrial by a long way as there is in the north central; the first point. And the -- so the oil and gas dependence is actually far lower than you would expect. So we're pleased with the performance there.

And then the breakout of the other, HVAC has had another very good year, actually. Really good year. Fire & fabrication, which does commercial -- the fittings for the fire suppression stuff in new buildings has actually done -- continued. And you know for several years, that's had -- it's been on a really good roll. That's done very well.

So there are no weak spots in that. We haven't chucked any brackets in there either. So there are no real weak spots in all of that.

Our B2C business as well has grown very strongly.

And if I could just have one more, which is on the Nordics. And if you look at the year-on-year progression, the profitability has fallen on a reported basis by GBP12 million and may on a constant currency be slightly more. Can you just help us understand what that delta is? Maybe in terms of the businesses? Thanks.

Yes, there have been two big deltas in Nordics this year. Finland ongoing. Finland accounts for, I think, GBP6 million of the drop in the region which is very disappointing and very challenging. We probably have too much capacity there, bluntly. So we will get at that.

Denmark is the biggest -- the Stark business in Denmark, good business. The margins there have been under quite a lot of pressure this year. Now we have a very good program, I spent a couple of weeks up there early in the summer. And the team are absolutely on top of it. There's quite a new team in that business. And they are absolutely on top of making sure that we do a better job of selling our gross margins there but down 90-odd basis points over the year which is quite significant in a business of that size.

Is that a competitive issue?

It's certainly a competitive market, but there's plenty that we can do, Paul. Will this respond to your self-help or whatever the phrase is? It absolutely will. There are things that we can do.

Thanks.

Thanks. Aynsley Lammin from Canaccord. Just got three, please. Firstly, just on acquisitions again. Obviously step up, you've highlighted GBP300 million. But are there bigger acquisitions in the pipeline we should be thinking about? And maybe if you could give any guidance what you could expect, at this stage, the total acquisition spend for the full year to be?

And then secondly, just on net debt to EBITDA, you've said you're happy with a range of 1 to 2 times. I think recent years, you've kept that out around 1 times. Would you be happier to go up to maybe 1.5 or should we still think about 1 times being the limit there?

And then thirdly just on the UK. You said the trends, like-for-like growth, hasn't really changed very much from Q4. But just wondered if your comments on the impact of Brexit, the pattern of trading you've seen through July, August, any noticeable impact from the Brexit vote? Thanks.

In terms of acquisitions, there's nothing monstrous in the pipeline. You saw Dave talked about the Signature acquisition, which was great. A little bit bigger than we've been used to. There are one or two prospects which could be a little bit larger. But nothing huge. Most of our acquisitions are going to be of the sort of scale -- and the GBP100 million-and-something that we approved at the Board last week, that's four or five transactions. So just to give you a sense. And that is the color of the pipeline, really, that we still see.

So it's possible that there'd be another transaction like Signature or whatever else. If they come off, that's great, and if they don't then it'll be because of either due diligence or pricing.

Net debt, actually when we complete those acquisitions, we pay the dividend, you know that the year-end net debt, the July net debt, is usually a seasonal low. And we usually end up at least as high as that in January. So I think net debt will be slightly higher anyway by -- well, it will be higher by January.

And Q4, look, Brexit, it's been weak in the UK. There's nothing that we could say, we believe this is as a consequence of Brexit. The market was weak prior to Brexit and it's been at least as weak post-Brexit. But I don't think that would - you wouldn't really say that was cause and effect with the data that we've got.

Ami Galla from Citi. I just have two please. You've talked about a turnaround plan for your UK and Nordics business. I wonder if you could talk a bit more about Canada and Central Europe. Potentially, are there businesses in your Group where you could consider exiting because you cannot see restructuring in a big way in those businesses?

And my second question, can I clarify, the majority of the branches that you're closing in the UK, are they in areas where you do have an overlap between Drain Center and Plumb Center? Thank you.

Yes, just on Canada and Central Europe. Sorry, and the reason we haven't labored them too much today is because we wanted to share with you how we saw the priorities and the importance that we give to those priorities. It doesn't mean that Canada and Central Europe aren't important. I saw Simon Oakland wandering in earlier. So Simon, they are absolutely important. Get the profits up, please.

And look, these are good businesses. Actually, very good businesses, good market shares, good margins, decent management. Lots going on.

I think the exit question, in a sense, you know we disposed of 33 businesses over the last six years, we don't need to -- we don't need credentials in terms of trying to figure out are we the best owner for these businesses? Actually, all these businesses are in our core heating and plumbing space, first point.

Second, they are -- they've got good local management teams, good market positions. If there is a combination of our business with any other business that makes sense -- if you recall what we did in, for example, the south of France -- then we should look at that.

And we should look at that dispassionately, absent thinking about ownership. Whether that's a merger or a joint venture or an acquisition or a disposal, we should look at it, is there industrial logic, if you want, in a combination of businesses? We do that and we do that absolutely as a matter of course.

But no, today there's absolutely no intention to exit. There's no intention or need to exit any of those businesses today.

Just onto the UK, yes, some of these branches will be overlapping because we're taking all of the formats that we currently use and saying, what do we need to run one combined network of those 440 local branches and the 80 destination branches? So there will be some areas where the formats overlap. Today, there'll be some that are in more remote areas, where the economics are more margin. There'll be some where we believe we can improve the logistics in metropolitan areas.

So I was up with the UK team last week and went into the room. It's a room twice the size of this lecture theatre. Every single local network -- a local network is about anything between six and a dozen branches -- mapped out, right, where is the hub going to be? What's that going to look like, how's it going to be served, what are the distances, how strong is the -- what's our market position? Looking at traffic flows, all of that stuff that you would expect. So very, very local decisions, overlaid on that strategy which says, we need 80 fewer branches. Does that make sense?

Thank you.

Good morning. Arnaud Lehmann from Bank of America Merrill Lynch. Two questions, I guess related to timing in the context of you, John, becoming CEO of the Company. Firstly, on acquisition in the US. Is it just a question of opportunities and these acquisitions came in in the last few months and you decided to go for it? Or shall we interpret that as under your management, Wolseley will be more focused on M&A and maybe less focused on cash return? That's the first question.

And the second question, also on timing on the UK restructuring. Obviously the business outlook in the UK, including the Brexit and the recent months is a bit softer with some uncertainties heading into next year. So it makes sense to restructure the business. On the other hand, you could argue this business has been a bit underperforming for a number of years. So why today rather than two years ago?

Yes, no, thank you for those. The timing in the US, I would love to say this was because three weeks ago when I took the corner office -- I didn't actually, Dave has the corner office now -- but I'd love to say that these acquisitions were all a consequence of my swashbuckling management style. And Gareth's sitting down here, so I will say that.

No, I'm afraid these have been in the pipeline for some time. It's just we've worked hard on them, now some of these happen to have just been converted. Very pleased about that. There really isn't any change in the degree of rigor, desire, appetite, discipline that we're applying to the due diligence and the price negotiations. I'm afraid it's just -- it's a bit like buses with M&A. They all seem to come along at the same time.

Timing in the UK and Brexit and why now. I think you're right, looking back over the last few years, we've probably overestimated where we thought the market demand would be. That's the first thing. And I don't think we were alone in that. A lot of people over-estimated UK growth. And second thing is, we did probably overestimate our capability.

And the important thing I think right now for me coming into the job new, is to make sure that we look at that very independently and dispassionately and we do the right thing. Now, you know we started this review six, seven months ago. The team have been very focused on that. Clearly, I've also been pretty engaged in supporting the team to do that review. And they've come up with a good strategy so I'm very pleased about that.

The impact of timing and Brexit, I don't know, really. I think this strategy would have been very similar absent Brexit. And Brexit looks to be too early to call. Is it going to fundamentally damage our core market in the UK? I would have thought not. We are principally an RMI business. And I don't see those opportunities being substantially damaged long term by exit from the European Union, hard, soft or uncertain as it may be.

Thank you. Howard Seymour at Numis. It's actually, sorry, another couple of questions on UK and actually Brexit timing. One is more structural. Just to devil's advocate on this. You're announcing this change; Travis have changed their business. There's a lot of change going in the industry. Is there not a danger that everybody's trying to move into the same area at the same time and therefore the overcapacity issue is shifting a little bit down the road?

And secondly, probably related to that. On Brexit, obviously one thing it does do is imported material costs going up. I notice you said defending areas; what's your strategy on imported pricing, etc? Are you looking to pass that on or is this going to be part of the defending position which potentially could hit gross margin?

Yes. Look, on the first one, it's a good question. And we've thought of that and we've tried to think about capacity in the industry as well. Of course we are taking capacity out here. We're taking 80 branches and a distribution center out and you know that certainly at least the other two quoted competitors have both done something vaguely similar.

I think the objective of making sure that we have the very best service and making sure that's aligned with our customer needs, that needs to be done absolutely regardless. That should be done regardless of the extent of the demand.

This is a good business in terms of, it makes good margins and it makes good returns on capital. So we absolutely -- in a sense, we have to defend this position. And we have to look after the customer service proposition because that's the basis on which the business was built. It isn't just an internet startup where it's selling stuff cheap as chips.

Our customers come in, they want to be serviced promptly, they want the local service, they want great advice, they want product knowledge. If you look, those four or five things come up in every single customer survey. That's what we are, that's what we're giving them.

Our ability to pass on price increases, there are already some discussions from some vendors along those fronts. Actually, it might be nice to have a bit of inflation back in the system. I always said six or seven years ago, I'd never say that inflation was a good thing, being a child of the 1970s. Well, all right, 1960s. So I don't see that getting out of control. Of course, if our suppliers are putting their prices up then we will have the usual negotiations, which is please defer them for us and there'll be some selective inventory investment because there often is in those things.

We try to work hard to defer price rises for as long as we can. And then at a certain point, prices have got to go up.

Thanks, John.

There is still a lot of domestically produced product though, in our range. A lot. It always amazes me just how much of this stuff is produced onshore.

Okay.

Clyde Lewis at Peel Hunt. Three if I may. Jumping across the Atlantic rather than sticking in the UK. But just looking at Ferguson and looking at some of the quoted competitors. Obviously there's a range of margin results, like the Fastenal, Grainger, etc. And some of those are quite a bit higher than yours. And obviously your business mix is different. But last year was probably the first time in a while that the operating margins haven't really moved in Ferguson. Where do you now think you can push Ferguson margins to? And has the emphasis shifted in terms of that volume versus net margins, rather than gross across that business?

I suppose also in the US is, I suppose, what are the thoughts about your industrial capacity and branches on that side of the marketplace? Do you need to adjust downwards in terms of your capacity there?

And the third one I had was Canada. I'm a little bit surprised, to be honest, to see it rolled in with the Netherlands and Switzerland as an operating structure, quite frankly, and not remaining with the US. So if you could take me through the logic of that because I still don't understand why Ferguson isn't just going to manage Westburne from a day-to-day basis. But maybe there are different medium-term thoughts behind that structure and that change there?

Well, I'll talk to the first --

I told you your margins were lower than Fastenal, Dave.

I know, you've told me that every month, John. I think a lot of those competitors that you mentioned, we clearly look at them. But it is a different mix and a different customer base that we're selling to. And so typically, they may be appropriate for a piece of our business but not looking at the margin over all of the business.

Having said that, we were flat last year at 8.2% on the trading margin. We did have some -- clearly the deflation and the industrial headwinds pushed us back on the top line. And yet from a volumetric standpoint, on the deflation, we were still handling the same volume of product. So I think that had a bit to do with our trading margin not increasing last year.

But we absolutely believe, and every year go for both gross margin improvement and trading margin improvement. It may be a few basis points, it may be 10, but we absolutely believe that we can do that and budget to do that.

I think there's a -- in that dynamic, there's definitely an impact of the rate of growth. It is just easier to get to double-digit flow-through if your growth is in the high single digits. It just is.

And we had a lot of discussion last year with Dave when he sat on the other side of the table, and the team, about actually well what flow-through should we expect at lower growth levels? And you know that Ferguson's had very good record of growth over quite some time. That has absolutely fueled that, in combination with really just tweaking the gross margin. A lot of hard work that goes into that. That's what's really allowed us to get to double-digit flow-through.

Industrial capacity, no. We have no -- there's almost no such thing as a loss-making branch. The industrial business, as Dave said, still makes very good returns, actually not far south of our overall Ferguson net margins. So whilst there's always a bit of a reallocation of resources in terms of headcount resources, there's no reason to exit any of those. There aren't actually that many standalone industrial branches anyway. This isn't a huge network; it is -- we've put in standalone branches pretty selectively.

Canada and Westburne, gosh, there's a name from the past. This has all been rebranded Wolseley Canada now. So it's more than just the old Westburne business. But what's the logic behind this? The logic really is we need to retain our focus on those three key things. Now, as I said, Canada and Central Europe are important. But the alternative to having Simon, in this instance, managing those businesses was for me to have another three reports, frankly. And my time is better spent focused on those three priorities in particular. The growth of Ferguson. So that's the reason, really, for putting them all together.

As Simon always reminds me now, that the sun never sets on his empire. I'm not sure that's quite true. But nevertheless, it's not far off. It is just a -- it clearly isn't -- there are no synergies between those businesses except for know-how. It is just an effective way of managing the business.

John Messenger, Redburn. Four, if I could please, John. The first one, just on obviously this year you had just over 7.5% underlying earnings growth. The one thing you mentioned up there was long-term dividends growing in line with earnings. Obviously historically, that's been quantified as the 10% level from Ian taking over. Is that 10% something that you'd still sit comfortably with today given that obviously last year there was a combination of the buyback impact helping that earnings number as well? So that's the first one.

The second was just on the UK, can I understand a bit in terms of the branch network? Obviously you had 737, you're guiding to 520 under the new format. Just thinking around, what else is there in there? Burdens clearly is one thing but it looks like there 137 units elsewhere. What brands will remain outside once you've finished the merging of the various bits and pieces here?

And the other one was just on the UK. Slide 46 talks about non-negotiable pricing across a range of SKUs. Can I just understand, is almost what you're looking to do, particularly with the 80 stores, almost create a SellCo for a plumber? And then I'm just trying to understand exactly -- and how big is that price fixing? Obviously a big issue in the industry. Is there going to be more price transparency? Is that 2,000 SKUs out of 4,000? Or is it a much smaller number? Just to understand that there.

And finally, build.com, just to understand what the quantum of sales is. It got a good mention in the weekend press but it was a bit overstated I think. So if we could just know what build.com was? Thank you.

You can do build and I'll do the others, Dave. The growth -- look, I think the 10% earnings growth, yes, it would have been strange to have changed that this year in the sense that we've got no better data than to believe that's a sensible long-term, through the cycle growth expectation.

Look, one day, it won't be because we'll have a recession and it'll be very difficult to get any growth and whatever else. But longer -- and as you know, two or three years ago, we had much better growth than that. So I think there will be some ebbs and flows in that.

What gets you there? If you get mid-single-digit top-line growth, you look after the gross margin., and then you grow your expense base 1.5%, 2% below that growth, that gets you there. It isn't bullish and neither is it for the fainthearted. Just because Gareth's here. Neither is it for the fainthearted because we're in a low-inflation environment. So in a sense, those returns are more real than they once were. But no, I think today the Board are -- we think that is a good, sensible long-term view.

The UK branch network. Yes, the -- what you've picked up on there is that the branch count in the back, we've got some shared properties. So there are some -- so we will need to -- there are some properties where we've got more than one format. We'll actually need to scrub that data for you going forward.

But does Burdens stand on its own, basically John?

Yes, it does.

That's the only single brand left, otherwise, it's all Wolseley?

Yes, the infrastructure brands, yes.

In terms of non-negotiable pricing, it's not 2,000 SKUs and I'm not sure -- we've certainly never thought of ourselves as becoming the SellCo for plumbers. So there will still be a lot of pricing which is customer specific.

Now we are doing that in a more structured way to make sure that, yes, if you buy GBP10,000 a year of this type of product and somebody else buys GBP10,000 a year of this type of product, it should look fair and consistent.

The non-negotiable pricing will be on several hundred items, not several thousand items. So out of the 4,000 SKUs, probably 300 or 400 will be on that consistent pricing.

Dave, do you want to go over build.com?

Sure. On build, build continues to grow nicely and we did a couple of acquisitions last year as well. But it did over GBP800 million in revenue in 2016. And obviously now with the Signature Hardware, we expect it to be over GBP1 billion and continue to grow at a pretty good clip.

Signature Hardware, is it purely -- vertically integrated? Is it actually making its own high-end stuff or is it purely an intermediary? Just to understand because obviously, high margin but is it actually making stuff?

It does a significant amount of importing on the product. But they do add value to the product in terms of some of the products. Pretty minor, not extensive. But they sell, for example, clawfoot bathtubs. And they'll modify those slightly for where the consumer wants the drain or the faucet handles. So they'll do slight modification. And in both kitchen and bath.

We've got Tom over there, Mike, has got his hand up as well. Sorry.

Yes, good morning, Charlie Campbell from Liberum. Just one question, really. On the US business, looking at the commercial side of the business -- because we've talked about industrial. I guess residential is fairly easy to follow. But on the commercial side, what's your view of the more medium outlook? Maybe as we look into 2017, could you just talk us through any lead indicators that you have there in terms of enquiries? Just to give us some more visibility on the outlook for that part of the business?

Sure. Our commercial segment, which represents about 28% of our overall business, it grew at 7% last year. So good, solid growth. And we think that that commercial will remain strong. We've got an order backlog which includes not just commercial but is highly -- commercial is a high part of it -- or about GBP1.4 billion which gives us a good year-over-year growth in terms of where we were last year. So we still feel pretty comfortable on the commercial side. It's growing well and we expect it to maintain pretty good growth.

I don't suppose you'd share what that year-on-year growth in that order book is?

No. It's healthy though.

Morning. Tom Sykes from Deutsche Bank. Just a couple of quick questions. A follow up on build.com. Does all of that go into that residential category that you split out the US business in? And could you maybe be a little bit more granular about what very strong means, please?

And then what residential is actually growing at, excluding build.com?

And then just, you give the 4.5% run rate now. You build up that tower of underground and HVAC and fire & fab. Could you maybe just give a view as maybe what's above, what's below the 4.5% at the moment?

Well, on the build, the vast majority of that is residential, consumer business. We have a small amount of trade business that will trade on build.com's sites. But it's largely residential.

The residential growth, which is our biggest segment, was about 45% in the last year, of our sales. And it was growing at 10%. So good growth there.

Yes, and that isn't significantly -- it would be 9%-point-something ex-build.

Okay.

Yes.

Yes, so it's not -- it hasn't skewed that number, Tom. If that was the question?

That's basically the gist of it, yes.

And then the color on what's doing -- if you looked at the geography on Dave's chart earlier, north central remains the area of weakness in blended. But blended's doing okay. B2C is continuing very well. Industrial, you know about, is still negative essentially post-year end. Waterworks slightly slower. HVAC's had a very good year. It's been a good -- we've had a good roll in HVAC. So that's the sort of --

And the run rate on industrial is negative but less negative than it was in Q3, Q4?

A little bit, yes.

Yes, okay, thank you.

Have we got time for another one before we -- there aren't any more. Excellent. Look, well, thank you all very much indeed for coming and have a good day.

Thank you very much.