Welcome to Ferguson plc

1 Welcome to Ferguson plcAnnual Report and Accounts 2017In this year s reportContentsIFC* 49 Strategic reportIFCC ontents01 Welcome to Ferguson plc12 Highlights13 Chairman s statement14 Ferguson at a glance16 Group Chief Executive s review19 Marketplace overview20 Our business model22 Key resources and relationships26 Key performance indicators28 Regional performance34 Sustainability38 Financial and operating review42 Principal risks and their management50 84 Governance51 Governance overview52 Board of Directors54 How the Board operates 56 Ferguson s governance structure 57 What the Board has done during the year58 Evaluating the performance of the Board of Directors 59 Relations with shareholders60 Audit Committee64 Nominations Committee66 Directors Report other disclosures69 Directors Remuneration Report85 137 Financials86 Group income statement87 Group statement of comprehensive income87 Group statement of changes in equity88 Group balance sheet89 Group cash flow statement90 Notes to the consolidated financial statements128 Independent auditor s report to the members of Ferguson plc134 Company profit and loss account134 Company statement

2 Of changes in equity135 Company balance sheet136 Notes to the Company financial statements138 146 Other information138 Five-year summary140 Group companies142 Shareholder information145 Group information146 Forward-looking statements12 Another good year16 Continued strategic developmentJohn Martin Group Chief Executive2017 ChangeOngoing revenue** 14,878m+ 15,224m+ gross margin** + trading profit** 1,032m+ before tax 1,180m+ earnings per share** + 11 What makes Ferguson a great business1We operate in attractive, fragmented markets2We work in an industry with compelling growth opportunities3 We offer our customers unrivalled scale4We recruit and retain the best people, with a passion for customer service5We use technology to give customers choice and flexibilityFulfilling customer wantsAttractive growth opportunitiesExcellent execution13 Well positioned for future growthGareth Davis Chairman* IFC Inside front cover.

3 ** These are reported on an ongoing basis and represent Alternative Performance Measures ( APMs ), see page 12 and note 2 on pages 91 and 92 for further information. ** Headline earnings per share is an APM, see page 12 and note 2 on pages 91 and 92 for further s in a name?Our new name recognises the size and importance of Ferguson in the USA which today generates nearly 90 per cent of the Group s trading profit. It s also about the Ferguson culture that puts people and customers first, resulting in the highest levels of quality, service and efficiency for over sixty customers rely on us every day and our specialist products and services are used in almost every stage of commercial, residential, industrial and municipal development.

4 We help them find the best combination of services and solutions to save them time and money. Whatever the challenge, we work closely with our customers to help them run their businesses more effectively and save them time and the following pages we celebrate our new name by focusing on the strengths and opportunities inherent in our US business which we believe will generate sustainable profitable growth and strong returns for our to Ferguson to Ferguson plcOther informationFinancialsGovernanceFerguson plc Annual Report and Accounts 201701 Strategic reportWhat makes Ferguson a great business We operate in attractive.

5 Fragmented marketsAs the largest distributor of plumbing and heating products in the USA, we hold leading market positions in the majority of our businesses. These markets are typically highly fragmented with few large competitors and we compete with many small local , there continues to be excellent opportunities to grow our business geographically, particularly in large metropolitan areas across the 19102 Case studyBlended Branches is the Number 1 distributor of plumbing and heating products in the USA with an estimated market share of 17 per cent. There are only three national competitors with a market share above 5 per cent with the majority of supply houses being small local distributors.

6 Market share varies across the USA from low single digit in some states to high twenties in others. There are numerous opportunities in highly populated regions in the USA for us to grow our business. For example in the north east Ferguson has relatively low market share with many huge metro markets still relatively unpenetrated. These include New York and Boston which are some of the largest metro markets in the USA. We are now targeting accelerated growth plans in these regions and many others across the USA. For information on the USA business units and our international operations see pages 14 and are only three national competitors with a market share above 5 per cent032 What makes Ferguson a great business We work in an industry with compelling growth opportunitiesOur strong service ethic combined with scale advantages in logistics, supply chain and technology, means we have consistently gained market share to generate strong profitable growth.

7 Acquiring regional or local competitors where we can rapidly integrate them into our supply chain makes bolt-on acquisitions highly growth opportunities lie in developing new adjacent businesses such as Facilities Supply and B2C e-commerce where we can utilise our existing skills, capabilities and 17, 19 and 4004 Case studyOur Facilities Supply business provides our customers with products and services used in the repair, maintenance, replacement and renovation of their facilities with key product categories including janitorial supplies, hardware, heating ventilation and air conditioning ( HVAC ), lighting, plumbing, paint and safety newest business group in the USA operates in a c.

8 $90 billion addressable market that was historically served by a highly fragmented, localised base of competitors. Our aim is to become the market leader and we are well positioned to capture market share through our product mix, national network, technology, supplier relationships and talent development programme. Growth will continue to be enhanced through both organic business development and targeted acquisitions that add to our geographical capabilities, expand our customer base and bring talented associates into the business. We strongly believe we will gain market share and grow profitably in this attractive market.

9 $90bnThe Facilities Supply market in the USA is highly fragmented and estimated to be worth circa $90 billion05 What makes Ferguson a great business We offer our customers unrivalled scaleOur highly efficient national logistics and distribution network enables us to achieve volume discounts from suppliers and the highest levels of availability for our customers on a broad range of products. We continue to invest in the latest technology solutions to make us an even more efficient business and to save time and resources for our 20 to 25306 Case studyOur Texas distribution hub based in Euless, near Dallas, was at capacity due to increasing growth in the region over the last two years.

10 The logistics operation was being run from two separate buildings, with more than 20 storage containers, and an appliance warehouse in the Dallas Fort Worth region. A solution was found in a new Market Distribution Centre ( MDC ) which centralises the final mile logistics to customers for the whole region from one large location. The new 281,000 square foot facility will support the high growth rate in the region with more capacity and better operating efficiencies. Ideally situated in the heart of the market, the MDC drives scale and also enables local branches to concentrate on sales and service to customers.