Welcome to Ferguson

Ferguson plc is a leading value added distributor of plumbing and heating products. Annual Report and Accounts 2020 Accounts Report and Annual Ferguson plc Ferguson 07 Group Chief Executive’s Q&A Kevin Murphy, our new Group Chief Executive, discusses his views on strategy and Ferguson’s response to COVID-19. 04 Chairman’s statement Geoff Drabble reflects on a year of substantial progress and 26–29 considerable challenges. Financial review Mike Powell, CFO, assesses the Group’s strong and resilient performance this year and continued financial strength.

IFC–59 60–112 Strategic report Governance

IFC Welcome to Ferguson 20 Key resources and relationships 61 Governance overview 74 Audit, risk and internal control IFC Contents 24 Stakeholder engagement 62 Board of Directors 81 Directors’ Remuneration Report 2 Ferguson at a glance 26 Financial review 65 The Board’s focus 83 Remuneration at a glance 4 Chairman’s statement 30 Regional performance during the year 86 Annual report on remuneration 5 Financial highlights 48 Sustainability 66 How the Board engages 98 2019 Remuneration Policy – with stakeholders 7 Group Chief Executive’s Q&A 53 Principal risks and for information only 67 Division of responsibilities 15 Market overview their management 109 Directors’ Report – 59 Non-financial 69 Composition, succession other disclosures 16 Key performance indicators and evaluation (“KPIs”) information statement 71 Nominations Committee 18 Our business model 01

Better with Ferguson Our purpose is to act as a trusted supplier and partner to our customers, providing innovative products and solutions to make their projects better. We offer excellent service, advice and a broad range of 2020 Accounts Report and Annual specialist plumbing and heating products delivered where and when our customers need them. plc Ferguson The emergence of COVID-19 this year has demonstrated more than ever how our customers rely on us every day to help them deliver critical infrastructure spanning almost every stage of residential, commercial, industrial and municipal development. Whatever the future challenges, we will continue to partner with our customers to keep millions of homes and businesses operating while helping them to run their business more efficiently.

For more information on our values and people Page 20 Other information Financials

113–167 168–176 Financials Other information

114 Group income statement 158 Independent auditor’s report 168 Five-year summary 115 Group statement of to the members of Ferguson plc 170 Group companies comprehensive income 164 Company income statement 172 Shareholder information Governance 116 Group statement of 164 Company statement 175 Group information changes in equity of changes in equity 176 Forward-looking statements 117 Group balance sheet 165 Company balance sheet 118 Group cash flow statement 166 Notes to the Company 119 Notes to the consolidated financial statements financial statements Strategic report 02 Ferguson at a glance

Ferguson plc is a leading, value added distributor of Value added plumbing and heating products. Our business serves customers principally in North America, predominantly distributor serving the repair, maintenance and improvement (“RMI”) markets. We serve nine customer groups in the USA providing a broad

Annual Report and Accounts 2020 Accounts Report and Annual range of plumbing and heating products and solutions. These are delivered through specialist sales Residential Showroom Residential Trade

Ferguson plc Ferguson associates, counter service, showroom Operates a national network of 256 showrooms, Serves the residential RMI and new construction consultants and e-commerce. serving consumers and trade customers. sectors with a large proportion of sales through the Showrooms display bathroom, kitchen and branch counters. It provides plumbing and sanitary Our business is organized by customer lighting products and assist customers by supplies, tools, repair parts and bathroom fixtures requirements for strategic planning providing advice and project management to plumbing contractors. services for their home improvement projects. purposes. In certain markets where it is more efficient to do so, we serve our customers 19% through a Blended Branches location 15% of total US revenue rather than a dedicated standalone branch. of total US revenue Blended Branches mainly comprises three principal customer groups: Residential Trade, Residential Showroom and Commercial. For more information on our customer groups Pages 30 to 45

For more information on our markets Page 15

eBusiness HVAC Sells home improvement products directly to Distributes heating, ventilation, air conditioning consumers and trade customers online through (“HVAC”) and refrigeration equipment, parts various websites. The primary brand is Build.com and supplies to specialist contractors in the and the business creates synergies by using the residential and commercial end markets for repair same distribution network as the trade businesses. and replacement. 8% 10% of total US revenue of total US revenue

Group

A anada A 2% 1% 97% anada

eenue Underlying trading profit1

1. This is an Alternative Performance Measure ("APM"); for further information on APMs, including a description of our policy, purpose, definitions and reconciliations to equivalent IFRS statutory measures, see note 2 on pages 124 to 127. Underlying trading profit refers to continuing operations unless otherwise stated. 03

Commercial Facilities Supply Provides commercial plumbing and mechanical Provides products, services and solutions to enable contractors with products and services including reliable maintenance of commercial facilities across bidding and tendering support and timeline multiple RMI markets including multi-family properties, planning to assist with their construction projects. government agencies, hospitality, education 14% and healthcare. of total US revenue 5%

of total US revenue 2020 Accounts Report and Annual Ferguson plc Ferguson

Fire and Fabrication Waterworks Industrial Fabricates and supplies fire protection products, Distributes pipe, valves and fittings (“PVF”), Supplies PVF and industrial maintenance, repair fire protection systems and bespoke fabrication hydrants, meters and related water management and operations (“MRO”) specializing in delivering Other information services to commercial contractors for new products alongside related services including automation, instrumentation, engineered products construction projects. water line tapping and pipe fusion often to civil or and turn-key solutions. Also provides supply chain 4% municipal organizations. management solutions. of total US revenue 18% 7% of total US revenue of total US revenue Financials

USA Canada UK (non-ongoing) $18,857m $1,083m $1,879m Revenue Revenue Revenue (2018/19: $18,358m) (2018/19: $1,191m)³ (2018/19: $2,222m)⁴ 8.4% 4.0% 0.4% Governance Underlying trading margin2 Underlying trading margin2 Underlying trading margin2 (2018/19: 8.2%) (2018/19: 5.6%)³ (2018/19: 3.1%)⁴

2. See note 3 on pages 128 and 130 for further information on segmental metrics. The underlying trading margin is calculated as the underlying trading profit divided by revenue. 3. Excludes Central European businesses, the last of which was sold in January 2019. Strategic report 4. Excludes soak.com, which was sold in March 2019. 04 Chairman’s statement

I am delighted to have been given the As for all organizations, the pandemic Navigating opportunity to join the Board of Ferguson has caused a significant shift in the way as Chairman and what an extraordinary Ferguson operates and brings into play exceptional time to have started in this role. As I joined significant risks and challenges. We have last May I was struck by many qualities an experienced management team that about the business with its very strong has a strong track record of dealing with times while customer-centric culture, the energy and incidents and to tackle this crisis they have commitment of the Ferguson associates set up response teams to ensure we keep and the excellent leadership team focused the core business operating and protect

Annual Report and Accounts 2020 Accounts Report and Annual protecting on driving performance. the health and wellbeing of our colleagues and customers. The rapid, effective and caring response the business to the COVID-19 pandemic, the impact The Board receives regular updates from

Ferguson plc Ferguson of which began to be felt in March, the Executive team on the provision of has shone a light more than ever on these core services, how we are supporting for the qualities. Above all else this year, colleagues and the community, and the I have been struck by the unwavering mitigation of the risks to our business. long term commitment of Ferguson’s 34,000 You can read more about our response to associates, who despite the challenges the COVID-19 pandemic in Kevin Murphy’s of the virus have steadfastly committed Chief Executive’s review. The Board has to keeping our customers running, also carefully considered and monitored many of whom provide critical services the potential economic impacts of keeping millions of homes and businesses COVID-19, in particular financing and functioning. On behalf of the Board I would liquidity. Ferguson has a proven cash like to express our sincere thanks to them generative business model and entered and recognize their outstanding contribution this period of high uncertainty with a strong to our success. balance sheet and significant liquidity headroom. Mike Powell provides a detailed Over the past six months the ongoing overview of this in his Financial review on impact of COVID-19 has been significant pages 26 to 29. Additional detail also can and has had a profound impact on all our be found in our viability statement on pages lives and will do so for some time to come. 54 to 55 and our principal risks on pages 53 to 59.

“Above all else this year, I have been struck by the unwavering commitment of Ferguson’s 34,000 associates, who despite the challenges of the virus have steadfastly committed to keeping our customers running, many of whom provide critical services keeping millions of homes and businesses functioning.”

Geoff Drabble Chairman 05

Financial performance Shareholder returns Taking into account the Group’s prospects and financial position; the Board has and strategy Since 2009, Ferguson’s investment decided to propose a final dividend for the 2019/20 has been a year of substantial priorities have remained firmly focused on year ended July 31, 2020 of 208.2 cents progress under the stewardship of Kevin investing in the business and consistently which effectively reinstates the previously Murphy in his first year as Group Chief generating above market organic growth. withdrawn interim dividend and is in line Executive, despite the impact of COVID-19. We also set out to maintain and grow the with last year’s total dividend (2018/19: 208.2 The Group has delivered a strong and ordinary dividend in line with earnings cents per share). The dividend will be paid resilient trading performance in particularly through the cycle and selectively invest on December 11, 2020 to shareholders challenging markets in the second half. in bolt-on acquisitions that meet our on the register at November 13, 2020. 2020 Accounts Report and Annual As you will read in his Chief Executive’s investment criteria. Any surplus cash after Dividend payments in 2020/21 will revert Q&A on pages 7 to 14, Kevin has provided meeting these investment needs was back to the normal one-third: two- fresh impetus to the rapid execution of our returned to shareholders promptly and we thirds split between an interim and final strategy, in particular prioritizing investment have returned over $4 billion in share buy plc Ferguson dividend. The Group’s dividend policy and focus on our largest growth opportunity backs and special dividends over the past remains unchanged. in the USA. eight years. We now intend to resume our focused The Group generated ongoing revenue¹ Given the uncertainty of COVID-19 our M&A program, funding selective bolt- growth of 2.0 per cent to $19,940 million strong balance sheet has been a source on acquisitions to improve our market (2018/19: $19,549 million). Headline earnings of great strength as we have guided the leadership positions or expand the per share¹ was 1.1 per cent lower at 511.6 business through the early challenges of the capabilities of our existing business models. cents mainly due to a higher effective pandemic. Initially we took prompt actions tax rate from previously announced tax to optimize cash flow, reducing capital While Ferguson remains in a strong financial reform. Total basic earnings per share of expenditure and operating costs, and further position, in the light of continued economic 427.5 cents was 11.2 per cent lower than improve our liquidity position. This included uncertainty the Board believes that it is last year due to increased exceptional suspending the $500 million share buy back appropriate to preserve prudent levels and amortization charges in the year and announced on February 4, 2020, pausing of funding and liquidity. As a result, the exceptional discontinued disposal gains in M&A activity, and after careful consideration previously announced $500 million share the prior year. We delivered an excellent withdrawal of the interim dividend due for buy back program remains suspended cash performance over the period which, payment in April 2020. and will continue to be assessed as we gain further clarity on economic conditions. at a time of great focus on the impact of the However, we stated at the time that the At the point at which the share buy back was pandemic on the health of company balance Board recognized the importance of suspended in April 2020 the Company had sheets, underlines the strength of our dividends to shareholders and, as such, completed $101 million of the program. business model. intended to consider the appropriateness, quantum and timing of future dividends when the Board had a clearer view of the effects of COVID-19 on the Company’s business.

Financial highlights Other information Statutory financial results $21,819m $1,261m 427.5c 208.2c Revenue Profit before tax Total basic earnings Total ordinary dividend (0.9%) (4.8%) per share per share (2018/19: $22,010m) (2018/19: $1,324m) (11.2%) In line with last year Financials (2018/19: 481.3c) (2018/19: 208.2c)

Alternative performance measures $19,940m 30.0% $1,595m 511.6c Ongoing revenue1 Ongoing gross margin1 Ongoing underlying Headline EPS1

+2.0% In line with last year trading profit1 (1.1%) Governance (2018/19: $19,549m) (2018/19: 30.0%) +4.1% (2018/19: 517.4c) (2018/19: $1,532m)

1. The Group uses Alternative Performance Measures (“APMs”), which are not defined or specified under International Financial Reporting Standards (“IFRS”), to provide additional helpful information. These measures are not considered to be a substitute for IFRS measures and are consistent with how business performance is planned, reported and assessed internally by management and the Board. For further information on APMs, including a description of our policy, purpose,

definitions and reconciliations to equivalent IFRS statutory measures, see notes 2 and 3 on pages 124 to 130. Strategic report 06 Chairman’s statement (continued)

Board changes From my early interactions with the Board In February 2020 we announced a formal this year, it is evident that the Board and consultation with institutional shareholders I was pleased to join Ferguson as a Non Committees function well with high levels on two potential listing structures which Executive Director on May 22, 2019 and to of engagement from all members and an would aim to facilitate greater North succeed Gareth Davis as Chairman from appropriate level of challenge and support. American domestic investment in Ferguson. November 21, 2019. On behalf of the Board Details of the Board’s work, including the Option 1 was to seek shareholder approval I would like to thank Gareth for his strong various Board Committees, is included in for a secondary listing of ordinary shares in leadership and commitment over the last the Governance report on pages 60 to 112. the USA, with the primary listing remaining 16 years. He successfully oversaw a huge in London, and Option 2 was to seek amount of positive change over that period Annual Report and Accounts 2020 Accounts Report and Annual shareholder approval for a primary listing in and I am personally grateful to Gareth UK demerger the USA and demotion of the London listing. for the time and invaluable support he In September 2019, the Board announced Throughout this process the Board has generously gave to me during my induction. its intention to separate its Wolseley UK been mindful of the importance of acting

Ferguson plc Ferguson operations by way of a demerger into an John Martin stepped down as Chief independent UK listed company, subject in the interests of shareholders as a whole, Executive on November 19, 2019. John’s to shareholder approval. The timing of this many of whom, in the event of a primary US contribution to Ferguson has been remains uncertain in the current economic listing, have mandates restricting continued outstanding for nearly a decade and he environment and consequently the Board long-term ownership. left the business in great shape. The Board is assessing other separation options in Following the consultation, the Board, wishes him well for the future. Kevin Murphy parallel with progress towards the demerger together with its advisers, carefully succeeded John as Chief Executive in to facilitate the exit of the Wolseley considered the feedback received and in November. Kevin, a US national, was UK business. July 2020 sought shareholder approval appointed CEO of Ferguson Enterprises for Option 1 to implement a secondary in the USA and joined the Board in August listing of ordinary shares in the USA. At the 2017. He has a strong track record of Listing structure same time the Board also set out that in operational delivery having previously Ferguson has been listed in London due course its intention is to put forward a served as Chief Operating Officer of since 1986. During this time the Group further resolution to Ferguson shareholders Ferguson Enterprises for 10 years after has benefited from a strong and diverse to relocate Ferguson’s primary listing to joining the business through an acquisition shareholder base that in recent years the USA. of his family’s waterworks business Midwest has been supportive of the Group’s Pipe and Supply in 1999. growing focus on attractive opportunities We were very pleased that shareholders in North America. This strategy has led voted in favor of the resolution and it Mike Powell will step down as Chief to an increasing proportion of revenues received over 99 per cent support, Financial Officer (CFO) on October 31, being generated from North America over significantly above the required 75 per cent 2020 in order to take up a role as Group time. The Board has therefore kept listing threshold. We expect the new listing to CFO of Mondi plc. As CFO for several structure under review over several years, become effective in the first half of calendar years Mike also played a critical role in as the business has evolved. year 2021. We believe that this two-step the Group’s transformation to focus the process to transition to a full US primary business on its attractive North American Following the UK separation, Ferguson’s listing provides an appropriate period markets, and we wish him all the very best. Group CEO, CFO and operational during which some Ferguson shareholders Mike will be succeeded by Bill Brundage on management team will be based in North who have mandates which may restrict their November 1, 2020. Bill is currently CFO of America and the entirety of the Group’s long-term ownership in Ferguson could sell Ferguson Enterprises and has over 17 year’s revenue and profit will be generated there. their holdings in an orderly manner. experience in a variety of senior finance In addition, there is a comparable set of roles with the Company. In searching for peer companies listed in the USA, some On behalf of the Board I would like to thank Mike’s successor, we conducted a rigorous of whom compete directly with Ferguson. shareholders for their feedback and support review of potential internal and external These companies have a large domestic in this matter and in the coming years I candidates and we were fortunate to have investor following and are typically covered have no doubt that Ferguson will benefit an internal candidate of such high caliber by a broad range of North American equity from having direct access to this significant and experience in Bill. I would like to analysts. Therefore, during the last year incremental pool of capital in the USA. congratulate him on his appointment. the Board, taking into account the views of shareholders and advisers, assessed Looking ahead Darren Shapland also stepped down as a range of options and the associated a Non Executive Director on November costs and benefits of amending its listing Ferguson has made excellent progress this 21, 2019. The Board thanks him for his structure to allow greater access to North year on many fronts despite considerable significant contribution to the Group over American domestic capital. challenges. The Board is confident that the the last six years. Darren’s responsibilities Group has the right strategy, leadership as Chairman of the Audit Committee Following this assessment, the Board and culture to deliver on its full potential. were taken on by Alan Murray, the Senior concluded that the USA is now the natural Our consistent strong performance, Independent Director. Alan, a US resident, long-term listing location for Ferguson. A US together with continued rapid execution of is a chartered management accountant listing will provide Ferguson with access to our strategy, ensures the Board continues to with considerable financial, operational significant incremental pools of capital in the look to the future with confidence. and international experience within global largest domestic investment market in the businesses including 19 years at Hanson world and is fully aligned with the long-term plc, with five years as CEO. strategy and focus for the business. Geoff Drabble Chairman Group Chief Executive’s Q&A 07

I am incredibly proud to be a part of this great Company The Group through what has certainly been an extraordinary first year has delivered as Ferguson’s Group Chief Executive. The COVID-19 pandemic has undoubtedly had a dramatic impact and continues to affect almost every aspect of our business and personal lives. I want to start by a strong recognizing all of our extraordinary associates who have steadfastly continued to support our customers and make their projects more successful, in often very difficult circumstances this year. From our fabricators, technicians and drivers, to our showroom and resilient consultants and sales representatives to those working tirelessly on our counters, 2020 Accounts Report and Annual and in our warehouses and distribution centers, not to mention the many thousands performance of associates now asked to perform their jobs remotely; they have all risen to the challenge. During these extraordinary times we are incredibly thankful and proud of despite the what they continue to accomplish. plc Ferguson significant challenges we’ve all faced during the year

Q A The Group delivered a strong and resilient You’ve had to wrestle performance in 2019/20 which was with significant particularly important given the challenges of COVID-19 this year. Ongoing revenue challenges this of $19,940 million was 2.0 per cent ahead year including the of last year (2018/19: $19,549 million)

and 0.1 per cent behind on an organic Other information outbreak of COVID-19 basis. Ongoing gross margins were in line with last year, which was a good in the second half. performance given the adverse product How did the Group mix challenges of COVID-19 in the second half as we temporarily closed our branch perform this year? and showroom networks. The Group’s

operating expenses were well controlled, Financials particularly in the second half, as we acted swiftly to lower our expense base in line with the rapidly changing marketing conditions. Ongoing underlying trading profit was 4.1 per cent ahead of last year at $1,595 million (2018/19: $1,532 million), which under the circumstances was an excellent performance. Governance Profit before tax decreased to $1,261 million (2018/19: $1,324 million) as a result of slightly higher amortization, impairments and exceptional charges in the current year while cash performance has been excellent in the year. Read more about our financial performance Kevin Murphy Pages 16 to 17 and 26 to 29 Group Chief Executive Officer Strategic report 08 Group Chief Executive’s Q&A (continued)

Q Q Q Ferguson has How have you What have you done continued to operate safeguarded your to support the wider its businesses in the associates and kept communities in which USA, Canada and your customers safe? you operate? Annual Report and Accounts 2020 Accounts Report and Annual the UK throughout A A the COVID-19 Protecting the health and wellbeing of our This was particularly important as we are Ferguson plc Ferguson pandemic. Why has associates and customers has always been uniquely positioned to make a contribution this been important? our first consideration and throughout the to our local communities and we are playing COVID-19 pandemic this was no different. our part to directly support the health impact Given the challenges of COVID-19 we of the crisis. We have participated in more A had to quickly figure out a new way of than 50 temporary hospital projects across operating safely and we rapidly implemented the USA and have worked on similar projects Ferguson is an essential business – new precautions across our business in the UK and Canada. These projects essential to the health and safety in each in adherence with relevant authorities have created more than 12,000 additional of the countries we operate in. Our trade including the Centers for Disease Control patient beds in the USA in often challenging customers maintain heating, ventilation and Prevention (CDC) guidelines in the USA. environments including pop-up tents in and air conditioning (HVAC), clean and Cleaning protocols at all sites were enhanced parking lots, parks and convention centers. wastewater services to millions of homes and we ensured that social distancing and businesses. We keep key residential, In New York, where there was a high was practiced at all locations. In the early commercial, industrial and public sector concentration of cases early in the pandemic, weeks of the pandemic our branches facilities running and we also support the we created a 24/7 emergency one-hour moved to pick-up and delivery only with major public utilities with the products pick-up counter focused on servicing customers encouraged to order ahead with they need for repair and maintenance of local hospitals in the New York metro pick-up in store or at the curbside. We also their networks. It has been critical to try area. In addition, as hospitals and health implemented new processes and protocols to support our customers and play our departments responded to the surge in to keep our drivers safe including touchless part in keeping these important parts of COVID-19 patients, Ferguson has donated signature at the point of delivery or pick-up our economy running. This was widely approximately 70,000 N95 face masks location. At the peak of the pandemic about recognized by the relevant authorities and to healthcare organizations in the USA. 14,000 US associates were working remotely, in all 50 states in the USA, Ferguson was Deliveries of masks have gone to hospitals supported by technology. recognized as an essential service. across the USA from California to Virginia. As lockdown restrictions were lifted locally It has been a phenomenal effort so far and from late May/early June we started we are really proud of how our people have reopening our physical counter locations. risen to the challenges and supported our These were adapted with physical safeguards customers and communities (see case including safety screens and new signage to study opposite). help reinforce the necessary social distancing measures required and always in line with local governmental guidance. All our bricks and mortar showroom sites were also initially closed (though virtual consultations continued) and later in the spring we reopened to scheduled appointments ensuring these visits were safe. 09

Q Has anything changed in terms of how business is being done in this new COVID-19 era? 2020 Accounts Report and Annual Anything you think will

change when life gets plc Ferguson The McCormick Place Convention Center as it was being converted into a temporary hospital back to normal? to help in the battle against COVID-19 A On the trade side of our business we’ve been very encouraged by the overall adoption rate of our e-commerce tools during the crisis. Since it started, an additional 44,000 customers have signed on to use our digital tools. Activity levels through our mobile experience have doubled over the same timeframe, signaling that customers are embracing our site and appreciating our digital offering. We have continued to see accelerated growth in our mobile platforms for our trade customers. Mobile will be critical in creating the frictionless experience that allows our customers to be more efficient and our associates more productive, which is central to our strategy. We continue to roll out version updates with additional Case study functionality, but customers can now Pulling out all the stops seamlessly do the following: COVID-19 continues to present huge challenges for communities and economies. – Buy online pick-up at store – we’ve created a “contactless process” for our customers and At the start of the outbreak Ferguson was essential to setting up care facilities to associates to transact. help cope with the rising number of infected people.

– Use the “Ferguson SKU App” on their mobile Other information Jim Kuenn, Director of Commercial – Central Midwest describes what happened phone to scan product barcodes to seamlessly when Ferguson got the call to help on the COVID-19 Care Center project at create a shopping cart for Ferguson.com. McCormick Place in Chicago: – Track their delivery truck in real-time after we embedded truck delivery tracking software into “The goal was to turn an empty convention center into a 3,500- our platform. bed COVID-19 care facility. We got involved midday on a Tuesday. – Search for products by job versus individual product following the launch of our “shop Our customer called saying, ‘I need help sourcing product and by job” feature – this cuts down on the time Financials I need it yesterday’. We were told that 500 beds, with fixtures customers navigate the app or site to select the right products. and hot water needed to be ready on Friday by noon. It didn’t – Add necessary instructions for their orders, stop there. They told us that 3,000 more beds, fixtures and hot pick-ups and deliveries through our text to water needed to be ready within eight days. We reviewed the branch service. – Gain access to a wide and deep product mechanical schedule and specifications provided to us. inventory with visibility as we continued to add “The Ferguson team stepped up to the challenge and worked thousands of different products across all of the businesses we serve. Governance 24/7 to make it happen while adhering to our new COVID-19 As we think about longer-term strategy, procedures such as social distancing and wearing our personal technology remains a key differentiator. protective equipment. Our customers ran ahead of schedule We will continue to develop and invest in and met the deadlines because everyone, from our contractors e-commerce solutions which will set us up to various suppliers, found a way to say ‘yes’. I get prideful chills well for the future. from what was accomplished. What our teams of associates overcame that week is a true showing of who we are as people.” Strategic report 10 Group Chief Executive’s Q&A (continued)

Q A As a new CEO, is Our strategy is consistent with the direction We will operate with a short-term and long- of travel in recent years. Of course, we will term focus, not sacrificing the short for the Ferguson’s overall constantly evolve our approach over time long, or the long for the short. We can and and our Strategic Framework (below) is our will do both. strategy going to roadmap for developing our business in the coming years.

Annual Report and Accounts 2020 Accounts Report and Annual change? This will ensure that we drive those initiatives to further enhance our competitive advantage and provide a

Ferguson plc Ferguson continually improving experience for our customers, suppliers, and most importantly, our associates.

Figure 1: Our strategic framework

How As trusted advisers, we provide innovative tomorrow products and solutions to make our works customers’ projects better. Strategy Where we invest We will expand our role in the value chain to We will focus on key capabilities that lay the build durable competitive advantages to achieve groundwork for our path to tomorrow. profitable growth. See examples of our Culture of Innovation and strategy in action enabledDigitally customer best associates Ferguson Ventures Pages 32 to 41 relationships

Project Omnichannel and Technology and driven digital capabilities data capabilities

Specification and influence One brand:Ferguson Supply chain and Salesforce value added services evolution Focused product strategy

Changing landscape Running a great business – Changing customer expectations – First in safety – Shifting channels – Customer service – Industry disruptors – Strategic growth – Labor shortage – Gross margin improvement – Vertical integration – Operational leverage – Capital discipline – Environmental, social and governance

Our values

Read more about our values People Safety Integrity Innovation Service Results Page 20 11

Q Q How would you What about efficiency describe Ferguson’s and ensuring you strategy? stay ahead of your competition?

A 2020 Accounts Report and Annual You can see from figure 1 (opposite), that in Other priorities include operating through A essence we see ourselves as partners to one brand in the USA, Ferguson, to ensure our customers to make their projects more customers recognize and value what we do. Yes, this is absolutely critical and we will Ferguson plc Ferguson successful. Distribution remains a core Through our focused product strategy we will continue to grow faster than the market competence and we bring a deep and wide also provide a robust offering that includes in the short term even if that market looks inventory which is leading in our product both branded and own brand offerings. challenging over that period. We will categories together with a world class supply Own brand is important not just from a gross continue to do this through the value we chain. To our customers this means putting margin perspective (it does attract higher provide to our customers and growing our together a bundle of products and getting gross margins than branded products) but gross margins. We’ll continue to generate it to them when and where they need it. it’s also a clear advantage if we can get our operating leverage which to us means We are really good at that. But we want to proprietary products specified in a job. growing trading profit faster than revenue be more than that. We want to make sure by controlling our cost base. We’ll continue As such we want to be a part of our that through a consultative approach with to be efficient in our working capital so customers’ decision-making process sooner, our associates, we are guiding a customer’s that we generate strong and attractive evolving from order taker to trusted adviser project to make sure that it is more successful cash flow. These things allow us to invest and always be project driven to guide because they did business with Ferguson. and become even more relevant, even projects rather than just quoting lists. You can more durable in the long-run as customer From a strategy perspective we start with read about how we are achieving this on expectations change, channels shift and thought leadership which in essence means pages 36 to 39. as industry disruption happens from non- the expansion of our role in the value chain. And then on the right side of figure 1, what incumbent competitors. Put another way the key question is always, are those things that we’re going to invest in “How did we guide that project to make All this needs to be built on strong to enable thought leadership to become a it better?” Our customer relationships are foundations which are the values that we reality? Not least of which is omnichannel – clearly critical but we believe in the future have held true as a company over the last this means creating that seamless customer this won’t be enough. 65 plus years (you can read more about our experience by leveraging the talent and the values on page 20). We are going to always We also need to build the capabilities that assets that we have, both bricks and mortar live these values and they are important in drive the best digitally enabled customer and digital, and how we bring to bear those guiding us to the right way to do business. relationships through investment in physical and digital relationships in service of technology and I talked about some of the the customer. developments earlier. It is clear from the Other important areas of focus are value COVID-19 pandemic technology can support added services inside our supply chain, for our customers to make them operate more example geo-positioning (see page 12) or the Other information efficiently and save them time so they can evolution of what our salesforce should, and focus on serving their customers. will be, for example sales advisers acting as partners at the start of a project (see page 34). We also want to invest in innovation and disruption that’s coming from outside our “We want to make sure organization, for example investment in new that through a consultative technology or through Ferguson Ventures Financials approach with our associates, (see pages 32 to 33 and 56). we are guiding a customer’s project to make sure that it is more successful because they did business with Ferguson.” Governance Strategic report 12 Group Chief Executive’s Q&A (continued)

Q So how will you grow in the future? Annual Report and Accounts 2020 Accounts Report and Annual A We see four dimensions to growth (see figure Product expansion is about growing that Many customer projects require a range

Ferguson plc Ferguson 2) which emanate from our core strengths. bundle to provide a comprehensive range of products and services from across our It all begins with the customer and we will of products and lines of business so that business and we leverage our scale and never abandon the trade professional as we are more relevant for not only the trade expertise across the organization for the our core relationship. But what we will do professional, but also the ultimate end user benefit of our customers, which provides is address stakeholder relationships more and owner. the opportunity to make attractive returns than ever before. We’ll make sure that for our shareholders. Finally, in terms of business expansion, we’re engaged with owners, engineers and we will also stay focused on our customer We benefit from significant synergies as architects to drive project specifications and groups which are set out in figure 3, opposite. shown in the shared infrastructure table ensure that we are uniquely placed to secure For example, in the USA we serve nine (figure 4), to help lower our costs and improve a piece of business. This will also help to sell customer groups with a number one or margins. We have chosen to operate in our own products and expand our gross two market position in the majority of them. these markets because we have a record of margins. We will earn that value through our There is a significant opportunity for strong generating strong growth, attractive gross focused product strategy. growth and continued consolidation within and net margins and good returns on capital Secondly, while we have no intention to each of these large, fragmented markets. in each of these areas, which is good for own manufacturing assets, we’re going to our customers, suppliers, associates and get as close to the point of manufacturing shareholders and also ultimately creates real as we possibly can. We’re going to continue value for the end user. to expand our diverse global sourcing organization that we have built to make sure that we’re driving design, product development and own brand execution. We will source from inside and outside the USA for our own brand applications and drive Figure 2: Expanding our role in the value chain sales through specification to the end user. Source of funds

Thought leadership expansion strategy Specification and Influence Focused product strategy Project-minded approach Building a recognized operating brand Focus on customer and stakeholder

Position of strength Running a great business Best supply chain capabilities Great customer experience Technology and data capabilities Cabinets Hardware Innovation and R&D

Case study supplyFacilities Product expansion Product

Project management expansion Business and Operations (MRO) and Operations Geo-location tracking Best associates – leading by example Industrial Repair Maintenance This year we launched geo-location tracking services for our customers in the USA which means, through the Ferguson Own brand expansion mobile experience, they can receive real- Product brand development time notifications of deliveries via voice, text Diverse global sourcing or email alerts. Customers are now getting Product design notifications as the truck is making stops Quality assurance/Quality control focus along the way. They also know precisely what is on the truck about to be delivered, helping them know for example, if they have a potential backorder situation. Point of manufacturing 13

Figure 3: Strong positions in fragmented markets* in the USA 0n 0n Annual Report and Accounts 2020 Accounts Report and Annual

0 Ferguson plc Ferguson

2 2

20

aret se n

0

oe epot Aaon atsco 2 2 2 R uppl Other information 0 22 Resdental Resdental oercal aterors A ndustral re and acltes tandalone rade oroo arcaton uppl eusness orerl 2 eruson uer o oter lare copettors aret leader not eruson ter sall copettors eruson aret poston * Management estimated market share

Figure 4: US shared infrastructure Financials The chart below shows the shared infrastructure across the customer groups we serve.

Residential Residential Fire and Facilities Standalone Shared… Trade Showroom Commercial Waterworks HVAC Industrial Fabrication Supply eBusiness Branches

Distribution centers

ERP* Governance

Sourcing

Back office

Own brand

Sales associates

Other large competitors

Significant shared infrastructure Partial shared infrastructure * Enterprise resource planning. Strategic report 14 Group Chief Executive’s Q&A (continued)

Health and safety has always been By recognizing and celebrating our Q and remains at the forefront of all our differences, we are learning so much more decision-making and it was encouraging from each other and we remain committed What about in 2019/20 that we improved the Group’s to listening and learning and doing more total recordable injury rate by 35 per cent to advocate for inclusion, diversity, equality acquisitions: is the compared to last year. and acceptance at Ferguson and in our impact of COVID-19 on Of course our own carbon footprint remains communities. We continue to prioritize a key focus and an area where we can inclusion and diversity and our actions independent regional continue to improve. We will make ongoing stand behind our words. Annual Report and Accounts 2020 Accounts Report and Annual wholesalers likely to progress, particularly in the major areas of For example, in June the Executive impact such as fleet efficiency, but we have Committee participated in a highly bring opportunities? more work to do on meeting our carbon, interactive inclusion and diversity waste and recycling targets set in 2015/16. experience. Earlier this year we rolled out Ferguson plc Ferguson A We’re also stepping up our focus on reducing training to our leadership teams to better our own environmental impact as well, recognize and address unconscious and I think, like during the last downturn, the working with our customers and vendors unintentional bias and we will complete this good ones will focus and survive quite well. to bring high-efficiency products to market with all our associates over the next year. However, it will be interesting to see how such as the c. 17,000 products we carry For more on our inclusion and diversity our industry copes with the digital aspect of today which conform to the WaterSense efforts please see page 21. customer relationships as we think this will and ENERGY STAR energy efficiency rating To our associates, you have my start to manifest itself more and more in their (see page 52). We also focus on the growing commitment that we will continue to thinking. So I think that it could actually spur need for own brand products with a lower provide an environment where everyone on M&A activity for us in the long-run. environmental impact. is treated with dignity and respect, with Our primary focus will always be on organic We also know we can mobilize our 34,000 opportunities for all associates to grow, growth but acquisitions remain a core part of associates to make the communities in develop and succeed based on merit. our growth strategy. Here, we will stay very which we live and work better most notably focused on bolt-ons of great businesses in the areas of reducing hunger, nurturing inside our core customer groups where tomorrow’s skilled trades and clean water Q we bring capabilities to make our local and sanitation initiatives and you can read relationships better. And then capability about some of these exciting programs on Finally, how do you acquisitions which includes areas like own page 50. see the outlook brand, valve and automation that make our Further detail can be found in the Key existing branch network better and more resources and relationships section (pages for Ferguson? competitive. So you’ll see us press forward 20 to 23) and in the Sustainability section in these areas as we did before COVID-19. (pages 48 to 52). A It is impossible to predict the future Q Q progress of the virus, or its economic impact and we expect the current levels of And what about There has been a huge uncertainty to continue for the foreseeable future. However, the fundamental aspects Ferguson’s areas of focus on inclusion of our business model remain attractive focus in respect of and diversity this and since the start of the new financial year Ferguson has generated low single Environmental, Social year. How is Ferguson digit revenue growth in the US in flat and Governance? markets overall. While we remain cautious responding? on the outlook for the year as a whole, the business is in good shape and well A A prepared to address any further market related disruption. We established our sustainability Let us be clear – racism and discrimination, program (see pages 48 to 52) following in any form, against any individual or any consultation with shareholders four years community, have no place in our Company ago and we see these issues as a key part or the world. of running a great business. Kevin Murphy Central to our program is upholding our Group Chief Executive Officer culture of Best Associates and in particular we continue to work hard to protect the health and wellbeing of our associates, which has been brought even more sharply into focus during the COVID-19 pandemic. Market overview 15

We operate Market characteristics and opportunities Customers’ needs are local in large, The customer base is fragmented. Professional contractors typically operate within 20 miles of their home base and may visit their local branch several times per week. fragmented In addition, they continue to increase the usage of digital channels which complement their working patterns. Annual Report and Accounts 2020 Accounts Report and Annual markets Large supplier base Ferguson distributes over one million products from over with strong 39,000 suppliers across the world. Clear need for distributors in the supply chain plc Ferguson growth Distributors, including Ferguson, bridge the gap between a fragmented supplier base and the large and characteristics geographically dispersed professional customer base. Highly fragmented industry Our markets are typically highly fragmented, with few The USA continues to be large players in the industry. our largest market with the Benefits of scale greatest growth opportunities. Due to scale benefits, market leaders can perform better It is highly fragmented with through the economic cycle and customers have quicker no market dominated by any access to products. single distributor. Strong organic growth opportunities Market characteristics support long-term organic growth opportunities. Bolt-on acquisition opportunities Ferguson has a large database of targets to support continued growth.

Market growth drivers in the USA Population Housing Consumer growth transactions confidence >5% 5.0–5.5m Moderate Total population growth Existing home sales Consumer confidence Other information of more than five per cent continued to average was lower in 2019/20 due is expected in the USA in between 5.0–5.5 million, to COVID-19 concerns. the next decade. remaining significantly There is a correlation Source: below the 2005 peak. between consumer United Nations Department of Source: confidence and activity Economic and Social Affairs. National Association of Realtors. levels in our markets. Financials Source: The Conference Board.

Aging Increased comfort Disposable housing stock levels in homes income 43 years 95% No. 1

The median age of homes 95 per cent of new The USA has the highest Governance in the USA is 43 years. single family homes in levels of disposable There is high demand the USA have two or more income per household in for repairs, maintenance bathrooms. There is a the OECD. and improvement in the trend towards increasing Source: large installed base of levels of comfort in homes. Organisation for Economic existing homes. Co-operation and Development Source: (“OECD”). Source: US Department of Housing US Department of Housing and Urban Development

and Urban Development. Strategic report 16 Key performance indicators (“KPIs”)

Ongoing organic Ongoing gross margin1, 2 How we revenue growth1, 2 The percentage increase or decrease in The ratio of ongoing gross profit, excluding measure ongoing revenue year-on-year excluding the exceptional items, to ongoing revenue. effect of currency exchange, acquisitions and our progress disposals and trading days.

Performance Performance

Annual Report and Accounts 2020 Accounts Report and Annual Our KPIs align to our strategic 9.7% 00 00 framework, How Tomorrow 2 Works, our roadmap for 7.0% 2 Ferguson plc Ferguson developing our business in 5.8% the coming years. For more 4.4% information, see page 10.

(0.1%) 2016 2017 2018 2019 2020 20 20 20 20 (0.1%) Flat Organic revenue declined 0.1 per cent in 2019/20. Gross margin was in line with 2018/19 principally Organic growth in the first half was offset by the as a result of good pricing discipline despite the impact of the COVID-19 pandemic in the second COVID-19 pandemic in the latter part of the year, half, see pages 30 to 46 for further details. which resulted in an adverse mix effect given the temporary closure of our brick and mortar counters and showrooms.

Ongoing underlying Operating cash flow trading margin1, 2 The ratio of ongoing underlying trading profit Cash generated from operations before to ongoing revenue. interest and tax.

Performance Performance

0 0 0 2

20 20 20 20 20 20 20 20 +0.2% $2,252m The trading margin rose to 8.0 per cent. Cash flow from operations was $2.3 billion in Trading margin expansion was due to the year. This improvement was a combination improvements in operating cost efficiencies. of a strong performance in the US business for 2019/20 and the positive impact of IFRS 16³. Cash flow from operations on a pre-IFRS 16 basis was $1,904 million, see reconciliation on page 28. Continued good cash flow is a key part of the Group’s strategy in order to fund investment in organic expansion, ordinary dividends and bolt-on M&A, with surplus capital returned to shareholders. 17

Own brand percentage Return on gross Associate of revenue² capital employed1 engagement The proportion of ongoing revenue from The ratio of trading profit to the average year- In 2018/19 we launched a new Group-wide own brand products to total ongoing revenue. end aggregate of shareholders’ equity, net associate engagement survey ensuring debt including lease liabilities and cumulative we understand the drivers impacting goodwill and other acquired intangible engagement, retention and advocacy. assets written off. This is for continuing and The survey offers global and country specific discontinued operations. benchmarks allowing us greater insight into how we compare externally. The survey Performance Performance focuses on four engagement questions on advocacy, pride, satisfaction and commitment. Annual Report and Accounts 2020 Accounts Report and Annual 8.7% Associates must agree with all four questions 8.3% 22 to be recognized as “engaged”. 22 6.7% 6.5% Performance 5.8%

plc Ferguson The initial survey result in 2018/19 across the Group was 51 per cent. This sets a high bar as “engaged associates” must agree with all four engagement questions. This demanding score now acts as a baseline for performance moving forward but we unfortunately had to defer the 2019/20 engagement survey due to 2016 2017 2018 2019 2020 20 20 20 20 COVID-19. We will disclose the results of the next engagement survey in the Annual Report +0.4% 23.9% next year. The percentage of own brand revenue Return on gross capital employed was 23.9 increased by 0.4 per cent in 2019/20 to per cent in 2019/20. On a pre-IFRS 16³ basis the 8.7 per cent with both the US and Canada return on gross capital employed was 24.9 per businesses growing the proportion of own cent with the reduction due to a flat return but brand revenue. with a higher average capital employed during the year.

Customer service Group recordable injury rate

There is a good correlation between high Total number of injuries per 200,000 worker customer service scores and better financial hours. This is in line with globally recognized results. The net promoter score is a measure standards (including the US Department of customer service. The survey asks: of Labor’s Occupational Safety and Health “How likely is it that you would recommend Administration regulations). The injury Ferguson to a friend or colleague?” and number is based on associates receiving customers respond with scores between zero medical treatment beyond first aid that (bad) and 10 (exceptional). We look at the four requires them to leave the workplace. quarter average of the customers who scored nine or more, less those customers scoring

six or less. Other information

Performance Performance

0

2 Financials

20 20 20

60% 35% improvement

The process of tracking and reporting customer The Group recordable injury rate improved by 35 Governance service differs by region, therefore an example per cent compared to the previous year. This is is given for the USA. The average net promoter primarily as a result of our continued focus on score remains an excellent score and is best-in- health and safety, a robust associate engagement 1. This is an APM; for further information on APMs, class in our industry and is among the highest program, senior leadership commitment and including a description of our policy, purpose, levels achieved in any industry. deployment of safety professionals in the field definitions and reconciliations to equivalent IFRS to focus on areas such as material handling and The methodology was changed in 2019 to align statutory measures, see notes 2 and 3 on pages training. See the Sustainability section for more to industry best practice while also collating 124 to 130. information on pages 48 to 52. a broader number of responses. As such, scores 2. 2016 to 2019 metrics restated to reflect the prior to 2019 are not comparable. movement of the UK business into non- ongoing operations. 3. On August 1, 2019, the Group adopted IFRS 16 Strategic report “Leases”. See note 1 on page 119 for further details. 18 Our business model

Our services Key resources What makes us different? are essential and relationships to creating 34,000 Best associates Our people We aim to recruit, develop and retain the The differentiator in our ability to deliver best people with a passion for customer Annual Report and Accounts 2020 Accounts Report and Annual outstanding customer service through our value service. We have a strong sales culture 34,000 associates which helps drive profitable growth. We create value through the Read more about our associates Ferguson plc Ferguson expertise of our people, our +1 million Pages 20 to 23 and 30 to 47 scale, bespoke logistics Our customers We sell to and advise a broad mix of network, technology and the customers from sole traders and small support and value added businesses up to large contractors and Value added service offering we give our construction companies customers. services 39,000 We are differentiated by the services Our suppliers we offer, which are highly valued Over 39,000 reputable suppliers by our customers and make their giving us access to a diverse and projects better. broad range of quality products Our relentless focus on training and developing our associates and the Channels to market advice, service and support they offer Branches, e-commerce, showrooms our customers is something that sets and call centers us apart. How customers buy It is an area that few of our competitors % Group revenue can match, with the added benefit of In branches 70% being able to introduce our own trusted brands at higher margins. In showrooms 10% Via e-commerce 18% Read more about our value added services Page 22 Through central account management and call centers 2%

Technology Ongoing investment to improve our business

Distribution network Distribution centers, branches, showrooms and specialist vehicle fleets

How we fulfill orders % Group revenue Delivered from branches 50% Collected from branches 25% Delivered from suppliers 16% Customers Delivered from DCs 9% value scale Capital We have market leading positions in the A strong balance sheet to enable majority of our markets. These markets ongoing investment offer opportunities for strong growth and continued consolidation. As a market leader, we benefit from economies of scale across our supply chain network, sourcing and technology that many local competitors cannot compete with. Find out more about our key resources and relationships Read more about our markets Pages 20 to 23 Pages 7 to 15 and 30 to 47 19

What makes us different? The value we create

Strong returns We are able to generate strong returns by consistently winning market share and efficiently managing Annual Report and Accounts 2020 Accounts Report and Annual our operations.

Our shareholders

We are committed to delivering long-term value to our plc Ferguson shareholders and sharing in our success through dividends. $1,595m ongoing underlying trading profit 2019/20 +4.1% (2018/19: $1,532) Sourcing Bidding $1,904m cash generated from operations (excluding impact of IFRS 16) One of the widest ranges Supporting our customers +18.3% (2018/19: $1,609) of branded and exclusive with advice and take-off own brand products. software to help them win jobs. 208.2c dividend per share 2019/20 In line with last year

Our customers We provide essential products and services which enable Customized Sales customers to run their operations efficiently and help in the solutions channels fight against the COVID-19 pandemic. Providing expertise to make An omnichannel offer to provide We pride ourselves on our levels of customer service, which is the construction process flexibility and maximize access reflected in our net promoter score in the USA. easier and more efficient. to our services and products. Net promoter score 60% is amongst the highest in our industry (2019/20) Other information

Our associates Our first priority is to ensure our associates are safe and Pick-up Delivery have a place of work where they feel motivated and part Nationwide outlets for Same-day/next-day delivery of our success. face-to-face collection and of a broad range of products on-the-spot advice. and solutions. Financials Our communities We understand and respect our role in minimizing our carbon footprint, focusing on eco-friendly products and playing our part in supporting a variety of community and charity initiatives. Carbon emissions 6.7% improvement versus 2015/16 baseline Governance

(23.3 to 21.8 tCO2e per $m revenue)

Find out more about the outcomes of what we do

Pages 4 to 6, 20 to 23 and 48 to 52 Strategic report 20 Key resources and relationships

Our key resources and relationships are crucial to ensuring we are What we able to offer our customers industry leading, value added services that ultimately drive profitable growth. Our associates are the driving rely on to force of the business and a key differentiator in how we create value. They are guided by our purpose, vision, mission and values that are a reminder of the goals we are working towards and how we expect to provide our get there. For information on how we engage with and consider our key stakeholders, Annual Report and Accounts 2020 Accounts Report and Annual value added please see pages 24, 25 and 66. services Ferguson plc Ferguson

Our Vision: Our people This was to enhance their knowledge To be a trusted partner and deliver and broaden their leadership experience. Additional focus allowed us to execute on the best service to customers in 34,000 succession planning and role movement our industry. associates across the leadership ranks to produce well Our Mission: rounded and seasoned leadership talent. Our associates are at the heart of everything Our associates provide expert Having set out our inclusion and diversity we do. By living our values through the work advice and a range of products (I&D) framework last year we are now they perform and the customer service they delivering our key actions. We have and services our customers want to provide, they are the key to our success. commenced training and learning activities improve their construction, renovation They strengthen our culture by forming for all people managers and are rolling out and maintenance projects. and maintaining relationships that build on our all associate program. We have launched loyalty and trust while delivering excellence our first Business Resource Groups for Our Values: in all areas. Our values recognize the behaviors Women and African American associates; our that guide our actions and those of third Group for LGBTQ will be set up before Leadership the end of calendar year 2020. The I&D our Company (as shown below). The growth of our business relies on success Council was created with a diverse group of our leaders and how they motivate and of leaders from across the organization, the Safety inspire our associates every day. As with team has been engaged with driving I&D We are accountable for our own prior years, we continue to see a blend initiatives and is providing great insights to the safety and the safety of others. of external hires and internal succession work we have underway. appointments within the USA, Canada and At the start of the COVID-19 pandemic the UK to leadership positions, enabling us we quickly adjusted all our training to broaden the experience, knowledge and offerings and programs to virtual, including Service diversity of our leaders. How we develop facilitation where required. As a result, over We source great products, provide all our associates, including our leaders, is unrivaled service and build enduring 700 members of our salesforce strengthened discussed in the “Talent management and relationships to deliver value to their virtual selling skills. We continue to our customers. development” section below. evaluate and evolve our curriculum and strategically align our offerings to the skills Talent management Results our associates need to grow, develop and We have high expectations and development drive best-in-class business results. and drive performance to deliver Last year, we updated and launched excellent results. In Canada, we have continued to drive the the Group’s Mission, Vision and Values. talent strategy and enhance our capabilities These reinforce our commitment to our while improving the HR infrastructure to gain customers and associates; they guide what efficiencies. Building upon the principles People we stand for and how we act. Our values of employee self-service and maintaining We recruit passionate encourage the right behaviors for all people and provide excellent a single system-of-record, we launched associates to provide the best customer development opportunities. five technology-enabled capabilities: service, work with the utmost integrity and performance management, compensation look for new, innovative approaches to lead planning, talent development, employee both our customers and our business into recognition, and a new intranet. We refined Integrity the future. We act fairly, honestly and our organization structure across all levels, with integrity. In the USA, we continued to invest in our and implemented new function-specific talent management model, developing our operating models, both to ensure more leaders through the completion of specific efficient delivery of products and services development activities including participating to our customers and further align to the Innovation in Strategic Project Teams on business Ferguson US model. We encourage innovation to improve development opportunities. our customers’ solutions. This was enhanced by the launch of a multi- year Leadership Development Program for 300+ leaders, spanning all functional areas of the business. 21

In the UK, we have focused on development We also provided unconscious bias In Canada, we rolled out Bravo!, our plans that align to customer groups, training for leaders in Canada and the UK. associate recognition program to satisfying specific customer needs and Additionally, we established an African reward associates for demonstrating our increasing colleague engagement. American and a Women’s Business values. We digitized and centralized our Customer service training was completed by Resource Group (BRG) to provide support, performance review, merit increase and all branch colleagues ensuring a consistent connection and affiliation across all regions. bonus calculation processes to align with our approach to serving our customers across Our recruitment practices factor in under- ongoing focus on enhancing the pay-for- the estate. Talent management processes represented groups and we insist on diverse performance culture at Wolseley Canada. are established, and several high potential candidate slates when using executive We also launched an associate health and associates have been promoted. search firms. wellness program to encourage associates Annual Report and Accounts 2020 Accounts Report and Annual to live a healthy and active lifestyle. All material issues relating to our people Inclusion and diversity directly affect our strategy, set out on pages In the UK we held our associates recognition We want to attract and retain the best talent 10 and 11. The effectiveness and level of awards, “The Wolseleys” in November, irrespective of race, color, religion, gender, engagement of our people is critical in where associates from sales, operations plc Ferguson age, sexual orientation, marital status, delivering on our strategy and maintaining and business support were commended disability, or any other characteristic that the success of the business. at a special event to mark their hard make people unique. Females represent 44 work and dedication in ensuring a safe Inclusion and diversity gender breakdown per cent of the Board, while our percentage workplace, serving customers, and growing of women in senior management positions Total Total % the business. During the pandemic, we across the Group was 20 per cent. Detail on Unspecified men women women shared thanks and recognition from the Board’s approach to diversity, including Directors customers regularly among associates and the Board Diversity Policy and performance (Board) 5 4 44% to external audiences, as we continued against its specified objectives, can be found Senior to trade in support of essential services on pages 72 and 73. leadership1 81 20 20% across the UK. Informal local recognition continues to be developed to support our Last year, we launched our Group Total Inclusion and Diversity framework which associates2 47 26,416 7,889 23% performance culture. reinforces our commitment to identify and Our Group-wide long term incentive remove any potential for unconscious 1. The senior leadership group consists of those members of the Executive Committee, who are not program continues to reward our leaders bias in our employment, promotion and Board Directors, and their direct reports. This is and senior managers for improved trading succession practices. consistent with the data we supply to the annual profit performance in their business. Hampton-Alexander review. Our investment in this program is overseen Ferguson is committed to developing a 2. The total average individual associate number by the Remuneration Committee. diverse workforce and an inclusive working of 34,352 is reported above (total men plus environment in the communities where we total women plus total unspecified) including all See our KPIs continuing businesses. operate. By recognizing and celebrating our Pages 16 and 17 differences, we are learning so much more Competitive pay and reward from each other and we remain committed Beyond the Boardroom to listening and learning and doing more Our reward programs are an important tool to advocate for inclusion, diversity, equality to help us celebrate success and reinforce In his role as Employee Engagement and acceptance at Ferguson and in our the way we do business. We review our Director, Alan Murray, Senior Independent communities. We continue to review our incentive programs across the Group every Director, conducted three in-person sessions progress as we make strides in delivering year to ensure they continue to support with associates this year, two in the US improvements in workforce diversity. our values, reward the right behaviors as and one in Canada. These sessions are Other information well as high performance and as a result intended to provide the Board with additional To achieve our objectives, all people drive business performance. Associates are insights into the views and concerns of decisions at Ferguson are based on merit, typically incentivized through a combination associates and to understand their thoughts where the best candidates are hired and of improvements in growth in trading profit, and opinions. The sessions included promoted within the organization and average cash-to-cash days and, for some representatives from all subsidiaries, associates are encouraged, supported roles, personal objectives. functions and business groups in that region and developed to reach their full potential. with discussion focused on several key topics Financials We have a number of well-established To ensure success and to continue to including safety, customer service, culture, recognition programs in the US, which support an environment that is free from the use of technology, sustainability and the were unchanged for this financial year, discrimination and harassment, where all future of the Group. associates are treated with dignity, fairness including the President’s Club recognizing and respect, we have launched I&D Diversity our top performing outside sales associates; Further sessions will resume but, due to Councils in the US and UK. the President’s Circle, recognizing top COVID-19, may be conducted virtually. performing sales associates and sales We rolled out training to our leadership teams managers; and the President’s Gallery, Health and safety to recognize unconscious and unintentional honoring showroom sales associates. Governance For information on health and safety, our bias that we each carry. In June, the Executive All these programs recognize our values 2019/20 performance against the prior Committee participated in a highly interactive and reward outstanding contributions year and engagement with stakeholders inclusion and diversity experience. In the US, as well as exceptional performance and in this area see pages 48 to 52 and 24 and unconscious bias training was conducted with support profitable growth in the field. 25 respectively. senior and mid-level managers during July In addition, we also have the Bob Wells and August. We will complete this training with Leadership Award, which is presented to a all our associates over the next year. Ferguson sales associate who consistently demonstrates exceptional performance and sales leadership. Strategic report 22 Key resources and relationships (continued)

For example: same-day delivery, one-hour Ethical behavior and Our customers human rights Pro pick-up, 24-hour emergency water heater replacement hotline or our outside We are committed to complying with the sales associates visiting customer job sites law and to operating under the highest +1 million over one million customers to support them when they are bidding for ethical standards. This protects us from work. These are just some of the services business risks; it also strengthens our that add value to our customers and help us reputation with customers, suppliers and Customers rely on us for high levels of gain market share and continue to generate other stakeholders. The standards that we availability on a broad range of products, profitable growth. expect of our associates and those who ready for collection or delivery when and

Annual Report and Accounts 2020 Accounts Report and Annual may work on behalf of us are set out in where they need it. Our customers value We operate our business responsibly so that our updated Code of Conduct launched high quality and efficient service from local our customers can feel confident that we in August 2020. Our Code of Conduct is a relationships, competitive pricing, account- look after our associates, provide safe and resource dedicated to helping our associates based credit and billing and order accuracy. high-quality products, operate efficiently Ferguson plc Ferguson live our values on a daily basis and provides They also want flexibility in choosing the and actively contribute to the communities guidance where there is doubt over how to most convenient way to do business with in which we operate. We consult with key proceed. You can read our Code of Conduct us, whether in a branch, by phone, mobile customers each year to understand their on www.Fergusonplc.com. or online. Since the COVID-19 pandemic business needs and their priorities so that customers also want reassurance that we we can continually evolve our business to All of our businesses provide training for are taking measures to protect them and meet their expectations. Where the market relevant associates on anti-corruption, anti- our associates, which is why we rapidly demand exists, we promote sustainable trust and modern slavery matters. This is implemented new ways of working in line products and provide training and advice typically provided through online training with governmental guidance (read more on to customers to support growth in these material and face-to-face training may also pages 7 to 14). new product categories. For example, be provided. Training is also provided for customers of Build.com in the USA can filter new associates on induction. These are the fundamental but transactional their product search to view products with aspects of our business which need to be recognized national environmental labels, For information on ethical behavior in our executed consistently. Additionally, Ferguson e.g. WaterSense (for more information see supply chain and a summary of the Group’s offers a broad range of services to help our www.epa.gov/watersense). For information Modern Slavery Act statement please refer customers with their projects. Some of these on how we engage with this stakeholder to page 52. are summarized in figure 1 below. group see pages 24 and 25. Figure 1: Projects are better because you worked with Ferguson Our suppliers 39,000 suppliers

We have over 39,000 suppliers that give us access to a diverse and broad range Sourcing Bidding Customized solutions of quality products. While the product – Own brand – Take off software – Value and automation is incredibly important, an essential part of what customers need is the expert – Exclusive distribution – Value engineering – Fabrication knowledge that we bring. We aim to be our – Non-stock items – Project-specific tendering – Pre-assembled units customers’ trusted adviser and influence – Project information/ and kits their specifications from right at the start of specification – 24/7 commercial water their projects and we are frequently asked heater service by our customers to help them find a suitable product to meet a specific need. The expert guidance that we offer is based on a broad knowledge of the supplier landscape. Our logistics network, which connects these suppliers to our customers, is another key differentiator. Our leading market positions enable our Sales channels Pick-up Delivery central sourcing teams in each region to – Inside sales – 24/7 secure access – Same-day leverage our scale and negotiate competitive – Showroom consultancy – One-hour Pro pick-up – Specialist e.g. “white prices in return for access to over one million customers. We work with our suppliers to – Field/outside sales – Scheduled glove”/crane truck ensure that they are reliable and ethical and forward delivery – Call-off options – Call/e-commerce that their products are fully compliant with the call centers – Advice – Geo-positioning of laws and regulations of the countries in which – Online and EDI* – Emergency out of hours truck fleet we operate. This provides protection to us and – Credit and – Curbside delivery our customers in the event of a product failure warranty services or breach of regulation in the supply chain. – No-hassle returns On the rare occasion that a product is faulty, customers have the confidence of knowing * Electronic data interchange. that we will support them. 23 Annual Report and Accounts 2020 Accounts Report and Annual

Channels to market Technology Distribution network 2,194 18% 5,700 plc Ferguson branches proportion of revenue from fleet vehicles e-commerce activities

Our customers interact with us through We are continually investing in technology To ensure the availability of a wide range of multiple sales channels on a 24/7 basis to improve the customer experience, retain products to our customers we continue to which is often a combination of branches, existing customers and win new ones. invest in our extensive distribution network showrooms, mobile, transactional websites, Technology investments are aimed at and large vehicle fleet. Our customers rely call centers and inside/outside sales teams. improving execution and efficiency in all upon us for prompt and flexible delivery We conduct the majority of our business areas of our business from warehousing, options to meet their own needs, such as through sales associates or consultants. fleet, inventory and customer relationship specialist vehicles and same-day delivery. management to back-office human Suppliers also deliver to our distribution A large proportion of the business is still resources, financial management and centers, our branches or directly to our conducted through our branches and our reporting systems. customers in a safe way. We predominantly extensive branch network means customers distribute from branches to customers, minimize the distance they travel to buy from We have a clearly defined technology though in large metropolitan areas we aim us and visit several times a week. The branch strategy and roadmap. This provides a to use more specialist market distribution network is also an important delivery clear route forward for the development centers to centralize final mile logistics and channel, particularly when customers need of our order and transaction management reduce fleet and distribution costs. immediate availability. This multi-channel systems. We continue to implement approach allows our customers to access strategic investments which will mean we More than half our carbon footprint products and advice whenever they need it. have many order capture channels that is generated by transport. Within the feed into one fulfillment and transaction distribution network we have reduced our We manage our locations very carefully platform connected through cloud-based carbon emissions through improved fleet to ensure the health and safety of our systems. We will connect all our systems and operations. As in prior years, each of our associates, customers, suppliers and processes across the whole business and businesses has performance targets to any other visitors. This has become even have one view of our customers, products, reduce carbon and the associated costs more important during the COVID-19 suppliers and inventory. Our aim is to provide for transport and fuel, relative to revenue. pandemic and we have continued to follow a seamless experience for our customers no These emission reduction projects ensure Other information guidelines set out by the relevant authorities matter what sales order channel they use that we are able to meet our goals for including the Center for Disease Control so that they can engage with us in the most environmental performance in addition and Prevention (CDC) at all our branches convenient way for them. Our associates to our financial goals. and distribution centers. Health and safety will spend less time processing orders and risk assessments and branch audits are Our branches continue to utilize our more time interacting with our customers, carried out regularly so that we maintain our distribution networks to send recyclable enhancing productivity, customer service adherence with our new ways of working. waste back to distribution centers for and relationships. Financials Our insurers also support these efforts, sorting, baling and weighing. When returned undertaking their own safety assessments During the COVID-19 pandemic we have products are unable to be resold, they are at selected key sites each year. experienced high demand from customers also transported back to our distribution for online channels as they seek to continue centers where we aim to reduce or re-use For information about our environmental to run their business. these products to avoid landfill. efficiency efforts see pages 50 to 52. For information about our environmental For information about our health and safety efficiency efforts and health and safety, program see page 49. see pages 49 to 52. Governance For information on how we engage with this stakeholder group see pages 24 and 25. Strategic report 24 Stakeholder engagement

Why relevant? Nature of engagement Our response to engagement Relevant metrics We engage actively with our stakeholders at Associates • Our associates want to work for a company that values • Employee Engagement Director, Alan Murray engages • Associate reward and benefit structure • Associate engagement all levels of our business, which we believe is them, provides ongoing development, treats them fairly regularly with associates and reports back to the Board which recognizes the contribution our survey scores critical to the success of the Group. • Existing and prospective and remunerates them appropriately • Regular engagement and town hall meetings associates make to the success of • Safety performance metrics associates, including • Investing in our associates ensures we maintain our the business (see page 49) At a Board level, all members are apprentices and trainees • Associate engagement surveys encouraged to engage with our stakeholders culture by having the right people and enables us to • Associate policies which ensure our • Regional conferences and other associate events • Employee retention metrics directly, for example through meeting with deliver on our strategic goals people are treated fairly individual associates and customers during • First in Safety engagement program with dedicated • Ensuring health and safety remains

Annual Report and Accounts 2020 Accounts Report and Annual site visits or through investor meetings, such training (see page 49) a cornerstone of our culture as those to obtain Remuneration Policy • Training and apprentice programs feedback or through attendance at the • Ferguson Cares relief program (see pages 49 and 50) Annual General Meeting.

Ferguson plc Ferguson • Further details are provided on pages 20 to 22 In addition, the Board is advised of stakeholder views on a regular basis in a number of ways including through Board reports and investor feedback reports. Customers • Our customers want to have confidence in the • Allocated sales managers • Addressing problem areas/actions as a • Customer net promoter For further information see page 66. availability of our offering and tailored advice to deliver • Customer feedback mechanisms (including net result of satisfaction surveys (see page 17) and overall • National and large accounts their projects, so they are better because they worked promoter score and satisfaction scores) • New service offerings e.g. curbside pick-up, satisfaction scores with Ferguson • Small and mid- • Branch-level staff with local customer relationships geo-positioning software • Level of repeat business sized contractors • Customer-centric technology to facilitate • National pricing strategy for our • Customer spend per account • Individuals customer engagement trade customers • Churn analysis • Customer-focused websites and online tools • Sales center call routing • Receivable days • Service level agreements measuring • Local inventory needs and adjustments Ferguson’s performance • COVID-19 response and preparedness

Suppliers • Working with our suppliers in a collaborative manner • Dedicated account managers for major suppliers • Regular meetings with key suppliers to • Product fill-rate ensures that we have access to the products our • Central procurement teams manage assist in management of production cycles • Payable days • Branded manufacturers customers need when they need them and enables us supplier relationships e.g. capacity issues, disruption to deliver new innovations to the market • Outsourced third party • Regular meetings with specialist functions e.g. • Policies in place in relation to working manufacturers for own brand • In turn we give our suppliers an attractive path to market supply chain, marketing, product data and category with our suppliers to ensure fair and high and provide feedback on customer needs management teams ethical standards • Field and regional meetings to reinforce • Differences in sales channels between local relationship retail, wholesale and e-commerce

Section 172 statement Communities • We want to make a positive contribution to the • Nationwide programs in addition to local community • Community building activities • Charitable donations communities in which we operate initiatives entered into by individual locations • Disaster response when required • Employee time contributed Section 172 of the Companies Act • Local communities to • Establishing the right relationships with our communities • Responding to community needs for emergency relief, to community initiatives 2006 requires the Directors to take • Financial support at times of crisis our operations also helps us to attract the best talent into our business e.g. COVID-19 (see pages 49 and 50) into consideration the interests of the • Families of associates stakeholders in their decision-making. • Supporting the families of our associates is just the right • Ferguson Cares program (see pages 49 and 50) The Directors have regard to the thing to do • Executives serve on boards of charities, both at our interests of the Company’s employees regional headquarters and locally and other stakeholders, including • Community engagement part of College of Ferguson its impact on the community, the induction for trainees environment and its reputation, when making their decisions. The Directors • Further details are provided on pages 49 and 50 consider what is likely to promote the success of the Company for its members in the long term in all their decision-making. Investors • Our investors want to understand how we are managing • Investor conferences • Communication of business model • Returns to shareholders the business to generate sustainable returns through • One-to-one meetings and strategic plan (see page 28) This statement should be read in • Shareholders (institutional) the economic cycle and to promote the long-term • Application of stated capital • Qualitative shareholder conjunction with the corporate success of the Group • Annual Report and other communications • Shareholders (private) allocation priorities feedback following key governance report on pages 61 to 70, • Specific engagement on important corporate matters • Results presentations and bondholder calls interactions e.g. post- the sustainability section on pages 48 • Financial institutions e.g. • Maintain compliance with stated financial e.g. remuneration, listing location • Reporting to financial lending institutions results meetings to 52, the risk section on pages 53 to lending banks objectives e.g. leverage range, etc. 59 and the stakeholder engagement • Annual General Meeting • See KPIs on pages 16 and 17 section above and right. • Investor relations website 25

Why relevant? Nature of engagement Our response to engagement Relevant metrics Associates • Our associates want to work for a company that values • Employee Engagement Director, Alan Murray engages • Associate reward and benefit structure • Associate engagement them, provides ongoing development, treats them fairly regularly with associates and reports back to the Board which recognizes the contribution our survey scores • Existing and prospective and remunerates them appropriately • Regular engagement and town hall meetings associates make to the success of • Safety performance metrics associates, including • Investing in our associates ensures we maintain our the business (see page 49) apprentices and trainees • Associate engagement surveys culture by having the right people and enables us to • Associate policies which ensure our • Employee retention metrics deliver on our strategic goals • Regional conferences and other associate events people are treated fairly • First in Safety engagement program with dedicated • Ensuring health and safety remains

training (see page 49) a cornerstone of our culture 2020 Accounts Report and Annual • Training and apprentice programs • Ferguson Cares relief program (see pages 49 and 50)

• Further details are provided on pages 20 to 22 plc Ferguson

Customers • Our customers want to have confidence in the • Allocated sales managers • Addressing problem areas/actions as a • Customer net promoter availability of our offering and tailored advice to deliver • Customer feedback mechanisms (including net result of satisfaction surveys (see page 17) and overall • National and large accounts their projects, so they are better because they worked promoter score and satisfaction scores) • New service offerings e.g. curbside pick-up, satisfaction scores with Ferguson • Small and mid- • Branch-level staff with local customer relationships geo-positioning software • Level of repeat business sized contractors • Customer-centric technology to facilitate • National pricing strategy for our • Customer spend per account • Individuals customer engagement trade customers • Churn analysis • Customer-focused websites and online tools • Sales center call routing • Receivable days • Service level agreements measuring • Local inventory needs and adjustments Ferguson’s performance • COVID-19 response and preparedness

Suppliers • Working with our suppliers in a collaborative manner • Dedicated account managers for major suppliers • Regular meetings with key suppliers to • Product fill-rate ensures that we have access to the products our • Central procurement teams manage assist in management of production cycles • Payable days • Branded manufacturers customers need when they need them and enables us supplier relationships e.g. capacity issues, disruption to deliver new innovations to the market • Outsourced third party • Regular meetings with specialist functions e.g. • Policies in place in relation to working manufacturers for own brand • In turn we give our suppliers an attractive path to market supply chain, marketing, product data and category with our suppliers to ensure fair and high and provide feedback on customer needs management teams ethical standards • Field and regional meetings to reinforce • Differences in sales channels between local relationship retail, wholesale and e-commerce

Communities • We want to make a positive contribution to the • Nationwide programs in addition to local community • Community building activities • Charitable donations Other information communities in which we operate initiatives entered into by individual locations • Disaster response when required • Employee time contributed • Local communities to • Establishing the right relationships with our communities • Responding to community needs for emergency relief, • Financial support at times of crisis to community initiatives our operations also helps us to attract the best talent into our business e.g. COVID-19 (see pages 49 and 50) • Families of associates • Supporting the families of our associates is just the right • Ferguson Cares program (see pages 49 and 50) thing to do • Executives serve on boards of charities, both at our

regional headquarters and locally Financials • Community engagement part of College of Ferguson induction for trainees • Further details are provided on pages 49 and 50

Investors • Our investors want to understand how we are managing • Investor conferences • Communication of business model • Returns to shareholders the business to generate sustainable returns through • One-to-one meetings and strategic plan (see page 28) Governance • Shareholders (institutional) the economic cycle and to promote the long-term • Application of stated capital • Qualitative shareholder success of the Group • Annual Report and other communications • Shareholders (private) allocation priorities feedback following key • Specific engagement on important corporate matters • Results presentations and bondholder calls interactions e.g. post- • Financial institutions e.g. • Maintain compliance with stated financial e.g. remuneration, listing location results meetings lending banks • Reporting to financial lending institutions objectives e.g. leverage range, etc. • Annual General Meeting • See KPIs on pages 16 and 17 • Investor relations website Strategic report 26 Financial review

Key highlights Strong and – Revenue 0.9 per cent lower reflecting the impact of COVID-19. – Ongoing gross margin unchanged at 30 per cent, ongoing resilient underlying trading profit margin up 20 basis points. – Headline earnings per share of 511.6 cents 1.1 per cent lower than last year principally due to the increased tax rate. trading – Total basic earnings per share of 427.5 cents 11.2 per cent lower than last year due to increased exceptional and amortization charges in the year and exceptional discontinued disposal gains Annual Report and Accounts 2020 Accounts Report and Annual performance in the prior year. – Completed six acquisitions for total consideration of $351 million. Ferguson delivered a strong – Returned $778 million to shareholders during the year including $451 million by way of share buy backs. Ferguson plc Ferguson and resilient trading result – Return on gross capital employed decreased from 26.2 per cent for the year, achieved despite to 23.9 per cent. the pandemic which started Statutory results to emerge from March 2020 The financial results have been prepared under IFRS and the Group’s onwards. The business has accounting policies are set out on pages 119 to 124. demonstrated an agile cost base, On August 1, 2019, the Group adopted IFRS 16 “Leases” using the a robust cash flow performance modified retrospective approach to transition. The impact on the and retained a strong balance opening balance sheet at the date of initial application was the sheet and great liquidity. creation of a right of use asset of $1,220 million and a lease liability of $1,481 million. See note 1 on page 119 for a reconciliation of the operating lease commitments previously reported under IAS 17 at July 31, 2019 to the opening lease liability. The impact on the income statement for the year was to decrease rental costs by $337 million, increase depreciation by $268 million and increase finance costs by $53 million, resulting in a net increase to profit before tax of $16 million. There was no impact on the net increase in cash, cash equivalents and bank overdrafts. 2020 2019 $m $m Revenue 21,819 22,010 Operating profit 1,422 1,402 Net finance costs (144) (74) Share of (loss)/profit after tax of associates (2) 2 Gain on disposal of interests in associates and other investments 7 3 Impairment of interests in associates (22) (9) Profit before tax 1,261 1,324 Tax (307) (263) Profit from continuing operations 954 1,061 Profit from discontinued operations 7 47 Profit for the year attributable to shareholders 961 1,108

Revenue of $21,819 million (2018/19: $22,010 million) was 0.9 per cent lower than last year as strong growth in the first half of the year was offset by the impact of COVID-19 on trading. Operating profit of $1,422 million (2018/19: $1,402 million) was 1.4 per cent higher than last year, with trading profit growth in the USA and the positive impact of IFRS 16 on operating profit ($69 million) partially offset by a fall in trading profit in the UK and Canada, an increase in the amortization of acquired intangible assets and higher exceptional costs. Profit for the year attributable to shareholders decreased to $961 million (2018/19: $1,108 million) as a result of marginally higher operating profit as mentioned above, more than offset by a higher tax charge due to a higher effective tax rate due to previously announced tax reform, and exceptional disposal gains in the prior year. Mike Powell Group Chief Financial Officer 27

Reconciliation between ongoing underlying Ongoing revenue of $19,940 million (2018/19: $19,549 million) was trading profit and statutory operating profit 2.0 per cent ahead of last year but 0.1% lower on an organic basis. Inflation in the year was broadly flat. Ongoing gross margins of In order to monitor performance on a consistent basis, the Group 30.0 per cent (2018/19: 30.0 per cent) were in line with last year as uses certain alternative performance measures which enable it to a result of good pricing discipline, reflecting the value we deliver to assess the underlying performance of its businesses. The Group’s our customers. Operating expenses in the ongoing business were key financial performance metric is “underlying trading profit” which tightly controlled. In addition to temporary measures such as a hiring is operating profit before exceptional items, the amortization and freeze, reductions in overtime and temps and temporary layoffs, impairment of acquired intangible assets and the impact of IFRS 16. we took decisive actions to right-size the cost base for the market The Group’s definition of exceptional items is defined in note 2 to the environment. During the year we reduced net permanent headcount 2020 Accounts Report and Annual financial statements. by approximately 2,100 across the USA, Canada and UK and made In accordance with IFRS 5 “Non-current Assets Held for Sale and 94 branch closures. Discontinued Operations”, the Group has businesses which were

Ongoing underlying trading profit was $1,595 million (2018/19: plc Ferguson classified as discontinued operations in the current and prior year $1,532 million), 4.1 per cent ahead of last year as the actions on costs and are excluded from continuing operations. In addition, the Group contained the profit reduction from lower revenue in the second half. has disposed of a number of businesses which do not satisfy the There was one additional trading day compared to last year which criteria of IFRS 5 and are therefore included in the Group’s results increased ongoing underlying trading profit by about $17 million. from continuing operations. The results from businesses that have Acquisitions generated revenue of $356 million and trading profit been disposed of or that the Group is committed to exiting included of $16 million in the year. in the Group’s continuing operations, referred to as “non‑ongoing” operations, are excluded from the Group’s alternative performance Non-ongoing underlying trading profit measure of “ongoing” results. Any reference to “ongoing” operations The Group’s non-ongoing businesses, which comprised the UK relates to the USA, Canada and central costs and excludes the business and in 2018/19 also the Group’s Dutch business, Wasco, performance of the Group’s discontinued and “non-ongoing” and UK business soak.com, generated revenue of $1,879 million businesses. (2018/19: $2,461 million) and underlying trading profit of $8 million (2018/19: $74 million). The lower revenue and underlying trading See note 2 on pages 124 to 127 for further information, definitions profit generated by the UK business was principally a result of the and reconciliations of alternative performance measures national lockdown which severely impacted demand. Ongoing underlying trading profit is reconciled to statutory operating Impact of IFRS 16 profit as shown in the table below: The impact of IFRS 16 was to increase trading profit by $69 million Restated to $1,672 million, as rental costs decreased by $337 million, partially 2020 2019 $m $m offset by an increase in depreciation of $268 million. Ongoing underlying trading profit 1,595 1,532 Amortization of acquired intangible assets Non-ongoing underlying trading profit 8 74 Amortization of $130 million (2018/19: $110 million) represents the charge in respect of the Group’s acquired intangible assets. Continuing underlying trading profit 1,603 1,606 Impact of IFRS 16 69 – The Group reviews the carrying value of its goodwill and acquired intangible assets annually and when there is an indicator of Continuing trading profit 1,672 1,606 impairment during the year. No impairment of goodwill or acquired Exceptional items (120) (94) intangible assets was identified as part of the annual review. Goodwill, Amortization of acquired intangible assets (130) (110) with a carrying value of $1,721 million (2018/19: $1,656 million), remains

on the balance sheet and is supported by value in use calculations. Other information Statutory operating profit 1,422 1,402 Exceptional items Operating profit Net exceptional charges in operating profit totaled $120 million in the year (2018/19: $94 million), comprising a $3 million loss Performance of the ongoing business on disposal of businesses, $93 million of business restructuring Restated charges and $24 million of other exceptional charges, principally in 2020 2019 Growth relation to the proposed UK business separation and planned US Financials $m $m % listing. The restructuring charges were principally in relation to cost Revenue 19,940 19,549 +2.0% actions taken in the USA, UK and Canada to ensure the business is Gross profit 5,983 5,870 +1.9% appropriately sized for the post COVID-19 operating environment. Operating expenses (4,388) (4,338) +1.2% Net finance costs Underlying trading profit 1,595 1,532 +4.1% Net finance costs were $144 million (2018/19: $74 million) with Gross margin 30.0% 30.0% – $53 million of the increase due to the adoption of IFRS 16. The remaining increase was principally due to a higher level of

Underlying trading margin 8.0% 7.8% +0.2% Governance average gross debt than last year. Strategic report 28 Financial review (continued)

Tax Cash flow The Group generates 97 per cent of its ongoing trading profit in the The Group has continued to generate strong cash flows during USA and 3 per cent in Canada, before central costs. The Group’s the year with cash generated from operations of $2,252 million profits are therefore subject to different overseas tax rates and (2018/19: $1,609 million) and a good cash conversion ratio of cash tax laws. generated from operations/Group adjusted EBITDA of 125 per cent (2018/19: 90 per cent). Cash generated from operations in the year Other than intra-group financing and the recharging of shared includes the impact of IFRS 16 of $348 million. Without this, the cash management services costs, the Group currently has no significant conversion would have been 106 per cent. transfer pricing arrangements.

Annual Report and Accounts 2020 Accounts Report and Annual 2020 2019 The Group’s Tax Strategy is to maintain the highest standards of tax Net debt Net debt compliance. We support the execution of the Ferguson business excluding including strategy by managing our tax affairs in full compliance with local laws lease Lease lease liabilities liabilities liabilities Net debt

Ferguson plc Ferguson and international guidelines while seeking to maximize shareholder value and serving the interests of all our stakeholders. The Group $m $m $m $m Tax Strategy can be found at www.fergusonplc.com. Operating cashflow 1,904 348 2,252 1,609 The Group incurred a tax charge of $307 million (2018/19: Interest and tax (331) (53) (384) (319) $263 million) on profit before tax of $1,261 million (2018/19: Capital expenditure (302) – (302) (418) $1,324 million) resulting in an effective tax rate of 24.3 per cent Acquisitions (351) – (351) (657) (2018/19: 19.9 per cent). The ongoing tax charge is $376 million (2018/19: $339 million) which equates to an ongoing effective tax rate Dividends paid (327) – (327) (445) of 24.9 per cent (2018/19: 23.3 per cent) on the ongoing profit before Share buy back (451) – (451) (150) tax, exceptional items, the amortization and impairment of acquired Disposal proceeds 52 – 52 303 intangible assets and the impairment of interests in associates of Lease liability $1,512 million (2018/19: $1,456 million). The increase is primarily due additions, disposals to tax reform. and remeasurements – (131) (131) – The wider macropolitical and economic situation is uncertain Other items (17) (38) (55) (38) in some of the main territories in which Ferguson operates and changes could adversely impact the Group’s business as well as the Net movement 177 126 303 (115) Group’s future tax rate. A combination of growing international trade pressures, including trade-related actions taken by the USA and Acquisitions and capital expenditure China and rising debt levels, especially as a result of governments’ Acquisitions are an important part of our growth model and during responses to the COVID-19 pandemic, is creating political and the year we invested $351 million in six bolt-on acquisitions, regulatory uncertainty which could lead to changes to the prevailing principally in the USA. During the initial uncertainty of COVID-19, the tax regime and adversely impact the Group’s results. The Group Group paused acquisition activity. We now intend to resume our is engaged with the relevant tax authorities and will ensure any focused acquisition program, funding selective bolt-on acquisitions changes are reflected in Ferguson’s tax strategy. to improve our market leadership positions or expand the The Group will continue to monitor and assess all external capabilities of our existing business models. developments which could potentially impact the rate. The strategy of investing in the development of the Group’s business The Group paid $225 million (2018/19: $242 million) in corporation models is supported by capital expenditure of $302 million (2018/19: tax in the year. The corporation tax paid in the year will typically differ $418 million). Investment was higher in 2018/19 primarily due to one to the total tax charge in the income statement as a result of: new freehold distribution center in the US. The Group also continues to invest in strategic projects to support future growth such as – non-cash deferred tax expense or income arising from accounting distribution hubs, technology, processes and network infrastructure. requirements in IAS 12 “Income Taxes” to recognize tax which may become payable or recoverable in future periods; – adjustments to the current year’s tax charge in respect of the Returns to shareholders under or over provision of tax for prior years; and Given the initial uncertainty of COVID-19, the Group took prompt – timing differences between when tax is reflected as a charge in actions to optimize cash flow including suspending the $500 million the accounts and when it is paid to the tax authority. share buy back announced on February 4, 2020 and after careful consideration withdrawal of the interim dividend due for payment in Earnings per share April 2020. Headline earnings per share decreased by 1.1 per cent from 517.4 Taking into account the Group’s prospects and financial position, the cents to 511.6 cents. Basic earnings per share from continuing Board has decided to propose a final dividend for the year ended operations were 424.4 cents (2018/19: 460.9 cents) and diluted July 31, 2020 of 208.2 cents per share which effectively reinstates earnings per share were 420.4 cents (2018/19: 457.5 cents). the previously withdrawn interim dividend. Thus, in a year of slightly Total basic earnings per share, including discontinued operations, higher underlying trading profit with excellent cash generation were 427.5 cents (2018/19: 481.3 cents) and total diluted earnings and strong balance sheet, the Board is recommending an overall per share were 423.5 cents (2018/19: 477.8 cents). dividend in line with last year’s total dividend (2018/19: 208.2 cents per share). During the year the Group returned $451 million to shareholders through share buy backs including $350 million from the share buy back program announced in June 2019 and $101 million from the share buy back program announced in February 2020 prior to it being suspended. 29

Return on gross capital employed Liquidity Return on gross capital employed decreased from 26.2 per The Group maintains sufficient borrowing facilities to finance all cent to 23.9 per cent. The decrease was due to an increase investment and capital expenditure included in its strategic plan in capital employed. with an additional margin for contingencies. The Group aims to have a range of borrowings from different financial institutions to Net debt excluding lease liabilities ensure continuity of financing. During the year the Group issued $600 million principal aggregate amount of bonds at 3.25 per Net debt excluding lease liabilities decreased during the year by cent with a 10-year maturity. At July 31, 2020, the Group had total $177 million to $1,012 million at July 31, 2020. Strong operating committed facilities, excluding bank overdrafts, of $5,118 million cash flow generation of $1,904 million was partly offset by (2018/19: $3,870 million). Of the Group’s committed facilities at July 2020 Accounts Report and Annual acquisition and capital expenditure of $653 million, interest and tax 31, 2020, $2,200 million (2018/19: $1,573 million) was undrawn. payments of $331 million and shareholder returns of $778 million. $2,085 million (2018/19: $1,610 million) of the total facilities mature after more than five years. Pensions plc Ferguson Financial risk management At July 31, 2020, the Group’s net pension liability of $61 million The Group is exposed to risks arising from the international nature (2018/19: asset of $153 million) comprised assets of $2,122 million of its operations and the financial instruments which fund them. (2018/19: $1,904 million) and liabilities of $2,183 million (2018/19: These instruments include cash, liquid investments and borrowing $1,751 million). The change in the net pension liability is primarily due and items such as trade receivables and trade payables which to the impact of changes in actuarial assumptions on the UK defined arise directly from operations. The Group also enters into selective benefit obligation. IAS 19 (Revised) “Employee Benefits” requires derivative transactions, principally interest rate swaps and forward the Group to make assumptions including, but not limited to, rates foreign exchange contracts, to reduce uncertainty about the amount of inflation, discount rates, and current and future life expectancy. of future committed or forecast cash flows. The policies to manage The value of the liabilities and assets could change if different these risks have been applied consistently throughout the year. It is assumptions were used. To help understand the impact of changes Group policy not to undertake trading in financial instruments or in these assumptions we have included key sensitivities as part of speculative transactions. our pension disclosure in note 23 (iv) on page 151. Other financial risks Other matters The nature of the Group’s business exposes it to risks which are Capital structure partly financial in nature including counterparty and commodity The Group’s sources of funding currently comprise operating cash risk. Counterparty risk is the risk that banks and other financial flow, access to substantial committed bank facilities from a range of institutions, which are contractually committed to make payments to banks and access to global capital markets. The Group maintains a the Group, may fail to do so. Commodity risk is the risk that the Group capital structure appropriate for current and prospective trading and may have purchased commodities which subsequently fall in value. aims to operate with investment grade credit metrics and within a The Group manages counterparty risk by setting credit and through-cycle range of net debt excluding lease liabilities of one to settlement limits for a panel of approved counterparties, which are two times Group adjusted EBITDA. approved by the Group’s Treasury Committee and are monitored The Group is highly cash generative and the Board has established regularly. The management of customer trade credit and commodity clear priorities for the utilization of cash. In order of priority these are: risk is considered to be the responsibility of operational management and, in respect of these risks, the Group does not prescribe a uniform (i) to reinvest in organic growth opportunities; approach across the Group. (ii) to fund the ordinary dividend to grow in line with the Group’s The Group’s principal risks (including strategic, operational, legal and Other information expectations of long-term earnings growth; other risks) are shown on pages 53 to 59. (iii) to fund selective bolt-on acquisitions to improve our market leadership positions or expand the capabilities of our existing business model; and Mike Powell (iv) if there is excess cash after these priorities, return it to Group Chief Financial Officer shareholders reasonably promptly. Financials Governance Strategic report 30 Regional performance

Customer groups We serve nine customer groups in the USA USA providing a broad range of plumbing and We have progressively focused more resources on our business heating products and solutions delivered in the USA where we generate the most attractive returns for our through specialist sales associates, counter shareholders. service, showroom consultants and e-commerce. Key highlights this year Business profile Annual Report and Accounts 2020 Accounts Report and Annual – Total revenue growth of 2.7 per cent and ongoing underlying trading profit of The US business operates primarily under $1,587 million the Ferguson brand and is a value added – Continued market share gains across all end markets distributor of plumbing and heating products in the USA. It operates nationally, serving the Ferguson plc Ferguson – In light of COVID-19 we rapidly adjusted our ways of working to protect the health and residential, commercial, civil and industrial wellbeing of our associates and customers end markets. Ferguson predominantly serves – Excellent cost control in the second half to mitigate the resulting revenue shortfall the Repair, Maintenance and Improvement (RMI) markets, with relatively low exposure to the new construction market. Five-year performance $m Ferguson operates 1,442 branches serving Ongoing revenue1 Ongoing underlying trading profit1 all 50 states with approximately 27,000 18,857 1,587 0 associates. The branches are served by 10 0 0 distribution centers, providing same-day 20 and next-day product availability, a key 2 competitive advantage and an important requirement for customers. Our operations and associate expertise 20 20 20 20 2020 20 20 20 20 2020 align with the nine customer groups where 1. This is an APM; for further information on APMs, including a description of our policy, purpose, definitions we predominantly serve trade customers. and reconciliations to equivalent IFRS statutory measures, see note 2 on pages 124 to 127. By differentiating between the customer Quarterly total revenue growth % types, we are able to provide bespoke services and better cater to specific 12.0% 12.3% requirements, see pages 32 to 45 for 8.5% 8.1% further detail. Each group has its own set of 6.2% competitors that range from large national 3.7% companies, including trade sales by large 1.9% home improvement chains, to small, privately owned distributors. In line with the Group’s -0.6% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 strategy the business aims to strengthen its 2019 2020 position in existing and adjacent markets through bolt-on acquisitions. GDP growth1 % change per calendar year Market trends 2 2 20 2 2 0.3 -9.1 00 2 Macroeconomic trends 0 Demand in the US business is correlated with changes in activity in the economy in

0 Consumer

confidence the USA. The following macroeconomic 0 indicators and their trends have an impact on 2 Q1 Q2 all of the end markets. 20 20 2020 1. GDP: % change compared to the same quarter of the previous calendar year. Gross Domestic Product (GDP) growth in Source: OECD. the USA remained above two per cent in 2. Confidence: Index of results from a consumer confidence survey that measures the level of optimism consumers have about the performance of the economy in the next 12 months. calendar Q3 and Q4 2019 but reduced to Source: Surveys of consumers, University of Michigan. flattish in Q1 2020 before turning negative in Q2, indicating contraction in the economy, Leading Indicator of Remodeling Activity (“LIRA”)1 $bn calendar year largely due to the COVID-19 impact.

0 2 20 2 2 The unemployment rate hit historical lows of 0 less than four per cent during the year before spiking amid the COVID-19 pandemic. cnge Residential – (54 per cent of revenue) 2 The Leading Indicator of Remodeling Activity (LIRA) provides a short-term 2 20 20 outlook of national home improvement 1. $bn remodeling spend and percentage change compared to the same quarter of the previous calendar and repair spending to owner-occupied year. Source: The Joint Center for Housing Studies. homes. It is designed to project the annual rate of change in spending for the current 31

quarter and subsequent four quarters. Revenue growth was strong overall in the lodging though partially offset by strong The LIRA projections for the year ahead have first half with good momentum going into activity in distribution and data centers, weakened but still expect modest growth. the first two months of the second half and healthcare projects. Civil markets were before the virus hit. Revenue was lowest in resilient in the initial lockdowns but as we In addition, existing single-family home sales April down 9.3 per cent and we have seen moved in to Q4 the civil market turned is a good indicator of the strength of the a steady sequential recovery in monthly negative as municipal funding became more housing market and tends to be a driver of revenue growth rates through the summer. restricted. Industrial markets have remained remodeling spend. The average seasonally The business returned to organic revenue challenging through the year due in part to adjusted annual rate of sales has remained growth in August. The major impact on depressed oil prices and a tough operating between 5.0–5.5 million in 2019/20. volume continues to be highly correlated environment for manufacturing during Annual Report and Accounts 2020 Accounts Report and Annual US new residential construction data, to the degree of disruption locally which the pandemic. released by the U.S. Census Bureau, has been variable across the US states and Gross margins were well controlled with provides data on the number of building localities. Initially we saw more significant good pricing discipline and reflect the value

permits and new housing starts. Building impacts in coastal states including New plc Ferguson we deliver to our customers. During the early permits, a leading indicator, have averaged York and California while the mid-west and months of COVID-19 there was an adverse 1.4 million through 2019/20 while housing south east regions were less impacted. product mix effect from strong Waterworks starts have averaged 1.3 million units. Our counter and showroom locations were revenue which is lower gross margin and the These measures have improved over the open by mid-June to support customers with impact of the closure of bricks and mortar prior year and have rebounded well since the appropriate protective measures in place. counter and showroom facilities which COVID-19 impact in April and May 2020. We continue to encourage customers to use generate attractive gross margins. our e-commerce tools and we have seen Commercial (32 per cent of revenue) strong adoption rates from customers during We took a number of prudent cost saving The American Institute of Architects the pandemic with increased user activity of measures to protect short-term profitability (“AIA”) Billings Index – Commercial/ our mobile experience for trade customers. including a hiring freeze, a reduction in Industrial is a leading economic indicator associate hours, overtime and temporary During the pandemic Blended Branches of construction activity and is widely seen staff, and temporary lay-offs being revenue was lowest in April down 15.3 as reflecting prospective construction implemented in the worst hit regions. per cent impacted by significant revenue spending. Any score below 50 indicates We have made net reductions to permanent declines in the hotspot locations such as a decline in business activity across the headcount of approximately 1,400 during New England, New York, Michigan, the architecture profession. An index score the year and consolidated 78 branch Pacific North West and Northern California. above 50 indicates growth. The index locations in order to appropriately size the Since April revenue growth rates have averaged 50 from August 2019 through to business for the post COVID-19 operating recovered steadily. eBusiness generated January 2020 but has been below 50 since environment. We expect the $65 million of very strong revenue growth as it benefited February 2020 indicating expectations of US restructuring costs to have a payback from increased consumer demand for home market contraction. period of approximately one year. improvement products. Waterworks initially Civil/Infrastructure (7 per cent of revenue) generated strong revenue growth benefiting Before acquisitions were paused in March, The AIA Billings Index – Commercial/Industrial from fewer operating restrictions though five bolt-on acquisitions were completed is also an indicator for the civils market. recent trends have been weaker as a result of in the year with total annualized revenues The non-residential construction Put In Place tough prior year comparators. HVAC having of $333 million. The largest was Columbia survey reflects the historical amount spent initially been adversely impacted by local Pipe & Supply which specializes in PVF, each month on construction. The value of lockdowns with revenues down 17.0 per commercial mechanical, commercial non-residential spending rose year-over-year cent in April, returned to growth in June. plumbing, industrial, valve automation, in all four quarters of the financial year. Over the summer HVAC benefited from engineered products and hydronics. Other information Industrial (7 per cent of revenue) good residential markets, with high levels of The business operates from 16 locations The strength of the industrial market is repair and remodel activity from consumers in five states in the Midwest region and indicated by the Institute of Supply Chain based at home and the contribution of the generated revenue of $220 million in the Management Purchasing Managers’ S.W. Anderson acquisition. year ended December 31, 2019. Index. Any reading above 50 indicates that Over the last six months residential RMI Underlying trading profit of $1,587 million the manufacturing economy is generally

markets have remained fairly resilient (2019: $1,508 million) was 5.2 per cent ahead Financials expanding, below 50 indicates that it is with good single family activity levels. of last year and the underlying trading margin generally declining. The index has averaged Commercial markets have weakened overall was 8.4 per cent (2019: 8.2 per cent). 48.6 through 2019/20 indicating market with the weakest spots in retail, office and contraction during the year but increased above 50 in both June and July 2020. Figure 1: Operating performance Estimated end market growth The US business grew revenue by 2.7 per 2019/20

Estimated Estimated Estimated organic Governance cent which included acquisitions growth of % of USA market growth market growth market growth revenue 1.9 per cent. Price inflation was broadly flat. Growth by customer end market revenue H1 2019/20 H2 2019/20 2019/20 growth Blended Branches revenue grew 0.4 per Residential 54% 1% (3%) (1%) +2% cent in the year, with growth constrained during the lockdown period. Waterworks and Commercial 32% 1% (6%) (3%) (1%) eBusiness grew well with revenue up by Civil/Infrastructure 7% 3% (1%) 1% +6% 9.1 per cent and 12.2 per cent respectively. HVAC grew by 9.4 per cent while Industrial Industrial 7% (6%) (19%) (13%) (12%)

revenue was 11.8 per cent lower in the year. Strategic report Flat (6%) (3%) +0.4% 32 Regional performance (continued)

Residential Trade Branch counters Residential Trade forms part of Blended Branches and serves the residential RMI and new construction sectors with a large proportion of sales through the branch counters.

Key products and services Annual Report and Accounts 2020 Accounts Report and Annual Plumbing supplies Water heaters Pipe, valves and fittings Plumbing counters

Ferguson plc Ferguson Bathroom fixtures Pro pick-up

Key highlights this year

One-hour Pro pick-up expanded to nearly all of our Blended Branches counter locations nationally 19% Continued to increase proportion of own brand sales Contribution to US revenue Further developed our mobile experience

Sales are typically made to plumbing One area of success during 2019/20 was contractors across both RMI and new the growth of Jones Stephens, a previous construction. RMI contractors usually acquisition, across the network which operate with a small number of vehicles resulted in a significant increase in own and associates, working on small projects brand sales penetration within our rough and day-to-day residential repair work. plumbing segment. In these instances, their work is awarded We continue to diversify our product based on their availability and the price offering through multiple brands to attract and severity of the plumbing problem. and retain a larger base of customers while The business is characterized by high aligning prices based on our cost to serve. order volumes, though average order size We also continue to work on our digital for RMI customers tends to be smaller. presence providing mobile and inventory “Ferguson always has what we need; New construction contractors work on a management for our customers. A highlight the ease of the website and our range of projects from single homes to on the mobile experience during the year salesperson makes our experience mid-sized housing developments and has been the roll-out of customer specific effortless to take care of our daily are typically contracted by construction pricing tools. purchasing needs. The website is clean firms. This type of work is usually awarded with an easy mobile experience that through a tender process in advance of Our focus in the year ahead will remain on makes it so simple to order.” the project. progressing the omnichannel experience Patricia Guglielmo within the Residential Trade business During the year we adapted our operations Approved Oil Co Brooklyn Inc, Brooklyn, by improving the connectedness of our to offer curbside pick-up while the counters New York in-store, online and mobile offerings. were closed to walk in customers amid Customers’ adoption and usage of online the COVID-19 pandemic. We rapidly re- channels has increased significantly during opened the branch network with enhanced the COVID-19 crisis. We are also reviewing cleaning protocols and protective how we can better partner with plumbing equipment when it was appropriate to do customers at a project level rather than so. Additionally, we successfully expanded focusing on product requirements. our one-hour Pro pick-up service to nearly all Blended Branches locations across the Ferguson is the number two in residential USA. This service is available to customers trade in the USA with an estimated market through all of our order channels. share of 18 per cent. The estimated combined market share of the top three Own brand continues to be a key part of companies is 52 per cent with much of our strategy and we have continued to the market fragmented between mid- make good progress in this area over the size regional distributors and small, local year. These products offer higher gross distributors. For more information on margins than branded equivalents and market size and position see page 13. provide additional customer choice. See pages 30 and 31 for relevant residential end market indicators and trends.

Website 33

How tomorrow works – Case study Digitally enabled customer relationships COVID-19

The COVID-19 pandemic has created many challenges for our customers and we are there to support them by combining our

great people relationships with an array of 2020 Accounts Report and Annual digital tools (see below) that enhance their experience and help them deliver their projects safely and efficiently. Ferguson plc Ferguson Since the pandemic began to July 31, 2020, an additional 44,000 customers have signed on to use our digital tools. This is significantly more than the normal run rate. User activity is also up nearly 50 per cent, proving that customers are embracing our site and appreciating our digital experience. We have continued to see accelerated growth in our mobile offering for our trade customers. Mobile is critical in creating the frictionless experience that allows our customers to be more efficient and our associates more productive. “I love using the mobile experience on Scott Hamele, owner of Plumbing Place and my phone to scan the items. I also love early Ferguson mobile adopter said “Being a the website. I have a weekly order list small business, I’m on the go constantly and set up and it doesn’t get any easier. the mobile experience from Ferguson allows Additionally, we get emailed when the me to run my business from anywhere – from order is placed. Easy business.” ordering materials and checking on orders Lauren Hickman to using the scan function for ordering stock Tri County Air Service Inc, Wiggins, Mississippi – we can order anything from our shop or on How tomorrow works – Our strategy our trucks – it’s very helpful and time saving!” He added, “Pick-up is always easy too and 1. we don’t have to wait long. They know who 2. we are so we can grab it off the pick-up 5. shelf or, if it’s a big item, get help in loading it really quickly.” 3. 4. 50% Other information We have generated a 50 per cent increase in online user activity during 1. Digitally enabled customer relationships the COVID-19 pandemic. 2. Project driven 3. Specification and influence 4. Focused product strategy 5. One brand: Ferguson

44,000 Financials Additional customers registered to use Read more about our strategy our digital tools since the start of the Pages 10 and 11 COVID-19 pandemic.

We are constantly improving our digital offering with additional functionality. Customers can now seamlessly do the following:

Buy online, pick-up Use their mobile We have embedded We launched We added a text We continue to add Governance at store – we’ve created phone to scan our truck delivery an innovative “shop to branch service thousands of different a “contactless process” barcodes of our tracking software into by job” feature that for customers products across all for our customers and products to seamlessly our platform, allowing allows customers to who need to add of the businesses we associates to transact. create a shopping our customers to track search for products by necessary instructions serve giving us the cart for the online their delivery truck in job, versus individual for their orders, widest and deepest check out process. real-time. product – this cuts pickups and deliveries. breadth of product down on their time inventory and visibility navigating to select in the industry. the right products. Strategic report 34 Regional performance (continued)

How tomorrow works – Case study How tomorrow works – Our strategy Focused product strategy

Own brands 1. 2. Own brands are a critical part of our 5. growth strategy. They offer our customers high-quality, “on-trend” product ranges at 3. 4. competitive prices with excellent availability

Annual Report and Accounts 2020 Accounts Report and Annual and an industry leading warranty. For us, 1. Digitally enabled customer relationships these products offer higher gross margins 2. Project driven so the business, our customers and our 3. Specification and influence associates all do well when we sell own 4. Focused product strategy Ferguson plc Ferguson brand products. 5. One brand: Ferguson Signature Hardware has become our organization’s primary consumer facing own Read more about our strategy brand of decorative plumbing products with Pages 10 and 11 the majority of revenue, 57 per cent, coming through Ferguson Bath, Kitchen and Lighting Nate Colbert Showrooms. Our legacy decorative plumbing brands, Mirabelle and Monogram Brass, migrated to Signature Hardware at the end of March 2020 to create one unified consumer plumbing brand. This move reflects greater focus on our decorative plumbing product development, product quality, marketing and omnichannel sales opportunities. Extensive research of our customers, contractors and associates showed that Signature Hardware has strong brand recognition and reputation, and therefore presents a strong opportunity for growth. Our local outside showroom salesperson, Nate Colbert, heard about a large residential building development of 68 houses in Eagle, Idaho. Normally, residential developments would be bid for through the plumbing contractor, however Nate took the initiative and approached the developer directly. Nate discussed the benefits that Signature Hardware had to offer and the developer liked the well-designed look and quality of the products. Nate put together a quote with exclusively Signature Hardware products for all 68 houses, with between 2–3 bathrooms per house. The price point, product quality and lead times all meant that the bid was secured for the project that was worth approximately $250,000 and completed in June 2020.

Signature Hardware products 35

9% Residential Showroom Own brand percentage Residential Showroom forms part of Blended Branches and of US revenue. operates a national network of 256 showrooms, serving consumers and trade customers.

Key products and services Annual Report and Accounts 2020 Accounts Report and Annual 57% Kitchen and bathroom White glove appliance delivery of Signature Hardware sales are plumbing fixtures and installation generated through our Residential Showroom business. Decorative lighting and fans Consultation, advice and project management plc Ferguson

“The developer was very grateful for Appliances Cabinetry in select markets the direct approach in the end knowing the great look and feel of the whole Key highlights this year Signature Hardware product range they

were getting at a good, competitive Virtual showroom tours and appointments price. Our lead times meant we could hit Geo-positioning in trucks to give customers real-time 15% deadlines for such a large order too and updates on deliveries I’m sure that had a part to play in being Contribution awarded the contract.” to US revenue Enhanced white glove delivery and installation services Nate Colbert Improved omnichannel offering linking e-commerce services Outside sales, Residential Showroom and the showroom network

Showrooms display bathroom, kitchen We have continued to enhance our and lighting products and assist customer service offering with the addition customers by providing advice and project of geo-positioning in our delivery fleet. management services for their home Customers can now get real-time status improvement projects. updates on their delivery via email, phone or text. Additionally, we continue to Customers include consumers, builders, expand our white glove delivery service designers and remodeling contractors. and are now able to perform installations The builders, designers and remodelers of a broader range of products while also utilize the showroom network to help their removing old appliance units. clients, typically homeowners, to select the products they wish to install for their Our showroom business will continue bathroom, kitchen and lighting projects. to focus on leveraging technology to These professionals expect Ferguson to improve the customer offering, both to understand their business requirements consumers and the trade. We also look to and assist their clients through the further develop the omnichannel platform Other information selection process in our showrooms. to ensure frictionless interactions across We also sell into the new construction physical stores, online and mobile apps. market with customers working with us for Ferguson is the market leader with an our significant product range, know-how estimated 12 per cent market share and the and the timely delivery of products. In most next largest competitor is about a third of instances this work is awarded in contracts

the size. For more information on market Financials at the regional or national level. size and position see page 13. During the year we expanded our digital See pages 30 and 31 for relevant residential capabilities to give customers the ability end market indicators and trends. to independently tour a number of our showrooms online. We have also been conducting virtual appointments where customers can discuss their project requirements and receive advice Governance on different products, designs and specifications from the comfort of their own homes. Many customers have used this service and followed it up with an in-store visit to quickly finalize their purchase, particularly during the COVID-19 pandemic.

Signature Hardware products Strategic report 36 Regional performance (continued)

Commercial One Vanderbilt, NY Commercial forms part of Blended Branches and provides commercial plumbing and mechanical contractors with products and services including bidding and tendering support and timeline planning to assist with their construction projects.

Annual Report and Accounts 2020 Accounts Report and Annual Key products and services Plumbing parts and supplies Quotation services (partnering with customers on bids/tenders) Ferguson plc Ferguson Pipe, valves and fittings Jobsite delivery and logistics Hangers, struts and fasteners Project management

Key highlights this year

Acquisition of Columbia Pipe & Supply Expansion of local technical support services across the business 14% Continued integration of Building Information Modeling (“BIM”) Contribution to US revenue systems with our software to improve ordering efficiencies

Projects typically span weeks or months We have also improved our customer with Ferguson’s established supply chain service offering by enhancing our logistics ensuring the appropriate products engineered solutions capabilities across are delivered at the correct time throughout the country. This has involved the provision the course of the job. of additional technical support services to our customers; offering additional solutions We often serve plumbers and mechanical development support; and further utilizing contractors focused on new commercial BIM technologies to improve ordering construction projects or repair and remodel efficiencies. We continue to partner with projects including schools, hospitals, a number of construction technology office buildings and hospitality venues. providers to develop more advanced The plumbing contracts are often awarded digital solutions for commercial and based on bids from a set of building plans mechanical contractors. $5m and specifications. For the mechanical The total value of the project for contractor, whose primary focus is the In the year ahead we will continue to invest One Vanderbilt was approximately heating, cooling and water delivery in technologies that improve the efficiency $5 million. systems in the building, contracts are of our customers’ businesses and make awarded based on bids and specifications it easier to do business with Ferguson. but also take into account the relationship We will also continue to strengthen our and service provided when supporting advisory capabilities and customer service 50% the design of these intricate systems. proposition to further reinforce our position Approximately 50 per cent of US revenue is “project based”. We also sell to service contractors affiliated as a value added distributor. with either customer type mentioned Ferguson is number one in the USA above, focused on smaller jobs, remodels with an estimated market share of 21 per and immediate service needs in those cent, roughly twice the size of its nearest building types. competitor. For more information on market During the year, we acquired Columbia size and position see page 13. Pipe & Supply, a Chicago headquartered See page 31 for relevant commercial end distributor specializing in a broad range of market indicators and trends. commercial products including plumbing, valve automation, engineered products and hydronics. The business has a strong reputation, established vendor relationships and long-standing customer relationships, and it will allow us to expand Our project driven approach helped us enable on existing capabilities. Through its 16 specific delivery times for crane picks to lift them locations, Columbia Pipe & Supply will up the skyscraper. If products missed their slot, accelerate Ferguson’s growth in the greater it could mean delays for the entire build. Chicago market and the Midwest. 37

How tomorrow works – Case study One Vanderbilt, NY Project driven One Vanderbilt

We work with our customers to make their projects better and this is never more true than in our Commercial business. The construction of One Vanderbilt, the second largest skyscraper in New York City, started 2020 Accounts Report and Annual in late 2016 and is expected to complete by the end of calendar year 2020.

Due to the exceptionally limited build space plc Ferguson on-site, products needed to arrive at specific time windows for crane picks to lift them up the skyscraper. If products missed their slot, it could mean delays for the entire build. Our project driven approach helped us to understand the full requirements of the customer including fabrication, collaboration with installers, specific delivery times, out of hours work and specialist delivery vehicles, all of which made us the perfect partner. This, along with a competitive price won us the bid and we have consistently delivered to customer expectations. The total value of this one project was approximately $5 million. We supplied all the finished plumbing fixtures, drain, waste and vent piping and much of the mechanical piping, valving and fitting materials for this project. Our mechanical fabrication shop in Long Island City assisted by providing cut to length pieces with fittings ready to install. All deliveries were co-ordinated to arrive at specific times, often early in the morning (including after hours and weekends), due to the location of the project (right outside Grand Central Station) and for elevator loads and crane picks. We utilized our fleet of boom trucks (with cranes) to offload and put in place much of this material to assist Other information the contractor and limit the need to move material around site. Financials How tomorrow works – Our strategy

1. 2. 5.

3. 4. Governance 1. Digitally enabled customer relationships 2. Project driven 3. Specification and influence 4. Focused product strategy 5. One brand: Ferguson

Read more about our strategy Pages 10 and 11 Strategic report 38 Regional performance (continued)

How tomorrow works – Case study “The customer required a business Specification and influence partner that understands the need to Newport News Waterworks continually innovate while delivering long-term success. Our shared vision of creating innovation through We are trusted advisers to our customers thought leadership and investments in and with approximately 50 per cent of technology to evolve with the changing US sales generated through bidding and expectations of our customers made the tendering with our customers for a job, we partnership a very good fit.” Annual Report and Accounts 2020 Accounts Report and Annual succeed when our customers do. They rely on our expertise and our ability to help solve Brandon Matthews their construction, repair, maintenance and Ferguson Business Development Manager improvement problems. The Newport News Ferguson plc Ferguson (Virginia) Waterworks Utility department (“NNWW”) approached our experts in 2017 looking to update their outdated water metering infrastructure across 120,000 residential homes. Our experts understood the customer requirements and specified an Advanced Metering Infrastructure (“AMI”) system (see below) that we could implement with the help of our vendor and install partners, all managed by us. Due to the size and scope of this project, it would traditionally be a direct bid by manufacturers, cutting out distribution completely. However, as Ferguson Mid- Atlantic Waterworks General Manager Doug Koenig explains, “Our relationship with NNWW and the collaborative effort from our vendor and install partners not only put us in the driver’s seat but helped ensure the successful award of the project.” He continued, “Our combined experience and ability to collaborate across Ferguson specialisms gave us the leverage to act as a consultant for the customer and made us stand out as thought leaders as the customer made their final decision.” Two years later, the resulting $45 million contract included the AMI system, software, infrastructure, installation and integration, all managed by us. This is the largest single “Remote Disconnect Meter” deployment Waterworks truck in the USA and the second-largest capital expenditure for the NNWW ever. The project began in 2020 and is scheduled to complete in 42 months.

How tomorrow works – Our strategy What is an Advanced Metering System (“AMI”)? AMI enables two-way communication through a fixed network to transmit information between the utility office and meters or other endpoints, providing greater benefits to the utility provider 1. and its customers. Real-time data from AMI allows for the identification of potential leaks, saves 2. money with energy efficiency initiatives, bases monthly bills on actual usage and not estimated use, and resolves billing questions more efficiently. 5.

3. 4.

1. Digitally enabled customer relationships 2. Project driven 3. Specification and influence 4. Focused product strategy 5. One brand: Ferguson Read more about our strategy Pages 10 and 11 39

Waterworks Waterworks distributes pipe, valves and fittings (“PVF”), hydrants, meter systems, geosynthetics and related water management products.

Key products and services Annual Report and Accounts 2020 Accounts Report and Annual Pipe, valves and fittings Water meters and automation Digitally enhanced estimation Advanced metering infrastructure

Irrigation and drainage Geosynthetics and stormwater management plc Ferguson

Key highlights this year

Expanded water plant division to provide additional value to customers 18% Continued to broaden attractive stormwater and

Contribution geosynthetics segments to US revenue Established new capabilities within the central estimating team

Sales tend to be part of large planned Alongside strategic hires of key personnel, projects to public and private water this year we have integrated the Innovative authorities, utility contractors, public Soil Solutions acquisition. This Texas-based works/line contractors and heavy highway acquisition complements our traditional contractors on residential, commercial and Waterworks business and expands our municipal projects across the water, sewer product offering, allowing us to offer and stormwater management markets. broader capabilities in geotextiles and erosion control solutions. Municipal customers purchase products to repair their water and sewer systems or After establishing a central estimating team for capital improvement projects such as in 2018/19, we have streamlined processes meter systems or pipelines. We sell to utility and improved productivity levels. contractors who tend to focus on water, We have bolstered service offerings with sewerage and storm drainage construction 3D capabilities and the team is working for residential or commercial construction closely with other businesses, particularly projects. Water/wastewater treatment Commercial, to leverage their specialist “This project marks one of the largest plant contractors, which are large regional knowledge to improve bid and tender work collaborative efforts of our business or national players, typically work on very across the business.

large long-term capital intensive projects. Other information and perhaps in the industry. I have been We look to further develop our project We also sell to utility pipeline contractors a part of many large pipeline and plant management and central estimating team who install and maintain publicly funded projects over the years, but I have never skills in the year ahead, leveraging both water and sewage line projects. seen so many people and departments knowledge and technology across the come together to provide value during We have expanded our plant division business where possible. the bid process.” during the year, allowing customers to Ferguson is the largest operator in the USA, Doug Koenig connect with our in-house experts to find

with an estimated market share of 25 per Financials Ferguson Mid-Atlantic Waterworks the best water plant solutions. This includes cent, slightly higher than the number two. General Manager creation and modification of Computer- Outside the top two, no other company aided Design (“CAD”) drawings through to holds greater than five per cent market customized project management systems share. For more information on market size with better technology enabling us to and position see page 13. do this work faster and more accurately. Working closely with customers and See page 31 for relevant civil/infrastructure leveraging technology helps us to deliver end market indicators and trends.

consistent value. Governance We continue to focus on the stormwater segment and enhancing our offerings in NNWW recently received a Sustainable adjacent markets such as geosynthetics Water Utility Management Award, and erosion control products. recognizing its commitment to achieve a balance of innovation and success in economic, social and environmental endeavors. Strategic report 40 Regional performance (continued)

HVAC $50bn HVAC distributes heating, ventilation, air conditioning and Estimated size of the HVAC market refrigeration equipment, parts and supplies for use in the (see page 13). residential and commercial end markets.

Key products and services Annual Report and Accounts 2020 Accounts Report and Annual Fans, ventilation and indoor air Ductless variable refrigeration flow training +9.4% quality products and systems HVAC revenue growth in 2019/20. Air conditioners and air handlers Repair and maintenance parts Ferguson plc Ferguson Heat pumps and furnaces Light commercial equipment and controls

Key highlights this year

Broadened product range to give customers greater choice Continued expansion into major metro markets including 10% New York City Contribution to US revenue Expansion of digital and e-commerce technologies

We partner with a variety of HVAC We have further developed our digital manufacturers, providing distribution offerings to support customers and services across different geographies assist them in growing their businesses. in the USA. These offerings give the customer choice over how they place orders with Ferguson, Typical customers include specialty along with many other capabilities, and multi-trade contractors focused on including the ability to review their specific installing, repairing and maintaining HVAC product pricing, previous invoices and units serving single and multi-family delivery notes. residential developments in addition to light commercial markets. We also sell to Ferguson is the third largest wholesale contractors working on large RMI projects distributor in a large, highly fragmented in the commercial market with the majority market with an estimated market share of of trade going through the branch network. approximately four per cent. The market leader is just over twice the size of We have continued to broaden product Ferguson. For more information on market ranges through the year with a particular size and position see page 13. focus on light commercial equipment, repair parts, installation supplies and See pages 30 and 31 for relevant residential ductless products. We have also widened and commercial end market indicators the range of connected products such as and trends. smart thermostats, water sensors, cameras and carbon monoxide detectors. Geographic expansion remains focused on major metro areas and was bolstered by the acquisition of S. W. Anderson in New York, which supplies HVAC to both residential and commercial end markets. Expertise across multiple customer groups also allows us to leverage our HVAC knowledge with commercial customers when it pertains to larger commercial project tenders.

Bayshore branch, NY, rebranded Ferguson 41

Mahwah showroom, counter and shipping How tomorrow works – Our strategy How tomorrow works – Case study warehouse, NJ, rebranded as Ferguson One brand: Ferguson

1. How we approach 2. bolt-on acquisitions 5. Over the past five years Ferguson has spent 3. nearly $2 billion acquiring 65 businesses 4. across the Group, 53 of which were in the

1. Digitally enabled customer relationships USA. The majority of these deals have 2020 Accounts Report and Annual 2. Project driven been bolt-on where we rapidly integrate all businesses into our network to create 3. Specification and influence synergies. The vast majority of these 4. Focused product strategy businesses have also been rebranded. plc Ferguson 5. One brand: Ferguson Acquisitions remain a key part of our Read more about our strategy growth strategy and over the last two years Pages 10 and 11 we have increased our footprint in the Northeast of the USA considerably with the acquisitions of Blackman, Wallwork and S.W. Anderson. Blackman was acquired in December 2018 and once the back office technology integration was complete, Ferguson developed a new marketing strategy and rebranding plan for the region. The rebranding was completed in early 2020 across 15 locations, bringing with it additional benefits for the business as set out below. Wallwork and S.W. Anderson are currently in the process of being rebranded. The rebranding process is hugely important because the Ferguson name today is respected and synonymous with quality, service and results. Acting as one brand in all that we do enables us to utilize the size, scale and reputation of the Company and creates many efficiencies across all areas of our business including: – increased brand recognition and reputation; – consistent brand promise and customer

experience across all channels; Other information – leveraged investment across the business creating efficiencies in areas such as brand building and marketing, omnichannel and digital investments, customer insights, recruiting and creative and design services;

– ability for our customers to engage Financials seamlessly across all aspects of our business; – one path to market for our suppliers; and – investor and market clarity on brand value proposition. We will continue to focus on driving the

Ferguson brand to ensure customers Governance recognize and value what we do as a consultative experience. Strategic report 42 Regional performance (continued)

Industrial The Industrial business operates across all industries including energy, pulp and paper, chemical, mining, and food and beverage.

Key products and services Pipe, fittings and flanges General industrial MRO products Annual Report and Accounts 2020 Accounts Report and Annual Valves and automation services HDPE products, fabrication, and equipment rental Supply chain services Ferguson plc Ferguson

Key highlights this year

Market share gains in a softer industrial market Enhanced valve automation offering 7% Continued expansion into industrial maintenance, Contribution to US revenue repair and operations (“MRO”) markets

Our Industrial customer group supplies well while COVID-19 and lower oil prices pipe, valves & fittings (“PVF”) as well impacted on aerospace, automotive, as specialized services including valve mining and oil and gas customers in the automation and supply chain management. latter part of the financial year. Customers rely on our technical expertise Growing the valve automation business when building, maintaining and repairing remains a priority. We acquired Process infrastructure for the industrial market. Instruments & Controls and Rencor The Industrial business operates across all Controls which build out our valve sectors including energy, pulp and paper, automation service offering on the West chemical, mining and food and beverage. Coast and in the Northeast respectively. Customers include industrial contractors We continue to develop and expand where Ferguson typically provides PVF the Industrial MRO service in a number products. We also sell directly to end of geographies in order to improve our users and manufacturers where we can service offering and grow wallet share offer both a wide variety of products and with customers. specialized services to ensure that facilities continue to operate safely and efficiently. The industrial market is fragmented; we Diversification across industries gives us a estimate our market share to be five per broader base of business leading to more cent, with the market leader approximately stable profitability. two times larger and concentrated in the oil and gas sector. For more information on We have continued to expand the business market size and position see page 13. ahead of the wider market during the year. Some industries such as chemicals and See page 31 for relevant industrial end pulp and paper have traded reasonably market indicators and trends. 43

Fire and Fabrication Fire and Fabrication supports our customers, principally contractors, working on fire protection systems for new installations, renovations and servicing of existing fire systems across residential and commercial end markets.

Key products and services 2020 Accounts Report and Annual Fire sprinkler systems Pipe fittings Pipe hangers, struts and fasteners Pipe fabrication Ferguson plc Ferguson Pipe and tubing

Key highlights this year

New technology capabilities to offer fire sprinkler design services Expanded own brand product offerings 4% Additional fabrication services and locations Contribution to US revenue

Within our Fire and Fabrication customer We also continue to focus on the provision group we fabricate and supply fire of fabrication services with new facilities protection products, fire protection becoming operational during the year, with systems and fabrication services to fire more to follow in the year ahead. We were contractors. These contractors work on able to leverage Fire and Fabrication new installations, renovations and servicing expertise and fabrication services with of fire systems principally in commercial commercial customers during the year and buildings but also in some residential expect to continue to do so in the years facilities. Purchasing decisions are made ahead. The continued roll-out of own brand based on service, relationships and products has helped give customers more inventory availability. product choices. Product offerings include sprinklers and Ferguson is the number one in the USA pipework, fittings, hangers and supplies. with an estimated 22 per cent market We offer fabrication services to customize share. The three next largest competitors the product offering based on our hold approximately 44 per cent market customers’ needs. We also supply materials share between them. For more information to large government, manufacturing and on market size and position see page 13. sports facilities. Other information See page 31 for relevant commercial end With the acquisition of MFP Design, we market indicators and trends. are now able to offer fire sprinkler design services to customers. As our contractor customers are required to provide an appropriate fire sprinkler design in order to

win tendered work, this capability allows Financials Ferguson customers to collaborate with us on both design and product fulfillment. Governance Strategic report 44 Regional performance (continued)

Facilities Supply Facilities Supply provides products, services and solutions to enable reliable maintenance and renovation of commercial facilities.

Key products and services Annual Report and Accounts 2020 Accounts Report and Annual Plumbing, HVAC and lighting products Door and cabinet hardware Appliances Renovation services

Ferguson plc Ferguson Janitorial supplies Appliance and HVAC installation (in select markets)

Key highlights this year

Strong growth in multi-family segment Expansion of our renovation business 5% Leveraged e-commerce channels to serve customers Contribution to US revenue more efficiently

Facilities Supply operates across several Growing national accounts with both new repair, maintenance and improvement and existing customers remains a priority. markets. The majority of deliveries are We will also look to expand the renovation made from Ferguson’s distribution center business focusing on specific sub-markets network directly to customer facilities. where we are well equipped to win new Typical customers include multi-family work. Additionally, we look to broaden the properties, hospitality, education, customer base by stocking a wider range healthcare, commercial properties or of popular products that appeal to specific building service contractors. customer segments. We saw strong growth in the multi-family The market is both large and highly property sector during the year where we fragmented with no competitors holding added a number of key national accounts more than a four per cent market share. and grew our wallet share with existing Ferguson’s market share is estimated at customers. The renovation part of Facilities approximately one per cent. For more Supply continued to expand organically in information on market size and position see the year, which includes services such as page 13. HVAC installation. See page 31 for relevant commercial end E-commerce remains a key priority market indicators and trends. within Facilities Supply where we have encouraged customers to utilize online experiences through ferguson.com or via system to system integrations. This speeds up customer interactions and frees up associate time to serve more customers. 45 eBusiness eBusiness leverages our US product categories and supply chain with the majority of revenue generated through Build.com.

Key products and services Bathroom, kitchen and lighting products Call center support and advice Annual Report and Accounts 2020 Accounts Report and Annual Door and cabinet hardware Appliances

Key highlights this year plc Ferguson

Deepened relationships between eBusiness and key vendors to give greater breadth of product availability 8% Improved omnichannel offering linking e-commerce services and

Contribution the showroom network to US revenue Trialed two-hour delivery eBusiness sells home improvement Having developed the capability to products directly to professional trade deliver to more than 70 per cent of the US customers and consumers online population in one day during 2018/19, we predominantly using the Group’s existing have continued to explore accelerated product lines and distribution network. delivery options. During the year our The majority of eBusiness is conducted supply.com website trialed two-hour through the brand Build.com, which is deliveries on thousands of different supported by a call center. The call center products utilizing outsourced fleet is staffed with knowledgeable consultants providers. We are working to bring this who deliver expert advice across all capability to Ferguson.com to complement product categories. This differentiation our one-hour in-branch Pro pick-up option. gives us a competitive advantage against The market is predominantly comprised of the other large competitors in the space. large competitors with the top four holding We continue to evolve our digital an estimated 75 per cent of the market. commerce model, investing in the Ferguson is estimated to be number four Ferguson brand to drive a best-in- with approximately nine per cent market class online experience to support share, slightly down from last year as we both professional trade customers continue to focus on profitable growth. and consumers. Additionally, we are For more information on market size and integrating eBusiness with Ferguson’s position see page 13. physical network to support a seamless Other information See pages 30 and 31 for relevant residential omnichannel experience for the customer, end market indicators and trends. initially focusing on connecting Build.com with our 256 showrooms. We do this by leveraging the Build.com platform and our projects tool, a home improvement tool designed to gather inspiration, plan, organize and collaborate with others in real- Financials time, to service the walk-in consumer. During the year we saw a pick-up in activity during the COVID-19 lockdown as consumers turned their attention towards home improvement projects. Additionally, we have strengthened relationships with key suppliers where we have aligned eBusiness and Ferguson branch product Governance strategies to ensure a consistent and broad offering for customers. We are also working closely with suppliers of connected home equipment who supply a broad range of smart home products. Strategic report 46 Regional performance (continued)

Business profile Wolseley Canada predominantly serves Canada trade customers across the residential, A wholesale distributor of plumbing, heating, ventilation and commercial and industrial sectors in both air conditioning, refrigeration, waterworks, fire protection, pipe, RMI and new construction. The business valves and fittings and industrial products. operates 210 branches with one distribution center. At the year-end Canada had Key highlights this year approximately 2,000 associates.

Annual Report and Accounts 2020 Accounts Report and Annual – Total revenue decline of 7.5 per cent in challenging markets Customer groups and – Canada trading profit of $CAD 58 million, $CAD 31 million lower than last year market position Canada operates primarily under the – Cost base reduced for current operating environment

Ferguson plc Ferguson Wolseley brand and supplies plumbing, heating, ventilation, air conditioning and Five-year performance $CADm refrigeration products to residential and commercial contractors. It also supplies Ongoing revenue1 Ongoing underlying trading profit1 specialist water and wastewater treatment products to residential, commercial and 1,458 municipal contractors, and supplies PVF solutions to industrial customers. We are the second largest business serving the 58 plumbing and heating customer group.

20 20 20 20 2020 20 20 20 20 2020 Market trends 1. This is an APM; for further information on APMs, including a description of our policy, purpose, definitions Canadian GDP growth has decreased and reconciliations to equivalent IFRS statutory measures, see note 2 on pages 124 to 127. through the year from a high of 1.6 per cent in calendar Q3 2019 to a 0.9 percent Quarterly total revenue growth % contraction in calendar Q1 2020 before sharply contracting by 13.0 per cent in Q2. 8.9% Consumer confidence averaged 53.2 in the 6.5% first eight months of the financial year before sharply dropping in April and averaging 40.1 2.9% in the final four months of the year. A score above 50 indicates an expectation of growth, while a score below 50 indicates an -2.0% expectation of contraction.

-5.8% -5.5% -7.0% Operating performance Revenue was 9.1 per cent lower with inflation of approximately 2 per cent. Industrial end -13.0% markets and Western Canada were weak Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 during the year and markets remained 2019 2020 generally challenging this year even prior to the country wide COVID-19 lockdown period. The business returned to organic revenue growth in August. Gross margins were slightly lower than last year and despite cost cutting measures underlying trading profit of $43 million was $24 million lower than last year. We have Wolseley Canada reduced net headcount by approximately 300 during the year and closed seven branch locations to right size the business for the current environment. 47

Business profile The UK principally operates under the UK (non-ongoing) Wolseley brand mainly serving the trade A leading trade distributor operating in the large and fragmented RMI market through 542 branches, four UK plumbing, heating and infrastructure markets. In September distribution centers and approximately 5,000 2019, we announced our intention to separate the UK operations associates. Branches provide same-day and next-day product availability, a key service subject to shareholder approval (see page 6 for further information). offering to our customers. Key highlights this year Customer groups and Annual Report and Accounts 2020 Accounts Report and Annual market position – Total revenue decline of 13.6 per cent in challenging markets Plumbing and Heating is the largest business – UK trading profit £48 million lower than last year within the UK and provides plumbing and – Business restructured for current operating environment heating products and the associated pipe, plc Ferguson – Refocused business by separating out Blended Branches to better align to valves and fittings to customers operating customer needs in the residential sector. Building Services offers a similar product set to the commercial sector with the addition of air conditioning Five-year performance £m and refrigeration. These businesses represent 72 per cent of UK revenue and 1 1 Revenue Underlying trading profit within these markets Wolseley is the second largest merchant distributor in the UK. 2 Infrastructure is a specialist in below ground 2 drainage serving the civil infrastructure and utilities markets. The business is estimated to have a market share of about 20 per cent. 1,490 6 20 20 20 20 2020 20 20 20 20 2020 Market trends 1. This is an APM; for further information on APMs, including a description of our policy, purpose, definitions The quarterly GDP growth rate in the UK has and reconciliations to equivalent IFRS statutory measures, see note 2 on page 124 to 127. declined over the last 12 months from just over one per cent growth in both calendar Quarterly total revenue growth % Q3 and Q4 2019 to contracting by 1.7 and 21.7 per cent in Q1 and Q2 of calendar 2020 0 respectively. Consumer confidence has been 0 negative for the last 12 months. 2.2 .2 Operating performance

0 Revenue declined by 15.4 per cent, primarily due to the COVID-19 lockdown restrictions. Acquisitions contributed 1.8 per cent and inflation was approximately 1 per cent.

Gross margins were a touch lower and Other information 2. underlying trading profit of $8 million was 2. $61 million behind last year as the national lockdown severely impacted demand. We have 2 2 20 22 seen a sequential improvement in revenue trends since April in line with the easing of lockdown measures and the business returned

to organic revenue growth in August. Financials Towards the end of the financial year Wolseley UK we have refocused the business on a clear customer proposition and to drive operational efficiencies. This included separating out Building Services from the core Plumbing and Heating business to better align our service offering with our

customers’ needs. We have also rationalized Governance the supply chain reducing capacity to lower the cost base which included the closure of the Worcester distribution facility in June. We have reduced net permanent headcount by approximately 400 and closed nine branches during the year as markets continue to look challenging in the near term.

For information on the UK demerger, see Strategic report page 6. 48 Sustainability

When we think about sustainability, what is We have also spent time this year most important to Ferguson is the health and reviewing our ESG approach with a view Our safety of our associates, the development of to enhancing and formalizing our strategy. our people, our impact on the environment In the coming year we will work on the sustainability and the communities we serve and ensuring expansion of our ESG reporting, recognizing that we behave ethically at all times, while the recommendations of the TCFD and always being alert to the emerging risks and the priorities of the UN’s Sustainable program opportunities for the business. Development Goals. Ferguson is successful because we have Ferguson’s ongoing operations span the

Annual Report and Accounts 2020 Accounts Report and Annual We concentrate on three key the best associates, and our baseline North American continent but our strength focus areas where we can have commitment is to create a safe work lies in the local nature of our businesses. environment for all. We are committed to We support the communities where our the greatest positive impact embedding safety as a core value driver in employees live and work and encourage Ferguson plc Ferguson on our environment and in our everything we do and we’ve worked hard, fundraising activities championed by our communities, while growing in the past three years in particular, to drive businesses and their employees locally. our business. These priorities better performance. I’m pleased that our I am very proud of our activities here and recordable injuries continue to improve, you can read about some of the notable improve associate engagement, which shows we are making progress in our examples this year on pages 49 and 50. address our top risks and journey to become First in Safety, but we will Our goal is for Ferguson to be a socially and never be complacent here and I know we compliance requirements, and environmentally responsible organization. can do even better. are important to our customers, We want to inspire and implement solutions suppliers and shareholders. Of course our own carbon footprint and that protect the environment, while being waste reduction remain a key focus and an commercially successful for our stakeholders. area where we can continue to improve. It is core to how Ferguson does business and Governance This year we are still ahead of our 2015/16 it is how we will grow in the future. – We continue to utilize the guidance and baseline results for both carbon and waste methods provided by the Sustainability reduction but I am disappointed that we Accounting Standards Board (“SASB”), are not meeting the targets we set for the considering all issues under the Multiline business four years ago. I am personally Kevin Murphy Group Chief Executive Officer and Specialty Retailers & Distributors. engaged with our leadership teams and – Ferguson’s Sustainability Leadership the specialists from our businesses to Council, which includes CEO Kevin ensure that we consider and act on their Murphy, meets quarterly to provide views for best practices and opportunities executive oversight and strategic guidance for improvement. for our sustainability program. – We are committed to transparency in Environmental, Social and Governance (ESG) disclosures and Key focus areas disclose our information in line with the While we consider all issues under the Multiline and Specialty Retailers & Distributors recommendations set forth by the Task guidance offered by the SASB, we focus on the areas where we can make the largest Force for Climate-Related Financial positive impact. We have strategically grouped issues into three key focus areas. Disclosures (TCFD). We developed this approach following feedback from our associates, customers and – We formally signed on as a Supporter suppliers and in line with the latest best practice, utilizing the guidance and methods of TCFD, encouraging other companies provided by SASB. to join us in disclosing ESG related risks and opportunities. Best 1 associates

Efficient 2 operations

Sustainable products 3 and solutions 49

Health and safety performance in 2019/20 Best 1 associates Fiure roup total recorale inur rate As our associates are our most important Group 2020 otal recordale inur rate improvement 20 2 asset, this focus area includes health 00 and safety, inclusion and diversity, 00 compensation and benefits, development and retention and community investment. 00 For more information on our associates, 00

see pages 20 to 22. 200 2020 Accounts Report and Annual 00 Health and safety 0 Au ept Oct ov ec an Fe ar Apr a un ul

Health and safety is one of the Company’s plc Ferguson 2020 20 values (see our values on page 20). Our fundamental principle operating in a COVID-19 environment has been to continue Fiure 2 roup lost tie rate to safeguard the health and safety of our Group 2020 ost time rate 0 2 improvement 20 0 associates, customers, suppliers and the communities around us. Health and safety considerations are at the forefront of all our decision-making. It is always important 2 that our associates are well-informed and 0 0 resourced with the appropriate equipment 0 and tools to protect themselves and those 0 around them while performing their jobs 02 safely. We have introduced new COVID-19 0 ways of working with stringent rules and Au ept Oct ov ec an Fe ar Apr a un ul guidance on how to operate since the start 2020 20 of the pandemic (see pages 7 to 14). As the understanding of the disease changed, so Total recordable injury rate: Total number of injuries per 200,000 hours (this represents 100 associates working 40 hours per week for 50 weeks) in line with the US Occupational Safety and Health Administration guidelines. too did our response and guidance which The injury number is based on associates receiving medical treatment beyond first aid that requires them to leave we continually communicated to all our the workplace. The hours worked are calculated using full-time equivalent associate numbers and average days associates (in line with relevant authorities, by business and assume an eight-hour working day. in particular, the Centers for Disease Control Lost time rate: An injury case that involves at least one day absent following the day of an injury authorized by a registered medical professional. and Prevention). Outside of the COVID-19 pandemic, we have continued to invest in all areas of health and safety to address the causes of injuries, and By engaging with our associates on engage with our associates, empowering Focusing our social investment these matters, we are able to monitor and them to do what is right. The past year, we We are committed to supporting our discuss adherence to the agreed standards continue to drive change and strengthen our key priorities for social investment. and address areas of non-adherence Other information culture of “best associates” by focusing on Our Ferguson Cares program focuses while recognizing good performance enablers such as: on the following areas: as appropriate. Leadership health and safety culture Inclusion and diversity: Recognizing the Communications: Sustain and improve training: Coaching senior executive leaders importance of supporting social equality, the “First in Safety” campaign to ensure all on how they can improve health and safety Ferguson committed to supporting associates understand their contribution culture and effectively engage their teams, The Urban League at the national level. to health and safety. This provides our evaluate their health and safety skills and The Urban League is a historic civil rights Financials associates with the right guidance to do their develop action plans. Ensure anyone with the organization that advocates on behalf job and understand their responsibility for responsibility for managing others has the of economic and social injustice and health and safety. appropriate health and safety technical skills against racial discrimination in the USA. and competency for their roles. The organization has been active for over Health and safety performance 100 years and its 90 local affiliates serve over Health and safety professionals: Support in 2019/20 300 communities. Additionally, Ferguson the effective delivery of the health and safety supported I’m A Father F1rst, an Atlanta- management process while developing and In 2019/20 the Group’s total recordable injury rate and lost time rate improved by based non-profit organization focused on executing cultural change and technical Governance mentoring young men. This organization has learning programs. Our health and safety 35 per cent and 32 per cent respectively provided relief to their community during professionals build morale and foster an compared to last year (see figures 1 and 2). COVID-19 through their Meals of Love environment of inclusivity and diversity. This improvement is due to a robust associate engagement program, senior program. Moreover, Ferguson is committing Associate behavior: We continue leadership commitment and engagement to grantmaking in the future with a social to clearly communicate the agreed from all management levels, allocation of equality lens, and stands against racism and standard of expected safe behaviors, safety resources and deployment of safety discrimination in any form. To learn more rules and enforcement processes. professionals in the field to focus on areas about our efforts to incorporate inclusion and

such as material handling and training. diversity into our business, see pages 14 and Strategic report 20 and 21. 50 Sustainability (continued)

Hunger: In light of greater community needs recent acquisitions to our own brand Update on 2015/16 targets resulting from COVID-19, Ferguson donated portfolio, including SafeStep, which offers For 2019/20 we are ahead of our 2015/16 $100,000 to Feeding America in 2019/20. walk-in tubs, allows us to provide not only baseline results. We continue with our efforts For more than 40 years, Feeding America financial support to Homes For Our Troops, to minimize our carbon footprint, drive down has responded to the needs of individuals but also product donations. our relative waste and increase our recycling. struggling with food insecurity in the United Associates in Action: As we continue However, due to the changing makeup of our States. Every dollar donated can provide to focus on our associates and their business, recycling challenges in the USA, 10 meals and this donation equates to a impact in our communities, we have and services provided to our customers, million meals for those struggling with hunger also launched an Associates in Action we have more work to do on the targets during the pandemic. In lieu of our annual Annual Report and Accounts 2020 Accounts Report and Annual program. This program doubles the impact set four years ago. We remain committed Feed the Need challenge (which takes place of our associates by providing monetary to our efforts to reduce carbon and waste every spring and faced complications due donations to eligible non-profits, matching while increasing recycling across our Group. to COVID-19), Ferguson also made a cash up to 16 hours of volunteer time. While we See below for further details.

Ferguson plc Ferguson donation to the Virginia Peninsula Food Bank. suspended volunteer programs during This donation will provide over 250,000 meals COVID-19, we are committed to continuing for our neighbors in need. Carbon emissions to expand Ferguson’s active engagement in Our carbon emissions per $ million revenue, Skilled trade: The skilled labor gap remains communities across North America. (shown in figure 1) improved by 6.7 per cent a challenge for many of our customers and For more information on our associates, compared to the 2015/16 baseline (21.8 we are committed to ensuring that more please see pages 20 to 22. tCO2e per $m revenue in 2019/20 compared plumbers, HVAC technicians, electricians to 23.3 tCO2e per $m revenue in 2015/16). and welders enter the workforce. In 2019/20, Efficient The improvement from 2015/16 was as a our US business continued its support of result of carbon reduction initiatives over the mikeroweWORKS Foundation through 2 operations the target period. We also benefited from a funding of their Work Ethic Scholarships. Initiatives that support this focus area continued reduction in Scope 2 emissions We also continued our support of SkillsUSA, include energy management, supply due to a cleaner conventional electricity grid a partnership of students, teachers and chain management, fuel consumption mix in the countries where we operate. industry professionals working together to and emissions reduction. ensure the USA has a skilled workforce. Our Scope 1 emissions decreased in 2019/20. By choosing vehicles with better Ferguson strives to increase accuracy in Knowing how important it is to reach high performance on a miles per gallon basis, our environmental data wherever possible. school students considering future career Ferguson achieved improved fleet efficiency In 2019/20 our estimates of historical data paths, Ferguson also developed a campaign and further reduced fuel consumption were replaced with actual data where aimed at this audience to explore a career by over a million gallons in 2019/20. available. We improved methods for in skilled trades. At choosetrades.com, Our business reduced the amount of estimating outsourced transportation data students can learn about the different career associate travel in the second half of the year, and air emissions resulting from business tracks, apply for an apprenticeship or explore due to COVID-19. opportunities to apply for scholarships. travel. We also improved our estimation Our goal is to help connect our customers methodology for waste and recycling We continue to undertake initiatives that with the talent that they need. data. Further detail on the data provided reduce our Scope 2 emissions. The UK can be found in the “Basis of Reporting” business expanded their purchasing of Clean water and sanitation: Given our size document on the Ferguson plc website renewable energy and sourced 100 per cent and national footprint in the USA, we are www.fergusonplc.com. of the energy required for the business from uniquely positioned to assist those in our a mixed renewable blend, including biomass, Our five-year carbon and waste reduction communities that lack access to running wind and solar. A number of different factors goals set in 2015/16: water and sanitation. Recognizing this reduced our Scope 2 emissions in the US opportunity, the US business committed to a Reduce carbon emissions business. The switch to virtual showrooms three-year partnership with Dig Deep, a non- from COVID-19 reduced our electricity profit organization working to provide access -10% consumption in the spring. Upgrades were to clean water for underserved communities. also completed to the HVAC and lighting Reduce total waste An estimated 1.6 million Americans still lack systems in a number of our facilities. access to clean water and Ferguson will -15% This focus on energy efficiency not only be providing both monetary and product helps our sites do more with less energy, donations to help address this issue. Achieve recycling rate of but also improves safety conditions through Specifically, the donations from Ferguson will 40% enhanced task lighting. be used to fund the Community Plumbing In our US business, we purchased a solar Challenge, an annual project to expand water Performance at the end of 2019/20, four array for our Perris, California Distribution access in the Navajo Nation. years into the target period, is as follows: Center in 2019/20. This rooftop system will Not only does this project measurably improve be the first instance of owned renewable Carbon access to clean water and sanitation in energy on our distribution network and communities, it also brings together the skills is expected to offset 1,305 metric tons of of water industry professionals with students -6.7% carbon dioxide annually. This reduction in learning to enter a career in the skilled trades. Total waste greenhouse gases is equivalent to removing approximately 282 passenger vehicles from Housing: Ferguson continues to support -6.9% the road for one year according to the U.S. Homes For Our Troops, a non-profit Environmental Protection Agency’s carbon Total waste recycled organization dedicated to building and footprint calculator. The US business also donating specially adapted custom homes invested in renewable energy purchases for severely injured veterans. Ferguson’s 28% in the state of Virginia. Not only does this 51

increase our green power purchasing, it also generated over $192,000 in savings Figure 1: Carbon emissions for the Group. Metric tons of CO2 equivalent per million US dollars of revenue We continue to refine our methodology Increase/ Total for estimating Scope 3 carbon emissions (reduction) emissions which are generated largely by outsourced from reduction Carbon emissions 2015/16 2016/17 2017/18 2018/19 2019/20 2018/19 since 2015/16 transportation partners. Our new Transportation Management System has Scope 1 and 2 emissions 17.5 15.7 14.0 12.7 12.4 (4%) – driven an improvement in this estimation, Scope 3 emissions 5.8 5.8 7.9 7.6 9.4 23% – which has led to an increase in these Total emissions 23.3 21.5 21.9 20.3 21.8* 7% (6.7%) 2020 Accounts Report and Annual emissions for the year. Our US outsourced transportation partners are committed otal caron eissions to reducing their carbon emissions and Metric tons CO2 equivalent improving their fuel efficiency. Our three 400,272 399,786 442,403 445,190 plc Ferguson primary carriers maintain US Environmental Protection Agency’s SmartWay Transport 204,946 Partnership status and received SmartWay 100,100 107,682 159,487 166,593 Excellence Awards. 126,981 115,164 107,352 96,889 90,254 Waste During 2019/20, total waste has decreased 173,191 176,940 175,564 181,708 179,449 6.9 per cent relative to revenue versus our base line in 2015/16 (3.5 US tons per $m 2015/16 2016/17 2017/18 2018/19 revenue in 2019/20 versus 3.7 US tons per Scope 1 Scope 2 Scope 3 *Verified number by ERM-CVS (see page 52). $m revenue in 2015/16) due to our waste reduction initiatives. Total waste increased 1.2 per cent in 2019/20 which remains a Figure 2: Waste generation challenge as we continue to accept customer Relative waste – US tons per $ million revenue waste. The total waste recycled during the year was 28 per cent. Increase/ Relative (reduction) waste An improvement in the methodology for from reduction Waste generation 2015/16 2016/17 2017/18 2018/19 2019/20 2018/19 since 2015/16 estimating waste from front-end containers was implemented in 2019/20, and our Landfilled and incinerated 2.6 2.6 2.7 2.6 2.5 (8%) – business now uses the estimations provided Recycled 1.1 0.9 0.9 0.8 1.0 18% – by the US Environmental Protection Agency Total waste 3.7 3.5 3.6 3.4 3.5* 1% (6.9%) (EPA). The new methodology increased the estimated weight of our typical front-end container, benefiting our recycling rate. otal aste generation US tons We were previously underestimating our 63,634 66,297 71,775 74,408 recycling tonnage. 1,462 1,601 1,367 As part of our waste reduction initiatives, 189 1,052 17,915 21,007 17,826 Other information Ferguson partnered with Good360, 18,282 17,032 a non-profit organization that helps companies distribute highly needed product 52,487 54,892 52,903 donations to people facing challenging 45,163 48,213 life circumstances. This year we donated $1.8 million in product, including baths, faucets and sinks, resulting in healthier 2015/16 2016/17 2017/18 2018/19 Financials communities. By matching non-profit Landfilled Recycled Incinerated *Verified number by ERM-CVS (see page 52). partners with discounted or excess inventory Our approach to measuring carbon was developed in accordance with the Greenhouse Gas Protocol. products, we were able to achieve additional Emissions are calculated using the carbon factors from the Greenhouse Gas Protocol, the Department for landfill avoidance. Environment, Food & Rural Affairs in the UK, the International Energy Agency in France and the Environmental Protection Agency in the USA and are reported as tonnes of CO2 equivalent (abbreviated as tCO2e). Due to Our distribution centers continue to rounding of the figures in the bar charts and tables there is not always a precise correlation with the sub-total and demonstrate high recycling rates, recycling total performing figures. pallets, corrugated cardboard, shrink This variance is due to the renewable energy

wrap and plastic banding. We continue to Streamlined Energy and Carbon Governance utilize PackSize machines to reduce overall Reporting (SECR) purchased in the UK business, which is reported as market-based carbon emissions. package size and reduce the amount of Globally, Ferguson utilized 957,490,043 kWh waste that our customers need to recycle for heating, electricity and transportation. The UK leadership team reviewed the results downstream. Additionally, our distribution Our UK operations consumed 94,319,684 kWh of the Energy Savings Opportunity Scheme centers began piloting a foam injection for heating, electricity and transportation. (ESOS, a mandatory energy assessment system for particularly fragile items, in an Overall, the UK business contributed to 5.3% scheme) and implemented multiple projects effort to reduce overbox packaging and of the Group’s carbon emissions (figure 1) and to save energy, including upgrades to damage rates. 9.9% of the Group’s total energy consumption. lighting and heating equipment at large owned locations. Strategic report 52 Sustainability (continued)

To reduce our on-campus consumption of To ensure that all sales associates are well single-use plastics, our US Headquarters Sustainable products trained in the benefits of higher efficiency associates took the plastics reduction pledge 3 and solutions products, Ferguson has developed an online and were provided with Ferguson bamboo Projects within this focus area include Sustainable Product Training course, which reusable utensils. product quality and integrity, product is required for all sales associates and will be integrated into the onboarding process for The UK business continues to achieve high packaging and design, and lifecycle new sales associates during 2020/21. recycling rates, averaging close to 75 per impacts of the products and services cent for 2019/20. We expect the Group we offer. recycling rate to decline following the UK Modern Slavery Act

Annual Report and Accounts 2020 Accounts Report and Annual UK demerger. Since 2016, the Company has responded Product quality and integrity to the UK Government’s directive under the Wolseley Canada reduced the amount of We require all our major suppliers to sign Modern Slavery Act for concerted action to total waste generated year-over-year, and a Supplier Code of Conduct (or operate tackle the occurrence of forced, involuntary

Ferguson plc Ferguson made good progress in the rate of recycling under its own comparable business and child labor in the global supply chain. for the business. The business will continue conduct principles) and reserve the right to While collectively Ferguson buys products to focus on this area of improvement terminate a business relationship with any from over 39,000 suppliers in over 40 going forward. supplier that violates any of our principles. countries, we source over 95 per cent of We retained ERM CVS, who provide This agreement includes requirements for our manufactured goods from suppliers sustainability assurance services, to social responsibility, including human rights in North America and Western Europe conduct a third-party assurance of certain and labor standards, standards for meeting where the risk of modern slavery is lower. environmental metrics in our 2019/2020 environmental regulations and providing As we continue to enhance our anti-slavery annual report. Specifically, they assessed safe working conditions, measures for measures, we will focus our efforts on our whether these are fairly presented in anti‑bribery and corruption and supply chain international suppliers. accordance with the reporting criteria, in transparency. During 2019/20 we continued During 2019/20, key milestones included: this case, Ferguson’s “Basis for Reporting” to strengthen our quality control procedures where you can also find definitions for for sourcing products. Quality teams in our – Continuing to commit suppliers to Scope 1, 2 and 3 carbon emissions. For more overseas sourcing entities continue to visit Ferguson’s anti-slavery standards. information, please see the “External and assess our suppliers. Each business also In total, over 1,900 major suppliers have Assurance Statement” which details the assesses its suppliers against set criteria contractually pledged to abstain from use scope, activities and conclusions of their to provide protection to both us and our of child, forced, or involuntary labor in their engagement. Both of these documents customers in the event of a product failure or operations. Approximately 13 per cent are available on the Ferguson plc website breach of regulation in the supply chain. of these suppliers are in countries with a www.fergusonplc.com. A new role of Senior Director of Product prevalence of modern slavery according to Assurance, reporting to the Group General The Global Slavery Index. Dow Jones Sustainability Index Counsel, was recruited in 2020 to lead – Harmonization of anti-slavery In September 2019 Ferguson was included in product assurance, compliance and measures across our businesses. the Dow Jones Sustainability Europe Index. quality programs across the enterprise. Our businesses have continued the We achieved a perfect score of 100 in the This position also leads the Company’s process of incorporating ethical and anti- environmental reporting category, reflecting ongoing development of own brand product slavery elements in their supplier audit the commitment to meet our sustainability assurance protocols and works closely with methodologies and we have centralized goals and to continually improve reporting the Company’s sourcing and product teams all own brand vendor audit activities. transparency. Launched in 1999, the Dow to ensure effective and robust supplier New significant international product Jones Sustainability Index is the longest- assessment and product development vendors are audited prior to any purchases running global sustainability index worldwide programs are in place. and we periodically audit existing vendors. and tracks the sustainability performance of We continued to develop the audit team the world’s largest companies. Sustainability and through training and practical experience. product design – Continuing to apply our third-party Climate-related risks We continue to develop products in our own risk assessment tool to enhance and opportunities brand offerings that are more sustainable the effectiveness of our anti-slavery engagement with our international Following the recommendations from the with benefits to meet our customers’ suppliers. The risk assessment tool flags Task Force for Climate-related Financial requirements. These include products that potential high-risk suppliers for review Disclosures (“TCFD”), Ferguson has meet WaterSense and EnergyStar industry based on geographic location (linked convened subject matter experts from across standards. The PROFLOTM Kelper Faucet is to The Global Slavery Index 2018 and the business to examine the specific risks an excellent example of a stylish and water Transparency International’s Corruption and opportunities to the business posed efficient own brand fixture, WaterSense Perceptions Index). by climate change. Ferguson began these certified at 1.2gpm (gallons per minute). disclosures in 2018/19 and signed on as a We are determined in our commitment to supporter of the TCFD recommendations eradicate any form of modern slavery in our in 2019/20. For additional information on global supply chain. the climate-related risks and opportunities Additional details of our anti-slavery practices specific to Ferguson, please refer to our and activities during 2019/20 are set out public Climate Change CDP Response, in our annual statement in accordance available at www.cdp.net. You can view our with section 54 of the Modern Slavery Act, climate-related risks and opportunities online available here www.fergusonplc.com. at www.fergusonplc.com. Principal risks and their management 53

Monitoring risk throughout

the Group Board, Audit Committee 2020 Accounts Report and Annual and Executive Committee The Board is accountable for Fourth level the system of risk management Principal and emerging risks formally plc Ferguson at Ferguson. The Board, Audit reviewed regularly throughout the year by Committee and Executive the Board, Audit Committee and Executive Committee. Thresholds for principal Committee review risks and risks agreed. controls in the context of the Overall system of risk management Group’s strategic plan and reviewed by the Audit Committee on objectives. Throughout the year, behalf of the Board. information is provided directly from frontline operations, via corporate functions

and independent assurance. helpline Ethics “Speak Up” Audit reportsAudit year the throughout

Corporate functions analyze Audit findings inform risk and control data, set assessments of control policies and procedures Semi-annual risk statements effectiveness by Group Legal Operational assurance by senior management Reports from Group Legal process informs assessment inform audit priorities and of control effectiveness by plans for the coming year Group Legal Other information

Frontline business Corporate Independent Financials operations and line functions assurance management e.g. branches and Group and subsidiary level, Internal Audit distribution centers e.g. legal, treasury, finance, function and other tax and IT independent assurance

First level Second level Third level Governance Business operations Set policies Test the design implement policies and procedures and effectiveness of procedures Associates act in Monitor risks and controls and controls line with Ferguson’s Manage risk program Code of Conduct and Group policies Strategic report 54 Principal risks and their management (continued)

Risk analysis during the year The Group’s strategic approach and future prospects are described on pages 4 to 14. Strategic plans have been prepared by business 2019/20 risk and control assessments units and financial forecasts and budgets have been reviewed by Throughout the year, Ferguson regularly reviews its principal and the Board. The principal risks to the Group’s strategy were formally emerging risks. reviewed by the Board and the Executive Committee. In January 2020, the Board provided its perspective on risks The Board and Executive Committee have regular reporting and relating to the Group’s strategy for 2020 and beyond. The Board’s review processes in place in order to closely monitor the ongoing assessment on principal and emerging risks was then combined with operational and financial performance of the Group. These processes assessment of risk for business groups and functions in March 2020 include the ongoing review of the impact of COVID-19 on the Group to produce an updated overall risk profile and report for the Group. Annual Report and Accounts 2020 Accounts Report and Annual and its stakeholders. This risk report, listing principal and emerging risks and how they Consideration has also been given to the strength of the have changed, was reviewed, amended and finalized with the Group’s balance sheet and its credit facilities. During the year Executive Committee and the Audit Committee in May 2020.

Ferguson plc Ferguson ended July 2020 the Group entered into the following new The principal and emerging risks were then reported to and financing arrangements: reviewed by the Board in July 2020. Principal risks include those that would materially threaten the Group’s business model, its future – A $500 million bi-lateral bank facility that matures in March 2021. performance, solvency or liquidity and reputation. This facility was entered into in April 2020, around the onset of the COVID-19 pandemic in the Group’s key operating markets, in order Throughout the year, members of the Board, Audit Committee to provide additional committed liquidity. The facility has not been and Executive Committee received updates as noted below on drawn since it was entered into. the Group’s principal risks. In addition, following the outbreak of COVID-19, these updates included analysis of how COVID-19 – A $1,100 million revolving credit facility that matures in March 2025. amplified or accelerated the onset of certain of these risks and the This facility replaced an £800 million revolving credit facility that steps taken to mitigate any potential impacts. matured in September 2022. – Issued $600 million of USA bond debt which matures in Risk Updates provided June 2030. A New competitors Formal update provided to the Board in As detailed in the Financial review on pages 26 to 29 the Group and technology January 2020. Related risks considered by currently has $5,118 million of committed facilities, of which the Board in January and July 2020 and by the Executive team. $2,200 million were undrawn at July 31, 2020. In addition to this, the Group had cash and cash equivalents less bank overdrafts of B Market conditions Monthly performance reviews with CEO $1,867 million as at July 31, 2020. Fuller details around the Group’s and CFO. CEO update to the Board at each financing facilities are contained within note 21 of the notes to the Board meeting. consolidated financial statements. C Pressure on margins During the year ended July 2020 the Ferguson plc long-term credit D Information Reports on the status of the Group’s ratings remained unchanged at BBB+ and Baa2 with Standard & technology information technology strategy and Poor’s and Moody’s respectively. operational risks were provided regularly to the Executive Committee, the Board and Assessment of viability the Audit Committee throughout the year. While the strategic plans represent the Board’s best estimates of the future prospects of the business, the Group has also assessed the E Health and safety Performance updates were provided at every Executive Committee and Board financial impact of a number of alternative scenarios. The scenarios meeting during the year. considered included the potential impacts which may result from the ongoing COVID-19 pandemic, particularly a fall in revenue driven by F Regulations The status of the Group’s compliance (i) reduced customer demand in the Group’s end markets and/or (ii) program was reported to the Audit reduced availability of product resulting from supply chain disruption. Committee in November 2019 and July 2020 and to the Executive Committee in Scenario modeled Link to principal risks March, April and May 2020. Scenario 1 New competitors G Talent management The Board, supported by the Nominations Revenue reduction and technology and retention and Audit Committees, has received We considered a number of forward-looking Market conditions detailed updates throughout the year from scenarios under which forecast revenue was leadership teams around the Group. adversely impacted in all years of the assessment Talent management period. This was considered alongside mitigating and retention actions which management could reasonably put Longer-term viability of the Group in place should such conditions be experienced. Building on this risk analysis, the Directors have assessed the Group’s Scenario 2 Pressure on margins prospects and viability in light of its current financial position, strategic Margin compression plan and principal risks. The Board believes that a three-year viability A number of scenarios were considered whereby assessment period to July 2023 is appropriate as this aligns to the our ability to maintain attractive margins was Group’s planning horizon. Furthermore, the Group’s principal risks tested. This was considered both in isolation are ongoing in nature and could materialize at any time. None are and in conjunction with a fall in revenue. triggered by a specific, known event that will happen beyond that three-year timeframe. Forecasting beyond the three-year timeframe Scenario 3 Information technology does not therefore provide additional accuracy or risk insight. Large, one-off operational expense Health and safety We considered the impact of any potential legal or regulatory fines or required large, Regulations one‑off expenditures. 55

While linked to the Group’s principal risks, the scenarios detailed above are hypothetical and designed to test the ability of the Group Principal risks heat map to withstand such severe outcomes. In practice, the Group has an (after mitigating controls and actions) established series of risk control measures in place that are designed to both prevent and mitigate the impact of any such occurrences from A New competitors and technology taking place. B Market conditions In addition, the testing took account of a number of mitigating actions C Pressure on margins available to the business to respond to the risk being considered D Information technology including, but not limited to, reductions in operational and capital expenditure, the release of trade working capital, the suspension E Health and safety 2020 Accounts Report and Annual of ordinary dividends and share repurchases, and reductions in F Regulations acquisition activity. In the second half of the Group’s financial year a G Talent management and retention number of these mitigating actions were implemented in response to the COVID-19 pandemic. The results of the stress testing undertaken After mitigating controls or actions plc Ferguson showed that the Group would be able to absorb the impact of the scenarios considered should they occur within the assessment time period. High A Viability statement F D C B Based on the outcomes of the scenarios and considering the Group’s financial position, strategic plans and principal risks, the Directors G have a reasonable expectation that the Group will be able to continue Medium E in operation and meet its liabilities as they fall due over the period of their assessment. The Directors’ statement regarding the adoption of the going concern basis for the preparation of the financial statements can be found on page 110. Severity Low Less likely More likely UK withdrawal from the European Union Likelihood The UK has left the European Union (“EU”) and is now in a transition period before new rules come into place on January 1, 2021. This could lead to further market uncertainties that could result in The materialization of these risks could have an adverse effect on the a negative impact on the Group’s UK business. However, the large Group’s results or financial condition. If more than one of these risks majority of the Group’s profit is derived from North America and the occur, the combined overall effect of such events may be compounded. Board’s strategic intent to separate the UK business is unchanged. The chart shows management’s assessment of material risks. The timing of the separation remains uncertain in the current Various strategies are employed to reduce these inherent risks to economic environment, and consequently the Board is assessing an acceptable level. These are summarized in the tables on the other separation options in parallel with progress towards the following pages. demerger to facilitate the exit of the United Kingdom operations. In addition, disruption in the financial markets could adversely The effectiveness of these mitigation strategies can change over affect the share price of the Group. The Group will continue to time, for example with the acquisition or disposal of businesses. monitor developments. Some of these risks remain beyond the direct control of management. The risk management program, including risk assessments, can

therefore only provide reasonable but not absolute assurance that Other information risks are managed to an acceptable level. As part of the ongoing risk management process, the Board and the Group’s management have identified and assessed emerging risks, and worked with stakeholders to evaluate the impact of such risks to the business. Although none of these risks are deemed to be significant and are consequently not listed as one of the Group’s principal risks, they are tracked in case they evolve to become more significant. Financials One such risk relates to the geographical composition of the Group’s shareholder register. If shareholders resident in the USA exceed 50 per cent of the total, the Group would be subject to additional US regulatory requirements, most notably SEC registration and reporting and Sarbanes Oxley compliance. A detailed beneficial ownership study is conducted on an annual basis to ensure compliance. Another emerging risk is climate change and the impact of this on our business. During the year, the Group commenced a project to Governance get more clarity on the risk climate changes presents. During the year, the Group has convened subject matter experts from across our businesses to examine the specific risks and opportunities to the Group posed by climate change. The Group faces many other risks which, although important and subject to regular review, have been assessed as less significant and are not listed here. These include, for example, natural catastrophe

and business interruption risks and certain financial risks. A summary Strategic report of financial risks and their management is provided on page 29. 56 Principal risks and their management (continued)

Risks to the drivers of profitable growth

A New competitors and technology

Inherent risk level: High Trend: Higher

Definition and impact Changes during the year Mitigation Wholesale and distribution businesses in Ferguson Ventures extended its network The Group develops and invests in new other industry sectors have been disrupted in the start-up community, increasing early business models, including e-commerce,

Annual Report and Accounts 2020 Accounts Report and Annual by the arrival of new competitors with lower- visibility to new competitors and potential to respond to changing customer and cost transactional business models or new disruption. Partnerships and investments consumer needs. This will allow the Group technologies to aggregate demand away were made in a range of technology to accelerate the time to market for new from incumbents. companies to also include industry focused revenue streams and gain insight on new Ferguson plc Ferguson venture capital funds. New business disruptive technologies and trends. The Board is attuned to both the risks and model opportunities were identified and opportunities presented by these changes The Group remains vigilant to the progressed, leveraging service design and is actively engaged as the Group takes threats and opportunities in this space. and rapid prototype development in the action to respond. The development of new business models Ferguson Ventures Innovation Lab, which in our marketplace is closely evaluated – is focused on exploring areas of innovation both for investment potential and threats. and disruption by evaluating consumer and industry evolution in technology and service design. In addition, Ferguson accelerated delivery of its omnichannel strategy to meet constantly changing customer demands and emerging digital needs as the rate of customer adoption of e-commerce tools accelerated due to COVID-19.

B Market conditions

Inherent risk level: High Trend: No change

Definition and impact Changes during the year Mitigation This risk relates to the Group’s exposure This risk is unchanged, notwithstanding The Group cannot control market to short-term macroeconomic conditions the uncertainty caused by COVID-19. conditions but believes it has effective and market cycles in our sector (i.e. measures in place to respond to changes. The Group has maintained a strong periodic market downturns). Ferguson continues to reinforce existing balance sheet throughout the year measures in place, including: Some of the factors driving market growth and other measures have been taken are beyond the Group’s control and are to manage the cost base in line with – the development of our business model; difficult to forecast. forecast growth. – cost control, pricing and gross margin Further information on the market trends can The Group has again tested its financial management initiatives, including be found in our regional reviews on pages 15 forecasts, including cash flow projections, a focus on customer service and and 30 to 47. against the impact of a severe market productivity improvement; downturn, see pages 54 and 55. – resource allocation processes; and The Group continues to closely monitor the impact of COVID-19 and take prudent – capital expenditure controls steps to mitigate any potential impacts to and procedures. the successful operation of our business. The Group remains prepared to implement The Group is also monitoring for general appropriate mitigation strategies to recessionary impacts in the medium term minimize any potential business disruption that may result from the government- from COVID-19. mandated shutdowns that occurred during spring 2020. 57

C Pressure on margins

Inherent risk level: High Trend: Higher

Definition and impact Changes during the year Mitigation The Group’s ability to maintain attractive Pressure on margins increased during the The Group’s strategy for tackling this profit margins can be affected by a range year, primarily due to levels of competition issue remains unchanged. This includes of factors, including some that are beyond and adverse mix challenges arising continuous improvements in customer the Group’s control. These include levels of from temporary closure of the branch service, product availability and inventory Annual Report and Accounts 2020 Accounts Report and Annual demand and competition in our markets, the and showroom networks as a result of management; strict pricing controls arrival of new competitors with new business COVID-19. managed with proper data and insight; and models, the flexibility of the Group’s cost effective maintenance and management In response, the Group has continued to

base, changes in the cost and availability of vendor rebate programs. Revenues from plc Ferguson manage its cost base in line with changes of commodities or goods purchased, e-commerce, own brand, and other growth in expected growth rates. Business unit the imposition of new or increased sectors continue to grow and the Group performance, including margins achieved, governmental tariffs on international sources has made acquisitions in these areas were monitored on a monthly basis of supply, customer or supplier consolidation during 2019/20, while we paused further throughout the year. or manufacturers shipping directly merger and acquisition activity due to to customers. Ongoing gross margin was in line with market uncertainty caused by COVID-19. last year. Refer to pages 14 and 154 and 155 for more There is a risk that the Group may not information on acquisitions during the year. identify or respond effectively to changes in these factors. If it fails to do so, the amount The performance of each business unit is of profit generated by the Group could be closely monitored and corrective action significantly reduced. taken when appropriate. Resource allocation processes invest capital in those businesses capable of generating the best returns.

D Information Technology (IT)

Inherent risk level: High Trend: No change

Definition and impact Changes during the year Mitigation The Group has a clearly defined IT risks have remained material and Business leadership continues to execute global technology strategy and are being closely monitored as we a comprehensive change management roadmap. Technology systems and implement the clearly defined global program designed to transition current data are fundamental to the future technology strategy and roadmap (see business practices and norms to adopt growth and success of the Group. page 23). Those risks include the potential new business capabilities. Information Technology risks are categorized for schedule delays, cost overruns, Business Technology and Omnichannel Other information as strategic and operational. functionality deferrals and change Centers of Excellence are in place to drive management disruptions on operations. Strategic risks are threats that could prevent organizational discipline around the prioritization execution of the IT strategic plan such as Under the management of the Chief of business projects to ensure alignment with inadequate leadership, poor allocation/ Information Officer, the Group has Ferguson’s strategic framework. management of resources and/or poor continued to make substantive progress in Management continues to execute a execution of the organizational change of implementing its technology strategy and rolling three‑year roadmap of investments management necessary to adopt and apply roadmap, including progressing significant in processes, resources and technical Financials new business processes. upgrades to its enterprise-wide resource defenses necessary to continuously address planning systems and other enterprise- Operational risks include business emerging cybersecurity threats, and is wide IT resources. disruption resulting from system failures, extending enhancements to the Group’s fraud or criminal activity. This includes IT General Controls continue to be control environment to other parts of the security threats and/or failures in the ability independently tested by Internal Audit and Group’s systems (see page 80). of the organization to operate, recover and findings reported to the Audit Committee. Group-level compliance processes and restore operations after such disruptions. insurance coverage, including data Briefings on the status of the Group’s IT

While cyber security incidents encountered protection and cyber liability, are in place. Governance strategy, and its implementation have been by the Group to date have resulted in regularly provided to the Board, the Audit Disaster recovery systems, secondary data minimal impact, this risk continues to Committee and the Executive Committee centers, cloud redundancy and resiliency persist and evolve, and was amplified by throughout the year. platforms, resources and processes have the increase in frequency and intensity been implemented to ensure business critical of cyberattacks since the emergence of Regular Board update checkpoints have systems are recoverable in the event of a COVID-19 and the related transition to been established to provide monitoring major disaster. Testing of critical infrastructure remote work for many of our associates. and oversight of execution of the IT and application systems is in place and has strategic plan. been consistently executed across the Group. Strategic report 58 Principal risks and their management (continued)

E Health and safety

Inherent risk level: Medium Trend: Lower

Definition and impact Changes during the year Mitigation The nature of Ferguson’s operations The Group’s strategic plan remains Health and safety is a fundamental value can expose its associates, contractors, focused on the elimination and control in our organization. Our leaders have customers, suppliers and other individuals to of risks causing disabling injuries, specific roles to play and are required health and safety risks. improving our safety culture and closing to actively engage with our associates Annual Report and Accounts 2020 Accounts Report and Annual the safety, health and environmental in ensuring a healthier and safer Certain products that we sell pose health knowledge gap among our associates. workplace. Our performance is reported and safety risks. The hiring and deploying of health and and discussed at both the Executive

Ferguson plc Ferguson Health and safety incidents can lead to loss safety professionals in the field provides Committee and Board meetings. of life or severe injuries. businesses with technical resources to The Group maintains a health and safety more effectively mitigate risk. Our efforts The Group continues to closely monitor the policy, with detailed minimum standards, in these areas have improved the impact of COVID-19 and to take prudent and standard operating procedures which overall performance of the Group, steps to mitigate any potential impacts to the sets out requirements for all businesses. notwithstanding the impact of COVID-19; health and safety of our associates or to the Branches are audited against these see page 49 for more information. successful operation of our business. standards and businesses continue to implement fundamental changes to transform our culture. For more detail see page 49. We continue to follow the COVID-19 guidance of the World Health Organization and other governmental health agencies, including with respect to travel restrictions.

F Regulations

Inherent risk level: Medium Trend: No change

Definition and impact Changes during the year Mitigation The Group’s operations are affected by There has been no major change in the The Group monitors the law across its various statutes, regulations and standards level of regulation applying to the Group markets to ensure the effects of changes in the countries and markets in which it this year. Following the adoption of the are minimized and the Group complies operates. The amount of such regulation California Consumer Privacy Act, the with all applicable laws. and the penalties can vary. procedures and controls implemented by The Group aligns company-wide the relevant businesses within the Group While the Group is not engaged in a highly policies and procedures with its key to ensure compliance were reviewed and regulated industry, it is subject to the laws compliance requirements and monitors improvement measures put in place. governing businesses generally, including their implementation. laws relating to competition, product safety, Awareness training of the Group’s Code Briefings and awareness training on key data protection, labor and employment of Conduct was deployed to all associates compliance topics and requirements, practices, accounting and tax standards, during the year. The Code sets out the including harassment and discrimination, international trade, fraud, bribery and Group’s values and commitment to strict data privacy and security and gifts and corruption, land usage, the environment, compliance with the various laws and entertainment were undertaken. health and safety, transportation and regulations that apply wherever the other matters. Group operates. Violations of certain laws and regulations Further information on the Group’s ethics may result in significant fines and penalties and compliance program can be found on and damage to the Group’s reputation. pages 22 and 52. 59

G Talent management and retention

Inherent risk level: Medium Trend: No change

Definition and impact Changes during the year Mitigation As the Group develops new business There has been no material change in the All of the Group’s businesses have models and new ways of working, level of associate turnover during the year. established performance management it needs to develop suitable skillsets Reductions in force implemented as part of and succession planning procedures. within the organization. the steps taken to manage our cost base Reward packages for associates are 2020 Accounts Report and Annual given the uncertainty of COVID-19 were Furthermore, as the Group continues to designed to attract and retain the offset by lower voluntary attrition. execute a number of strategic change best talent. programs, it is important that existing On May 26, 2020, the Group announced

A new robust individual development plc Ferguson skillsets and talent are retained and that that Mike Powell, the Group CFO, had planning process for high-potential associates remain engaged through resigned and had committed to assisting successors from the talent review process recognition, training and communication. with an orderly transition. The new Group is aligned with our organizational strategy. CFO is Bill Brundage and is based at Failure to do so could delay the execution of the Group’s Newport News, Virginia The Group continues to invest in associate strategic change programs, result in a loss of headquarters in the USA. For further development and engagement. “corporate memory” and reduce the Group’s information, see pages 6, 71 and 82. supply of future leaders. Talent management procedures were reviewed during the year (see pages 20 and 21 for further information). Associate meetings with our Employee Engagement Director of the Board were held and feedback was reported back to the Board.

Non-financial information statement In December 2016, the UK government published new regulations implementing the European Union Directive on disclosure of non-financial and diversity information (the “Non-Financial Reporting Directive”). The regulations amend the Companies Act 2006 requirements for the Strategic report and include diversity requirements in the Disclosure and Transparency Rules. Although the Company (being Jersey incorporated) is not subject to the UK Companies Act, the Board retains its standards of governance and corporate responsibility as if it were subject to the Act (see page 67) and sets out the required information below: – Environmental matters (including the impact of the Company’s business on the environment) on pages 48 to 52. – The Company’s employees on pages 20 to 22 and 48 to 52. – Social matters on pages 48 to 52. – Respect for human rights on pages 20 to 22 and 48 to 52.

– Anti-corruption and anti-bribery matters on pages 20 to 22 and 48 to 52 and 80. Other information Policies relating to the above matters are available to all associates in a centralized location through the Company’s intranet. Where appropriate, the Board or relevant Committee of the Board is provided with updates on these matters during the year. The Non- Financial Reporting Directive also requires references to a description of the Group’s business model (pages 18 to 19), principal risks, including those relating to the matters identified above (on pages 53 to 59), and key performance indicators (on pages 16 to 17).

The Strategic report has been approved by the Board and signed on its behalf by: Financials

Kevin Murphy Group Chief Executive September 28, 2020 Governance Strategic report