Ferguson Plc (LON:FERG) has announced plans to move its headquarters from Switzerland to the UK and said it expects full-year profit to reach the lower end of market forecasts.
The FTSE 100 plumbing and heating products distributor has decided to shift its headquarters and tax residence to the UK after Switzerland approved reforms that would reduce tax benefits for companies based in the country.
READ: Ferguson sees first-quarter trading profit, revenue rise thanks to US growth, UK still weak
Ferguson said the move would simplify its corporate structure and, if approved by shareholders at a general meeting on April 29, will allow it to maintain its previously announced guidance for an effective tax rate of 25-26% for the year ending 31 July 2020.
Alongside the proposal, the company said it predicts profit for the year of about US$1.58bn, the bottom of the range of analyst’s expectations, and cut its forecast for second half organic revenue growth to 3-5%.
"After a strong revenue performance in the first half our growth rate has moderated recently in line with conditions in our markets,” said chief executive John Martin.
First-half profits and revenue led by US growth
In the first half ended to 31 January 2019, organic revenue rose 6.5% to US$10.6bn, driven by a strong performance in the US.
Total statutory revenue increased by 8.2% to US$10.8bn with growth in the US and Canada units offsetting a decline in the UK.
Pre-tax profit grew 13.2% to US$679mln on the back of higher revenue and gains from the disposal of its Dutch business in 2018 and properties from the Nordic division it sold in 2017.
The US, Ferguson’s largest market, delivered a 12.2% increase in revenue to US$8.9bn, supported by a strong performance in the waterworks business and the acquisitions of plumbing firm Blackman and heating and cooling products supplier Wallwork. On an organic basis, US revenue rose 9.7%.
UK weaker amid restructuring
UK revenue dropped 10.4% to US$1.2bn and organic revenue gained 0.3% as repairs, maintenance and improvement markets were flat and as Ferguson carried out a restructuring of the division.
The restructuring included the exit of the UK distribution centre, the relocation of the support services office in Leamington Spa and the rollout of the new Wolseley trading brand for the group’s plumbing and heating business.
Since the end of the period, Ferguson has exited a small, non-core business and completed the sale of some surplus property assets in the UK for $43mln.
Canada's residential housing market slows as interest rates rise
In Canada, revenue increased 7.8% to US$615mln and organic revenue was 2.1% higher.
However, Ferguson said markets weakened “progressively” throughout the period with the residential housing sector slowing due to rising interest rates and government measures to restrict mortgage credit.
Ferguson recommended an interim dividend of 63.1 US cents, up 10% on the previous year.
Shares plunged 9.3% to 4,686p in morning trading.
Peel Hunt kept an 'add' recommendation on the stock, saying while the profit expectations for the year are disappointing, it thinks the valuation multiples "aren't that demanding given the historic performance and peer group comparisons".