Q1 2022 Ferguson PLC Trading Statement Call

Good morning, Ladies and gentlemen, my name is one and I will be your conference operator today at this time I would like to welcome Joe to the fake Luzon plc first quarter results conference call. All lines have been placed on mute to prevent any interference with the presentation at the end of the prepared remarks.

There will be a question and answer session.

Scott question at this time please press the star followed by one on your telephone keypad to withdraw your question. Please press the star followed by the number two thank you I would now like to turn the call over to Mr. Brian Lantz Tycho sons, VP of Investor Relations and Communications you May now begin your conference.

Good morning, everyone and welcome to <unk> first quarter earnings conference call and webcast hopefully you've had a chance to review the earnings announcement, we issued this morning.

This is available in the investors and media section of our corporate website and on our SEC filings web page.

A recording of this call will be made available later today.

I want to remind everyone that some of our statements today may be forward looking and.

And are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.

Additional information is included under the legal disclaimer in our earnings announcement this morning.

In addition, we will be discussing certain non-GAAP financial measures. Please refer to the earnings announcement on our website for additional information.

Including a reconciliation to the most directly comparable financial measures calculated in accordance with GAAP.

With me on the call today are Kevin Murphy, our CEO.

Don't Brundage our CFO.

I'll now turn the call over to Kevin.

Good morning, everyone and welcome to <unk> first quarter results conference call for.

Today's call I'll give you some highlights from our Q1 results and an update on our end markets before I turn the call over to bill for the financials.

I'll come back at the end just set our outlook for the rest of the fiscal year before Bill and I take your questions.

Let me begin by saying the group delivered exceptional performance in the first quarter driven in part by strong market share gains.

Success is due largely to our associates.

I would like to express our sincere thanks to as they continue to make our customers' projects simpler and more successful.

We continued to leverage our global supply chain and strong balance sheet to support our local customers through a period of supply chain disruption.

Reliably delivering in a period of industry supply chain pressures remains a gravitational pull for our customers to our business and has helped us to continue to capture these outsized market share gains.

Technology remains a key strength, allowing us to make our customers as productive as possible while at the same time enhancing our own productivity.

For our end markets residential which comprises just over half of our U S. Revenue remained robust in the first quarter, both new construction and <unk> saw strong demand in our residential revenues grew approximately 24% in the first quarter.

Nonresidential end markets grew faster than residential as we lap negative comparable to the prior year with an acceleration of activity in areas such as education.

Karen hospitality.

Our non residential revenue grew by approximately 31% and near term economic indicators appear to be in pretty good shape.

Inflation trend stepped up further in the quarter driven both by finished goods and commodities.

Our pricing discipline, and particularly strong gross margins contributed to profit growing significantly faster than revenue delivering strong operating leverage in the quarter.

On the acquisition front, we acquired four high quality businesses, bringing in approximately $125 million in annualized revenue.

Pleased to welcome. These associates to Purgason is these local relationships help us drive further growth in the future.

We initiated our new $1 billion share buyback program, completing approximately $100 million in the first month of execution.

And finally, we remain on track to hold our second slowdown listing in the spring of 2022 as we look to move our primary listing to the New York stock exchange.

So again, we are proud of our strong results in the first quarter and are confident in the ongoing strength of our business model.

Now let me pass you over to Bill who will take you through the financial numbers in more detail.

Thank you, Kevin and good morning or afternoon, everyone.

I start today I wanted to remind you we adopted U S. GAAP effective August 1st and therefore, the first quarter results. We'll cover today are presented on that basis now.

Now turning to the results as expected we've seen a continuation of trends from the fourth quarter with strong market share gains contributing to revenue growth of 26, 6% or.

Organic growth of 24, 5% was at similar levels to Q4 of last fiscal year and as Kevin mentioned price inflation stepped up in the first quarter into the low teens.

Gross margins were 170 basis points ahead of last year, reflecting the value we deliver to our customers the strength of our business model and our ability to manage price inflation.

Operating costs continued to be well controlled as we focused on productivity and efficiencies while investing in our talented associates supply chain capabilities and technology program.

As such adjusted operating profit grew by $283 million up 58, 5% and adjusted diluted EPS grew by 64, 5%.

Moving to our segment results the U S business mirrors, the group results with a strong performance.

Total revenues grew 27, 1% with organic growth of 25, 2% and a further one 9% from acquisitions.

Price inflation stepped up further in the first quarter into the low teens.

We expanded gross margins tightly controlled costs and generated strong operating leverage head.

Head count and variable costs grew to appropriately support volume growth and consequently, adjusted operating profit came in at $752 million $280 million ahead of last year with adjusted operating margins expanding 240 basis points to 11, 7%.

We've provided a breakout of the revenue growth across our largest customer groups in the U S. We saw strength in both the residential and nonresidential end markets and our growth was fairly well balanced.

Residential trade and building and remodel grew well with strong demand coming from both new construction and remodeling project work.

Residential digital commerce continued to benefit from elevated demand from the project minded consumer and the light decorative chrome.

HVAC <unk>, where the majority of our business serves a residential end market grew by 23% in the first quarter.

Waterworks continued to outperform with revenue growth accelerating to 50% driven by an increase in inflation and a balance of strong public works demand good residential growth and growth in nonresidential end markets.

The commercial mechanical and other nonresidential customer groups saw good growth in the quarter. These businesses have lapsed negative prior year comparative.

We continue to see growth in areas, such as education health care and hospitality.

The Canadian business performed well in Q1 with revenue growth of 19, 6%.

Organic revenue grew by 13, 9% with a further five 7% tailwind coming from the positive impact of foreign exchange rates.

Residential end markets, which account for over half of our Canadian business performed well in the period with another particularly strong performance from our HVAC business.

We saw continued growth in civil infrastructure markets and a return to growth in our industrial markets.

A good gross margin performance and tight cost control led to an $11 million increase in adjusted operating profit with adjusted operating margins stepping up 170 basis points to eight 8%.

As we focus solely on North American markets, we continue to see success as we leverage the considerable expertise knowledge and know how from our U S associates to enhance operations and customer experience across Canada.

Finally, the balance sheet remains in great shape, our capital allocation priorities and leverage targets have not changed and we continue to prioritize moving back into our stated leverage range of between one to two times.

We are continuing to invest in the organic growth of the business and look to sustainably grow the ordinary dividend.

Acquisitions are an important part of our growth strategy. We have completed four acquisitions to date in the fiscal year and we currently see a healthy future pipeline of bolt on acquisitions.

We remain committed to returning surplus capital to shareholders and continue to execute the $1 billion share buyback program, having completed just over $200 million to date.

So let me wrap up we're pleased with the start we've made to fiscal 2022 strong earnings while continuing to invest in the business and a strong balance sheet put us in a great position going into the balance of the year.

Thank you now let me hand, you back to Kevin for an update on the outlook and his closing remarks.

Thank you Bill.

Since the start of the second quarter, we continued to generate revenue growth similar to that of the first quarter.

That being said, we do continue to expect a tapering of growth rates as we enter the second half.

The recent tailwind we've seen from inflation on our gross margins are likely to moderate but the timing and the extent of this remain unclear.

Given the momentum in the business and the strength of our business model, our full year expectations has now increased.

So to summarize the first quarter the business is performing extremely well.

We're leveraging our core strengths in the face of global supply chain challenges to deliver outsized market share gains.

We believe we are well positioned for growth and remain focused on executing our strategy over the rest of the fiscal year and beyond.

Thank you for your time today, Illinois are now happy to take your questions opera.

Operator, I'll hand, the call back over to you.

Yeah.

Thank you if you would like to ask a question. Please press the star followed by one on your telephone keypad now if you turn your mind. Please press star followed by two when preparing to ask a question. Please and show your phone is on mute it locally and our first question comes from Wayne Jones from Redburn. Please wait your line is now open.

Thank you morning.

Couple for me. Please the first is just whether we could.

You could help us unpack the gross margin.

The uplift in the quarter of 170 basis points by its helpful to dissect it by a factor of particularly interested as to how much was it.

Three holding gains.

As opposed to other factors like servicing the customers well.

It makes.

And the second one was really more around market share whether you had a view on.

Your outperformance in the quarter I appreciate that he has full period, but within that how much of it how much do you think is kind.

Kind of constrained supply chains, and really how you go about that retaining those customers potentially want to supply chains normalize.

So you say calendar 2022, and I guess within the whole issue of market share just interested about waterworks, 60%, it's still stand out versus the versus the other areas and is there anything particularly around market share gains. Thank you.

Yes. Good morning, well. This is bill I'll take the first part of that question and thank you for that question. If you think about our Q1 gross margins of 31, 3%. They were really a continuation of what we saw in Q4, which was right about the same level of 31, 4% really driven by that.

Continued step up in inflation as we said in our in our release and our prepared comments inflation moved from about 8% in Q4 up into the low teens.

Majority of that further increase was driven by finished goods inflation and that enabled us to continue to put up a very strong.

Gross margin in the first quarter. So again very much as that inflation continues to move up we're able to translate that and manage that price inflation and leverage the strengths of our supply chain.

To produce those outsized gross margins, we would expect that as inflation tapers at some point in the future that those margins will moderate at some point, but it is a it is difficult to say when that's going to happen and to what extent that will be but certainly the majority of that driven by our ability to manage.

In the first quarter.

Yeah, well and if we are ticked down your question to market share as we think about market share in the quarter, it's difficult for us to tease out exactly what that market share gain looks like but I would think of it as broadly similar to what we experienced as we exited the fiscal year last year and so that it market outperformance is slightly above.

That 200 to 300 basis points that we normally target and as we said at.

At the end of our fiscal year really that's driven in large part by that supply chain chaos, that's happening and our ability to service customers and like we said at the close of the fiscal year.

Hanging on to new customers and the durability of those new relationships. We believe is in fact durable and the reason for that is these customers have been targets of hours for a period of time and given the opportunity to service that customer make their project better. We think is a bit of a durable proposition youre going to win.

Some you're going to lose some but we think we win more than we lose over the long haul in terms of the waterworks outperformance. We were really pleased with the balance of that performance that balance across municipal public works residential new construction commercial.

And when you look across that performance, you've got a balance of inflation, especially in the commodity side of the business things like PVC.

Piping materials side.

With also good volume growth and we think that's about call it half and half in terms of the growth inside of the quarter. So really pleased with what that brings because if you look at the totality of the project. That's the opening Gambit. If you will for our company as we look to then take advantage of opportunities with the <unk>.

Finished side of that building above underground construction, especially in residential and commercial settings.

Alright, thank you.

Yeah.

Thank you I know what it was next question comes from Alethia Raul from Jpmorgan. Please.

Your line is now open.

Hi, Thank you good morning, gentlemen, and maybe two questions on your end market. So one of them first of all it's put a lot on you why it works. These net so then we'd be willing to eat in.

In Q1.

How would you quantify the upside.

Isn't it.

I applaud that was just announced.

And they can maybe could you give us a bit of an updated view on the new housing market U S like cause the rising interest rate environment. So.

So we didn't see them. Thank you.

Thanks, Howdy I'll I'll take the beginning of that and then if bill wants to add in.

In terms of that.

And market residential.

And infrastructure and commercial when we think about waterworks.

The infrastructure Bill will certainly be a tailwind.

And it will.

Likely play out over time, as we think about what those projects are going to start to look like and then as we discussed previously there is a bit of a pressure on trade labor and so putting those projects into action we.

We will take a bit of time in our view, but it certainly will be a tailwind for us.

I'll reflect back to that residential commercial side inside of waterworks because of the broad based nature of that performance and.

The residential new construction market across the U S. In particular appears to continue to be quite strong we've seen good bidding activity inside of that waterworks business. We haven't seen any substantial reduction in lot count for subdivisions or postponement of new subdivision construction.

Which again points well towards our residential trade business are building remodel business and in the rest of the construction process inside of Ferguson.

In terms of the new housing market.

The external indicators look to be good permit activity at $1 65.

Starts at about one 5% to look to be good and so that that new construction growth.

Appears to be strong.

As we move into the next calendar year.

Great Thanks for that.

Thank you. Our next question comes from Keith Hughes from Trust. Please <unk>. Your line is now open.

Thank you question on inflation can you give any sort of deal.

The inflation levels you saw in your commodity products versus how much you saw more of the value.

Finished plumbing and things of that nature.

Yeah. Good morning, Keith Thanks for the question.

Commodities really trended in a very similar level from an inflation standpoint to what they did in Q4.

So think of that in the 50% inflation range year over year. So so very similar some puts and takes in there between the different commodity categories, but overall very similar level as you know commodities represent today.

To be about 10% to 12% of our business today, it's more like 13% to 14% just given the fact of that price increase, but where we've really seen the step up and we talked about this a bit on the Q4 call.

Now, saying that the commodity on the input cost playing through to finished goods and so we saw that finished goods inflation step up into the high single digits in Q1.

And so it's really the combination of that and the acceleration on the finished good side that drove that further uptick in inflation from Q4 to Q1.

Okay. Thank you and I guess, one other question maybe a good why our share repurchase you talked about the progress on $1 billion cleanup.

Give us an idea of where you are in share count right now given all of the repurchase activity.

Yeah, we're just under 221 million shares today Keith.

And to date, we've purchased about $225 million to date.

That $1 billion share buyback program.

Okay.

I guess bigger Bruce question to finish off here.

As we've talked about.

<unk> will probably subside.

Do you have any historical evidence when you have inflation and then a takeaway how much of that you're able to keep is there is there any rough guide us on this is not a whole commodity products more of a finished good.

Is there any do you have any good historical examples.

We're well aware and I tell you Keith we're in a period that is unusually high from an inflation standpoint. So we don't have any great historical data points, but if you. If you think about the gross margins that we delivered last year stepping up to 36% and now stepping up further into the mid 31% range.

<unk>.

We would anticipate that moderating somewhat.

But really focused on the overall operating margins of the business. We were quite pleased with stepping that up from about 8% to about nine 2% last fiscal year, and we talked about that being a new base from which we could grow incrementally into the future.

And sitting here today, we still believe that that we can grow that operating margin over time.

Gross margins will come off a bit, but really difficult to say, where they're going to ultimately settle.

Okay, great. Thank you very much.

Thank you. Our next question comes from could I go to calculate from UBS. Please can I go to your line is now open.

Hi, good morning.

Couple of questions I mean, maybe firstly you say you have a you know.

Raise your expectations, if you could maybe.

Share with us sort of what you are thinking about now and I guess or maybe putting it differently what the different building blocks are to get there.

That's the first question. The second question is on previous calls you talked about.

Bill rates.

Into the PC into the branch and so if you could just update us where we are in the whole supply chain challenges perhaps.

Easing a little bit and then maybe final question is.

I think in this statement you reiterated where.

Our desire to have a vote.

Being in the spring.

Can you just share with us if there's any specific kind of.

News or I suppose any.

Incremental step towards that perhaps compared to the last time you spoke in September. Thank you.

Yeah sure. Thanks Gregor.

If I go back to your.

Your question on expectations first.

We started the fiscal year in strong fashion and I'm really pleased with the growth almost 24, 25% organic growth in Q1, and really pleased with the operating leverage that we produced and as we said we started from a growth perspective, even though it's early we've started Q2 at a very similar growth range. So.

I play that through and we would expect to have a very strong first half set of results.

As you turn to the second half as we've talked about in the past the organic comparable to get much tougher they moved from roughly 3% in the first half to 22% in the second half and there are some uncertainty as we've already talked about a bit today from an inflation standpoint in terms of how that will play through to gross margins. So we would expect a tapering.

<unk> of growth.

But sitting here today.

Two months after we last spoke to the market given the start to the year given the momentum we have we're incrementally more positive for the full year outlook at this point.

Yeah, Thank you Gregor and building onto the fill rate and supply chain area.

As we discussed previously we were using our balance sheet to invest in inventory using our supply chain to make sure that we took what were pressured fill rates at the time call. It in that 30% area on time and in full into our D C and turning that into high nineties fill rate and in stock.

For our customers at the branch level.

That hasnt changed materially in terms of what that on time in full looks like into our D. C and it hasnt changed materially in terms of our fill rate and in stocks at the branch level. What has changed is we have seen as we exited the quarter.

Some improvement in some firming up of the ground under our feet in that supply chain area.

Especially in certain product categories, certain skus, but it has been intermittent and so the way we've been looking at this is we have certain areas of our product catalog that are coming in.

At normalized fill rates and normalized time horizons and the way we measure that as we look at the entirety of a purchase order to one of our suppliers and how quickly we can get to say, 75% of that purchase order being filled into our Dcs and that time horizon to get that Phil has.

Proved by roughly 26% as we exited the quarter. So we're starting to see some of that improvement now that's going to play out with a little bit of challenge inside of our network because you've got to make sure that you can take care of the project for the customer in its totality and so we're going to use that scaled relationship with the supplier we're going to use.

Our location base and our supply chain to make sure that we can aggregate that product and make sure that we can bring it to the customer on time and in full so it's improving but there's still some inconsistency that are going to lead to a bit of challenge as we go forward into the new calendar year.

Thank you.

Last question on the on the vote.

Nothing new to talk about as it relates to vote number two.

We had talked about bringing that vote in the springtime and originally when we.

Took the first vote for the additional listing of shares.

In New York, We said that we would bring that vote back within one year of <unk>.

Stand up of the additional listing we think thats largely still on track.

Thank you.

Thank you. Our next question comes from Casey and from Samsung from Thompson Research. Please <unk>. Your line is now open.

Alright, Thank you for taking my questions today.

Just a follow up on supply chain and narrowing a little bit could you give an update on the build out of D C supply chain and tech improvements.

In particular, given in light of continued challenges with supply chain.

How is this contributing to gaining market share in other words with next day delivery that you've put out and also any changes in terms of purchasing from key suppliers who counterparts.

Doing some advanced purchasing to ensure that you have inventory for finished goods.

Yes, Catherine I'll start on your M. D. C question. So as you know we opened our first new format MDC.

In the second half of last fiscal year in Denver, we have.

Phoenix under construction today should open in the spring.

We're well underway with our next one which will be Dallas, which will then be followed by Houston. So we are layering on that build out of that MDC very much.

That MDC plan very much according to our our strategy and our plan. We're seeing early feedback in Denver in terms of having that product availability that service offering.

Showing an ability to enhance market share gains, but it's early days for a few months into that building, but were very optimistic and encouraged by not only the efficiency there.

But also what we believe that can do for us in that market.

Yes, Catherine Thank you and in terms of changes in purchasing behavior, we haven't really stepped up any changes in purchasing behavior or forward buys to any discernible degree. This has been a very unique environment as everyone knows and we've been working together with our suppliers to make sure that we can be their best path to market.

And have the best fill rates for our customers and move product around our network to make sure that we can fill any gaps that exist in any local market for that particular supplier in terms of how we think about the go forward purchasing behavior, though what are the key things on our mind is even in normalized markets we want to.

Help the manufacturer to make their manufacturing activity a bit more predictable we want to make sure that we are doing everything we can to smooth that out and unpredictable environment. We want to also be helpful in that environment and so when we look at right now a tendency for end customers and our trade professional.

To want to place orders earlier to get ahead of any supply chain disruption, we want to make sure that we're getting the right required dates so that we can make sure that we have inventory on hand for their job when they need it.

And avoid.

Excessive pull forward of demand that's important for us as we go forward.

Okay and following up on the raised expectations for 'twenty, two and I. Appreciate your earlier comments on that.

But we wanted to take a little bit deeper in the past.

And really understanding which bucket.

Has improved.

Previously you had outlined a path for high single digit to low double digit growth of GDP growing two 2% to 3%.

And just strict growth 100, pets and Ferguson growing above the market by two to 300 basis points and then.

Another 100 to 200 basis points of M&A to Chris when you look at those disparate bucket.

What is driving the race to expectations and then is this from.

Conservative estimates or are there other end markets or regions.

That are outperforming that are raising some of those buckets for expectation.

Yes, Catherine I think right now we're in a period where market growth is quite strong.

And as we've talked about both in it.

The last fiscal year call as well as this morning.

Our market share gains are a bit outsized versus that traditional two to 300 basis points. So we're closer to a four to 500 at the end of last year and as Kevin outlined today, while we can't pinpoint it in Q1, we're probably in a similar range. So it's really the combination of market strength, but then our ability to generate those outsized market gains again driven.

The strength of our associates, our supply chain and our technology platform.

Not seeing any major geographic disparities in terms of where that growth is coming from as you can imagine we're seeing good good growth in the southeast and Texas and the mid south area, but but generally speaking that growth is strong.

Across the nation and through Canada as well.

Okay in that four to 500.

That you noted and I say that appears to be a continuation of trend what are the top.

Two to three buckets that are driving that outsized growth in your opinion. Thank you.

Yeah, and Catherine not to be evasive here it really has been broad based.

As we talked about earlier in the Q&A session of this call. The waterworks performance at 50% growth has been very strong.

In large part by.

Some commodity inflation in that business, but really across the board from residential trade plumbing through our building remodel business our digital commerce.

Business with that like decorative pro and project Mighty consumer through HVA C and into that non res space as well within industrial commercial mechanical so it has been a very solid broad based performance inside the business.

And when you look at the share gains in those individual customer groups.

It really is a testament to what they are working on together for the construction of the project as a whole in both residential and nonresidential.

Great. Thank you so much.

Thank you. Our next question will come from Ami Galla from Citigroup. Please Amy your line is now open.

Yeah. Thank you just a couple of questions for me if I could have one follow up on this already.

Gross margin question can you talk a bit about where do we think the sustainable gross margins in this business should trend to even considering decline in the context of owned brand mix that is that in the business and the second question was.

Creation on the overhead base, if you could give us moving parts of color around those elements.

Yes sure Amy Thanks for the question in terms of that gross margin again, it's a bit outsized right now at 31, 3%.

And it's.

Difficult to pinpoint exactly where that will settle but if you go back to the full year results from last year, where we are in the mid 30% range. So at 36%, we think that's probably a more reasonable range.

And when we do believe that we will continue to incrementally grow both gross margins and more importantly, operating margins over time.

Some of that driven by the <unk> brand.

Portfolio and strategy that we have in addition to our overarching product strategy.

And the strengths that we bring from our global sourcing and supply chain and purchasing power perspective. So we do believe that gross margins will come off a bit as inflation normalizes and then we will continue to incrementally grow those over time as we have done consistently over the last decade or so.

And.

And my second one was just on the overhead cost.

Can you talk a bit about the inflationary trends that you're seeing what had close together.

Yeah sure apologies, we have seen wage inflation step up a bit.

And if you think about for our cost base wages and labor costs are about two thirds of our cost base to just over 60%.

Generally those would run kind of 3% to 4% kind of normalized wage increases year on year out we're seeing that at a higher level largely driven by drivers and warehouse associates, where theres more pressure from an overarching market perspective for that type of talent and that type of of labor.

Cost. So we've seen that increase we would expect those pressures to continue as we step into calendar 'twenty two.

But overall, we feel good about our ability to manage those wage increases and that inflation from a cost perspective, driven by the growth we're seeing on the top line productivity.

And continued focus there so it's being well managed but we are seeing more pressure from a cost perspective.

Thank you.

Thank you. Our next question comes from Lehman from Bank of America. Please announce your line is now open.

Thank you very much good morning, Kevin Good morning Bill.

My first question is on M&A, especially in the context of your balance sheets, which is.

Yes, it's a very very strong shape.

Net debt to EBITDA below where you want it to be appreciate the priorities of organic growth.

But.

Did you see a strong pipeline, we heard about some potential changes in capital.

Capital gains taxes in the U S. I don't know exact going ahead, but could you accelerate I mean activity go and call on this my first question. My second question is just a technical one and sorry.

If it silly, but I still see $25 million income from discontinued operations.

This has nothing to do with the U K. So it does compete.

But you are selling thank you.

Yes sure. Thanks for the question our M&A pipeline is pretty healthy right now you've seen us complete for deals today.

To date in the fiscal year and.

And we have a number of other bolt on capability acquisitions in the pipeline.

Your point, we have seen that activity pick up over the last 12 months. After we got out of the immediate kind.

Concerns in lockdown periods early on in Covid.

We've I think we've seen that pick up for a number of reasons.

The market is fairly supportive right now.

So businesses are performing quite well too.

You have seen.

Most of our acquisitions in most of our competitive set is small to medium sized family run businesses and those businesses, having run through a COVID-19 period in a lockdown period and looking forward to the future and understanding what it's going to take to compete I think that spurred on some more people and more of those businesses to think about selling.

Selling their firms and then certainly.

Noise around potential capital gains rates.

<unk> has probably added to that a bit so we're seeing a fairly healthy pipeline, which we would expect to continue for the rest of this fiscal year at least.

And we're really pleased with that pipeline being very well balanced well balanced with bolt on acquisitions geographically and the quality of companies.

We're able to bring in to Ferguson as you know our markets are incredibly fragmented and as we look to consolidate those market. We found some really strong opportunities with great associates and local relationships that we can bolt on to supply chain technology global sourcing and functional.

Expertise that together with some of our capability acquisitions capabilities and business expansion like Geo synthetics for our waterworks business, but also in owned brand and you saw a little bit of that in our first four deals in fiscal 'twenty two that will continue bringing in good solid owned brand companies that do.

<unk> manufacturing assets, but that have high quality brands that we can then drive through our bricks and mortar and digital channels and accelerate growth. So that balance is pretty strong right now.

And then last on your on your question on the $25 million that related to the disposal of a property from a former discontinued operations. It was actually a property from the Nordic business not the U K, but you should very much consider that a one time event.

Very clear thank you very much.

Thank you and we have time for one more question on today's conference call and the last question will come from Dominick It freed from the wood Spunk. Please <unk>. Your line is now open.

Thank you very much.

Just to go back to the point Tom.

Gross margins might be looking at slightly different way could you maybe just discuss.

How your gross profit per sort of units is looking in terms of compared with history.

And is there sort of any element of infantry.

So that's should sort of taper off a bit.

As we go into future quarters, because I think there was a comment you made earlier on waterworks was about 50 50 volume products does that.

Cause I got that right and then the second question was just more on demand side of all these parts increases what sort of customer behavior, you're seeing are you seeing any signs of people putting off.

Works because of price increases, though always stood at a level, where basically people are pretty price inelastic.

Thank you very much.

Yeah. So on gross margins either gross profit per unit or more so across different product lines, where we've seen higher levels of inflation.

We've been able to leverage that into higher flow through and higher gross margins.

Some of that coming from certainly our ability to leverage and to sell through inventory and so as we've seen that continued step up in inflation.

We've seen that play through to more benefit from a gross margin perspective, and again, we would expect that to moderate and to come off at some point, but but calling exactly what that will moderate too is a bit difficult you did hear the waterworks revenue description correctly about half maybe just over half of that 50%.

Growth driven by inflation, the rest driven by volume.

In terms of demand and what we're seeing in the market from the customer base, we have been concerned that price inflation, especially as it entered the finished good side would cause some degree of concern for postponing projects.

If you look at the balance of new construction and Rmi that we have inside the business, we have not seen any discernible.

Behavior of.

Postponing projects, we have seen a touch inside of the public works infrastructure space, but as we all know that's going to have some additional demand created from the infrastructure bill, but on the residential and nonresidential portions of our business specifically commercial we actually havent seen.

Any.

Postponement of construction activity due to price that demand continues to be quite strong and in fact as we discussed during Catherine's question. We're trying to make sure that we understand exact needs and delivery requirements. So that we don't have a dramatic pull forward of demand to get project product on site.

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Early so we see a pretty consistent.

Play of demand.

That's very clear thank you very much.

Thank you. We currently have no time for further questions I will now hand over to Kevin Murphy for any final remarks.

Thank you operator, and thank you all for your time today very much appreciate it maybe just a quick close as we've again.

We're pleased with the growth and improvement for our organization in Q1.

As you've heard through our Q&A our markets remain supportive both residential nonresidential, new construction and Rmi.

We're pleased with the continued investments that we're making in high quality associates coming into our industry and into our company and high quality associates coming in through acquisition. The investments, we're making in supply chain for best breadth and depth in the local marketplace for same day next day delivery.

And the investments, we're making from a technology perspective to make our customers more productive as well as our associates and most of all we are thankful to those associates, who continue to deliver for our customers. When they continue to deliver on the promise to make that customer's project more simple and successful.

And to ensure their ongoing trust in our company as their supplier of choice. So thank you again and we look forward to speaking with everyone again very soon thank you for your time.

This concludes today's call. Thank you so much for joining you may now disconnect your lines.

Yeah.

Uh huh.

Yeah.

Yeah.

Yeah.

Okay.

Yeah.

Yeah.