Retirement benefit obligations

12 Months Ended

Jul. 31, 2025

Retirement Benefits [Abstract]

Retirement benefit obligations

Note 13. Retirement benefit obligations

The Company provides various retirement benefits to eligible employees, including pension benefits associated with defined benefit plans, contributions to defined contribution plans, post-retirement benefits and other benefits. Eligibility requirements and benefit levels vary depending on associate location.

The Company provides defined benefit plans to its employees in Canada. The majority of the Canadian defined benefit plans are funded. Post-retirement benefit obligations are not material and have been included in all amounts presented herein.

The legacy U.K. defined benefit plan (the “U.K. Plan”) is the Wolseley Group Retirement Benefits Plan which provides benefits based on final pensionable salaries. The assets are held in separate trustee administered funds. The plan was closed to new entrants in 2009, closed to future service accrual in December 2013 and closed to future non-inflationary salary accrual on the disposal of the U.K. business in 2021. In 2021, prior to the disposal of the U.K. business, Wolseley UK Limited, the U.K. Plan liabilities were transferred to FUKHL.

In 2017, the Company secured a buy-in insurance policy with Pension Insurance Corporation for the U.K. Plan. This policy covers all benefit payments to a certain portion of participants in the plan. The insured liabilities are exactly equal to the fair value of the related insurance assets.

On September 9, 2025, subsequent to the fiscal year-end, the trustee of the U.K. Plan purchased a bulk annuity policy (the “September Buy-In Policy”) to insure the remaining uninsured U.K. Plan liabilities. Under the September Buy-In Policy, the U.K. Plan’s assets, along with a Company contribution of £41 million have been transferred to an insurance provider in return for a qualifying insurance policy that will provide an income stream equivalent to the remaining obligations to the covered U.K. Plan’s members. As a result, the Company is no longer required to make deficit reduction contributions but expects to make ongoing contributions to cover the U.K. Plan’s expenses and other payments that may be required.

The funded status of the Company’s plans was as follows, valued with a measurement date of July 31 for each year:

	For the years ended July 31,
(In millions)	2025	2024
Change in net benefit obligations:
Beginning balance	$1,251	$1,218
Interest cost	62	62
Actuarial (gain) loss	(119)	36
Benefits paid	(68)	(63)
Exchange rate adjustment	30	(2)
Ending balance	$1,156	$1,251
Change in assets at fair value:
Beginning balance	$1,308	$1,270
Actual return on plan assets	(123)	68
Company contributions	31	34
Benefits paid	(68)	(63)
Exchange rate adjustment	34	(1)
Ending balance at fair value	$1,182	$1,308
Funded status of plans	$26	$57

As required by United Kingdom pensions regulation, the U.K. Plan completed its triennial actuarial valuation exercise, which is measured on a technical provisions basis, based on the U.K. Plan’s financial position as of April 30, 2022. The triennial valuation originally resulted in required contributions by the Company of £133 million to be spread over the period to January 31, 2026, of which the Company has paid £72 million as of July 31, 2025. In connection with the September Buy-In Policy, the Company has satisfied all obligations to date under the triennial valuation occurring in April 2022.

Total expected employer contributions to the defined benefit plans for the year ending July 31, 2026 are estimated to be $59 million, which includes amounts paid in the September Buy-In Policy.

Amounts recognized in the consolidated balance sheets consisted of:

	As of July 31,
(In millions)	2025	2024
Non-current asset	$26	$57

Amounts recognized in accumulated other comprehensive loss:

	As of July 31,
(In millions)	2025	2024
Net actuarial loss	$667	$617
Income tax impact	(159)	(147)
Accumulated other comprehensive loss	$508	$470

Components of other comprehensive loss (income) consisted of the following:

	For the years ended July 31,
(In millions)	2025	2024	2023
Net actuarial loss (gain)	$69	$31	$83
Amortization of net actuarial loss	(15)	(15)	(11)
Impact of exchange rates	(4)	(1)	(7)
Income tax impact	(12)	(4)	(16)
Other comprehensive loss, net of tax	$38	$11	$49

The components of net periodic pension costs associated with all of the Company’s plans were as follows:

	For the years ended July 31,
(In millions)	2025		2024		2023
Other expense (income), net
Amortization of net actuarial losses	$15		$15		$11
Interest cost	62		62		51
Expected return on plan assets	(65)		(63)		(49)
Net periodic cost	$12		$14		$13
Weighted average assumptions:
Discount rate, net periodic benefit cost	4.98	%	5.05	%	3.53	%
Discount rate, benefit obligations	5.71	%	4.98	%	5.05	%
Expected return on plan assets	5.02	%	5.11	%	3.41	%
Wage inflation growth rate	2.40	%	2.45	%	2.50	%

The Company determines the discount rate primarily by reference to rates on high-quality, long-term corporate and government bonds that mature in a pattern similar to the expected payments to be made under the various plans.

The Company has established strategic asset allocation percentage targets for significant asset classes with the aim of achieving an appropriate balance between risk and return. The Company periodically revises asset allocations, where appropriate, in an effort to improve return and/or manage risk. The expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market-related value of plan assets. The market-related value of plan assets is based on long-term expectations given current investment objectives and historical results.

Investment Strategy

The Company’s investment strategy for its funded post-employment plans is decided locally and, if relevant, by the trustees of the plan and takes account of the relevant statutory requirements. The Company’s objective for the investment strategy is to achieve a target rate of return in excess of the increase in the liabilities, while taking an acceptable amount of investment risk relative to the liabilities. This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return.

For the U.K. Plan, the guaranteed insurance policy represented approximately 35% of the plan assets as of July 31, 2025.

Subsequent to year-end, in connection with the September Buy-In Policy, the U.K. Plan assets entirely consist of guaranteed insurance contracts to reduce risk to the Company.

For the plans in Canada, the investment strategy is to invest predominantly in equities and bonds.

The Company’s weighted average asset allocations by asset category were as follows:

	As of July 31,
	2025		2024
Asset category:
Equity securities	3	%	2	%
Fixed income securities	63		63
Cash, cash equivalents and other short-term investments	1		2
Guaranteed insurance policies	33		33
Total	100	%	100	%

The following tables present the fair value of the Company’s plan assets using the fair value hierarchy:

	As of July 31, 2025
(In millions)	Total	Level 1	Level 2	Level 3
U.K. Plan assets:
Fixed income security: Government	$705	$705	$—	$—
Cash and cash equivalents	4	4	—	—
Insurance policies	378	—	—	378
Canada Plan assets:
Equity securities	34	34	—	—
Fixed income securities:
Corporate	7	—	7	—
Government	31	—	31	—
Cash and cash equivalents	2	2	—	—
Other	21	13	8	—
	$1,182	$758	$46	$378

	As of July 31, 2024
(In millions)	Total	Level 1	Level 2	Level 3
U.K. Plan assets:
Fixed income securities:
Corporate	$340	$1	$227	$112
Asset backed	1	—	1	—
Government	439	439	—	—
Cash, cash equivalents and other short-term investments	23	22	1	—
Insurance policies	409	—	—	409
Canada Plan assets:
Equity securities	34	34	—	—
Fixed income securities:
Corporate	7	—	7	—
Government	33	—	33	—
Cash and cash equivalents	2	2	—	—
Other	20	12	8	—
	$1,308	$510	$277	$521

The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3):

	For the years ended July 31,
(In millions)	2025	2024
Beginning balance	$521	$510
Transfers into Level 3	—	11
Transfers out of Level 3	(95)	—
Actual returns	(26)	31
Purchases, sales and settlements, net	(34)	(32)
Impact of exchange rates	12	1
Ending balance	$378	$521

The Company expects the following benefit payments related to its defined benefit pension plans over the next 10 years:

	As of July 31,
(In millions)	2025
2026	$67
2027	68
2028	70
2029	71
2030	72
2031-2035	385
Total	$733

Defined Contribution Plans

The principal plans operated for employees in the United States are defined contribution plans, which are established in accordance with 401(k) rules in the United States. The Company’s Canadian employees are covered by defined contribution plans including a Post Retirement Benefit Plan and Supplemental Executive Retirement Plan. Under the Canadian plans, the Company’s employees are able to make personal contributions.

Total expense related to defined contribution plans in fiscal 2025 was $98 million (2024: $95 million and 2023: $93 million).

In addition, Ferguson Enterprises, LLC, a subsidiary of the Company, sponsors a non-qualified deferred compensation plan for the benefit of U.S.-based executives and certain other senior associates. For the year ended July 31, 2025, the Company’s obligations related to the plan total $408 million (2024: $378 million), including a current portion of the liability of $35 million (2024: $28 million). The Company has investments in Company-owned life insurance policies that are intended to fund these obligations, however, these assets are subject to the general claims of the Company’s creditors. The assets are recorded at cash surrender value with changes recognized in earnings. The non-current assets total $409 million (2024: $373 million).