Grafton interim profits cut in half

Irish builders and plumbers merchant group Grafton saw pre-tax profits drop 50% for the six months to June 30 2006.

Revenue was 11% down at EUR 1.44bn, with operating profits down 41% at EUR 72.9m

Executive chairman Michael Chadwick described the first half as having “the most challenging trading conditions encountered in over 15 years”. However, he believed that the current focus on cash generation, cost control, efficiency improvements and market development should leave the Group strongly positioned for profitable growth when the Irish and UK economies recover and trading conditions improve.

“Both (UK and Irish) economies are fundamentally sound and should return to more sustainable levels of growth when the restraining effects of higher inflation and tighter credit conditions ease.”

UK turnover declined by 7.4 % to €907.4m (2007: €979.4m) but was up by 6.5 % in sterling. UK operating profit declined by 24 % to €48.6m.

Demand in the Irish DIY business was weak due to declining consumer confidence and poor weather compared to the record levels of consumer spending and very favourable weather conditions experienced in the first half of 2007. Irish turnover declined by 16 % to €530.5m and operating profit was down 60 % to €24.3m

The Group added six bolt-on acquisitions to the UK merchanting arm as well as 14 new branches. However, for the foreseeable future, acquisition activity is likely to slow down with only essential capital projects undertaken until evidence

emerges of an improvement in market conditions in the UK and Ireland.

The overall UK business reported an increase in sterling turnover of 6.5% and a decline in sterling operating profit of 13%, although the weakness of the pound sterling translated into a decline in euro terms. Thus, UK turnover fell by 7.4% to €907m and operating profit declined by 24% to €48.6m. The operating profit margin was 5.4% compared with 2007’s 6.4%.

Like for like sales and operating margins in the merchanting business fell by 0.7%.

The organisational structure changes which saw an integrated management structure take responsibility for Buildbase, Plumbase, Jacksons and the specialist merchanting businesses further evolved during the half year in response to tougher market

conditions.

Buildbase saw reasonably favourable trading conditions during the first few months but conditions weakened in the second quarter.

Regionally, Buildbase branches in the South East performed relatively better and overall turnover in the business increased marginally with the benefit of acquisitions and branch openings. The branch network was expanded through two single branch acquisitions and the opening of five branches. The Coventry and Market Drayton branches were relocated to new and enlarged facilities and Hire Centres were opened in eight branches.

Jacksons, the East Midlands regional merchant reported broadly unchanged turnover with the businesses broad end-use market exposure enabling it to more effectively meet the challenges of a weakening market.

Selco, the trade self select warehouse based format, continued to benefit from activity in the small projects segment of the RMI market. Expansion of the format continued with the opening of a store in Sutton, Surrey with a further four stores scheduled to open later this year increasing the network to 25.

In Northern Ireland, lower levels of housing activity and house prices were accelerated by the international credit crunch and reduced demand from external investors.

Macnaughton Blair saw strong growth in RMI turnover partially offsetting the impact of a sharp decline in house building.

The plumbers merchanting division, including the 188 Plumbase branches and the bathroom products distribution business, increased sales substantially and saw good like-for-like sales growth. Operating profit increased in line with the scale of the business and the operating profit margin was maintained in line with the first half of 2007.

Plumbase made two single branch acquisitions and the opening of seven branches. Sales in plumbworld.co.uk, the internet retailer of bathroom products, continued to grow.