Grafton returns to profit in Ireland

Builders and plumbers merchant group Grafton saw its Irish businesses return to profit in the 12 months to December 31 2013, with the UK businesses continuing their own strong recovery.

The company’s end-of-year statement says that the group made “solid progress during the year and delivered a strong set of results against the backdrop of improving trading conditions in the UK and Irish merchanting markets and stabilisation of the DIY market in Ireland.”

Group revenue was up 8% to £1.9 billion, driven by an increase of 3.4% in like-for-like business, new branches and acquisitions. Operating profit was up 27% to £77.2m from £61.0m in the same period a year earlier and pre-tax profit was up 35% to £64.9m from £48.1m.

UK Merchanting revenue increased by 6.7% to £1.39bn (2012: £1.3bn) and operating profit grew by 19.8% to £75.9m (2012: £63.4m). It grew its operating profit margin to 5.5% (2012: 4.9%).

The group said that trading conditions in the merchanting business in Ireland stabilised in the first half and in the second half showed a return to growth and a significantly improved result was achieved from a low base following the restructuring and self-help measures implemented in 2012.

The increase in comprised growth in average daily like-for-like revenues of 3.2%, 0.4% growth due to an additional trading day and growth of 3.1% from new branches, acquisitions and branch consolidations. Average daily like-for-like revenue increased by 1.7% in the first half and by 4.7% in the second half as spending on residential construction and RMI increased over the course of the year.

The Buildbase business benefited from generally improved economic conditions and increased activity in the new housing and RMI markets. It increased revenues and delivered a significant increase in operating profit and the operating margin.

During the year Buildbase aquired Thompsons, a five branch merchanting business that extended market coverage into the North East of England. It also acquired a single branch merchanting business in Oban on the West Coast of Scotland. The Buildbase Civils & Lintels branches benefited from strong activity in the house building market but tough competition in the sector exerted downward pressure on prices. The specialist drywall and insulation products branches increased revenue and operating profit.

Plumbase increased operating profit from a low base due to growing demand in the plumbing and heating market and good returns from restructuring initiatives. The principal focus during the year was on positioning the business for further profit improvement under a new management team. The specialist bathroom products distribution business had a good year increasing revenue and profit strongly due to a number of product range, marketing and customer service initiatives.

Towards the end of the financial year, the Group launched Plumbase Industrial, aimed at the commercial building and industrial process markets. The first branch was opened on an existing Group property at Hayes, West London supplying pipeline and mechanical engineering products. Since the year end, a second branch servicing East London was opened in Barking which is complemented by an Electricbase implant serving a similar customer base.

Selco Builders Warehouse, a trade only business that operates a retail style self-select format, made good progress during the year from its continued focus on the residential RMI market. Revenue increased due to organic growth in the established branches and development of new branches.

Revenue growth was driven by a very strong performance in the first full year of trading in the Hanworth and Tottenham stores. Significant market penetration was quickly achieved in the South London market following the opening of stores at Old Kent Road and Wimbledon. Selco ended the year trading from 34 branches including 18 in the London area.

Macnaughton Blair, the Northern Ireland merchanting business reported growth in revenue and profit for the year. The business benefited from a modest recovery in the local economy which got underway in the summer months. There were also signs of a recovery in the housing market.

Looking further ahead, the group reports signs that the relatively recent recovery underway in the UK economy has gained momentum as growth has strengthened in recent quarters. House price increases, improved access to finance and an increase in housing transactions should continue to support a recovery in the housing and RMI markets.

In Ireland, the economy is expected to improve moderately in 2014. A very gradual pick-up in house building in Dublin and the regional cities is expected in response to the shortage of family homes due to the very low level of house building over the past five years. The volume of expenditure on residential RMI is expected to return to growth in 2014 following the sharp declines experienced in

recent years.

Growth in employment and consumer confidence should have a positive effect on

consumer spending but demand in retail markets generally including DIY is likely to be tempered by weak growth in disposable incomes with households continuing to pay down debt.

Gavin Slark, Chief Executive Officer said: “The Group recovery is making good progress in markets that are still challenging. We are maintaining the disciplined approach to costs and margins demonstrated by these results. Grafton continues to develop a balanced growth strategy combining both organic growth and acquisitive growth where appropriate. Trading in the current year has been encouraging and, while we expect recovery in our markets to be gradual, the Group is confident of building on its strong 2013 performance in 2014.”