Irish merchanting group Grafton saw bigger contributions to its growth in the six months to June 30 2019, particularly from it Irish and Netherland businesses. The UK merchanting division saw more modest growth.
Chief executive Gavin Slark said: “We made good strategic and operational progress in the first half of 2019 which supports the ongoing improvement in the underlying quality of our business. Despite the uncertainty in the U.K., the Group continues to benefit from the strength of Selco’s market position and our higher returning, growth businesses in Ireland and The Netherlands. Our focus remains on delivering growth in shareholder value and a great experience for our customers and colleagues.”
UK merchanting revenue was £989.5m, up 1.4% from the same period in 2018, though it was hampered by economic uncertainty, contributing to general weakness in UK house prices, property transactions and mortgage approvals. The UK merchanting business benefitted from a strong start to the year, although there was a small contraction in May and June, measured against the very strong growth of 5.8% in the same period last year.
Selco Builders Warehouse, reported mid-single digit growth in revenue that reflected broadly flat volumes in the like-for-like business and incremental revenue from the opening of seven branches in 2018, six of which were opened in the first half of the year. The decline in house price in the Greater London Area, which accounted for 71 per cent of Selco’s revenue in the period, also contributed to weakness in the RMI market.
A new Selco branch will be opened later this year in Kingston-Upon-Thames and the business is working on a pipeline of new branch opportunities that are expected to open in 2020 and beyond. A new delivery-hub was opened in Edmonton to undertake deliveries for four branches in North East London which has freed-up branch capacity, improved branch health and safety standards and created a more positive customer experience. The large branch in Cricklewood was successfully relocated at the end of its lease in December 2018 and has traded in line with expectations for the half year.
A new “Click ‘N’ Deliver” service was introduced in April for bulky building materials including sand, cement, timber and sheet materials to complement the existing Click & Collect service.
Leyland SDM, the London specialist decorators’ merchant, performed well in a relatively flat market. The incremental effect of the business being acquired on 18 February 2018 increased profitability in the half year. Development of the branch network in prominent locations in London will continue with the opening later this year of branches in Maida Vale and Streatham.
Buildbase had an encouraging start to the year before the market lost some momentum in May and June resulting in overall marginal growth in revenue for the half-year. The market remained highly competitive with pricing pressure, which was partly offset by procurement gains, negatively impacting the gross margin. Increased costs associated with implementing the new trading and back office ERP system and margin pressure resulted in operating profit finishing behind the prior year.
Plumbase revenue was lower due to a successful focus on the quality of earnings generated by the business leading to an increase in the gross margin. Growth in the operating margin also benefitted from performance improvement initiatives which saw a decline in overheads. Market conditions were challenging for the bathroom products distribution business which experienced lower revenue and profitability in a very competitive market.
Civils & Lintels, a distributor of heavyside building materials, continued to increase its exposure to the new housing market with good growth in volumes and also made gains in the steel and concrete lintels market. The new branch in Leeds which opened in the first half of 2018 successfully extended market coverage in the North of England. In Scotland, where the branches trade under the PDM brand, solid revenue gains were made from focusing on opportunities in the new housing market.
MacBlair, the Northern Ireland merchanting business made further progress increasing revenue and operating profit by focusing on the supply of core products and optimising procurement arrangements. Overall market conditions were positive with good revenue and profit advances made in the provincial branches.
TG Lynes, a leading distributor of commercial pipes and fittings in London, made good gains in its markets increasing revenue and operating profit. Its commercial heating, plumbing and mechanical services contractor customer base benefitted from a good level of activity in the residential, commercial and public sector new build and RMI markets.
The merchanting business in Ireland continued to generate very good growth in revenue and operating profit. Average daily like-for-like revenue was up by 8.3 per cent in a market that continued to benefit from sound demand fundamentals. The business also gained from its strong national market position which is supported by high quality customer service, product expertise and an instinctive knowledge of local markets.
Growth in the Irish economy was primarily driven by foreign direct investment and growth in exports. Increased employment and incomes contributed to growth in spending in the residential RMI market by households who chose to remain in and renovate their existing homes and also by households who moved home.
The new trade centre upgrade was rolled out to a further three branches in the half year and will be extended over the coming years on a phased basis to the entire estate of 40 branches.
The consolidation of the branch network onto a single trading system from four discrete systems was successfully completed. Customers now have greater visibility on pricing and can trade in all branches using a single account.
The Netherlands business saw good growth in revenue and operating profit driven by organic growth and acquisitions against the backdrop of moderating growth in the economy and construction sector. The two single branch acquisitions completed last year performed well and the two branches that were opened last year in Dordrecht and Almere made good progress establishing a market position in these high potential local markets.
The recent relocation of the Isero distribution centre to a new purpose built facility in Waddinxveen, approximately 20 kilometres North East of Rotterdam, strengthens the logistics and supply chain capability of the business with a doubling of capacity. The central management and support office functions have also relocated to this facility.
The Group acquired Polvo, a distributor of ironmongery, tools and fixings from 51 branches, on 1 July 2019, taking the opportunity to acquire a leading business and brand that is a good fit with the Isero branch network. The acquisition consolidated Isero’s leadership position in this segment of the market where the overall business now trades from 113 branches. Polvo’s pre-acquisition trading was strong in the half-year to 30 June 2019.