The new chief executive of Grafton Group, Eric Born, said that the DIY retailer and builders merchants group has financial scope to pursue about £800 million (€934 million) of acquisitions, as it continues to generate strong levels of cash even as its pretax profit slid in the first six months of the year.
The Dublin-based company, which owns the Woodie’s retailing and Chadwicks merchant brands in the Republic, also operates across the UK, Netherlands and Finland, where it has more specialist distribution businesses. Mr Born, who took the helm at the end of last year, said the group’s focus is on finding deals in Europe, including general merchant platforms.
Mr Born said that Grafton could “quite comfortably spend” £800 million without affecting the company’s so-called investment grade credit rating.
“I wouldn’t want to spend it on one acquisition. You want to build a portfolio of good businesses. But we have decent firepower,” he said.
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The comments came after Grafton said on Thursday that its pretax profit fell by 27 per cent to £104.3 million in the first six months of the year as home improvements and maintenance was hit by cost-of-living pressures across the markets in which it operates.
However, the group’s free cash flow increased to £159.4 million from £121.7 million for the same period last year and helped to underpin share buybacks.
Sales volumes were lower in the distribution segment of the business, where inflationary pressures in building materials and construction supplies moderated significantly, with sharp and sustained falls in steel and timber prices from record highs, Grafton said.
These were among the commodities that were most affected by the pandemic-related rebound in activity and the spike in the price of building materials.
Lower volumes and steel and timber price deflation contributed to gross margin pressure in competitive markets and reduced profitability in the distribution businesses in Ireland and the UK.
Total revenues edged 3.2 per cent higher to £1.19 billion. The company also unveiled a further £50 million share buyback programme, having spent £243 million repurchasing and cancelling stock under three such schemes since May last year.
In the Republic, Chadwicks benefited from “resilient” levels of construction activity, but demand was lower for materials supplied for housing repair, maintenance and improvement (RMI) projects in a tight market for skilled labour where affordability pressures also weighed. Trading in Woodie’s “performed strongly, driven by good levels of demand for seasonal products in the second quarter”, Grafton said.
Grafton’s Selco builders merchants business in the UK, which solely supplies the RMI market, was hit hard by slowdown in that area as households cut back on spending in response to the cost-of-living increases, the decline in real disposable incomes and interest rate rises.
The group’s Isero tools and fixings business was helped by major new-build projects being undertaken by national construction companies and by RMI activity on social housing. However, activity levels with smaller customers, typically sole trader businesses operating in construction and other industries, were softer in the period, it said.
Daily like-for-like revenue in the IKH distribution business it acquired in Finland two years ago fell marginally amid a decline in residential and non-residential construction in that country.
“The strength of the group’s market positions and our experienced management teams have underpinned a resilient performance in the face of challenging conditions during the first half,” said Mr Born. “Whilst uncertainties remain in the short term, we are confident that Grafton is exceptionally well positioned to benefit as the cycle turns, markets normalise and consumer confidence gains momentum.”
