Grafton Group’s operating profit fell 20.9 per cent to £83.1 million (€98.7 million) in the first half of the year, as sales fell across its UK, Dutch and Finnish operations even as its Woodies DIY retailing and Chadwicks builders merchanting business turned in a robust performance.
The Dublin-based, London-listed, group said trading conditions are expected to remain “challenging” for the remainder of the year, especially outside Ireland, even as inflation has eased and central banks have begun to cut interest rates.
Still, Grafton unveiled a fresh share buyback programme, targeting the repurchase of £30 million of stock over the remainder of the year. The group has already returned £343.3 million to shareholders through stock buy-backs since May 2022.
Group chief executive Eric Born told The Irish Times that the group has financial flexibility to spend as much as €700 million to €800 million on deals while keeping its debt levels in check at a time of economic uncertainty. He signalled it is optimistic about buying a new platform in Europe, most likely a specialist rather than a general merchanting business, by the end of the year.
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“We are lining up multiple opportunities,” he said, adding that any new market that Grafton enters would need to be fragmented and have scope for follow-on deals.
“Whilst uncertainties remain in the short term, our medium-term outlook remains positive, supported by strong demand fundamentals, not least in the demand for new housing as markets normalise and consumer confidence improves,” Mr Born said earlier in a statement.
He said Grafton expects its full year operating profit to meet market expectations. The consensus call among analysts is for a figure of £170.9 million down from £205.5 million posted last year.
“The group has continued to be highly cash generative through a challenging period in the cycle, which has enabled us to return cash to shareholders whilst preserving a strong balance sheet to invest in organic and inorganic development opportunities,” Mr Born said.
“We continue to actively pursue opportunities to strengthen our existing market positions as well as platform acquisitions, and we remain optimistic that we can execute on some of these opportunities in the near term.”
Like-for-like sales in the UK fell by 7.7 per cent in the first half of the year, and by 6 per cent between the start of July and August 18th, as spending by households on maintaining and improving their homes remained under pressure. However, Grafton said there are “tentative signs” of improving consumer confidence in that key market.
The head of the group’s Selco builder suppliers business, Howard Luft, is leaving at the end of the month and will be replaced by Frank Elkins, a building materials distribution veteran who most recently was chief operating officer of Travis Perkins, a UK-listed peer of Grafton.
In the Netherlands, lower revenue from timber factories and from smaller customers were largely offset by revenue growth generated by larger construction projects. A slowdown in the Finnish economy and construction sector continued to impact sales volumes in its IKH business, which sells workwear and personal protective equipment, tools, spare parts and accessories.
However, like-for-like sales edged 0.5 per cent higher in Ireland, even amid deflation of materials such as steel and timber. Chadwicks’s sales volumes rose 5.4 per cent on the year, and its trading profits rose.
“With the support of Irish Government policy, new housing commencements were strongly ahead in the first half reaching a post global financial crisis high,” Grafton said. “While revenue was slightly weaker in the second quarter in our Woodie’s business, excellent margin and cost control management have resulted in an improved operating profit and margin compared against the same period last year.”
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