A buoyant Irish building sector helped builder suppliers and DIY group Grafton to produce a 22 per cent rise in pre-tax profits to €28.2 million (£22.2 million) for 1998. The results were ahead of forecasts and the share price surged ahead, adding 125 cents to close at €19.50

Mr Michael Chadwick, executive chairman, said he sees opportunities for more profitable growth in its Irish and UK operations this year. Asked about a possible bid for the group given the recent strong rise in its share price and the takeover of builders merchants Heatmerchants by British group Wolseley, he said that, as a company with a successful expansion strategy in the Irish and British markets, he would not have thought it was a target. Lower interest rates and positive demographic factors will keep the Irish market strong this year though growth will be slower, he forecast.

Group turnover increased by 31 per cent to €427.6 million or £336.8 million, with core operations producing a 15.4 increase and acquisitions chipping in some €49.5 million. Operating profits rose by 29 per cent to €33.1 million (£26 million). Grafton's Irish operations performed strongly, producing over half of group turnover, at 56.2 per cent or €240.3 million, but contributing some 83 per cent of operating profits at €27.4 million (£21.6 million).

Operations in the UK accounted for 43.8 per cent of group turnover at €187.3 million, but only produced 17 per cent of operating profits at €5.7 million, with profit growth reduced by rationalisation and integration costs of €1.5 million. In the current year the group expects to incur further rationalisation costs of €1.3 million.

Operating margins in the Irish operations rose to 11.4 per cent from 9.95 per cent. In the UK margins fell to 3.03 per cent from 4.25 per cent, but when the onceoff rationalisation costs are stripped out, existing British businesses recorded stronger margins, at 4.6 per cent.

At the Irish operations - merchanting, manufacturing and retailing - turnover rose by 17 per cent, while operating profits were 34 per cent higher, pushing margins up. At the Woodie's DIY operation, which has 10 "superstores", turnover increased by 19 per cent to €49.2 million.

Manufacturing turnover fell by 7 per cent to €23.2 million, reflecting Circle Paints' closure of its water-based paints operation. However, demand for CPI concrete and MFP plastic products rose by 7.6 per cent. In the merchanting division turnover was 21 per cent higher at €167.9 million. In the UK Grafton was active on the acquisition front acquiring seven builders and plumbers merchanting businesses. Turnover was 52 per cent ahead at €187.3 million, boosted by acquisitions during the year. Operating profits rose by only 8.8 per cent at €5.7 million but when rationalisation costs were stripped out, operating profits were 38 per cent higher.

In the plumbers' merchanting division, the acquisition of Unicorn brought the number of group locations to 40, while builders merchanting and manufacturing operations were expanded significantly through organic growth and acquisitions.

By year end group net debt had increased to €58.7 million from €23.9 million, reflecting spending of some €65.5 million on investments and acquisitions. Gearing at year end was 42 per cent up from 30 per cent.

Earnings per share were 22 per cent ahead at 147.7 cents or 117.9p while shareholders are to get a similar increase in their dividend with a second interim dividend of 21.67 cents per share (17.06p), bringing the dividend for the year to 35 cents or 27.56p per share. Dividend cover is unchanged at 4.33 times earnings.

Grafton revalued its Irish property portfolio in 1998 - the last revaluation was in 1980 - adding just over €35 million to reserves. Together with a change in goodwill policy, this pushed group net asset value per share up by 74 per cent to €8.49 (£6.69).

The revaluation could not be seen as a defence against acquisition, Mr Chadwick said, explaining that the massive rise in Irish property prices meant that the value of Grafton's property portfolio was out of date and misleading.