Grafton in talks over changes to pensions as shares rocket

John Mulligan – 10 January 2013

Builders' merchanting group Grafton is in talks with unions and trustees over potential changes to defined benefit pension schemes that have at least 1,500 members – all of them in Ireland – the Irish Independent has learned.

News of the talks, which began before Christmas, comes as shares in the company, which in Ireland owns the Woodies and Atlantic Homecare chains, soared on the back of a positive trading update.

The company said it expects to deliver an operating profit of at least €70m for the financial year just ended, around 4pc more than anticipated.

Grafton shares shot up nearly 7pc yesterday to their highest level since 2008 as investors digested signs of an improved performance at the group.

Goodbody analyst Robert Eason said the Grafton update highlights the "growing momentum" in the company.

Grafton generates about 70pc of its revenue and the bulk of its profits in the UK.

It has benefited from firmer margins and the impact of "self-help" measures it undertook since the downturn began.

Its revenue last year rose 5.8pc to €2.17bn, it said yesterday.

The company added that trading in the latter part of the year ended "on a stronger note", with "above trend growth in average daily UK like-for-like merchanting turnover".

Grafton's Irish merchanting business continues to be extremely challenging. Revenue at the division fell 8.5pc for the year, but the annual rate of decline eased to 2.7pc between November and December.

Challenging

The Woodies and Atlantic Homecare chains here recorded a 9.2pc fall last year, but in November and December the annual rate of decline fell to about 4.6pc.

"The immediate outlook for demand in the group's markets remains challenging, and the timing and extent of any recovery is unclear," Grafton said yesterday.

Talks over the future of the pension scheme will intensify in coming weeks.

The Pensions Board has put companies under pressure to address scheme deficits, and solutions must be drafted by the end of June this year.

At the end of 2011, Grafton's defined benefit schemes had a €28.6m deficit – nearly twice the €15.5m deficit they had at the end of 2010.

The market value of the schemes' assets was €191.1m at the end of 2011, virtually unchanged from 2010.

Grafton has stuffed about €40m into the schemes in the past number of years in an effort to contain the deficit.

While retired members of the schemes cannot have their entitlements altered, potential solutions to resolving the deficit could include reducing the entitlements of members who retire in future, or making them make bigger contributions.

The company also operates defined contribution schemes. It paid €1.5m into its defined benefit pension schemes in 2011 and €5.4m into the defined contribution schemes.

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