Grafton Group expecting higher profits in 2011 as markets recover
Grafton Group sounded an upbeat tone yesterday for 2011 after the Woodies DIY owner reported an 88pc rise in pre-tax profit to €25.6m for last year, after cost-cutting measures implemented in the past two years boosted its bottom line even as sales rose just 1pc to €2bn.
The group said that declines in sales at its Irish operations had moderated in the first two months of 2011, while in the UK, which accounts for 70pc of its revenue, Grafton said that like-for-like turnover rose 8pc in the same period.
But Davy Stockbrokers lowered its rating on the stock yesterday to 'neutral', stating that Grafton had failed to improve its margin during the second half of 2010 in its UK merchanting business, and that after three months of significant appreciation, the share price is now "up with events".
Citigroup said that one of the "biggest surprises" was Grafton's decision to hike its total 2010 dividend by 40pc.
Shares in Grafton opened yesterday's session down sharply, with the stock having shed close to 5pc in early trading. It ended the day down 5.1pc at €3.62.
Executive chairman Michael Chadwick, who's relinquishing his position to become non-executive chairman this summer, said that he expected further improvements in profits as markets recover.
"The UK economy appears to be in a modest growth phase and activity in our sector has recovered from historically low levels. The outlook for Ireland remains unpredictable."
He added that the Irish housing market remains "very weak" but believes it may have bottomed out and that it could grow again in and around Dublin within two to three years.
There were about 8,500 homes built in Ireland last year, most of them one-off individual units, said Grafton chief operating officer Leo Martin, who noted the figure was about one-tenth the number of units built at the peak.
In Ireland, Grafton Group also owns Atlantic Homecare and Heiton Buckley.
It said that its Woodies DIY chain here performed "relatively well" given market weakness last year and that overall turnover from its DIY retail businesses fell 7pc to €230.5m. Operating profit at the retailing unit fell to €2.4m from €3.3m.
It said its Irish merchanting business, which also includes Chadwicks, posted an 11.5pc decline in revenue last year to €327.8m and returned to profitability during the second part of 2010. The full-year operating profit at the Irish merchanting arm in 2010 was €3.7m before exceptional restructuring costs, compared to a €10.3m pre-exceptional loss in 2009.
In the UK, where Grafton operates businesses such as Buildbase, Plumbase and Jacksons, it said that turnover rose 6.5pc to €1.4bn, with like-for-like sales having been 2.3pc higher.
Operating profit before restructuring costs at the division climbed 33pc to €57.8m. Grafton Group has cut almost 2,000 jobs from what was a 11,000-strong employee base at the beginning of 2008.