Monday 25 September 2017

Grafton predicts little chance of improvement in UK trading

BUILDING MATERIALS

John Mulligan

John Mulligan

Woodies and Atlantic Homecare owner Grafton Group has warned that an improvement in its UK business -- where it generates the bulk of its sales -- is unlikely in the near term as low consumer confidence and tight lending conditions weigh on its performance.

Presiding over the first set of financial results for the company, new chief executive Gavin Slark said that despite the difficult economic conditions in Ireland and the UK, Grafton remained "well placed" to deal with the impact and to take advantage of expansion opportunities.

In the first six months of the year, Grafton's sales rose 3pc to just over €1bn, while adjusted operating profit was 40pc higher at €26.2m. Pre-tax profit rose by 13pc to €15.1m.

Grafton generates close to 75pc of its sales in the UK, where it operates a string of building merchants such as Plumbase, Buildbase and Jackson. It said turnover in the UK merchanting unit rose 5pc to €712.7m in the first six months of the year when translated to euro, while like-for-like turnover was 4.7pc higher.

"Trading in the half of the year was set against the backdrop of softening economic growth," said Grafton.

"The fall in real post-tax disposable incomes since the start of the year due to the increase in the UK VAT rate, together with higher energy and food prices contributed to weakness in consumer spending as households adjusted their budgets."

Grafton's merchanting business -- it owns Heiton Buckley and Chadwicks here -- was further weakened in the first half as consumers digested more negative news on the economy.

Turnover at the Irish merchanting business fell 7.2pc to €149.4m. Grafton has consolidated some merchanting branches here and also closed a DIY store in Letterkenny, Co Donegal, in the first six months.

While transaction volumes at Woodies DIY stores remained at 2010 levels, a 4.6pc decline in first-half turnover at the retail division to €112.1m was concentrated on items such as garden furniture, barbecues and garden plants that suffered from reduced demand due to poor weather in May and June.

The trading loss at the Irish DIY business narrowed to €400,000 for the period from €1.2m a year earlier. Analyst Flor O'Donoghue with Davy Stockbrokers said that while there had been signs of an improvement at Grafton's underlying operations in the first half, it was unsurprising that management remained cautious in its outlook.

"While activity levels in the UK -- the key to the Grafton investment case -- remain very low by historic standards, it now appears that the nascent recovery of the past year is grinding to a halt," he said.

Shares in the company closed up just under 1pc at €2.72.

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