Profits up at Grafton as home market enjoys growth
Profits at Irish merchanting firm Grafton Group surged 62pc to £50.6m (€63.6m) in the first six months of the year as its UK and Irish businesses notched up strong performances.
Grafton's revenue in the period was 11pc higher at £1.01bn (€1.27bn).
The company generates 73pc of its group revenue in the UK and reports its financial statements in sterling after moving its stock market listing to London in 2013.
Speaking to the Irish Independent, Grafton Group chief executive, Gavin Slark, pictured below, said that one of the "most encouraging" aspects of the performance in the first half was that its merchanting business in Ireland reported growth.
Grafton's Irish merchanting arm, which includes outlets such as Chadwicks and Heitons, reported revenue of £121.4m (€152.6m) in the first six months of 2014, a 5.6pc rise on the first half of 2013. In euros, revenue was actually 9.4pc higher.
Operating profit at the unit jumped to £5.6m (€7m) from £1.5m.
"It's still very early doors for the recovery in Ireland," said Mr Slark, "but the recovery in Dublin is spreading out to cities such as Cork and Galway. The midlands remains quite tough."
He said the growth Grafton is seeing in its Irish merchanting business is off "lots of small projects".
The group reckons that 25,000 new homes a year need to be built in Ireland to meet demand. Fewer than 8,500 were built in 2012.
Mr Slark said that in the period from July 1 to present, like-for-like revenue at its Irish merchanting business is 15pc higher than in the corresponding period last year.
Grafton's retail chain in Ireland, where it operates the Woodies and Atlantic Homecare outlets, also showed signs of improvement in the first half. While revenue in sterling terms at the division was down 1.4pc to £79.6m (€100.1m), it was up 2.3pc in euro terms. Operating profit doubled year-on-year to £400,000 from £200,000.
Mr Slark said the company has benefited from an economic recovery in the UK, but also the legacy of cost-cutting measures it began to implement once the downturn started.
Its profit margin in the first six months was 5pc compared to 3.5pc in the first half of 2013. The underlying profit margin rose to 6.1pc from 5pc.
In the UK, merchanting revenue rose 11.1pc to £745m (€937m), while operating profit climbed 36pc to £45.2m (€56.8m).
While Grafton experienced a strong first half in the UK, that has been somewhat tempered so far in the second half. That's partly due to concerns over a possible interest rate hike, as well as more stringent mortgage lending criteria introduced there earlier this year, according to Mr Slark.
Grafton, which also has small-scale operations in Belgium and Poland, has also raised its interim dividend by 25pc and expects to deliver full-year results that will be "at least" in line with analyst consensus.
Merrion Capital analyst David Holohan said the results were "solid" and noted that the company is continuing to make progress in enhancing its margins.
"While the UK remains the group's largest revenue and profit centre, there is tangible evidence of an on-going recovery in Ireland," he said.
But he added that Grafton's shares appear to be "fully valued" at the moment,
"Management would likely need to deploy capital from the group's lowly-geared balance sheet towards acquisitions to meaningfully drive valuation multiples from current levels."