Monday, 21 Oct 2019

Grafton cautious as weaker UK demand hits revenue growth

Grafton Group saw its revenue growth fall in the UK during May and June, as the firm was impacted by weaker demand in the DIY and housebuilding markets.

On the back of the “softer than anticipated” market conditions, like-for-like revenue growth fell by 0.5pc in its UK merchanting business over the two months, according to an interim trading update from the company.

Grafton generated about 68pc of its revenue last year in Britain.

The group, whose origins are in Ireland, said activity over the summer in the UK will be an important determinant of momentum entering, what it said, are the “significant” trading months of September through to November.

Despite the UK economy facing a number of uncertainties, earlier this year Gavin Slark, chief executive of Grafton Group, said he did not believe Brexit will have any material impact on the group’s business there given the size of the market.

Flor O’Donoghue, analyst with Davy Stockbrokers, said yesterday that while the group’s underlying revenue growth for the first half of 2019 was “good”, Grafton was “more cautious” on its near-term outlook across the Irish Sea.

“Taken in its entirety, Grafton has enjoyed a good first half with another solid gain in like-for-like revenues (up 3.9pc). However, the near-term outlook in the UK has deteriorated and Grafton is understandably cautious,” Mr O’Donoghue said.

He added that the stockbroking company expects to make “no significant adjustment” to its full-year trading profit forecast of £201m (€224m), with the first contribution from its recent acquisition Polvo offsetting the weaker-than-expected UK performance.

Overall, group revenue increased by 2.6pc (in constant currency) to £1.48bn in the six months to June 30.

Like-for-like group revenue increased by 3.9pc at the company.

Taking the retailing and manufacturing divisions, like-for-like revenue growth was up 2.9pc in both segments over the six-month period. Here, where Grafton also owns Chadwicks and Heiton Buckley, the company reported like-for-like revenue growth of 8.3pc across its merchanting business.

Mr Slark said: “Following a strong start to the year, Grafton saw some easing of trends in recent months.”

In Ireland and the Netherlands, Mr Slark said he expects a “continuation of the positive trading conditions”.

“Activity over the summer in the UK will be an important determinant of momentum entering the significant trading months of September through to November.

“Our current expectations for full-year profitability, including the benefit of the recently completed Polvo acquisition, remain broadly unchanged.”

Around 13,500 people work for Grafton across 725 branches in Ireland, the UK, Belgium and the Netherlands.

Earlier this year, the company acquired Dutch business Polvo for €131m on a debt-free and cash-free basis.

Polvo is one of the top three businesses in the specialist ironmongery, tools and ventilation systems market in the Netherlands where it operates from 51 branches.

Polvo reported revenue of €127.3m and adjusted operating profit of €10.6m last year, while it had gross assets of €64m at the end of 2018.

The acquisition increases Grafton’s presence in the Netherlands, where it already owns the Isero tools store business.

The combined businesses will have revenues in excess of €300m and will trade from 113 branches.

Shares in Grafton were down 2.30pc to £7.65 in afternoon trading yesterday.

The group, which was originally founded in 1909 when William Thomas Chadwick established his first business – Chadwicks (Dublin) – to supply builders merchants and major building contractors with Irish and imported cement and plaster, will announce its full interim results on August 30.

Last year, revenue at the company jumped 8pc on a constant currency basis to £2.95bn.

Its operating profit, stripping out gains from a property disposal, was 18pc higher at £189.6m.

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