Grafton Group, the builders merchants and DIY retailing business, said it returned to operating profit growth in the UK in the first half of the year, for the first time since 2021, as it focused on building its earnings margins even as the home improvements market remained weak.
The Dublin-based, but London-listed group said its overall operating profit rose by 9.5 per cent to £91 million (€104.9 million), coming in slightly better than analysts expected, driven in large part by its acquisition of Spanish air conditioning and heating products distributor Salvador Escoda last autumn.
It said that its Chadwicks distribution business and Woodie’s DIY unit in Ireland each performed well. The Irish distribution unit was alone in its four long-standing markets to post like-for-like sales growth during the period. The Republic is its biggest market by revenues, having eclipsed the UK last year.
Grafton said that it remains cautious about the near-term outlook for home repair, maintenance and improvement demand in the UK.
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While improvement is unlikely this year, especially amid speculation around property taxes, higher household savings and pent-up demand are expected to progressively support increased investment in home-improvement projects once confidence returns, it said. UK like-for-like sales dipped 0.2 per cent in the first half.
“We have been making sure to keep our gross margin [in the UK] at a certain level,” chief executive Eric Born told The Irish Times. “While we are making sure we have competitive pricing we won’t chase [sales] volume if [demand] volume isn’t really there.”
Sales in the Netherlands fell 1.1 per cent, while they slumped 9 per cent in Finland amid “historically weak market conditions and adverse weather”, it said.
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Group revenue rose 10.1 per cent to £1.252 million, while its operating margin remained unchanged at 7.3 per cent, with management efforts to improve margins offset by inflationary pressures and higher labour costs.
Grafton has launched a fresh £25 million share buyback programme, having already spent £403.3 million on repurchasing and cancelling stock since 2022.
The group aid it has a strong balance sheet – with £245.8 million in net cash – that gives it “significant firepower to capitalise on organic and inorganic development opportunities”. Inorganic opportunities usually refers to deals.
Mr Born said Grafton continues to seek merger and acquisition (M&A) deals in its existing markets, except for Finland, where it is holding out for a recovery in construction.
He highlighted that he is keen, in particular, “to do further and accelerated M&A over time to build a bigger position in the highly fragmented Iberian market”.
While Grafton is also keen to enter new markets as it targets becoming “a leading player in the European building materials distribution market”, it is unlikely to do a deal in a new country in the next 12 months, Mr Born said.
“Following the platform acquisition of Salvador Escoda, non-UK markets now account for approximately 64 per cent of the group’s turnover. Given our ambition to be a leading player in the European building materials distribution market and our exposure to the growing and fragmented Iberian market, we would expect that diversification trend to continue,” he said.
“Whilst we saw an easing of trading momentum towards the end of May and into June, the start of the second half has seen a return to growth of group average daily like-for like revenue.
“Outlook for the full year varies by market, but in the round, and with the important autumn trading months to come, we expect full-year adjusted operating profit to be broadly in line with analysts’ expectations.”
The consensus view among analysts is that operating profit will rise to £184 million from £177.5 million in 2024.
