DIY group Grafton to buy 10 branches from UK rival

THE OWNER of the Atlantic Homecare and Woodies DIY chains plans to buy 10 heating and plumbing supply branches from British rival Travis Perkins.

Grafton, the DIY and builders’ merchant with businesses in Ireland and Britain, said in a trading statement issued yesterday that sales last year reached €2 billion, slightly ahead of the €1.98 billion it recorded in 2009.

The company also announced it has reached an “outline agreement” to buy 10 heating and plumbing supply branches in Britain from Travis Perkins, subject to approval from that jurisdiction’s competition regulator, the Office of Fair Trading.

The purchase is small relative to its overall estate of 450 shops, but market analysts said yesterday the purchase would be a “useful bolt-on” if it were to get the green light from the regulator.

Bad weather at the start of last year slowed sales, but the company said turnover showed modest growth between the end of March and December 31st.

Sales in the second half of the year were €1.02 billion, an increase of 3 per cent on the €990 million that it reported during the same period in 2009.

However, the bad weather that struck Ireland and Britain in the closing weeks of 2010 once again hit sales during that time.

Turnover in its builders’ merchants businesses continued to improve and increased 3 per cent. Sales in 2010 in this division were up 7 per cent on the €1.32 billion it achieved in 2009.

The decline in Irish builders’ merchants turnover moderated through the year.

Sales fell 7 per cent in the second half compared with 16 per cent in the six months ended June 30th.

“Grafton’s financial position remains strong with good liquidity and positive cash flows from operations. The improvement in operating profitability evident in the first half has progressed strongly into the second half,” the company said in a statement issued yesterday.

“The group is well positioned for continuing growth in earnings as its markets recover.”

The results were in line with market analysts’ expectations. Flor O’Donoghue of Dublin stockbrokers Davy, which acts for Grafton, said the news that the group’s improved first half operating profits progressed into the second six months of the year was a good sign.

Mr O’Donoghue said Davy expected that Grafton would show 37 per cent growth in earnings in the second-half of 2010 when it publishes its full-year results in March, and added the firm would not be surprised if the group were to exceed that figure.

He added that management’s decision to cut costs quickly in the early days of the recession left the business well positioned to benefit once sales stabilise, or, in the case of Britain, begin to improve.

Mr O’Donoghue also pointed out that the group generates large amounts of cash.

Free cash flow in 2009 was €125 million, while it exceeded €50 million in the first half of 2010.

Grafton’s stock barely moved in Dublin yesterday, closing 0.03 per cent up at €3.303, but dealers pointed out that it made ground earlier in the week as investors had anticipated the trading statement would be positive.