Grafton says it faces difficult year after fall in profits of 73%

THE OWNER of Woodies DIY and Heitons Buckley builders’ merchants said it was facing a difficult year after announcing a sharp fall in profits in 2008 yesterday.

Grafton Group said profit before tax in 2008 was down 73 per cent on the previous year at €64.1 million. The company’s sales last year were 17 per cent short of 2007 levels at €2.67 billion and operating profits fell 55 per cent to €118.6 million.

Finance director Colm Ó Nualláin acknowledged yesterday that Grafton was facing into another difficult year.

In a statement, executive chairman Michael Chadwick said trading in January and February continued to decline, and was made worse by the heavy snowfalls.

Grafton has operations in Ireland and Britain, where it owns the Buildbase, Plumbase and Jackson builders’ merchants businesses amongst others. The group depends on housebuilding, repair and maintenance for most of its profits.

Executives said yesterday that there were some indications of a pick-up in British housebuilding. However Mr Chadwick said the rate at which new homes were being built in Ireland had fallen below the worst levels of the 1980s, when it dipped to 14,000 a year.

Mr Chadwick’s statement said the company was operating in difficult economic circumstances.

“We are taking actions proportionate to the challenges faced in the UK and Irish markets.”

He added that management was focused on controlling costs, efficiency and generating cash. The company would continue to “implement deeper cuts to overheads” where demand continued to contract.

Last year, Grafton spent €17.2 million on a rationalisation programme that it says will create savings of €45 million a year. The group closed six “uneconomic” branches, bringing its total to 589, and cut job numbers by 1,500 to around 9,000.

Chief operating officer Leo Martin said the job cuts were achieved through a mixture of voluntary redundancies and a strict policy of not replacing people who left. Grafton intends cutting a further 150 jobs, split half-and-half between Ireland and Britain, over the coming weeks.

Mr Ó Nualláin said yesterday that the company’s financial position was sound. The group generated free cash flow of €205.6 million. Working capital – the cash or liquidity available to a business – of €111.7 million helped boost this. Mr Ó Nualláin explained that this was down to customers such as builders paying up on the conclusion of contracts or jobs.

Net debt was €436 million at the end of last year from €550 million 12 months earlier. Mr Ó Nualláin pointed out that its agreements with its banks were “less onerous” than those of its rivals.

Ireland accounted for €33.3 million of operating profit in 2008, little more than 25 per cent of the previous year’s total of €123 million. Britain generated €68 million in operating profits last year, less than half the €142 million it posted in 2007.

The business splits close to 65/35 in favour of Britain in terms of both sales and profitability.

Grafton spent €25.3 million on acquisitions in the first half of 2008, and just €2.8 million in the second six-month period. Mr Chadwick said it was unlikely to buy any businesses this year unless the group comes across something that offers “compelling value”.

Grafton: 2008 results

Revenue:€2.67 billion (-17%)

Operating profit:€118.6 million (-55%)

Profit before tax:€64.1 million (-73%)

EPS (adjusted):32.2 cent (-62%)

Summary:Tough trading conditions in builders' merchant and DIY specialist Grafton's Irish and British markets last year meant profits and earnings came in well below its 2007 performance.

Irish turnover fell 20 per cent to €986 million, while British sales - which suffered as a result of sterling's weakness – dropped 15 per cent to €1.34 billion. The group spent €17 million on a rationalisation programme which cut costs by €45 million a year.

It closed six "uneconomic" branches and cut job numbers by 1,500 to around 9,000. It is planning a further 150 redundancies.

Grafton anticipates a tough year ahead and said yesterday trading in January and February continued to decline. The figures announced yesterday were slightly ahead of market expectations, the company said.