Grafton turnover down €450m

DIY GROUP and builders’ merchants Grafton has reported a €450 million drop in turnover in the first half of the year compared to the same period last year amid what the company said was “the most challenging trading conditions in decades”.

In a trading update to shareholders, Grafton’s management revealed that turnover has plunged 31 per cent to €990 million as a result of sharp falls in construction investment and consumer spending on housing and DIY.

Grafton, which owns the Atlantic Homecare and Woodies DIY chains, said its profitability had been “impacted severely” and its Irish operations had been loss-making during the period.

A combination of trading profits from its UK operations and a €26 million profit realised on investment and property sales “substantially offset” the Irish trading losses, restructuring losses and interest charges in the first half, the company added.

“While trading conditions continue to be difficult, turnover has stabilised across the group’s activities since April this year,” the statement read.

The statement prompted analysts at Citigroup Global Markets to downgrade its recommendation on the stock from “hold” to “sell”, citing the drag on earnings posed by the Irish market.

The group’s merchanting business, which accounts for 85 per cent of group turnover, has seen revenues decline 24 per cent in the period.

The group’s DIY outlets in Ireland performed slightly better, with turnover declining 18 per cent. But its manufacturing activities, which represent 3 per cent of group turnover, suffered heavily, with turnover almost halving.

Grafton said it now expected that the savings from its cost-cutting measures were likely to exceed €70 million, rather than the €55 million it had previously indicated. A more favourable sterling exchange rate of late had “significantly improved the strength of the group’s balance sheet”.

Grafton also hinted at possible green shoots in the British market.

Low interest rates and a steady trend of rising mortgage applications and loan approvals in the UK were “encouraging” and could indicate the prospect of improved market conditions in the UK, management said.

Grafton’s share price fell 2 per cent on the Iseq index of Irish shares yesterday, closing down 5 cent at €2.53.

Dealers reported that the group’s numbers, although grim, were not any worse than shareholders had expected.

In a note to investors, NCB Stockbrokers analysts Tommy Conway and Conor Harnett said the higher than expected level of cost-cutting left Grafton well-positioned for any upturn in the market.