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| Grafton Group Executive Chairman Michael Chadwick
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Grafton Group plc, the builders merchants and DIY Group with operations in the UK and Ireland, today issued a trading update for the six months to 30 June 2008 and said that it has entered the second half of the year in a strong financial position with a reducing cost base and a profitable and cash generative business which is well placed to deal effectively with a challenging trading environment in the UK and Ireland at a time of continued uncertainty in the credit markets. Grafton says it remains confident about the long term fundamentals and underlying value of its businesses in the UK and Ireland. Overall sales declined by 16 per cent in May and June in the Irish market and at the same rate for the half year.
Group turnover for the half year was €1.4 billion compared to €1.6 billion in the same period last year. In the UK, turnover increased by 6 per cent in sterling terms to circa Stg£700 million. UK like for like sales declined by circa 4.5 per cent in May and June and by circa 2 per cent in the half year. The Group’s UK merchanting businesses sell primarily into the more resilient RMI (Residential Maintenance & Improvement ) market and have only a small exposure to the new housing market. The weakness in sterling against the euro (average euro/sterling exchange rate of 77.5p compared to 67.5p in 2007) meant that the increased sterling revenues translate into a decline in Grafton’s euro stated group accounts.
Turnover in the Group’s Irish business was circa €520 million in a more challenging market. The Irish merchanting market continued to benefit from a good level of activity in the RMI market which helped reduce the impact of the slowdown experienced in the new build market. Overall sales declined by 16 per cent in May and June and at the same rate for the half year.
The correction in the volume of housing starts and completions has been faster and deeper than expected. Grafton says that while the Group’s exposure to the new build portion of the Irish housing market resulted in a decline in like for like sales, at current levels of trading less than ten per cent of its turnover is exposed to this market.
Grafton says it is taking steps to improve productivity and reduce costs in its UK and Irish businesses and to maximise the benefits of synergies arising from the strong growth of its operations in recent years. These measures include accelerating the integration of the larger business units built up and acquired in recent years. These changes have so far incurred costs of circa €2 million that have been absorbed in operating costs for the half year. The benefits of these initial measures are already evident in the current operating cost base of the Group.
Grafton says that the balance sheet remains financially strong with a comfortable level of gearing as it enters the more seasonally cash generative period of trading. In the absence of significant acquisition activity, net debt levels are expected to decline over the second half of the year.
Grafton says it continues to retain financial flexibility and holds cash deposits of circa €100 million and has circa €100 million of committed and undrawn bank facilities. These, combined with the strong cash flow generated, are more than sufficient to fund the ongoing needs of the Group both for day to day operations and future development aspirations. Group debt repayable in the period to the end of 2010 is covered by cash resources and committed facilities.
The Interim Results for 2008 are due to be announced on Friday 29 August 2008.
