Grafton Group Executive Chairman Michael Chadwick

Irish building materials group Grafton aid today it faced the most challenging trading conditions in decades in the first four months of 2009.

In an Interim Management Statement ahead of its AGM in Dublin today, Grafton said the reduced availability of credit had led to significantly lower investment and spending on housing and residential repair, maintenance and improvement.

Grafton said the reduced availability of credit which has become apparent over the last two years has led to significantly lower investment and spending on housing and residential repair, maintenance and improvement.

"The trading environment so far this year was very much weaker than the Group experienced in the first four months of 2008.  As expected housing starts and completions have fallen and, combined with lower RMI (Residential Maintenanc, Improvement) spending, have significantly impacted the Group's merchanting and manufacturing businesses.  Sales have also been affected by the poor weather in the early part of the year and the 15% decline in the average value of sterling against the euro (2009: Stg90.7p, 2008:  Stg76.7p) in the period," the statement said.  

Grafton said group turnover for the first quarter of 2009 was down 32% on the same time last year to €470m, a fall of €220m.

The company's merchanting business, which accounted for 85% of group turnover, experienced a 25% fall in the first three months of the year.

The company said the results for 2009 will reflect the challenging trading environment faced by the group. However, it added that it expects to benefit from the seasonally stronger trading period in the second half. Its reduced cost base is also on target to yield savings of up to €55m in 2009.

Goodbody analyst comments: "In an IMS covering the first quarter Grafton has indicated that sales have declined by 32% to €470m (-22% on a constant currency basis), reflecting the difficult backdrop for residential and rmi markets, which has been compounded by poor weather. The breakdown of this shows that merchanting sales (85% of group sales) are down 25% on constant currency basis, with Irish merchanting down 45% (versus -27% in H2), which implies that UK is down circa 20%.

Irish retail has declined by 17% in the period (versus -11% in FY08), which management says has held up slightly better than expected, while manufacturing is down 50%. Given this difficult market backdrop, management focus is clearly on costs and to this end management is now targeting cost savings of €55m (previously €45m), which will help to mitigate the impact of the sales decline. As expected, the statement points to a very challenging first half, however, management expects the second half to benefit from the H2 seasonal pick-up in activity and the increased targeted cost savings. Overall, the statement is broadly in line with our expectations and we do not envisage making significant changes to our profit forecasts."