Michael Chadwick: stabilisation of sales.

Grafton: profit may be down, but optimism is up

Published:  05 March, 2010

DUBLIN: Grafton group today announced full-year pre-tax profits down 79% in 2009 with revenue down by 26%.

The company, which owns the Atlantic Homecare and Woodies DIY chains, recorded pre-tax profits of €13.6m for the 12 months ending 31 December 2009 compared to €64.1m a year earlier.

Grafton Group's finance director Colm O Nuallain said the bottom of the residential construction market has probably been reached and that the projected 10 000 home completions this year represents an "unsustainably low level of activity". He expects annual completions will recover to about 20 000 units within two to three years.

Overall, Grafton's operations in Ireland, which account for 30pc of group turnover, are unprofitable, weighed down by its retail division that comprises Woodies and Atlantic Homecare. Its merchanting business in Ireland remains profitable.

Michael Chadwick, Grafton's executive chairman said the group was "well placed to benefit from its operating leverage as its markets recover".

Group sales in the second half of 2009 were similar to the first half. "This stabilisation of sales, combined with the action taken to substantially reduce the cost base and integration benefits in our merchanting business, resulted in improved profitability during the second half of last year" Mr, Chadwick said.

Revenue declined to €1.98bn from €2.67bn over the same period due to a sharp fall in market demand.

Net debt reduced by €227.9m to €322m during 2009 while the group cost base reduced by an annualised €85 million.

In the UK, which contributed 68% of total revenues last year, turnover was down 20% to €1.32bn, while operating profit declined to €41.7m.

The group said turnover stabilised during the second half of 2009 with modest like-for-lie growth returning to a number of divisions. Grafton said it is considering expansion in the UK.

"Sales in the first two weeks of January 2010 were affected by snow. Since then sales have been close to expectations and last year with good increases in sales into the UK new housing sector.

The rate of sales decline in Ireland was moderating but trading conditions are expected to remain muted, the company said in its annual report. Retailing turnover in Ireland was down 18% to €248m last year and the group recorded an operating loss of €0.7m for fiscal 2009.

The company said the sharp fall in DIY volumes in Ireland was mitigated by improved operational efficiencies. Lat year Woodies consolidated its position as the leading DIY retailer. Merchanting turnover declined 42% to €370m with an operating loss of €15.6m.

Robert Eason, an analyst at Goodbody Stockbrokers in Dublin said:"The return to profitability in the second half has been a lot more marked than our expectations." He raised his rating on the stock to 'buy' from 'add'.

Grafton's operating margin during the peak of the boom in Ireland was hovering around 11pc. Last year it tumbled into negative territory, to -0.8%.

The group yesterday described the 2009 trading environment as the "most difficult in decades". Its mortar, plastics and window manufacturing division posted a 47% fall in sales to €45.1m.

The group has cut its workforce from 10 400 at the end of 2008 to 9300 by the end of 2009. Chief operating officer Leo Martin said it was likely that up to 100 more jobs will be cut in coming months at its UK operations.

Grafton spent about €31m on restructuring costs in the two years to the end of last December, while it has achieved annualised savings of €85m.

Following its head count reduction, €76m has been cut from the merchant's wage bill.

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