Grafton set for recovery

Published:  03 July, 2009

DUBLIN: The Grafton Group continues to experience the most challenging trading conditions in decades. The ongoing lack of available credit and depressed markets have resulted in sharp falls in investment and spending on housing and residential repair, maintenance and improvement. 

Accordingly, the Group’s profitability has been impacted severely. UK operations traded at a profit while Irish operations were loss-making. A combination of UK trading profits and a €26 million realised profit on investment and property sales has substantially offset Irish trading losses, significant restructuring costs and interest charges incurred during the period. While trading conditions continue to be difficult, turnover has stabilised across the Group’s activities since April this year.

Throughout the period management has continued to rationalise the business, cutting costs aggressively. The reduction in Group overheads expected in 2009 is now estimated to exceed €70 million. No acquisitions have been completed in the first half and capital expenditure is now running at less than 50% of Group depreciation. Cash is being released from both trading and working capital and the Group continues to have the advantage of a strong balance sheet with relatively modest gearing and high cash balances providing adequate financial resources to fund Group activities.

The recent recovery in the exchange rate between sterling and the euro to 85.21 pence/euro from the year end closing rate of 95.25 pence has significantly improved the strength of the Group’s balance sheet at the period end. The realised profits from investments referred to above arise from an exceptional cash gain on a financial investment, which had previously been carried on the balance sheet for a nominal amount, and from a property disposal. Cash received from these transactions has further strengthened the Group’s cash position.

The low interest rate environment and the steady trend of rising mortgage applications and loan approvals in the UK is encouraging in terms of indicating the prospect for an improvement in markets in the UK. The Group has now entered the seasonally stronger trading period of the second half of the year during which it expects to return to modest levels of profitable trading across the Group while the rationalisation and cost cutting measures taken to date continue to ensure that the Group is best placed to benefit from any recovery in the market.

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