Building downturn sees Grafton profits halved

SHARES IN builders' merchant and DIY specialist Grafton plunged by 4 per cent in Dublin yesterday after the group reported that profits halved in the first six months of the year.

Grafton, which owns Woodie's and Atlantic Homecare DIY chains, joined a list of construction-related companies which this week published half-yearly results showing that the slump in the domestic and global building industries is hitting their bottom line.

The group said turnover in the first six months of 2008 was down 11 per cent at €1.44 billion on the same period last year.

Operating profit dropped 41 per cent to €73 million and profit before tax was down 50 per cent at €53.4 million.

Earnings per share fell in line with this, coming in at 20.2 cent, 48 per cent below the 38.7 cent that Grafton reported at the end of last year's first half.

Despite the difficult trading conditions, Grafton said its activities generated €117 million in cash flow, a significant increase on the first half of 2007.

Investors reacted by selling the stock in Dublin yesterday. Grafton closed at €3.84 in Dublin, a fall of 16 cent or 4 per cent on the previous day's close of €4.

More than 500,000 of the group's shares changed hands in Dublin yesterday.

Grafton is focused on the Irish and British building and DIY markets.

The company blamed the credit squeeze and rising raw material costs for the fall in earnings.

"The instability in the financial markets, which pushed up interest rates and restricted the availability of credit, together with higher energy and commodity prices, while global in nature, led to a decline in residential investment in the UK and intensified the adjustment already under way in the Irish housing market," the group said in a statement.

Chief executive Michael Chadwick described trading conditions during the first half as the "most challenging" the group had encountered in 15 years.

In Ireland, turnover fell by 16 per cent to €530.5 million from €629 million.

Operating profit was down 60 per cent at €24.3 million, from €60.6 million. British turnover slipped by 7.4 per cent to €907.4 million, largely due to sterling's weakness against the euro.

Operating profit fell by 24 per cent to €48.6 million.

Grafton pointed out that, in sterling terms, this figure was only down 13 per cent. The group acknowledged yesterday that there is no immediate prospect of an improvement in both markets.

Grafton will benefit from a number of cost-cutting measures during the second half, including the closer integration of some of its Irish and British operations.

NCB Stockbrokers analyst John Sheehan predicted yesterday that Grafton was likely to take market share from weaker competitors as the downturn runs its course.

He said that his firm was likely to cut its full-year earnings per share forecast for the group to 40 cent from 46.5 cent.

Mr Sheehan pointed out that the challenges faced by the group are clear, but that it has the balance sheet to withstand them.