Grafton says consumer confidence boosting bottom line

Builders merchants and Woodies DIY owner, Grafton, which reported strong growth in sales and profits across Ireland and the UK on Tuesday, says it is benefitting from a bounceback in consumer confidence in the Irish market.

It is investing €1 million annually reformatting its Woodies stores, its chief executive Gavin Slark said, to capitalise on the return to growth here.

Growth at its Irish merchanting business, which includes the Chadwicks chain, is also now outstripping growth in the UK.

The UK remains by far the largest part of its business, however, and Mr Slark said Ireland appears to be “several years away” from a normalised house building market, due to the mortgage rules introduced by the Central Bank and the absence of large, well-funded builders.

Residential property transactions, a key driver of demand in the market, continued to trend upward in 2015 and were equivalent to 2.2 per cent of the housing stock, the company said, while noting this was half the level of transactions anticipated in a normalised market.

Grafton earlier reported revenues rose 6 per cent to a record £2.2 billion last year. The Irish-headquartered, UK-listed company reported pre-tax profits of nearly £119 million, up 17 per cent on the previous year.

In the UK, where it generates three quarters of group revenue, Grafton reported a turnover of £1.66 billion, up nearly 9 per cent.

It described trading conditions in the UK as “broadly positive” despite a slowing of the economy and squeezed margins.

In Ireland, overall revenue was marginally lower at £257.3 million, albeit local currency revenue was up strongly 10.9 percent to €354 million.

Mr Slark said he was pleased that growth was coming in from almost all parts of the Grafton group.

He said the company expects to invest in opening up to another five new Selco builders' warehouses in the UK.

New outlets

Grafton may look to open one or two new Chadwicks outlets in Ireland, but Mr Slark estimated that any 2016 Irish growth would come from an uplift at its existing outlets.

The company announced it has also renewed its banking facilities for a further five years at lower interest rates.

Grafton acquired Dutch tool distributor Isero for €91.5 million last year, giving the group a presence in the Netherlands for the first time.

Mr Slark said it has “an appetite for growth” in Holland, although it will be the second half of this year at least before it considers any further acquisitions.

The company also completed a number of bolt-on acquisitions in the UK merchanting market and the opening of five new Selco branches.

In terms of outlook, Grafton said growth in UK domestic demand was resilient in 2015 supported by rising employment, growth in real incomes, consumer confidence at near record highs and historically low interest rates.

"But it warned that the upcoming referendum on the UK's membership of the European Union could weigh on consumer demand.

“We don’t know what the possible ramifications could be,” said Mr Slark. “Like any other political hurdle, we will jump it as it arrives.”

The overall outlook in Ireland is favourable as growth in employment and incomes in a low inflation and low interest rate environment should support the ongoing improvement in the economy, it said, with both residential and non-residential construction should benefit from the improving economy.

A second interim dividend of 8.0p was approved to give a total dividend for the year of 12.50p, representing an increase of 16.3 per cent on total dividends of 10.75p paid for 2014.