Grafton Group "emerging from lockdown in strong position"

Grafton has released its half year report for the six months ended 30 June 2020.

Despite reporting startling figures for the first half of the year, the statement, subtitled "Emerging from lockdown in strong position", sets a deliberately optimistic tone, due to an "encouraging start to the second half" with an average daily like-for-like revenue up by 3.8%. 

However, the report reveals a revenue loss of 19% (at £1.05 billion), operating profits of £39.4 million (down by 61%), and pre-tax profits down by 72% to £24.8 million.

Average daily like-for-like Group revenue increased by 3.8% in the period from 1 July to 16 August. This comprises of a decline of 0.7% in UK Distribution, an increase of 11.6% in Irish Distribution, an increase of 35.6% in Retailing and a decline of 12.3% in Manufacturing.

Trading across the Group was broadly in line with expectations until the second half of March. The impact of Covid-19 on trading over the remainder of the first half varied by country and market and was influenced by the nature and duration of the lockdown measures adopted.

The reopening of the UK economy and relaxation of social distancing measures has seen a recovery in the Group’s UK distribution and mortar manufacturing businesses in May and June that was sustained in July and August.

Trading in the UK merchanting business was affected by the majority of the business' branches being closed from 24 March until the beginning of May, when they reopened on a phased basis until the end of June when the company was on full-service again.

Selco, in particular, benefitted from the marked post-lockdown recovery in the residential repair, maintenance and improvement (“RMI”) market. House-building sites began reopening at a more gradual pace from mid-May and as a consequence the recovery in this segment of the market was less advanced at the end of the half year.

Chadwicks, in Ireland, closed on 28 March, except for essential deliveries and fully reopened on 18 May, in the first phase of the Irish Government’s roadmap for reopening the country. June revenue was ahead of the prior year, driven by strong demand from trade and retail customers undertaking housing RMI projects. House-building activity was more subdued and slower to recover.

Revenue in the CPI EuroMix mortar manufacturing business in Great Britain was affected by the closure of plants during the lockdown and by the slow recovery in house building, which accounts for a very high proportion of its output.  

In view of the weaker trading conditions in the traditional UK distribution business, some organisational and branch changes are planned for the second half of the year, the details of which are not presented in the report. Although these measures are expected by the company to provide benefits in 2021 and beyond, they are also expected to cost it £16 million to implement. 

On 24 March 2020, the Group announced the suspension of the second interim dividend for 2019. It has now announced that it would not be paying a first interim dividend for the first half of 2020 either and that it is keeping payment of dividend for the rest of the year under review. 

The report also includes an analysis for the short-term economic outlook, which it sees as uncertain. The company feels that it is likely that Governments and health authorities will require some social distancing and other measures to remain in place for some time, including possible local or national lockdowns that may be reintroduced from time to time, impacting confidence, trading, and the broader economic environment over the remainder of the year.

The gradual recovery in housebuilding is expected to continue but will remain contingent to the confidence of households to make long-term commitments of this nature, employment prospects after the furlough scheme ends, and the availability of mortgage finance.

The recovery in the UK housing RMI market is likely to have benefitted from pent-up demand and an increase in household savings during the lockdown. RMI spending over the remainder of the year will be influenced by consumer sentiment at a time of significant uncertainty and the willingness of households to undertake indoor projects due to concerns about social distancing. 

The company declares itself "very encouraged" by its performance in recent months and feels it has "emerged in a strong position from the Covid-19 lockdown". However the report remains cautious about revenue trends in the business' markets over the remainder of the year. Based on current trends the Group expects to be back to similar operating profit in the second half of 2020 as in the comparable period last year.  

Gavin Slark, Chief Executive Officer, commented: “We are very pleased with the performance of our business which was made possible by the outstanding efforts and commitment of colleagues in a half year outturn that demonstrates the resilience and the cash generative qualities of our Group and the agility of our management teams in responding to the Covid-19 pandemic.

“Grafton’s resilience, market positioning and geographic diversity together with its low debt and strong liquidity leaves the Group well positioned for continuing progress. We are very encouraged by the performance of the Group in recent months as it emerged in a strong position from the Covid-19 lockdown and based on current trends the Group should deliver a similar level of adjusted operating profit in the second half to the comparable period last year.”