Woodie’s parent firm Grafton records strong year as rising prices offset fall in volumes

Revenue at Woodie’s DIY parent company Grafton rose 9 per cent last year as rising prices outweighed a fall-off in demand as post-pandemic spending returned to normal.

The group reported results for the year ahead of market expectations, despite facing macroeconomic challenges in its markets. Revenue for 2022 was £2.3 billion (€2.59 billion), up from £2.11 million a year earlier. Operating profit was £285.9 million, down 0.7 per cent from the £288 million recorded a year earlier. When the impact of property profit of £25.4 million was discounted, operating profit was 4 per cent lower at £260.5 million, a decline that had been widely expected.

Adjusted pretax profit, which excludes the impact of exceptional items, was up 1.7 per cent to £273.3 million. Adjusted earnings per share were 89.3 pence, up 3.4 per cent from 2021.

Chief financial officer David Arnold said the group was pleased with the results. “We feel good about them because particularly on the back of 2021, which was a record-breaking year for the group, to actually report results in 2022 a little under 1 per cent below the record results in 2021,” he said. “Despite the headwinds and consumer confidence, weakness that we’ve seen across our markets, I think is real testament to the quality of the businesses and the strength of the brands that we’ve gotten, and the market positions that we have.”

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Annual dividend per share grew 8.2 per cent to 33 pence, with the board recommending a final dividend of 23.75p per ordinary share. The group recorded net cash of £458.2 million at the end of the year.

Grafton recorded strong performance in distribution businesses in Ireland and the Netherlands, with more than half of the group’s revenue generated in Ireland, the Netherlands and Finland, diversifying the revenue base.

Its Irish distribution business Chadwicks, which is the group’s most profitable, saw revenue rise as the increasing price of building materials price and the impact of acquisitions, including the specialist Sitetech business that was acquired in February last year, boosted the business. Demand at the business was supported by spending on residential repair, maintenance and improvement, along with home construction and non-residential projects. The business saw operating profit grow strongly, with a profit margin of 11.4 per cent.

The UK market saw reduced volumes in the repair and maintenance market, compared with a year where a record level of spending occurred on home improvements due to the pandemic. Last year also saw household come under pressure from increased energy and food prices, which hit discretionary spending. But declines in volumes were largely offset by price inflation for materials, leading to a marginal decline in revenue in the like-for-like business. Operating profit was down, with a margin of 9.8 per cent.

Revenue and profitability normalised in the Woodie’s DIY, Home and Garden retail business, following exceptional pandemic-related spending in the prior year. The business also came under pressure from a drop in consumer confidence and the impact on volumes from the decline in real disposable incomes. However, operating profit was 43.9 per cent higher than pre-pandemic levels in 2019.

Mr Arnold said there was an element of belt-tightening among consumers. “That’s really understandable. Real disposable income is less than where it was 12 months ago and retail customers naturally have been very cautious on where they decide to spend that income,” he said. “I think we’re more optimistic today than perhaps we thought that we might be in six months’ time.”

New chief executive Eric Born committed to Grafton’s headquarters remaining in Ireland, noting the group had recently signed a new lease for its offices. “We are an Irish business and will continue to be so,” he said.

Looking ahead, he said the group was well positioned for the future.

“We still face many of the external challenges that we faced in 2022, but I am encouraged by the quality of the group’s portfolio of higher-margin businesses that are sensibly positioned with both market leading brands and geographic diversity. We now have more than half of our revenues coming from outside the UK in Ireland, Finland and the Netherlands,” he said.

“Importantly, with a very strong balance sheet, Grafton is well positioned to invest in future growth opportunities and we look forward with confidence.”

Grafton warned the fall in real disposable incomes would continue to hit activity in the repair, maintenance and improvement market, and higher prices would affect project affordability. Rising interest rate are also expected to cool activity.

“Despite these headwinds, we expect some important factors to help mitigate some of the adverse effects on household spending and the current economic outlook appears brighter than many feared in the second half of last year,” Grafton said. “Strong labour markets with low levels of unemployment and declining energy prices and inflation should have a positive impact on consumer spending.”

Further acquisitions may also be on the horizon, with net cash of £458 million on the company’s balance sheet.