British businesses fuel strong profit growth at Grafton

Building materials and DIY group Grafton has produced a strong set of results for the year to the end of December with pre-tax profits up 27 per cent to €67.2 million while turnover was up 19 per cent to €989 million.

The results were driven by strong growth in Grafton's British business which now accounts for two-thirds of the group's sales. Shareholders have been rewarded by the strong performance with the dividend being increased by 23 per cent to eight cents per share.

And with the balance sheet in strong shape with interest charges last year covered 6.7 times by operating profits, Grafton is aiming to expand its British presence through bolt-on acquisitions. Chief executive Mr Norman Kilroy said that in the British building materials sector, Grafton had a market share of just 4 per cent, well behind the combined 45 per cent market share of the big three in the sector - Wolseley, Jewson and Travis Perkins.

"It's a very fragmented market and provides opportunities for acquisitions that are not of any interest to the big boys," said Mr Kilroy.

In the UK, sales increased 26 per cent to €657.2 million with operating profits up 37 per cent to €40 million. Profit margins in the UK are up to 6.1 per cent but are still well behind the near 12 per cent margins in the Irish business.

"Irish operating margins are higher than the UK because of the efficiencies and economies we have in Ireland and the strong market we have in Ireland even though our mark-ups are lower than we have in the UK," said Mr Kilroy.

He added that Grafton's margins in the UK were lower than the major British operators. "We don't have the scale. Travis Perkins have 10 per cent margins but we would never expect to get 10 per cent margins in the UK," Mr Kilroy said.

On the home market, Mr Kilroy queried the forecast that house completions in 2001 would be 52,000 units.

"The Minister, Mr Molloy, has said that house completions in 2001 would rise from 49,000 to 52,000. But many people would find that staggering because only 33,850 houses were completed in the first nine months so 52,000 completions in the year is not credible," said Mr Kilroy.

Grafton chairman Mr Michael Chadwick would not comment on the group's stake-building in its smaller Irish rival Heiton, apart from confirming that it increased its interest in Heiton over the year from 14.4 per cent to 23.8 per cent at a cost of €33.5 million. There has been speculation that this stake-building is either a defensive measure or the precursor to a bid for Heiton from Grafton itself.

Mr Chadwick would also not comment on his decision last year to waive all but €40,000 of his €404,000 salary package for 2000, and would only say: "That was a personal decision and not a corporate decision." Nor would Mr Chadwick say if he also waived the bulk of his salary last year, although this will become apparent when the Grafton annual report is published later this month.

Mr Chadwick will, however, receive €1.43 million in dividends from Grafton in respect of his 10 per cent interest in the company.