Grafton shares drop 14% on profit warning as Brexit fears hit trading

Grafton Group's shares plunged as much as 14 per cent on Thursday as the DIY retailer and builders' merchanting company issued a profit warning amid growing signs that UK and Irish businesses and households are holding off on spending amid fears over Brexit.

The Dublin-based company, best known in Ireland for its Woodies and Chadwicks branches, said it expected its full-year operating profit to come in between 4 and 8 per cent below current market expectations, which stands at £193.5 million (€223.3m).

“Volumes in the UK merchanting business were affected by weak underlying demand fundamentals as households deferred discretionary spending on home improvement projects against the backdrop of increased economic uncertainty,” said the company, which is led by chief executive Gavin Slark, in a trading update.

“While the Irish economy continued to benefit from positive momentum, there was some slowing in demand in the merchanting and DIY markets as consumer sentiment eased in response to a more cautious international outlook.”

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Grafton said its revenues rose 4.5 per cent in the three months to September 20th compared with the same period last year, but a softening in activity hit trading towards the end of the quarter. Like-for-like revenue for the group was 0.9 per cent higher for the three-month period.

The Irish market delivered a 5.9 per cent increase in like-for-like revenues, with demand in the merchanting and DIY sector slowing towards the end of the period.

Uncertainty

In the UK, volumes were hit by weak underlying demand as economic uncertainty prompted households to put off home improvement projects, with sales registering a like-for-like decline of 0.8 per cent in the three months through September.

The Netherlands merchanting market was hit by a court ruling on nitrogen emissions, which has delayed the grant of permits for new construction projects. Sales in that country declined by 2.8 per cent for the quarter.

Grafton recently announced the disposal of a UK merchanting business called Plumbase, and its Belgian merchanting unit.

“Recent trading conditions are more reflective of market sentiment than business fundamentals,” Mr Slark said. “Grafton remains well placed to continue to benefit from our strong market positions in Ireland and the Netherlands and from a recovery in the UK merchanting market. The group continues to focus on optimising trading opportunities in its markets, on cost control and cash generation and has a strong balance sheet to support value enhancing acquisition opportunities.”

Shares in Grafton dropped as much as 14 per cent in London, but closed the session down 10 per cent at £7.81.