Grafton sees 35% rise in pre-tax profit to #38.2m

Grafton, parent of Woodies DIY group, is looking for further strong growth following the 35 per cent rise in pre-tax profit to #38.2 million (£30 million) in 1999. Noting that the company has achieved uninterrupted earnings-per-share growth of 29 per cent per annum since 1987, executive chairman Mr Michael Chadwick said the group intended to build on its focused strategy to "deliver strong results for shareholders across its Irish and UK operations".

Grafton has detected some bottlenecks which are emerging in the domestic economy which "may dampen economic growth from the significant levels of recent years", said Mr Chadwick. However, he stressed this should lead to a soft landing and more modest sustainable growth levels into the future. As Mr Chadwick sees it, "a sound backdrop for continuing Irish growth opportunities for Grafton will be provided by labour force growth, healthy public finances, the Government's upcoming Planning and Development Bill, and the #52 billion National Development Plan, even allowing for some slippage in the quantum and timescale of this plan".

In the UK, the market for builders' and plumbers' merchanting "continues to show growth in a reasonably stable economic climate". Mr Chadwick also said its Buildbase and Plumbase operations were well positioned as "strong regional players to take advantage of ongoing acquisition opportunities and integration benefits, and to improve like for like sales and margins".

Most of the growth came from its UK operations which now account for 56 per cent of turnover and 35 per cent of operating profit.

Group sales grew by 45 per cent to #620.2 million, partly helped by acquisitions, but mostly from underlying growth. Earnings per share before goodwill amortisation rose from 150.2 cents to 206.9 cents, comfortably above brokers' forecasts. Shareholders are to benefit with a final dividend of 29.3 cents per share, making a total of 48.0 cents, an increase of 37 per cent. Gearing rose from 42 per cent to 59 per cent, but this was after #48.2 million was spent on acquisitions and capital expenditure of over #29.5 million.

The Irish operations increased sales from #240.3 million to #275.7 million, operating profits rose from #27.4 million to #30.9 million, but margins contracted from 11.4 per cent to 11.2 per cent.

Woodies increased sales by 15 per cent to #56.8 million with all 10 stores contributing. The Irish merchanting and wholesaling division increased sales by 16 per cent to #194.7 million. Chadwicks acquired new locations in Clonmel and Kilkenny and other stores were expanded. Irish manufacturing turnover resumed growth in the second half and ended 5 per cent ahead at #24.2 million.

The UK operations increased sales from #187.3 million to #344.4 million, operating profits rose from #5.7 million to #16.6 million and margins improved from 3.1 per cent to 4.8 per cent. There was a favourable currency translation of #2 million to operating profits. Acquisitions included Niall Bailey Building Supplies and Latham Timber Centres. It also acquired a 14.7 per cent stake in rival Heiton Holdings at an average share price of #2.68, compared with yesterday's closing price of #2.90. Mr Chadwick said he had no comment to make on this investment.

Grafton should have little difficulty in pushing pre-tax profit up to about #46 million this year which would represent a 20 per cent increase. On this basis, the shares at #24.75, up 25 cents following the results, are on an undemanding prospective p/e of 11.