Grafton warns on 'weaker' UK market

Building materials firm Grafton Group expects 2005 earnings to be in line with forecasts, but has warned of "difficult conditions" in the UK market in the first six months of 2006.

In a full-year trading update, the company said turnover for 2005 would exceed €2.6 billion and earnings per share would come in at about 66 cent. A statement from the company said it had benefited from the favourable operating environment in Ireland and this had compensated for the weaker UK market.

It said the Heiton Group, which was purchased in January 2005, performed ahead of group expectations and had contributed significantly to profitability.

In relation to the UK market, the company said: "The group remains positive in its outlook for the UK market but expects difficult contitions to continue in that market during the first half of 2006.

"A shortfall in like-for-like sales is anticipated compared to a strong performance in the first half of 2005."

The second half was looking far brighter, the company said, because of several factors, including an improvement in UK macroeconomic indicators, a strong increase in mortgage lending, a higher level of house sales, increased immigration and a reduction in UK interest rates.

The poor prospects for the UK merchanting market has been the main factor weighing on the Grafton share price over recent months. The company is also facing increasing competition in the Irish market with B&Q and Homebase opening new stores.

In Ireland, the company expects to benefit from good like-for-like merchanting sales growth throughout 2006.

"During 2005, the group continued to grow organically with the development of 19 greenfield outlets, four new Irish DIY stores, a new dry mortar plant in Bristol and 14 merchanting outlets across the UK," a statement read.

In the year to December 31st, Grafton completed 17 acquisitions - 14 in the UK and three in Ireland - for a total consideration of €470 million. The company also added 89 branches to its 480 trading locations.

The company is planning further organic growth for 2006.