Grafton Group increases profit forecast for year in spite of supply chain pressures

Grafton Group, the building materials distributor and DIY retailer, said that it expects to post full-year operating profits of up to £270 million (€316m), ahead of market expectations, as it continues to benefit from strong trading after Covid restrictions.

While the company’s sales revenues and gross margins have benefited from an inflationary surge in building materials this year, it said that supply chain disruption remains for its suppliers, while pricing pressure is having an effect on customers.

The owner of the Woodie’s DIY retailing brand in Ireland now expects to post adjusted operating profit from continuing operations of £265 million-£270 million, as much as 5.5 per cent ahead of the consensus estimate of analysts that follow the group.

“The positive revenue trends experienced in the first half were sustained in the period, supported by good underlying demand in the group’s markets and further normalisation of trading conditions as Covid-19 restrictions were lifted,” the Dublin-based, but London-listed group said.

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“The strength of the group’s brands and trading formats , together with generally favourable conditions in its markets, contributed to an encouraging outcome for the period despite supply chain pressures and heightened price inflation for building materials that was the key driver of revenue growth in the distribution businesses in the UK and Ireland.”

Operations

Total revenue from continuing operations, which excludes the traditional merchanting business in Great Britain that Grafton is disposing, increased by 28.3 per cent on the year to £1.76 billion for the 10 months through October – and were up 27.1 per cent from the same period in 2019.

Grafton agreed a deal in July to sell its long-underperforming British traditional merchanting business, including the Buildbase, Timber Group and Bathroom Distribution Group brands, for £520 million to Welsh-based peer Huws Gray, which is controlled by US private equity giant Blackstone.

Its continuing UK distribution business, now mainly comprised of the Selco Builders Warehouse brand network that is geared towards smaller jobbing builders, posted 34.4 per cent sales growth in the first 10 months of the year.

Its Irish distribution unit, trading under the Chadwicks banner, delivered 19.6 per cent revenue growth, while its Dutch business saw sales rise 3.8 per cent on the year.

Grafton will continue to develop its very successful Selco Builders Warehouse branch network and its other specialist distribution and manufacturing businesses in Great Britain that have been the focus of significant investment and value-creation over recent years.

The group, led by chief executive Gavin Slark, said that its recently-acquired Finish distribution business IKH is " integrating well under Grafton ownership".

Revenue growth

The retailing division, comprised of the Woodie’s DIY, home and garden business in Ireland, which was classified as an essential retailer and remained open during the national lockdown earlier this year, saw its revenue growth “moderate as anticipated” following the reopening in May of non-essential retail and leisure activities. Still, revenues at the unit were up 21.3 per cent on the year, and were almost 42 per cent ahead of the same period in 2019.

“The overall group delivered a good performance in the period against strong comparatives, leading to an increase in current year operating profit guidance supported by the strength of our market positions, geographic diversity and strong financial position,” said Mr Slark.