Grafton fails to impress after 93% rise in profit

GRAFTON Group owners of the Woodies DIY chain in Ireland failed to impress the markets yesterday with its 93% rise in adjusted operating profit to €50.6 million.

Turnover for the year reached €2 billion up 1% on the 2009 figure of €1.94bn.

Profits before tax rose 88% to €25.5m from €13.6m while the extensive cost cutting and rationalisation in recent years was a key factor in the improved figures.

Despite the sharp pick-up in earnings shares in the firm fell by more than 5% in early afternoon trading to €3.63, a fall of 20 cents, after the group disclosed that merchanting sales in Britain were ahead by 8% in the first months of 2011. Grafton shares closed at €3.62 yesterday, down 5.1%.

Given the better weather this year analysts said the pick-up was somewhat behind what the group’s peer are reporting for the early months of 2011.

The group declared a 40% increase in its dividend from 5 to 7 cents for last year.

Executive chairman Michael Chadwick said: “The group’s strong financial position and lower cost base leave it well-placed to benefit from improvements in its markets.”

Britain is experiencing a modest pick-up with activity growing from what have been “historically low levels,” he said.

“The outlook for Ireland remains unpredictable,” he said.

Looking at the group overall the first two months of 2011 has been “encouraging” with a continuation of like for like growth in Britain and some signs of “stabilisation in Ireland”.

“We expect further improvement in profit as markets recover,” he said.

Overall nearly 75% of turnover and profits are being generated in Britain and Grafton’s Mr Chadwick sees little change in that in the coming years.

Strategically the group has been cutting down its exposure to the Irish market overall and sees Britain as the driver of turnover and profits for the group in the medium term.

The housing market in Ireland is virtually dead with the group anticipating no more than 5,0000 houses being built in 2011 down from roughly 8,000 last year.

“Last year one of our major financial institutions gave out less than 300 mortgages” in Ireland, he said.

Without mortgages being made available the recovery in housing demand, already constrained by over supply, will find it even harder to gain momentum, he said.

Mr Chadwick anticipates some further bolt on acquisitions by the group in Britain.

With most of the heavy consolidation done he sees little scope for major deals.