Grafton looks at further European expansion

Builders suppliers Grafton Group is planning to expand its presence in Europe.

Speaking yesterday on the back of a strong set of annual results which boosted the group’s shares by nearly 9%, chief executive officer Gavin Slark said that Grafton has a reasonably healthy pipeline of potential acquisitions and significant financial headroom for such activity.

He said that the group could comfortably spend €200m on acquisitions if it so wished but will be looking for “good businesses in good markets with good management at the right price”.

Grafton will, in the short-term, mainly continue to look at bolt-on buys in the UK and further acquisitions in the Netherlands where it has largely driven group growth since Grafton entered via acquisition in 2015.

Its main Dutch business is specialist tools provider Isero. It contributed £9m (€10.4m) to group operating profit last year.

Mr Slark said that the medium-term objective is to expand into other European areas.

While acquisition opportunities are low in Ireland, the group will open three new Chadwicks building supply stores here this year; underlining management’s confidence in a recovering Irish market.

Mr Slark said the gradual growth Grafton is seeing in its Irish business is a good thing as it hints at more sustainable progress.

It owns Woodie’s DIY retail chain, as well as a merchanting business.

The Irish merchanting division grew revenue by 12%, last year.

The company yesterday reported record annual revenues of £2.5bn (€2.9m) for 2016.

That is up 13% on the previous year, with adjusted pre-tax profit up 14% at £136.2m.

On a statutory basis profit dropped 5%, partly due to a previously flagged £20m impairment charge arising from a restructuring of the UK plumbing and heating division.

Builders merchanting makes up 92% of Grafton’s overall business and saw 13% revenue growth last year.

UK merchanting marks the bulk of that and saw 6.6% growth.

While he sees some uncertainty in the UK market, Mr Slark said that he remains largely unworried about Brexit.

Grafton’s main exposure in that regard is via the repair, maintenance and improvement market.

Key to that sector’s growth is consumer confidence and Mr Slark said that will only be properly gauged later in the year when there is more clarity and visibility around what a post-Brexit UK will look like.

However, he said management anticipates further modest growth in the British market this year.

“Overall prospects for the current year remain favourable with continued growth in Ireland and the Netherlands expected to support an increase in profit in the year ahead,” he said.

Belgium remains the only underperforming market for Grafton, with revenues falling 11%.

However, the group is confident of returning the division to sustainable profitability in the medium term.

Mr Slark said that the Selco merchanting business in the UK, the exposure to a recovering Irish market and having a leading position in the Dutch market are the three characteristics differentiating Grafton from its peers at present.