Grafton group sees profit drop 33% as construction costs fall

Stabilising from record highs, the group said price deflation increased gross margin pressure across competitive markets

The DIY and building company also announced a new share buyback programme commencing from the 31st of August, with plans to buy back ordinary shares for a maximum aggregate consideration of up to £50m (€58.2m). Picture: Eddie O'Hare

Grafton Group, the parent company of Woodies and Chadwicks saw earnings fall by almost a third with lower volumes and price deflation impacting profitability.

Falling by almost 33%, the group reported an operating profit of £94.3m (€109.8m) for the first six months of 2023, down from £140.1m (€163m) in the same period last year.

As prices for construction materials stabilised from record highs, the group's profitability in its Irish and UK Distribution business declined, with Grafton adding that deflation increased gross margin pressure across its competitive markets.

Posting revenue of £1.19bn (€1.38m) - up 3.2% compared to the same period last year - the group noted Ireland's "tight market for skilled labour" which saw inflation increase payroll costs at the fastest rate in decades.

With pre-tax profit declining by almost 30% to £93.6m (€109m), the group said its Woodie’s DIY, Home and Garden retail business performed strongly, although noting that affordability pressures also weighed on activity.

The DIY and building company also announced a new share buyback programme commencing from the 31st of August, with plans to buy back ordinary shares for a maximum aggregate consideration of up to £50m (€58.2m). 

Earlier this year, the group completed a £93m (€106m) share buyback programme, with today's announcement aiming to further reduce the share capital of the company by repurchasing up to 10% of the company's ordinary shares.

Despite a prolonged period of falling housing supply, Grafton said its Irish market outlook for the economy "improved somewhat due to stronger growth in employment and incomes which is supportive of consumer spending."

The group added house completions across Ireland have held up better than expected, with the number of units to be completed this year expected to be similar to last year.

“The strength of the Group’s market positions and our experienced management teams have underpinned a resilient performance in the face of challenging conditions during the first half," said Eric Born, chief executive of Grafton Group.

"Whilst uncertainties remain in the short term, we are confident that Grafton is exceptionally well positioned to benefit as the cycle turns, markets normalise and consumer confidence gains momentum.”