Acquisition and Rights Issue

Grafton Group PLC
04 February 2003

4 February 2003


                               GRAFTON GROUP PLC

                       Estimated Trading Results for 2002

            Proposed Acquisition of Jackson Building Centres Limited

                                      And

                                  Rights Issue



Trading update estimates 2002 Pretax Profits to be no less than €80 million

EPS estimated at no less than 39.1 cent, an increase of 14.7 per cent

Principle driver of growth is the UK. 50 new locations in 2002

Healthy pipeline of potential UK acquisitions

Further profitable growth expected in current year

Acquisition of Jackson Building Centres Ltd, UK's 7th largest builders merchant

Consideration €135.4 million (Stg£88.75 million)

Deep Discount Rights Issue to raise €70.55 million. 1 for 5 at €2.00 per share



Michael Chadwick, Chairman, Grafton Group plc:

'The Jacksons acquisition strengthens Grafton's position as the 4th largest UK
builders merchant with circa 8 per cent of the market. It provides a strong
platform for further acquisitions. We are seeking new funds from shareholders to
supplement our strong cash flow in funding the Jacksons acquisition, to ensure
we have resources for further acquisitions and to maintain acceptable levels of
gearing and interest cover. Our UK business is now the principle driver of
growth in the Group. UK turnover and profits grew strongly in 2002. In Ireland
our builders merchanting and manufacturing operations have performed well and
Woodie's profitable growth and expansion continues. We look forward to another
year of development and profitable growth in 2003.'

Ends                                                                                          4th February 2003

For reference:

Michael Chadwick                                                                                     Joe Murray
Executive Chairman                                                                           Murray Consultants
Grafton Group plc                                                              Telephone: (++353) [phone]
Telephone: (++353) [phone]

Colm O'Nuallain                                                                                  Ginny Pulbrook
Finance Director                                                                                       Citigate
Grafton Group plc                                                                        (++44) [phone]
Telephone: (++353) [phone]

  A copy of this statement is also available on our website www.graftonplc.com


   A copy of the presentation is available on our website www.graftonplc.com/
                                    20030204


 A briefing for analysts will be held at 08.45 am on Tuesday, 4th February 2003
   at Goodbody Stockbrokers, Ballsbridge Park, Dublin 4. For further details
                  contact Celeste O'Brien on [phone].


There will be a conference call for shareholders and other interested parties at
  10.30 am on Tuesday, 4th February 2003. For further details contact Celeste
       O'Brien on [phone] or Sarah McLaughlin on [phone].




ANNOUNCEMENT FROM GRAFTON GROUP PLC


The Directors of Grafton Group are pleased to announce pretax profit estimate of
no less than €80 million for the year to December 31st 2002. Adjusted EPS before
goodwill and property profit is expected to be no less than 39.1 cent,
representing an increase of no less than 14.7 per cent on the previous year. The
Directors expect the current year to be one of further profitable growth for the
Group.


Grafton also announces an agreement to acquire Jacksons Building Centres
Limited, the largest regional builders merchant in the United Kingdom, for a
cash consideration of €135.4 million (Stg£88.75m). Jacksons is the leading UK
builders merchant in the East Midlands. Turnover for 2002 is estimated at no
less than Stg£130m and profit before tax at no less than Stg£6.1m. The
acquisition is expected to be earnings enhancing in 2004. The acquisition is
subject to shareholder approval.

Grafton is proposing to raise €70.6m by way of a fully underwritten Rights Issue
to maintain gearing and interest cover at acceptable levels post the acquisition
of Jacksons ensuring Grafton is positioned to take advantage of other
acquisitions. The Rights Issue, which is also subject to shareholder approval,
will be on a 1 for 5 basis at a price of €2.00 per Grafton Unit. This represents
a discount to shareholders of 37.5 per cent on the closing market price of €3.20
on 3 February 2003.


The Group's operational performance for 2002 has been strong. UK activities
accounted for 70 per cent of Group turnover and showed strong profit growth.
Expansion accelerated with 15 acquisitions and greenfield developments adding 50
new UK merchanting locations. These were earnings neutral in 2002 and are
expected to contribute to profits in the current year. Completion of the
Jacksons acquisition will bring the total number of UK merchanting outlets to
245, giving Grafton an estimated 8 per cent market share of the UK merchanting
market.


In the Republic of Ireland, the economy and the construction industry slowed
from the very rapid growth rates of recent years. The Group's Irish merchanting
and manufacturing businesses improved in the second half and Woodie's profitable
growth and expansion continued. Irish operations generated strong cash flows,
high margins and good returns on capital employed.


The Directors have decided to redeem one of the Grafton Group plc redeemable
shares for a total consideration of 5.25 cent per share. Accordingly, no final
dividend will be declared. Total redemption proceeds for the year amount to 9
cent per Grafton Unit, which is equivalent to an increase of 12.5 per cent on
the total dividend of 8 cent per Grafton Unit paid in the previous year.


An Extraordinary General Meeting of Grafton Group will be announced shortly.


Commenting on these announcements today, Michael Chadwick, Executive Chairman of
Grafton said: 'The Jacksons acquisition further strengthens Grafton's position
as the 4th largest UK builders merchant. It is a well managed business with high
brand recognition in a key area of the UK economy which complements our strong
network in the South East and Midlands. We expect to derive financial benefits
of at least Stg£6.5m per annum for the Group through buying synergies and other
operational efficiencies in the third full financial year after the acquisition.
Jacksons will also give us a stronger platform for developing future acquisition
opportunities.'


'We plan to continue our UK acquisition programme to avail of opportunities
arising from consolidation of the merchant sector there. The Group's €300m
acquisition spend over the past five years was funded primarily from the Group's
strong cashflow and borrowing. We believe it is wise to seek new funds from
shareholders at this time to part fund the Jacksons acquisition, to ensure we
have resources for further acquisitions and to maintain acceptable levels of
gearing and interest cover.'


'We are satisfied that 2002 has been another year of strong operational
performance and earnings growth. We are especially pleased with the performance
of our UK operations which are now the principle driver of growth in the Group.
UK turnover and profits grew strongly. In Ireland our builders merchanting and
manufacturing operations have performed well, and Woodie's continues to grow. We
look forward to another year of development and profitable growth in 2003.'


ESTIMATED TRADING RESULTS FOR 2002

PROPOSED ACQUISITION OF JACKSON BUILDING CENTRES LIMITED

AND RIGHTS ISSUE


Grafton Profit Estimate for the Year ended 31 December 2002


The Directors are pleased to report that 2002 has been yet another year of
strong operational performance and they expect to report earnings marginally
ahead of market expectations. The Directors estimate of turnover and profits for
the year ended 31 December 2002 is included with this annnouncement in Appendix
1.


In particular, the Directors estimate that profit before tax for the year ended
31 December 2002 will be no less than €80million. Profit before tax includes
property profits of €3.7million. Property profits relate to profits on the
disposal of two properties. The Board expects that earnings per share before
goodwill amortisation and property profit for the year to 31 December 2002 will
be no less than 39.1 cent per share which represents an increase of no less than
14.7 per cent on earnings per share before goodwill amortisation and property
profit for the year to 31 December 2001 of 34.09 cent per share. On the same
basis, the Directors estimate that the fully diluted adjusted earnings per share
will be no less than 38.2 cent per share (32.9 cent; 2001) The estimate of
results for the year ended 31 December 2002 has been extracted without material
adjustment from Part V of the Rights Issue document.


In the UK, the Group's most important market, the merchanting business performed
well in a consolidating market, growing turnover and profit strongly and
accelerating its expansion programme in the second half through acquisition and
greenfield activities. EuroMix dry mortar had an excellent year, strengthening
its leadership position with increased sales and profits.


In the Republic of Ireland, against the background of a slowdown in the economy
and the construction sector, the Group's merchanting and manufacturing
businesses improved in the second half, enabling turnover to reach 2001 levels
for the full year. Woodie's DIY turnover grew as a result of both the opening of
two new stores and organic growth from the existing stores. All the Irish
divisions generated strong cash flows, high margins and good returns on capital
employed.


The Group's strategy of creating a balanced and diversified earnings base across
the UK and Ireland is reflected in the substantial growth in turnover, profit
before tax and earnings per share (before goodwill and exceptional profit) as
shown below:

Year ended 31 December                        1997       1998       1999       2000       2001        2002
                                                €m         €m         €m         €m         €m          €m
Turnover                                     327.6      427.6      620.2      830.5      988.8      1152.0
Profit before tax                             23.2       28.2       38.2       52.8       67.2        80.0
Adjusted earnings per share (€c)              12.3       15.0       20.7       28.1       34.1        39.1

Source: The table above has been extracted without material adjustment from the
Annual Report of Grafton for the years 1997 to 2001 and the Profit Estimate in
Part V of the Rights Issue document.

The following table shows the development of the Group's UK business over the
six years to 2002:
                                           1997         1998       1999       2000       2001       2002
                                             €m           €m         €m         €m         €m         €m
Turnover                                  122.6        187.3      344.4      520.0      657.2      808.5
Operating profit                            5.2          5.7       16.6       29.2       40.0       53.6
Operating Margin                           4.2%         3.0%       4.8%       5.6%       6.1%       6.6%


The table above has been extracted without material adjustment from the Annual
Report of Grafton for the years 1997 to 2001 and the Profit Estimate in Part V
of the Rights Issue document.


Outlook and Future Prospects


The UK, accounting for 70 per cent of the Group's turnover before the Jacksons
acquisition, will be the principle driver of growth in 2003. The Group's UK
merchanting network of over 225 branches has significant exposure to the repair,
maintenance and improvement markets, providing opportunities for both organic
and like-for-like growth. Fifteen merchanting acquisitions, together with new
greenfield branches, which added fifty new locations and were earnings neutral
in 2002, will contribute to Group profitability in 2003. In the dry mortar
market, EuroMix is expected to experience continuing market penetration and
strong growth and will open its sixth manufacturing plant in mid 2003.


In the Republic of Ireland, the construction sector is unlikely to return to
growth in 2003, while in the DIY market, Woodie's will benefit from market
growth and the opening of its two new stores in mid 2002. The Group expects to
open more DIY stores in 2003.


Given the traditionally strong cashflows of Grafton, the equity raised through
the Rights Issue and the Enlarged Group's position in the UK, Grafton will
continue to be capable of capitalising on acquisition opportunities as they
arise from a healthy pipeline of potential candidates.


Accordingly, the Directors look forward to a year of further development and
profitable growth for the Enlarged Group.


Acquisition of Jacksons


The Board announced that it intends to acquire, subject to shareholder approval,
the entire issued share capital of Jacksons for a cash consideration of €135.4
million (Stg£88.75 million).


Jacksons is the UK's seventh largest builders merchant in terms of turnover and
trades from 18 branches in the East Midlands. The business reported turnover of
£120 million (€197 million) and profit before tax of £4.7 million (€7.7 million)
for the year ended 31 December 2001. The net assets of Jacksons as at 31
December 2001 were £32.8 million (€53.9 million).


The business is based in Lincoln where its first branch opened in 1946 and
currently trades through branches in Lincolnshire, Northamptonshire, South
Yorkshire, Derbyshire, Nottinghamshire, Leicestershire and Rutland. Jacksons is
firmly established as the leading independent builders merchant in the East
Midlands with a well recognised and respected brand name. The business is
focused on the supply of a broad range of heavyside and lightside building
materials to customers comprised mainly of small and medium sized businesses
operating in the repair, maintenance and improvement market, in addition to
retail customers.


Following the acquisition of Jacksons, the Group will be trading from over 132
builders merchanting and 113 plumbers merchanting locations in the UK.


Benefits of the Acquisition of Jacksons

Jacksons, a long established family business, trades from 18 branches in the
East Midlands. In the year ended 31 December 2001 the business reported turnover
of £119.8 million and profit before tax of £4.7 million. In the year to 31
December 2002, the Directors of Grafton expect turnover and unadjusted profit
before tax to be no less than £130 million and £6.1 million respectively. The
estimate of the results of Jacksons has been extracted from Part V of the Rights
Issue document.

The Board believes that the prospects for the Jacksons business will be enhanced
by becoming part of Grafton and that the proposed acquisition should provide
opportunities for the Enlarged Group to realise scale benefits through buying
synergies and operational efficiencies and also provide a stronger platform for
any future acquisition opportunities which may arise. Completing the acquisition
of Jacksons, a well managed profitable business, will represent another
significant step in the Group's strategy of expanding its builders merchanting
business in the UK and will further consolidate Grafton as the UK's fourth
largest merchant with an estimated share of approximately 8 per cent of the UK
merchanting market.


It is currently intended to continue to trade the Jacksons business under the
strongly established and respected identity of its family name and accordingly
it is not intended to integrate the business into the Group's Buildbase business
in the short term.

Financial Effects of the Acquisition


The Board believes that as a result of the acquisition, the Enlarged Group will
be able to generate annual synergies and cost savings of at least £6.5 million
in the third full financial year after the acquisition. These are expected to be
generated primarily through buying synergies, overhead savings, operating
efficiencies and improved margin management. The Directors expect that the
acquisition will be earnings enhancing in 2004, the first full financial year
after the acquisition, before the impact of goodwill amortisation under FRS 10
and excluding the impact of exceptional items. This statement should not be
interpreted to mean that Grafton's future earnings per share will necessarily be
greater than its historical earnings per share.


At completion of the acquisition, net assets of Jacksons are expected to be
€54.6 million (£35.8 million) and net debt is expected to be €7.6 million (£5.0
million). Goodwill expected on the acquisition is €80.8 million (£53 million).
Goodwill on the acquisition is the difference between acquisition consideration
and the net assets of Jacksons at completion.


Proposed Rights Issue


The Board also announced today that Grafton is raising approximately €67.7
million, net of expenses, by the issue of up to 35,276,228 New Grafton Units at
a price of €2.00 per Grafton Unit.

The Group's acquisition spend over the five years to 31 December 2002 of almost
€300 million was funded from internal resources and utilisation of the Group's
debt capacity except for equity issues of €23 million in 1998 and 1999. The
Directors estimate that the Group's net debt to equity ratio at 31 December 2002
was no more than 85 per cent. While this demonstrates that the Group's strong
cashflow is capable of continuing to finance a reasonable level of ongoing
acquisition activity, the proposed acquisition of Jacksons at a cost of €135.4
million (£88.8 million) requires new funds to be raised to ensure that the Group
continues to have resources at its disposal to capitalise on further acquisition
opportunities which may arise, while maintaining Group gearing and interest
cover at acceptable levels.


The net proceeds of the Rights Issue, expected to be received by the Company by
the end of March 2003, will be used to reduce the gearing of Grafton following
the acquisition.


This announcement should be read in conjunction with the full text of the Rights
Issue document. The Rights Issue document will be dispatched to Shareholders as
soon as practicable. Words and expression defined in the Rights Issue document
shall bear the same meanings in this document.


Directors Recommendation


Your Directors, who have received financial advice from Goodbody Corporate
Finance, consider the Proposed Acquisition to be in the best interests of
shareholders. In providing financial advice to the Directors, Goodbody Corporate
Finance has placed reliance on the Directors' commercial assessment of the
Acquisition and the Rights Issue. Your Directors also consider the Rights Issue
to be in the best interests of Grafton and its Shareholders as a whole.


Accordingly, your Directors recommend that you vote in favour of the
Resolutions, as they intend to do in respect of their aggregate holding of
Grafton Units which represents 11 per cent of the issued share capital of
Grafton.


The Directors, other than Mr. M. Chadwick, intend to take up their respective
rights in respect of not less than the number of New Grafton Units as can be
funded by the sale, nil paid, of the balance of their entitlements. Mr. Chadwick
and/or members of his family and/or an entity or entities connected with him and
/or members of his family intend to take up Rights in respect of New Grafton
Units to a value of not less than €1 million.


Advisers and Sponsor


The legal advisers to the Company on the acquisition were Lyons Davidson,
Solicitors, Bristol, and the legal advisers to the Company in relation to the
Rights Issue were Arthur Cox, Solicitors, Dublin.


Goodbody Corporate Finance and Goodbody Stockbrokers (together 'Goodbody'),
which are regulated in Ireland by the Central Bank of Ireland, are acting as
sponsor, underwriter and financial adviser to the Company with regard to the
Rights Issue and will not be responsible to anyone other than Grafton for
providing the protections afforded to customers of Goodbody or for providing
advice in relation to the Rights Issue. Goodbody does not have any authority
whatsoever to make any representation or warranty on behalf of Grafton Group plc
or any other person in connection with the proposed Rights Issue or any other
investment in securities of Grafton Group plc.


NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION IN WHOLE OR IN PART IN OR INTO THE
UNITED STATES, CANADA, JAPAN, AUSTRALIA AND SOUTH AFRICA.


Appendix 1


The Directors estimate that for the year ended 31 December 2002, Grafton will
report consolidated turnover and profits as set out below:

                                                                                    2002                2001
                                                                               Unaudited             Audited
                                                                              €' million          €' million
Turnover                                                                           1,152               988.8
Operating profit before goodwill amortisation                                       92.2                79.1
Goodwill amortisation                                                                4.2                 3.1
Operating profit                                                                    88.0                76.0
Profit on disposal of property                                                       3.7                 2.3
Trading profit                                                                      91.7                78.3
Income from financial assets                                                         1.6                 1.3
Interest payable (net)                                                              13.3                12.4
Profit on ordinary activities before taxation                                       80.0                67.2
----------------------------------------------------                                12.1                 8.7
Taxation on profit on ordinary activities
Profit on ordinary activities after taxation                                        67.9                58.5
Dividends on ordinary shares                                                           -                14.0
Profit retained for the financial year                                              67.9                44.5
Earnings per share                                                                 38.6c              33.61c
Adjusted earnings per share                                                        39.1c              34.09c
Diluted earnings per share                                                         37.7c              32.99c
Adjusted diluted earnings per share                                                38.2c              33.47c
Share redemption / dividend per share                                               9.0c                8.0c

The Directors also estimate that the:

  • Irish turnover will be not less than €343.5 million;
  • UK turnover and operating profit before goodwill amortisation will be not
    less than €808.5 million and not less than €53.6 million respectively;
  • Operating margins for Ireland and the UK will be not less than 11% and
    6.6% respectively; and
  • Net debt to equity ratio as at 31 December 2002 will be not more than 85%.

Adjusted earnings per share excludes the profit on disposal of property and
goodwill amortisation.


The figures shown above for the year ended 31 December 2001 have been extracted,
without material adjustments, from the 2001 Annual Report of Grafton.


Basis of preparation


The estimate of results is based on the unaudited Group Management Accounts for
the twelve months ended 31 December 2002.





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