Final Results

Grafton Group PLC 4 March 2002 GRAFTON GROUP plc Preliminary Announcement of Results For Year Ended 31st December 2001 Highlights 'The success of the Group's strategy of diversifying its earnings base was reflected in increased sales and profits from the Group's UK operations. Over the last five years since 1996, the Group's UK turnover has increased eight fold to €657.2 million, and UK operating profit has grown 15 times to €40.0 million'. • Group pre-tax profits increased by 27 per cent to €67.2 million • Earnings per share before goodwill and property profit up by 21 per cent to 34.09c • Dividend per share up by 23 per cent to 8.0c • EBITDA up 25 per cent to €101.5 million • Turnover increased by 19 per cent to €988.8 million • UK operating profit up 37 per cent to €40.0 million accounts for 50 per cent of Group profits • An additional 27 trading locations GRAFTON GROUP plc PRELIMINARY ANNOUNCEMENT OF RESULTS FOR YEAR ENDED 31 DECEMBER 2001 Grafton Group plc reports record results for the year ended 31st December 2001, with pre-tax profits growing by 27 per cent to €67.2 million (2000: €52.8 million). Earnings per share, before goodwill and property profit, increased by 21 per cent to 34.09c (2000: 28.06c). It is proposed to pay a final dividend of 4.75c, making a total of 8.0c for the year (2000: 6.5c), an increase of 23 per cent. The Group continued to develop and implement its proven strategy in pursuit of profitable growth in the UK and Ireland, and enhanced its performance in both markets. The UK now accounts for 66 per cent of Group turnover and 50 per cent of Group operating profit. UK turnover grew by 26 per cent to €657.2 million, while UK operating profit increased by 37 per cent to €40.0 million, at an improved margin of 6.1 per cent (2000: 5.6 per cent). In Ireland, margins excluding income from financial assets improved to 11.8 per cent (2000: 11.6 per cent) with profits up 9 per cent to €39.2 million, on turnover up 7 per cent to €331.6 million. Group pre-tax profit growth before property profit and dividend income in the first half was 31 per cent, with continuing strong growth in the second half of 21 per cent. Group turnover grew by 19 per cent to €988.8 million, in trading from over 230 locations, as Grafton continued to strengthen its market positions in both the UK and Ireland. Group operating profit grew by 21 per cent to €79.1 million at an improved margin of 8.0 per cent (2000:7.9 per cent) In the UK, the Group's builders and plumbers merchanting divisions experienced turnover growth ahead of the market. Five new greenfield locations were opened, and a further 22 new locations were added as a result of 11 acquisitions made during the year. The Group's EuroMix mortar business enjoyed strong sales growth, further penetrating the market, and opened its fifth dry mortar plant at Bilston, near Birmingham. All UK divisions enjoyed strong like for like sales growth and increased their contribution to Group profits. The Group's Irish operations performed well with improved results from all divisions. This performance was achieved despite a slowdown in growth in the Irish economy and in the construction sector in particular. Turnover grew by 7 per cent to €331.6 million and operating profit increased by 9 per cent to €39.2 million. The Group utilised the strong cashflows from its businesses to fund expenditure of €61.8 million on acquisitions and investments and a further €42.0 million on capital projects. EBITDA for 2001 was €101.5 million up 25 per cent. Year end Shareholders' funds were €264.5 million (2000: €216.5) and net bank debt amounted to €194.9 million giving a debt to equity ratio of 74 per cent (2000: 71 per cent). EBITDA interest cover increased to 8.2 from 6.9 times. OPERATIONS REVIEW UNITED KINGDOM UK profits increased significantly in 2001 due to organic growth, the benefits of scale flowing from the Group's growing market presence, and the integration of acquisitions. The Group traded from over 185 locations in the UK at the end of 2001. The acquisition of 11 businesses trading from 22 locations and the greenfield development of a further five locations increased market penetration and complemented the existing branch network. These initiatives provide a solid platform for future growth. The total spend on UK acquisitions was €46 million and annualised turnover from these at the date of acquisition was €92.4 million (Stg£57.5 million). The success of the Group's strategy of diversifying its earnings basis was reflected in increased sales and operating profit contribution from UK operations. The UK businesses accounted for 66 per cent (2000: 63 per cent) of Group sales and 50 per cent (2000: 45 per cent) of Group operating profit. UK sales increased by 26 per cent, including organic growth of 7.8 per cent, to €657.2 million (Stg£408.7 million). UK operating profit increased by 37 per cent to €40.0 million (Stg£24.8 million), with similar strong growth in both halves of the year. UK Builders Merchanting The Group's UK builders merchanting division made solid progress during the year. Its market position was strengthened with the acquisition of nine businesses trading from eighteen locations and the opening of one new branch taking the divisional total to 85. The most significant acquisitions were G A Day, a Portsmouth based builders merchant which trades from seven locations mainly on the South Coast, and BSG a heavyside builders merchant trading from three locations in London and Essex. The Group also acquired its first branch in Scotland. The division increased sales and operating profit as a result of like for like growth, maximising buying efficiencies and continued improvement in the performance of prior year acquisitions. Buildbase is now a well recognised brand in the UK builders merchanting sector enjoying a strong market position in the South and Midlands. The business improved the operating profit margin of its established branches and continued the re-branding and integration of acquisitions. In Northern Ireland, Macnaughton Blair had another good year achieving significant growth in sales and operating profit at higher operating margins. Macnaughton Blair grew sales and profits strongly in its established branches and also benefited from the successful integration of the three branch Lowden acquisition made in November 2000. Macnaughton Blair is a leading builders merchant in Northern Ireland trading from nine locations and is well placed to take advantage of further expansion opportunities which may arise. Plumbers Merchanting Plumbase achieved significant growth in sales and operating profit aided by like for like growth and the incremental effect of two substantial acquisitions, Thompsons and Essex Heating, made during the first half of 2000. Operating profit margins were also higher due to the successful integration of acquisitions, and the benefits of scale associated with the enlarged business, including purchasing benefits and improved efficiencies. Plumbase is the leading regional plumbers merchanting business in the South and Midlands trading from 93 branches at year end. Plumbase strengthened its branch network with the opening of four new branches during the year and a further three since the year-end. Four branches were added to the network through two bolt-on acquisitions. UK Manufacturing EuroMix, producing a range of silo based mortars using the latest technology, strengthened its market leadership position with the opening of a fifth dry mortar plant in Bilston near Birmingham. The business is well positioned to achieve further market penetration and to service customer demand in a growing market on a nationwide basis. EuroMix is now an established supplier of silo mortar to the UK's leading building and construction companies. All plants enjoyed strong volume growth which was reflected in significantly higher sales and operating profit. Operations Review - Republic of Ireland In Ireland, the inevitable return to more normal and sustainable levels of economic growth continued throughout the year. In the construction sector, the first six months of 2001 continued to show real growth, with a slowdown occurring in the second half. HomeBond registrations have been declining since August 2000 and it is estimated that private residential completions in 2001 fell while publicly funded housing completions increased. The DIY and Repair, Maintenance and Improvement (RMI) markets remained buoyant. Against this background, Irish results were strong. Irish turnover grew by 7 per cent to €331.6 million, and margins improved to 11.8 per cent (2000:11.6 per cent), resulting in an increase of 9 per cent in operating profit to €39.2 million, compared to €36.1 million in 2000. Strong double digit profit growth was experienced in the first half with modest single digit growth in the second half. These results were further improved by a property profit of €2.3 million on the sale by Chadwicks of its Kilkenny branch property, prior to relocation in 2002. Irish Merchanting Chadwicks builders and plumbers merchanting business continued to concentrate on profitable growth in 2001. Turnover grew by 2.4 per cent to €216.5 million, and operating profit improved considerably as a result of Group synergies, management's focus on the R.M.I. market and credit management. During the year a new Chadwicks Plumb Centre at Navan was opened and work progressed well on Chadwicks relocation programme for its Clonmel and Kilkenny branches. Towards the year-end, Grafton acquired Pulsar Direct, a Cork based business serving the plumbing trade. Irish Retailing Woodie's achieved strong turnover growth of 19 per cent to €85.2 million, growing like for like sales by 16 per cent in a favourable but competitive market. Woodie's development programme included the refurbishment of its Swords and Lucan stores, and increases in the size of its stores in Cork and Waterford. Woodie's increased further its product offering to the public. Expansion plans for further stores in Newbridge and Tralee are well underway. Woodie's contributed strongly to the successful performance of the Group's Irish operations. Irish Manufacturing Manufacturing turnover increased by 9 per cent to €29.9 million, compared to €27.4 million in 2000. CPI, serving the greater Dublin market, grew its concrete and EuroMix silo mortar turnover and operating profit in a highly competitive market, developing its product range and increasing its average number of silos on site throughout the year. MFP increased its plastics business and improved its profitability, despite weak selling prices in the market. FINANCIAL REVIEW Like for like sales growth of 6 per cent in Ireland and 7.8 per cent in the UK, together with improved operating margins in both Ireland and the UK, resulted in a strong increase in like for like operating profit in both the UK and Ireland. The Group's results were further enhanced by the improved profitability of businesses acquired in the year 2000, with significant contributions to Group operating profit coming from Essex Heating Supplies Ltd and E J Thompson & Company. The Group's EuroMix mortar manufacturing business also made a strong contribution to Group operating profit growth. The growth in operating profit produced a material increase in cash generated by the Group. Net cash inflow from operating activities, having taken account of the increase in working capital (required to support the increase in activity levels), was up €16.4 million or 25 per cent to €82.4 million. The Group's ongoing development programme resulted in €47.2 million being invested in new acquisitions and €42.0 million being spent on a range of capital expenditure projects. During 2001 the Group's capital programme represented 4.2 per cent of turnover and just over 2.2 times depreciation. Although the Group continues to utilise its debt capacity at higher levels to part fund the Group's acquisition activity, improved operating profits and margins together with lower interest rates have once again increased the Group's interest cover to 6.7 from 5.7 times. During 2001, both euro and sterling based interest rates were reduced on a number of occasions and the Group benefited significantly. The Group's net debt increased by 26 per cent to €194.9 million, while net interest costs only increased by 5 per cent to €12.4 million. At the end of the year, the Group's net debt represented gearing of 74 per cent (2000: 71 per cent). Shareholders' funds increased by 22 per cent to €264.5 million. EBITDA for the year increased by 25 per cent to €101.5 million. Strong cash flow and high interest cover are expected to continue to underpin the financing of continuing bolt-on acquisitions and organic developments. During the year the Group increased its stake in Heiton Group plc from 14.4 per cent to 23.8 per cent. This investment which cost €33.5 million or an average of €2.84 per share continues to be treated as a financial asset on the face of the balance sheet, with only dividend income of €1.3 million included in the profit and loss account. As stated at the time of our interim results, the Group has adopted the policy of converting the UK results at the average rate of exchange for the year rather than the year end rate as in previous years. Accordingly the UK results have been converted at the average rate of exchange of Stg62.2p to the euro. Had the previous policy been maintained and UK earnings converted at the closing rate the UK operating profit reported would have been circa €0.9 million or 2 per cent higher and Group profit before tax would have been circa €0.5 million higher. The euro / sterling exchange rate at 31 December 2001 was Stg60.8p (31 December 2000: Stg62.4p). OUTLOOK The Group's consistent and focused strategy in building strong market positions and brands across the UK and Ireland has created a broadly diversified earnings base as a sound platform for continuing growth. The contribution of UK operations to Group turnover and profitability has been increasing rapidly, now accounting for 66 per cent of turnover and 50 per cent of profits. In the UK, trading conditions in a sound economy have been favourable. The significant exposure of the Group's UK merchanting businesses to the Repair, Maintenance and Improvement (RMI) markets provides opportunities for both organic and like for like growth. There remains scope for the Group to continue to be value acquirers through bolt-on acquisitions in a market that remains fragmented. The Group's EuroMix silo mortar business enjoys market leadership nationally, and is seeking suitable sites for further market penetration. In Ireland, the pace of economic growth has slowed and in the construction sector, housing starts, which first began to decline in the second half of 2000, continued to decline throughout 2001. The partial reversal in Budget 2002 of measures that penalised the residential investor are expected to improve the new residential market later in 2002. Prospects for continuing growth in the RMI and DIY market are positive. Overall the Group remains confident that its sound finances, strong market positions, and diversified earnings base provide opportunities for further profitable growth in the year ahead. For reference: Michael Chadwick Executive Chairman Grafton Group plc Telephone: (++353) (01) 2160600 Joe Murray / Grainne O'Brien Murray Consultants Telephone: (++353) (01) 6326400 Ginny Pulbrook Citigate Telephone: (++44) (0207) 2822945 Grafton Group plc Group Profit and Loss Account For the year ended 31 December 2001 2001 2000 €'000 €'000 Turnover Continuing operations 944,150 830,456 Acquisitions 44,640 - ------- ------- Total turnover 988,790 830,456 ------- ------- Operating profit before goodwill amortisation Continuing operations 79,470 66,332 Acquisitions (331) - ------- ------- 79,139 66,332 Goodwill amortisation 3,096 2,495 ------- ------- Operating profit 76,043 63,837 Profit on disposal of property 2,262 - ------- ------- Trading profit 78,305 63,837 Income from financial assets 1,317 768 Interest payable (net) 12,386 11,825 ------- ------- Profit on ordinary activities before taxation 67,236 52,780 8,741 6,889 Taxation on profit on ordinary activities ------- ------- Profit on ordinary activities after taxation 58,495 45,891 Dividends on ordinary shares - paid 5,679 4,293 - proposed 8,321 6,973 ------- ------- 14,000 11,266 ------- ------- Profit retained for the financial year 44,495 34,625 ======= ======= Earnings per share 33.61c 26.61c ======= ======= Adjusted earnings per share* 34.09c 28.06c ======= ======= Diluted earnings per share 32.99c 26.12c ====== ====== Adjusted diluted earning per share* 33.47c 27.57c ======= ======= * Before goodwill amortisation and property profit Grafton Group plc Group Balance Sheet As at 31 December 2001 2001 2000 €'000 €'000 Fixed assets Intangible assets - goodwill 62,541 51,671 Tangible assets 251,484 209,580 Financial assets 33,554 18,949 ------- ------- 347,579 280,200 ------- ------- Current assets Stocks 133,453 115,248 Debtors 181,955 158,512 Cash and short term bank deposits 89,081 79,071 ------- ------- 404,489 352,831 Creditors (amounts falling due within one year) 264,593 234,763 ------- ------- Net current assets 139,896 118,068 ------- ------- Total assets less current liabilities 487,475 398,268 ------- ------- Creditors (amounts falling due after more than one year) 206,117 166,823 Provisions for liabilities and charges 16,891 14,948 ------- ------- 223,008 181,771 ------- ------- 264,467 216,497 ======= ======= Capital and reserves Share capital 8,804 8,711 Share premium account 34,836 32,982 Revaluation reserve 41,537 42,938 Profit and loss account 179,290 131,866 ------- ------- Shareholders' funds - equity 264,467 216,497 ======= ======= Grafton Group plc Group Cash Flow Statement For the year ended 31 December 2001 2001 2000 €'000 €'000 Net cash inflow from operating activities 82,365 65,958 Returns on investments and servicing of finance (11,764) (11,093) Taxation (5,273) (2,782) ------- ------- 65,328 52,083 ------- ------- Capital expenditure and financial investment: Purchase of tangible fixed assets (42,003) (43,151) Disposal of tangible fixed assets 9,852 6,379 ------- ------- (32,151) (36,772) Purchase of financial fixed assets (14,310) - Sale of financial fixed asset 84 - ------- ------- (46,377) (36,772) ------- ------- Acquisitions Acquisition of subsidiary undertakings and businesses (28,955) (41,779) Net (debt) acquired with subsidiary undertakings (2,957) (3,311) Deferred acquisition consideration (164) (402) ------- ------- (32,076) (45,492) ------- ------- Equity dividends paid (12,652) (9,323) ------- ------- Cash outflow before use of liquid resources and financing (25,777) (39,504) ------- ------- Cash outflow from increase in liquid resources (10,300) (17,027) ------- ------- Financing Issue of ordinary share capital 2,109 625 Increase in term debt 26,879 46,280 Capital element of finance leases repaid (874) (643) Redemption of loan notes payable (1,270) (324) Financing from sale and leaseback 1,471 - ------- ------- 28,315 45,938 3315 ------- ------- (Decrease) in cash in the year (7,762) (10,593) ------- ------- Grafton Group plc Group Cash Flow Statement For the year ended 31 December 2001 Reconciliation of Net Cash Flow to Movement in Net Debt 2001 2000 €'000 €'000 (Decrease) in cash in the year (7,762) (10,593) Cash inflow from increase in debt and lease financing (26,206) (45,313) Cash flow from management of liquid resources 10,300 17,027 ------- ------- ------- Change in net debt resulting from cash flows (23,668) (38,879) Loan notes issued on acquisition of subsidiary undertakings (11,671) (10,413) Finance leases acquired with subsidiary undertakings (947) (598) Translation adjustment (4,511) 3,142 ------- ------- Movement in net debt in the year (40,797) (46,748) Net debt at 1 January (154,108) (107,360) ------- ------- Net debt at 31 December (194,905) (154,108) ======= ======= Grafton Group plc Notes to the Profit and loss Account Year ended 31 December 2001 1. Turnover: The amount of turnover by class of activity is as follows: 2001 2000 €'000 €'000 Irish merchanting and wholesaling 216,513 211,451 DIY retailing 85,207 71,589 Irish manufacturing and related activities 29,866 27,386 ------- ------- Total turnover from Irish activities 331,586 310,426 UK merchanting and other activities 657,204 520,030 ------- ------- 988,790 830,456 ======= ======= 2. Operating Profit and Trading Profit 2001 2000 €'000 €'000 Republic of Ireland 39,187 36,092 Great Britain and Northern Ireland 39,952 29,213 ------- ------- 79,139 65,305 Goodwill amortised (3,096) (2,495) Profit on disposal of property 2,262 - Deposit forfeited on aborted property sale - 1,027 ------- ------- Trading profit 78,305 63,837 Income from financial assets 1,317 768 ------- ------- 79,622 64,605 ------- ------- 3. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 2001 2000 €'000 €'000 Operating profit 76,043 63,837 Depreciation 18,756 14,008 Goodwill amortisation 3,096 2,495 Investment impairment - 6 Profit on disposal of fixed assets (1,436) (1,460) Increase in working capital (14,058) (12,928) Profit on disposal of financial fixed assets (36) - ------- ------- Net cash inflow from operating activities 82,365 65,958 ======= ======= Increase in working capital 2001 2000 €'000 €'000 Stock 3,586 11,928 Debtors 9,924 19,647 Creditors 548 (18,647) ------- ------- 14,058 12,928 ======= ======= 4. Earnings Per Share The computation of basic and diluted earnings per share is set out below: 2001 2000 Profit on ordinary activities after taxation (€'000) 58,495 45,891 ------- ------- Weighted average shares outstanding during the year 174,034,644 172,451,100* --------- ---------- Earnings per share 33.61c 26.61c ------- -------- Number of dilutive shares under option 8,554,850 7,225,190 Number of shares that would have been issued at fair value (5,286,600) (4,010,300) -------- -------- Dilutive potential ordinary shares 3,268,250 3,214,890 -------- -------- Number of shares for calculating diluted earnings per share and adjusted diluted earnings per share 177,302,894 175,665,990 ---------- ---------- Diluted earnings per share 32.99c 26.12c ======= ======= *Adjusted to reflect the ten for one share split which took effect on 14 May 2001. Earnings per share, of 33.61c (2000: 26.61c) have been calculated on profits after taxation of €58,495,000 (2000: €45,891,000) and the weighted average number of shares of 174,034,644 (2000: 172,451,100). The calculation of adjusted earnings per share of 34.09c (2000: 28.06c) is arrived at after eliminating goodwill of €3,096,000 and property profit of €2,262,000 from profit after taxation of €58,495,000. Diluted earnings per share of 32.99c (2000:26.12c) have been calculated on profits after taxation of €58,495,000 (2000: €45,891,000) and the weighted average number of shares in issue during the year adjusted for the dilutive effect of outstanding share options. The calculation of adjusted diluted earnings per share of 33.47c (2000: 27.57c) uses the same earnings figure as for adjusted earnings per share and the weighted average number of shares as adjusted to reflect the dilutive effect of outstanding share options. 5. Dividends The Board is recommending the payment of a final dividend of 4.75c per share to be paid, subject to shareholder approval, on 2 May 2002 to shareholders registered at close of business on 15 March 2002. 6. Year End Exchange Rates The year end euro / sterling exchange rate was Stg60.8p (2000: Stg62.4p) and the average euro / sterling exchange rate was Stg62.2p (2000: Stg60.9p). Grafton Group plc Financial Overview 2001 2001 2000 Change Turnover (€'000) 988,790 830,456 +19% EBITDA (€'000) 101,474 81,108 +25% Operating profit before goodwill amortisation (€ 79,139 65,305 +21% '000) Profit before taxation (€'000) 67,236 52,780 +27% Adjusted earnings per share 34.09c 28.06c +21% Dividend per share 8.0c 6.5c +23% Dividend cover (times) 4.3 4.3 - Interest cover (times) 6.7 5.7 - Cash flow per share 46.2c 36.2c +28% Net assets per share 150.2c 124.3c +21% Net debt to shareholder's funds 74% 71% - Depreciation charge (€'000) 18,756 14,008 - Goodwill amortisation (€'000) 3,096 2,495 - Acquisition and investment expenditure (€'000) 61,842 56,646 - Capital expenditure (€'000) 42,003 43,151 - This information is provided by RNS The company news service from the London Stock Exchange

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