Final Results

Grafton Group PLC 10 March 2003 GRAFTON GROUP plc Preliminary Announcement of Results For Year Ended 31 December 2002 Highlights • Pre-tax profits up 19 per cent to €80 million • Earnings per share before goodwill and property profit up 15 per cent to 39.3c • UK the key contributor to increased profitability • UK operating profits up 34 per cent to €54 million • Woodie's DIY grows strongly in Ireland • Strong recovery in second half for Irish merchanting and manufacturing • Share redemption / dividend per share increased by 13 per cent to 9c • Acquisition programme to continue • Critical mass achieved to bring significant benefits Commenting on the results today, Michael Chadwick, Chairman said: 'Our UK operations were the key contributors to increased profitability in 2002. Grafton now holds an 8 per cent share of the UK market and is the fastest growing merchant in that market. UK operating profits grew by 34 per cent in 2002. In Ireland, merchanting strengthened in the second half and Woodie's DIY continued its strong growth. For the current year, global economic uncertainties remain, but the underlying growth potential for the Group across its diversified earnings base is positive and Group results to date this year have been good'. GRAFTON GROUP plc Preliminary Announcement of Results For Year Ended 31 December 2002 Following the announcement of estimated results on 4 February 2003, the Group is pleased to confirm that 2002 has been yet again another year of strong operational performance and record financial results for the Group. Pre-tax profits increased by 19 per cent to €80.2 million (2001: €67.2 million). Earnings per share, before goodwill and property profit grew by 15 per cent to 39.26 cent (2001: 34.09 cent). The Group has already announced the Board's decision to redeem one redeemable share per Grafton Unit on 14 February 2003 for a cash consideration of 5.25 cent per share. Accordingly, no final dividend will be declared. Total redemption proceeds amount to nine cent per Grafton Unit, which is equivalent to an increase of 12.5 per cent on the total dividend of eight cent paid for the previous year. The Group's consistent focus has created a balanced diversified earnings base, and strong brands and market positions in the UK and Ireland. This is reflected in substantial growth in profit before tax and earnings per share, and an increase in Group turnover of 16.5 per cent to €1,152.4 million, the first time the Group's annual turnover has exceeded one billion euro (2001: €988.8 million). Group operating profit grew by 16.6 per cent to €92.3 million (2001: €79.1 million). In the UK market, accounting for 70 per cent of the Group's operations, strong profitable growth continued. UK turnover increased by 23 per cent to €808.5 million (2001: €657.2 million), while operating profit before goodwill amortisation and property profit increased by 34.4 per cent to €53.7 million (2001: €40.0 million). Operating margins improved for the fourth consecutive year to 6.6 per cent (2001: 6.1 per cent). The Group's UK merchanting business performed well in a consolidating market, accelerating its expansion programme in the second half. Fifteen acquisitions in 2002, together with greenfield start-ups added 50 trading locations, and increased the Group's UK merchanting network at the end of 2002 to 227. EuroMix, the Group's dry mortar business, continued to penetrate the UK market with strong growth in turnover and profits. In Ireland, against the background of a slowdown in the economy and the construction sector, turnover in the Group's merchanting and manufacturing businesses improved in the second half, enabling the Group's Irish turnover to exceed 2001 levels for the full year. Woodie's DIY turnover grew as a result of the opening of two new stores, and strong like-for-like growth from existing stores. All the Irish divisions generated strong cash flows, high margins, and good returns on capital employed. Irish turnover increased by 3.7 per cent to €343.8 million (2001: €331.6 million). Operating profit declined by 1.5 per cent to €38.6 million (2001: €39.2 million) at an operating margin of 11.2 per cent (2001: 11.8 per cent). The Group's strong balance sheet and cash flows from its operations funded expenditure of €88.8 million on acquisitions, and a further €68.0 million on capital projects. Year end shareholders' funds were €322.0 million (2001: €264.5 million) and net debt amounted to €240.6 million (2001: €194.9 million), giving a debt to equity ratio of 75 per cent (2001: 74 per cent). EBITDA for 2002 amounted to €120.1 million (2001: €101.5 million), an increase of 18.3 per cent. Operations Review - United Kingdom This is now the Group's most important market. During 2002 the Group strengthened its UK position and market presence with 15 acquisitions, making 37 acquisitions in all over the last three years. These, together with strong like-for-like sales growth resulted in UK turnover growing by 23.0 per cent to €808.5 million. Scale benefits and strong management resulted in operating margins improving to 6.6 per cent from 6.1 per cent in 2001 for the fourth consecutive year. Strong turnover and margin management resulted in UK operating profit growing significantly by 34.4 per cent to €53.7 million. All UK divisions reported a strong improvement in sales and operating profit. The Group's strategic diversification has created a UK business platform accounting for 70 per cent of Group sales (2001: 66 per cent) and 58 per cent of Group operating profit (2001: 50 per cent). These strong results confirm UK managements' ability to successfully complete and integrate acquisitions in a consolidating market and to generate synergies from its expanding business base. UK Builders Merchanting The UK Builders merchanting division, which trades mainly under the Buildbase brand, continued its rapid growth in 2002 with record results and significant development activity. The division had an excellent year increasing sales and operating profit due to like-for-like growth, integration benefits from prior year acquisitions, the incremental effect of acquisitions made during 2001 and acquisitions completed during 2002. Integration benefits were reflected principally in improved buying terms, and operational efficiencies. The UK builders merchanting division increased its branch network by 31 during 2002 and traded from 114 locations at the year end. The division completed 13 acquisitions during 2002. These deals underpinned the divisions development strategy and demonstrate the Group's success in securing bolt-on acquisitions which complement the existing network through wider market coverage. The businesses acquired were long established builders merchants, trading from well located branches with strong positions in their local market place. Four builders merchanting chains acquired were BMB, a Barnsley based merchant trading from four builders merchanting branches principally in Yorkshire; Lakes, which trades from seven branches mainly in Derbyshire; PDM, a Scottish heavyside merchant trading from seven branches and Aizlewoods which is based in Rotherham and trades from three builders merchanting branches. Nine mainly infill single branch acquisitions strengthened the divisions' regional coverage. Buildbase, now firmly established as a key player in the UK merchanting industry, extended its regional market presence beyond the South and Midlands during 2002 with acquisitions in the North of England which provide scope for adding value through cost benefits and offers the potential for future bolt-on development activity. Integration of prior year acquisitions into the Buildbase network continued during 2002 yielding significant purchasing and cost saving benefits. In Northern Ireland, Macnaughton Blair increased sales and operating profit in a competitive market. The acquisition in October 2002 of Peter Woods, a single branch builders merchant, strengthens the Group's presence in the Belfast area and takes the number of branches in the province to ten. The branches at Antrim and Duncrue, Belfast, were redeveloped during 2002. Plumbers Merchanting Plumbase, one of the UK's largest Plumbers Merchanting chains, increased its branch network by 20 during 2002 and traded from 113 branches at the year-end. The business consolidated its strong market positions in the South East, Midlands, East Anglia and West Country with the opening of nine new branches and the acquisition of B J White, which trades from branches in Yeovil and Bridport. Plumbase gained an initial but significant presence in the North West as a result of the acquisition in late November 2002 of JKS, a seven branch plumbers merchant trading in the Greater Manchester area. Plumbase is now well placed to take advantage of other acquisition opportunities which may arise in this region. Plumbase also gained a further two branches as a result of the BMB and Aizlewoods acquisitions. This was another year of strong growth in sales and operating profit due primarily to like for like sales growth, margin improvement and the profitable development of prior year branch openings. UK Mortar EuroMix, a range of mortars produced using the latest factory and onsite technology trades from five plants in the London, Birmingham, Manchester and Glasgow areas. EuroMix, the market leader in the supply of silo based mortars, had an outstanding year growing sales and operating profit strongly. The five mortar plants increased volumes and traded ahead of expectations. EuroMix has been strongly endorsed in its marketplace as a value-added product and is now used by UK national and regional contractors on a broad range of construction projects. Operations Review - Republic of Ireland In Ireland, the construction sector, which had seen eight years of continuous growth from 1994 to 2001, showed an overall decline of 2 per cent in 2002. The housing sector continued to grow following the restoration of mortgage interest deductibility for rental purposes and changes to stamp duty in Budget 2002. Growth in the DIY and RMI market (Repair Maintenance and Improvements) was positive. A strong second half performance by the Group's Irish operations resulted in turnover growth of 8.8 per cent and operating profit increasing by 7.7 per cent in the final six months of the year. Turnover for the full year was €343.8 million, an increase of 3.7 per cent and operating profit for the year was €38.6 million, down just 1.5 per cent on 2001. Irish Merchanting Led by Chadwicks, Irish merchanting operations traded very successfully in the second half, growing turnover by 4.4 per cent following a first half decline of 5.6 per cent. Margins also improved considerably on the first half, as management focused on cost control and profitable trading. Turnover for the year was €215.0 million, down just 0.7 per cent on 2001. Chadwicks' Clonmel and Kilkenny branches were relocated to custom built high profile premises during the year and are trading successfully. The sale of Chadwicks Wexford, prior to its planned relocation in 2004, together with the disposal of an unused property in Clonmel, has resulted in property profits of €3.7 million. Irish Retailing Woodie's market leadership was strengthened with the opening of two new stores in Tralee and Newbridge during the year. Both are trading successfully. Turnover grew by 15.2 per cent to €98.1 million, compared to €85.2 million in 2001, with strong like-for-like growth of 6.0 per cent. Woodie's has also acquired a high profile prime location on the Naas Road, Dublin, as part of its expansion plans, and continued its programme of store development. Irish Manufacturing Manufacturing turnover, which had declined by 1.8 per cent in the first half, recovered strongly in the second half with growth of 7.3 per cent. Turnover for the year was €30.7 million, 2.7 per cent ahead of 2001. CPI's EuroMix business strengthened its position in the dry mortar market. Strategy The Group's consistent strategy of broadening its earnings base and creating strong market positions and brands, while growing its earnings per share, has continued in 2002. In the five year period from 1997, the Group made 52 acquisitions, increasing its UK merchanting network from 38 outlets to 227, increasing its UK turnover six-fold and its UK profits ten-fold. UK margins have also increased over that period from 4.2 per cent to 6.6 per cent. Finance The Group reported its eleventh year of uninterrupted profit growth in 2002 and a doubling of profit before tax in the last three years. The established businesses in the UK were the key contributor to increased profitability in 2002. The Irish business experienced a resumption of profitable growth in the second half and almost reversed the operating profit decline reported in the first half to end the year marginally down on 2001. The Group's interest charge of €13.2 million (2001: €12.4) benefited from lower interest rates on borrowings and interest cover increased to 7.4 from 6.7 in 2001. Shareholders' funds increased by €57.5 million (22%) to €322.0 million (2001: €264.5 million). Net debt at 31 December 2002 was €240.6 million (2001: €194.9 million), giving a debt to equity ratio of 75 per cent (2001: 74 per cent). The redemption of redeemable shares on 14 February 2003 reduced shareholders' funds by €9.3 million. The Group produced very strong cash flows in 2002 generating €109.3 million from operating activities (2001: €82.4 million). The Group's active acquisition programme continued in 2002 with the completion of 15 small and medium sized transactions at an overall cost of €88.8 million (2001: €47.2 million). Capital expenditure increased to €68.0 million in 2002 (2001: €42.0 million). Development initiatives in Ireland included the purchase of freehold property on the Naas Road, Dublin for Woodie's, the opening of two new Woodie's stores and the relocation of two Chadwicks branches. In the UK, the Group expanded its merchanting network with the opening of ten branches and also redeveloped a number of branches. Capital expenditure was also incurred to support the rapid expansion of the UK mortar business. The Group's acquisition spend over the five years to 31 December 2002 of almost €300 million and capital expenditure of just over €200 million over the same period was funded from internal cash flow and utilisation of the Group's debt capacity, other than a 5 per cent placing in 1999 which raised €15.5 million. The rights issue announced on 4 February 2003, to supplement the Group's strong cash flow in funding the Jacksons acquisition, will leave the Group well placed to finance attractive acquisition opportunities which will arise, while maintaining acceptable levels of gearing and interest cover. Group Outlook Global economic uncertainties remain, but the underlying growth potential for the Group across its diversified earnings base is positive. In Ireland the construction sector is unlikely to return to growth overall, but the Group will benefit from its exposure to the RMI and DIY markets, and the full year turnover from its two new Woodie's DIY stores opened in mid 2002. Further Woodie's store openings are planned. Strong trading in Ireland in January and February has resulted in increased operating profit in all divisions. The Group's UK merchanting operations in a large and consolidating market should experience further acquisition opportunities and growth in 2003. Buildbase and Plumbase merchanting operations will benefit from the 50 new trading locations acquired or opened in 2002, which will contribute to profitability. EuroMix dry mortar is expected to continue to penetrate the market and experience growth and will shortly open its sixth manufacturing plant. UK operating profits have continued to grow in the first two months of this year. Since year end, Grafton has acquired Jackson Building Centres Limited, the largest regional builders merchant in the UK, adding a further 18 branches and increasing its overall merchanting network to 245 trading locations. The acquisition of Jacksons increases the Group's market share of the UK merchanting market to 8 per cent. This profitable and well managed business in the East Midlands, with a turnover of circa €207 million and profits of circa €10 million in 2002, is an excellent strategic and geographic fit for Grafton's UK operations. The recent Rights Issue provides Grafton with the balance sheet strength to continue to make bolt-on acquisitions in a consolidating UK merchanting market. Group results to date this year have been good and the Board looks forward to a year of further development and growth in earnings per share for the enlarged Group. Ends 10th March 2003 For reference: Michael Chadwick Joe Murray / Grainne O'Brien Executive Chairman Murray Consultants Grafton Group plc Telephone: (++353) (01) 498 0300 Telephone: (++353) (01) 216 0600 Colm O Nuallain Ginny Pulbrook Finance Director Citigate Grafton Group plc (++44) (0207) 282 2945 Telephone: (++353) (01) 216 0600 A copy of this statement is also available on our website www.graftonplc.com Grafton Group plc Group Profit and Loss Account For the year ended 31 December 2002 2002 2001 €'000 €'000 Turnover Continuing operations 1,087,375 988,790 Acquisitions 64,983 - --------- -------- Total turnover 1,152,358 988,790 --------- -------- Operating profit before goodwill amortisation Continuing operations 91,387 79,139 Acquisitions 924 - --------- -------- 92,311 79,139 Goodwill amortisation 4,195 3,096 --------- -------- Operating profit 88,116 76,043 Profit on disposal of property 3,711 2,262 --------- -------- Trading profit 91,827 78,305 Income from financial assets 1,611 1,317 Interest payable (net) 13,219 12,386 --------- -------- Profit on ordinary activities before taxation 80,219 67,236 12,048 8,741 Taxation on profit on ordinary activities --------- -------- Profit on ordinary activities after taxation 68,171 58,495 Dividends on ordinary shares - paid 9 5,679 - proposed - 8,321 --------- -------- 9 14,000 --------- -------- Profit retained for the financial year 68,162 44,495 ========= ======== Earnings per share 38.75c 33.61c ========= ======== Adjusted earnings per share* 39.26c 34.09c ========= ======== Diluted earnings per share 37.90c 32.99c ========= ======== Adjusted diluted earning per share* 38.40c 33.47c ========= ======== * Before goodwill amortisation and property profit Grafton Group plc Group Balance Sheet As at 31 December 2002 2002 2001 €'000 €'000 Fixed assets Intangible assets - goodwill 100,443 62,541 Tangible assets 302,336 251,484 Financial assets 33,579 33,554 --------- -------- 436,358 347,579 --------- -------- Current assets Stocks 159,345 133,453 Debtors 209,276 181,955 Cash and short term bank deposits 103,108 89,081 --------- -------- 471,729 404,489 Creditors (amounts falling due within one year) 282,015 264,593 --------- -------- Net current assets 189,714 139,896 --------- -------- Total assets less current liabilities 626,072 487,475 --------- -------- Creditors (amounts falling due after more than one year) 288,083 206,117 Provisions for liabilities and charges 16,016 16,891 --------- -------- 304,099 223,008 --------- -------- 321,973 264,467 ========= ======== Capital and reserves Share capital 9,023 8,804 Share premium account 35,465 34,836 Capital redemption reserve 18 - Revaluation reserve 40,533 41,537 Profit and loss account 236,934 179,290 --------- -------- Shareholders' funds - equity 321,973 264,467 ========= ======== Grafton Group plc Group Cash Flow Statement For the year ended 31 December 2002 2002 2001 €'000 €'000 Net cash inflow from operating activities 109,259 82,365 Returns on investments and servicing of finance (9,424) (11,764) Taxation (5,213) (5,273) --------- -------- 94,622 65,328 --------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (68,007) (42,003) Disposal of tangible fixed assets 14,656 9,852 --------- -------- (53,351) (32,151) Purchase of financial fixed assets - (14,310) Sale of financial fixed assets - 84 --------- -------- (53,351) (46,377) --------- -------- Acquisitions Acquisition of subsidiary undertakings and businesses (76,379) (28,955) Net cash / (debt) acquired with subsidiary undertakings 5,250 (2,957) Deferred acquisition consideration (3,728) (164) --------- -------- (74,857) (32,076) --------- -------- Redemption of shares / dividends Equity dividends paid (8,330) (12,652) Redemption of redeemable shares (6,610) - --------- -------- (14,940) (12,652) --------- -------- Cash outflow before use of liquid resources and financing (48,526) (25,777) --------- -------- Cash inflow / (outflow) from movement in liquid resources 7,272 (10,300) --------- -------- Financing Issue of ordinary share capital 866 2,109 Increase in term debt 95,329 26,879 Capital element of finance leases repaid (1,723) (874) Redemption of loan notes payable (18,627) (1,270) Financing from sale and leaseback - 1,471 --------- -------- 75,845 28,315 --------- -------- Increase / (decrease) in cash in the year 34,591 (7,762) --------- -------- Grafton Group plc Group Cash Flow Statement For the year ended 31 December 2002 Reconciliation of Net Cash Flow to Movement in Net Debt 2002 2001 €'000 €'000 Increase / (decrease) in cash in the year 34,591 (7,762) Cash inflow from increase in debt and lease financing (74,979) (26,206) Cash flow from management of liquid resources (7,272) 10,300 --------- -------- Change in net debt resulting from cash flows (47,660) (23,668) Loan notes issued on acquisition of subsidiary undertakings (14,473) (11,671) Finance leases acquired with subsidiary undertakings (744) (947) Translation adjustment 17,138 (4,511) --------- -------- Movement in net debt in the year (45,739) (40,797) Net debt at 1 January (194,905) (154,108) --------- -------- Net debt at 31 December (240,644) (194,905) ========= ======== Grafton Group plc Notes to the Profit and loss Account Year ended 31 December 2002 1. Turnover The amount of turnover by class of activity is as follows: 2002 2001 €'000 €'000 Irish merchanting and wholesaling 215,037 216,513 DIY retailing 98,117 85,207 Irish manufacturing and related activities 30,665 29,866 --------- -------- Total turnover from Irish activities 343,819 331,586 UK merchanting and other activities 808,539 657,204 --------- -------- 1,152,358 988,790 ========= ======== 2. Operating Profit and Trading Profit 2002 2001 €'000 €'000 Republic of Ireland 38,596 39,187 Great Britain and Northern Ireland 53,715 39,952 --------- -------- 92,311 79,139 Goodwill amortised (4,195) (3,096) Profit on disposal of property 3,711 2,262 --------- -------- Trading profit 91,827 78,305 Income from financial assets 1,611 1,317 --------- -------- 93,438 79,622 ========= ======== 3. Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 2002 2001 €'000 €'000 Operating profit 88,116 76,043 Depreciation 22,439 18,756 Goodwill amortisation 4,195 3,096 Profit on disposal of fixed assets (1,839) (1,436) Increase in working capital (3,652) (14,058) Profit on disposal of financial fixed assets - (36) --------- -------- Net cash inflow from operating activities 109,259 82,365 ========= ======== Increase in working capital 2002 2001 €'000 €'000 Stock 17,447 3,586 Debtors 13,421 9,924 Creditors (27,216) 548 --------- -------- 3,652 14,058 ========= ======== 4. Earnings Per Share The computation of basic and diluted earnings per share is set out below: 2002 2001 Profit on ordinary activities after taxation (€'000) 68,171 58,495 ----------- ----------- Weighted average Grafton Units outstanding 175,935,668 174,034,644 during the year ----------- ----------- Earnings per share 38.75c 33.61c ----------- ----------- Number of dilutive Grafton Units under option 9,696,587 8,554,850 Number of Grafton Units that would have been (5,746,943) (5,286,600) issued at fair value ----------- ----------- Dilutive potential Grafton Units 3,949,644 3,268,250 ----------- ----------- Number of Grafton Units for calculating diluted earnings per share and adjusted diluted earnings per share 179,885,312 177,302,894 ----------- ----------- Diluted earnings per share 37.90c 32.99c =========== =========== Earnings per share of 38.75c (2001: 33.61c) have been calculated on profits after taxation of €68,171,000 (2001: €58,495,000) and the weighted average number of Grafton Units of 175,935,668 (2001: 174,034,644). The calculation of adjusted earnings per share of 39.26c (2001: 34.09c) is arrived at after eliminating goodwill of €4,195,000 and property profit after taxation of €3,295,000 from profit after taxation of €68,171,000. Diluted earnings per share of 37.90c (2001:32.99c) have been calculated on profits after taxation of €68,171,000 (2001: €58,495,000) and the weighted average number of Grafton Units in issue during the year adjusted for the dilutive effect of outstanding share options. The calculation of adjusted diluted earnings per share of 38.40c (2001: 33.47c) uses the same earnings figure as for adjusted earnings per share and the weighted average number of Grafton Units as adjusted to reflect the dilutive effect of outstanding share options. Earnings per Share - Adjusted for Bonus Element of Rights Issue 2002 2002 2001 2001 Actual Adjusted Actual Adjusted (Note ) (Note) Earnings per share (EPS) 38.75c 36.51c 33.61c 31.67c Adjusted EPS 39.26c 36.99c 34.09c 32.12c Diluted EPS 37.90c 35.71c 32.99c 31.09c Adjusted diluted EPS 38.40c 36.18c 33.47c 31.54c Note The Group announced on 4 February 2003 that it was 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 New Grafton Unit by way of a 1 for 5 Rights Issue. The actual cum rights price on 28 February 2003, the last day of quotation cum rights, was €3.06 and the theoretical ex-rights price for a Grafton Unit was therefore €2.8833 per Grafton Unit. The 2002 and 2001 earnings per share are calculated by applying the factor 1.06128 (3.06 / 2.8833) to the weighted average number of Grafton Units for 2002 and 2001 in order to adjust for the bonus element of the Rights Issue. 5. Dividends The Group redeemed one redeemable share per Grafton Unit on 14 February 2003 for a cash consideration of 5.25 cent per share which was paid on 6 March 2003. Accordingly, no final dividend will be declared in respect of the year ended 31 December 2002. This follows the redemption of one redeemable share per Grafton Unit for a cash consideration of 3.75 cent per share on 20 September 2002. This together with the redemption made on 14 February 2003 gives total redemption proceeds of 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 for the year ended 31 December 2001. 6. Exchange Rates The year end euro / sterling exchange rate was Stg65.05p (2001: Stg60.85p) and the average euro / sterling exchange rate was Stg62.88p (2001: Stg62.19p). Grafton Group plc Financial Overview 2002 2002 2001 Change Turnover (€ million) 1,152.4 988.8 +17% EBITDA (€ million) 120.1 101.5 +18% Operating profit before goodwill amortisation (€ million) 92.3 79.1 +17% Profit before taxation (€ million) 80.2 67.2 +19% EPS 38.75c 33.61c +15% EPS before goodwill amortisation and property profit 39.26c 34.09c +15% Share redemption / dividend per share 9.0c 8.0c +13% Share redemption / dividend cover (times) 4.4 4.3 - Interest cover (times) 7.4 6.7 - Cash flow per share 53.9c 46.2c +17% Net assets per share 181.6c 150.2c +21% Net debt to shareholders' funds 75% 74% - Depreciation charge (€ million) 22.4 18.8 - Goodwill amortisation (€ million) 4.2 3.1 - Acquisition and investment expenditure (€ million) 88.8 61.8 - Capital expenditure (€ million) 68.0 42.0 - This information is provided by RNS The company news service from the London Stock Exchange

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