Interim Results
Grafton Group PLC
13 September 2006
Grafton Group plc
2006 Interim Results
Record Sales, Profits and Earnings
Grafton Group plc, the builders merchants and DIY Group with operations in the
UK and Ireland, announces its interim results for the six months ended 30 June
2006.
Financial Highlights
2006 2005 Change
Revenue €1.43 bn €1.30 bn UP 10%
Operating profit* €106.9 m €97.6 m UP 10%
Profit before tax €118.3 m €87.4 m UP 35%
Basic earnings per share 42.8 c 32.0 c UP 34%
Adjusted earnings per share * 33.0 c 30.2 c UP 9%
Share purchase 8.25 c 7.25 c UP 14%
Cash flow per share 53.6 c 42.2 c UP 27%
*Before property profit and amortisation
Operating Highlights
Irish merchanting traded strongly in a favourable market
Heitons continued to perform ahead of pre-acquisition expectations
Lower UK profitability in softer merchanting market
UK market now strengthening
Positive trading conditions in competitive Irish DIY market
Operations strongly cash generative
Commenting on the results today, Michael Chadwick, Executive Chairman said:
'The Irish economy provided a very favourable trading environment for the
Group's Irish merchanting and DIY businesses in the half year and profitability
increased strongly. In line with the trends experienced in the second half of
2005, demand in the UK merchanting market was generally softer in the half year
compared with the strong trading levels reported in the first half of 2005. The
Group remains confident of continued growth in profits and earnings per share in
2006 and, with a very strong financial position and healthy cash flow, is well
placed to take advantage of suitable acquisition and development opportunities.'
Grafton Group plc
Interim Results
For the six months ended 30 June 2006
Grafton Group plc is pleased to report on a period of solid progress for the
Group and the achievement of new records for sales, profits and earnings.
This was the fifteenth consecutive set of record interim results and
demonstrates the Group's long term track record of profitable growth and
development.
Highlights
• Sales were up 10 per cent to €1.43 billion (2005: €1.3 billion)
• Operating profit increased by 10 per cent to €106.9 million (2005: €97.6
million)
• Adjusted earnings per share increased by 9 per cent to 33.0 cent (2005:
30.2 cent)
• Basic earnings per share increased by 34 per cent to 42.8 cent (2005: 32.0
cent)
The Irish economy provided a very favourable trading environment for the Group's
Irish merchanting and DIY businesses in the half year and profitability
increased strongly. In line with the trends experienced in the second half of
2005, demand in the UK merchanting market was generally softer in the half year
compared with the strong trading levels reported in the first half of 2005.
This was a positive outcome for the half year in view of market conditions in
the UK, the Group's principal market accounting for fifty nine per cent of
turnover. The results clearly demonstrate the benefit to shareholders of
increasing the Group's exposure to Ireland in 2005 through the Heiton
acquisition which performed ahead of pre-acquisition expectations. The strongly
performing Irish business compensated for the softer market conditions in the
UK.
In a buoyant market, Irish turnover increased by 18 per cent to €590.7 million
(2005: €500.0 million) and operating profit increased by 31 per cent to €57.1
million (2005: €43.5 million). The Irish operating profit margin increased to
9.7 per cent from 8.7 per cent. The UK business increased sales by 5.4 per cent
to €836.5 million (2005: €793.3 million) and operating profit was lower at €49.8
million (2005: €54.1 million) as operating margins reduced.
Share Purchase
The Board has decided to purchase one A ordinary share per Grafton Unit for a
cash consideration of 8.25 cent on 6 October 2006 (record date). The cash
consideration will be paid on 18 October 2006. This represents an increase of
14 per cent on the equivalent share purchase payment of 7.25 cent per Grafton
Unit for the half year to 30 June 2005. No interim dividend will be declared.
Board
The Board is pleased to announce the appointment of Mr. Leo Martin as Chief
Operating Officer with overall responsibility for the Group's Irish and UK
Builders and Plumbers Merchanting operations. Leo was appointed to the Board in
January 2005 following the acquisition of Heiton Group plc where he was Chief
Executive. The Board believes this appointment will bring increased focus and
continued synergy benefits to the Group's merchanting operations.
As previously announced, the Board was pleased to appoint Mr. Roderick Ryan and
Mr. Peter Wood as Non-Executive Directors with effect from 15th March 2006 and
1st July 2006 respectively. Both bring valuable experience to the Board.
Development
In the UK, the Group continued to benefit in the half year from a steady flow of
bolt-on acquisitions completing seven transactions. The seven businesses trade
from sixteen branches with an annual turnover of €70 million.
The Group strategy of developing organically progressed further with ten
projects completed covering the opening of eight merchanting branches in the UK
and two DIY stores in Ireland.
These acquisitions and organic developments improve our market positions,
increase the number of trading locations to over 500 and provide a platform for
the continued profitable development of the Group.
Operations Review - Republic of Ireland
Irish turnover increased by 18 per cent to €590.7 million (2005: €500.0 million)
and operating profit increased by 31 per cent to €57.1 million (2005: €43.5
million). The Irish operating profit margin increased to 9.7 per cent from 8.7
per cent.
The Irish economic background has been very favourable in 2006. The economy
continued to grow in line with its potential growth rate of around 5 per cent.
Growth has been more broadly based than in recent years and is being led by
increased consumer spending and investment. The recovery in consumer spending
in recent years became more established in 2006 supported by high levels of job
creation and healthy income growth. Economic activity has also been boosted by
the growing population.
The volume of building and construction activity in Ireland is forecast to
increase by close to 6 per cent in 2006. The Irish housing market has remained
exceptionally strong supported by a significant increase in the population, high
inward migration, strong employment growth, relatively low mortgage rates and
the overall strength of the economy. Further growth in housing output is
forecast for 2006 over record completions of 86,000 units in 2005. Significant
growth beyond 2006 in residential RMI construction activity is also forecast due
in part to a boost from the maturing SSIA accounts.
Irish Merchanting
The Irish merchanting business reported another half year of strong sales and
profit growth. Sales were up 21 per cent to €407.6 million (2005: €337.5
million).
The first half performance benefited from a strong economy and exposure to the
new housing and RMI markets which operated at record levels. The business also
has an exposure to the commercial construction market where the prevailing macro
economic environment resulted in increased activity in the retail, offices and
industrial sectors.
Trading from 59 builders merchanting locations nationally mainly under the
Chadwicks and Heiton Buckley brands, the division delivered strong organic
growth with like for like sales up 9 per cent.
The established Chadwicks and Telfords businesses traded at record levels
outperforming the overall market and reporting good profit growth.
The Heiton Buckley chain and Cork Builders Providers, now under Group ownership
since January 2005, delivered an excellent performance in the half year. Good
organic sales growth, a continuing focus on operational efficiencies and
purchasing synergies contributed to improved profits and margins. The
performance of the business has exceeded the Group's pre-acquisition
expectations and the quality of the enlarged Irish business reflects the very
positive integration benefits achieved, under a range of headings, by the
Chadwicks and Heiton Buckley management teams.
The Davies and Garvey's businesses acquired in December 2005 traded strongly
with operating profit contributions for the half year ahead of expectations.
The Davies business is well positioned to benefit from growth opportunities in
buoyant commercial and infrastructure markets. Garvey's, which is primarily
exposed to RMI activity in the Midlands market, benefited from purchasing
synergies and good sales growth.
Heiton Steel, the largest steel stockholding business in the Irish market,
continued to effectively manage the lower price environment for steel carried
into 2006 although prices recovered toward the end of the half year and volumes
were strong.
On the development front, the Heiton Buckley branch in Tralee was relocated to a
new out of town purpose built facility and a new Heiton Buckley branch opened
last month in Mullingar.
Irish Retailing
The 46 store Irish retailing business continued to build on the significant
increase in scale achieved in 2005 with turnover growth of 15 per cent to €147.0
million (2005: €127.4 million) and increased profitability in the half year.
The overall impact of greater competition in the Irish DIY market, due to an
increase in store openings over the past two years, was offset by favourable
market conditions and like for like sales were flat for the half year.
There was a continuing recovery in retail spending following several years of
weak growth due to an increase in the rate of savings. The volume of retail
sales is forecast to grow by over 6 per cent in 2006 reflecting continued growth
in employment and earnings. The Groups' DIY business is well placed to benefit
from this trend going forward.
The retail business delivered strong organic sales and profit growth despite a
more competitive market.
Woodie's continued to consolidate its leadership position in the Irish DIY
market with the successful opening of stores in Castlebar and Navan in the half
year. Last year's store openings in Carrickmines, South Dublin, Drogheda, Co.
Louth and Naas, Co. Kildare traded in line with expectations. In August,
Woodie's 25th store in Nenagh opened and a substantial increase in the scale of
the Waterford store is currently under construction.
The sixteen store Atlantic Homecare DIY business continued to focus on cost and
efficiency improvements and the introduction of new product ranges which have
had a positive customer response.
The five store In-House at the Panelling Centre business, which markets a range
of high quality kitchen and bedroom panelling products to trade and retail
customers, achieved excellent sales and profit growth in the half year. The
business has been ideally positioned to benefit from buoyant demand particularly
in the RMI market. The fifth store in Galway opened at the end of the half year
and further store openings are planned.
Irish Manufacturing
CPI's EuroMix division increased volumes in a growth market for residential and
commercial construction.
The Wright window and door manufacturing business performed to expectations
aided by positive market conditions.
United Kingdom
Despite softer market conditions, the UK business achieved sales growth of 5.4
per cent to €836.5 million (2005: €793.3 million) through contributions from
2005 and current year acquisitions and brownfield branch developments.
Operating profit was lower at €49.8 million (2005: €54.1 million) due to a
decline in like for like sales of 1.7 per cent benchmarked against strong growth
in a more favourable market in the first half of 2005. The operating profit
margin reduced to 6 per cent (2005: 6.8 per cent) due to the impact of lower
sales in a more competitive market, some dilution from brownfield branch
openings in 2005 and 2006 and a competitive mortar market.
The RMI market progressively weakened during 2005 following a prolonged period
of growth supported by a strong economy, rising house prices and lower interest
rates. These key drivers of demand weakened in 2005 leading to an overall fall
in residential RMI activity for the year. This slowdown continued into the
first half of 2006 although market conditions improved in the second quarter
supported by broadly based growth in the economy, stable interest rates, a pick
up in house price inflation and a sharp increase in mortgage approvals and
housing transactions.
UK Builders Merchanting
The UK builders merchanting division has grown rapidly in recent years and
further improved its overall market position in the half year with acquisition
and brownfield led sales growth. Lower like for like sales in a weaker market
resulted in a decline in profits from the record levels achieved in the first
half of 2005. The impact of lower volumes on profitability in the established
business was partly offset by overhead efficiencies and contributions from
acquisitions.
Market coverage improved with the completion of four bolt-on acquisitions
trading from 11 branches and the opening of two brownfield branches increasing
the number of merchanting locations to 195 at the end of the half year.
Buildbase, whose business primarily services the RMI market, reported overall
unchanged sales in a weaker market compared with strong trading levels in the
first half of 2005. Trading improved in the second quarter following the slow
start to the year. The profit impact of lower activity levels was partially
mitigated by the implementation of measures to reduce costs. The five bolt-on
acquisitions completed in 2005 were smoothly integrated into the Buildbase
branch network. Heiton's UK business was fully integrated into the newly formed
Buildbase Civils and Lintels division which was established to more effectively
service the needs of the civil engineering and ground works contracting market.
Buildbase has successfully established a Partnering initiative, in conjunction
with the Group's other UK businesses, to provide a structured approach to
developing long term supply chain relationships with Local Authorities and the
larger companies operating in the construction and related markets. The
acquisition at the end of the half year of Fleming Holdings, the leading
independent builders and timber merchant in Scotland where it trades from eight
branches, substantially strengthens the position of Buildbase in that market.
Jacksons delivered a robust performance in the half year despite the more
competitive trading conditions in the East Midlands market.
Macnaughton Blair, the leading merchant in the Northern Ireland market where it
trades from thirteen branches, had an excellent half year in a generally
favourable market and delivered a good increase in sales and operating profit.
MFBP, a leading builders merchant on the Isle of Man, and Houtman, a long
established scaffolding business based in Belfast, which were acquired during
2005 performed well in the half year making good contributions to operating
profit.
UK Plumbers Merchanting
Trading levels in Plumbase were generally weaker in the first quarter but
improved as the second quarter progressed. Despite less favourable market
conditions, the half year was a period of healthy growth in sales and operating
profit for Plumbase. The improved performance of the business reflected the
impact of contributions from the seven plumbers merchanting businesses acquired
in 2005 and the positive impact of measures taken to control costs.
Development of the Plumbase network continued with the opening of six branches
and the acquisition of four branches expanding the network to 177 trading
locations at the end of the half year.
UK Mortar
EuroMix consolidated its leadership position in the UK mortar market with good
sales growth in a stable residential and commercial construction market. The
business continued to expand its market position based on the sustained success
of its dry mortar products and service offering which has an almost national
reach. The competitive environment in the mortar market has evolved over the
past two years with expansion in capacity as the sector moves to a more mature
stage of development. The more competitive trading environment in the half year
resulted in the business absorbing increased energy related raw materials and
distribution costs leading to some margin erosion and lower operating profit.
The Bristol plant which opened in mid 2005 traded in line with expectations and
market coverage improved in July with the opening of the ninth plant near Leeds.
Finance
The Group ended the half year in a very strong financial position. Cashflow
generated from operations and property disposals amounted to €144.4 million
(2005: €114.7 million) substantially ahead of the comparative period.
Despite an active acquisition and development program in the half year, the
Group's very healthy cashflow resulted in a reduction of €40.2 million in net
debt to €543.9 million.
Shareholders' funds increased by €93.0 million, after spending €20.2 million on
the purchase of A ordinary shares in March 2006.
The ratio of net debt to shareholders funds at 30 June 2006 was down to 60 per
cent from 72 per cent at 31 December 2005.
Interest cover improved to 8.6 times (2005: 6.9 times).
Group spending on acquisitions and capital projects amounted to €91.1 million in
the half year (2005: €446.9 million). This was down on the comparable half year
which included the cost of the Heitons acquisition. Acquisitions and
investments made during the half year cost €40.6 million including acquired
debt. Capital expenditure of €48.2 million (2005: €58.4 million) comprised
routine replacement expenditure of €23.4 million and development expenditure of
€24.8 million which is intended to support the continued profitable growth of
the Group and included expenditure associated with the opening of ten new
locations in the half year.
The Group continued to realise significant value from its property portfolio
with the disposal of three properties in Ireland, including the Atlantic
Homecare property in Stillorgan, Co. Dublin, and three in the UK. The Group
also realised part of its joint venture interest in the Blackwater Retail Park
development in Navan, Co. Meath. The total proceeds receivable from these
transactions amounted to €64.1 million and the profit on disposals and
development profit was €28.1 million.
Outlook
In Ireland, trading has remained strong since the end of the half year and the
medium term prospects for the economy are expected to remain favourable.
Consumer spending is expected to continue to grow supported by increased
employment and disposable incomes and a contribution from the maturing SSIA
accounts.
Prospects for the Irish housing market continue to be positive supported by
strong demographics, high levels of job creation and growth in disposable
incomes although interest rate rises may lead to some moderation in the current
strong level of demand.
The favourable economic background should continue to sustain strong demand in
the residential construction and RMI markets which are serviced by the Heiton
Buckley and Chadwicks merchanting businesses.
Strong consumer spending should continue to be supportive of good levels of
demand in the Irish DIY market although the benefit of the favourable market
will be partly offset by the addition of significant capacity in the sector in
recent years. The Group's Irish DIY business will also benefit from current
year store openings in Castlebar, Navan and Nenagh.
In the UK, the improving market conditions identified in the second quarter have
been sustained into the second half. After a period of below trend growth, the
economy is expected to grow at close to its trend rate over the past decade.
The housing market has improved significantly and is expected to perform well
following a significant pick up in transactions and mortgage lending.
These conditions should continue to support a gradual recovery in the RMI market
but possibly at a more moderate pace of growth than experienced in recent years.
The UK merchanting business will continue to focus on realising scale related
synergies and efficiencies. The continued development of the branch network is
expected to be supported by further bolt-on acquisitions and brownfield
developments. The UK mortar market is anticipated to remain competitive due to
the increased capacity in the sector.
The Group remains confident of continued growth in profits and earnings per
share in 2006 and, with a very strong financial position and healthy cash flow,
is well placed to take advantage of suitable development opportunities and a
healthy pipeline of potential acquisitions.
Analyst Meeting
There will be an analyst meeting today at 08.45 (BST) in Dublin. A dial-in
facility will be available for this meeting:
Ireland: +353 1 439 0432
UK: +44 207 769 6432
Other: +353 1 439 0432
For further information please contact:
Grafton Group plc + 353 1 216 0600 Murray Consultants + 353 1 498 0300
Michael Chadwick, Executive Chairman Joe Murray
Colm O Nuallain, Finance Director
Citigate Dewe Rogerson + 44 207 282 2945
Ginny Pulbrook
Grafton Group plc
Group Income Statement
For the six months ended 30 June 2006
Six months Six months Twelve months
to 30 June 2006 to 30 June 2005 to 31 Dec 2005
(Unaudited) (Unaudited) (Audited)
€'000 €'000 €'000
Revenue 1,427,158 1,293,329 2,629,464
Operating costs (1,321,334) (1,196,779) (2,415,694)
Operating profit before property profit 105,824 96,550 213,770
Property profit 28,123 5,928 9,640
Operating profit 133,947 102,478 223,410
Finance costs (27,123) (20,641) (48,803)
Finance income 11,450 5,552 17,574
Profit before tax 118,274 87,389 192,181
Income tax expense (16,558) (12,081) (26,102)
Profit after tax for the financial period 101,716 75,308 166,079
Profit attributable to:
Equity holders of the company 101,716 75,308 166,079
Basic earnings per share 42.77c 31.99c 70.26c
Adjusted earnings per share 33.00c 30.21c 67.80c
Diluted earnings per share 41.90c 31.25c 68.80c
Group Statement of Recognised Income and Expense
For the six months ended 30 June 2006
Six months to Six months Twelve
30 June 2006 to 30 June months to 31
2005 Dec 2005
€'000 €'000 €'000
Items of income and expense recognised directly within equity:
Currency translation effects - on foreign currency net (3,815) 13,501 7,999
investments
- on foreign currency borrowings 189 (2,145) (811)
Actuarial gain/(loss) on Group defined benefit pension schemes 12,378 (10,828) (8,946)
Deferred tax on Group defined benefit pension schemes (2,219) 1,726 1,944
Fair value movement in cash flow hedge 1,052 (1,937) (1,332)
Deferred tax on cash flow hedge (132) 242 167
Net income / (expense) recognised directly in equity 7,453 559 (979)
Profit after tax for the financial period 101,716 75,308 166,079
Total recognised income and expense for the period 75,867 165,100
109,169
Attributable to:
Equity holders of the company 109,169 75,867 165,100
Movement on Group Retained Earnings 30 June 30 June 31 Dec
2006 2005 2005
€'000 €'000 €'000
At 1 January 475,380 347,044 347,044
Retained profit for the financial period 101,716 75,308 166,079
Purchase of A ordinary shares (20,204) (16,542) (33,751)
Actuarial gain/(loss) on pensions (net of tax) 10,159 (9,102) (7,002)
Deferred tax on share based payments 258 260 157
Transfer from revaluation reserve 3,530 120 2,853
At end of period 570,839 397,088 475,380
Group Statement of Changes in Equity 30 June 30 June 31 Dec
2006 2005 2005
€'000 €'000 €'000
At beginning of period 813,811 495,538 495,538
Impact of adoption of IAS 32 & IAS 39 - 55,424 55,424
At beginning of period as adjusted 813,811 550,962 550,962
Elimination of fair value reserve arising on acquisition of - (49,535) (49,535)
Heiton Group plc
Issue of Grafton Units (net of issue expenses) 2,011 178,107 178,658
Adjustment for share based payments expense 1,807 839 2,220
Deferred tax on share based payments 258 260 157
Purchase of A ordinary shares (20,204) (16,542) (33,751)
Total recognised income and expense for the period 109,169 75,867 165,100
Closing shareholders' funds - equity 906,852 739,958 813,811
Grafton Group plc
Group Balance Sheet as at 30 June 2006
30 June 2006 30 June 2005 31 Dec 2005
(Unaudited) (Unaudited) (Audited)
€'000 €'000 €'000
ASSETS
Non-current assets
Property, plant and equipment 629,388 596,494 623,228
Intangible assets - goodwill 543,258 482,672 532,323
Intangible assets - other 14,422 16,635 15,519
Financial assets 267 234 256
Deferred tax assets 27,567 31,123 25,980
Total non-current assets 1,214,902 1,127,158 1,197,306
Current assets
Inventories 370,473 337,867 356,647
Trade and other receivables 564,325 495,061 499,308
Derivative and other financial instruments 1,377 3,291 5,708
Cash and cash equivalents 255,250 396,748 334,023
Total current assets 1,191,425 1,232,967 1,195,686
Total assets 2,406,327 2,360,125 2,392,992
EQUITY
Capital and reserves attributable to the Company's equity
holders
Equity share capital 12,061 12,042 12,037
Share premium account 283,001 280,505 281,038
Capital redemption reserve 298 251 274
Revaluation reserve 33,044 39,307 36,574
Other reserve - shares to be issued 4,998 1,810 3,191
Cash flow hedge reserve 1,205 (245) 285
Foreign currency translation reserve 1,406 9,200 5,032
Retained earnings 570,839 397,088 475,380
Total equity 906,852 739,958 813,811
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 548,315 728,794 713,712
Deferred tax liabilities 44,708 39,159 42,932
Retirement benefit obligations 44,973 70,651 59,032
Provisions 500 1,093 500
Total non-current liabilities 638,496 839,697 816,176
Current liabilities
Interest-bearing loans and borrowings 235,959 209,444 209,278
Trade and other payables 552,291 514,409 498,717
Current tax liabilities 55,252 51,483 50,610
Derivative financial instruments 16,292 1,577 923
Provisions 1,185 3,557 3,477
Total current liabilities 860,979 780,470 763,005
Total liabilities 1,499,475 1,620,167 1,579,181
Total equity and liabilities 2,406,327 2,360,125 2,392,992
Grafton Group plc
Group Cash Flow Statement
For the six months ended 30 June 2006
Six Months to 30 Six Months to Twelve months to
June 2006 30 June 2005 31 Dec 2005
(Unaudited) (Unaudited) (Audited)
€'000 €'000 €'000
Operating profit before property profit 105,824 96,550 213,770
Depreciation 24,742 22,980 48,248
Intangible amortisation 1,097 1,060 2,176
Share based payments charge 1,807 839 2,220
Net profit on sale of plant and equipment (1,382) (1,189) (2,564)
Contributions to pension schemes in excess of IAS 19 charge (1,526) (639) (10,888)
Increase in working capital (26,025) (3,653) (28,485)
Cash generated from operations 104,537 115,948 224,477
Interest paid (22,055) (15,522) (39,233)
Income taxes paid (2,462) (5,357) (15,226)
Cash flows from operating activities 80,020 95,069 170,018
Investing activities
Inflows
Proceeds from sale of property, plant and equipment 57,972 18,578 32,793
Interest received 6,451 1,093 7,738
64,423 19,671 40,531
Outflows
Acquisition of subsidiary undertakings and businesses (39,908) (307,636) (395,451)
Net cash acquired with subsidiary undertakings 2,329 15,083 22,897
Deferred acquisition consideration (2,284) (5,586) (6,844)
Purchase of property, plant and equipment (48,230) (58,400) (100,559)
(88,093) (356,539) (479,957)
Cash flows from investing activities (23,670) (336,868) (439,426)
Financing activities
Inflows
Proceeds from the issue of share capital 2,011 178,107 178,658
Proceeds from long term borrowings - 346,970 373,078
2,011 525,077 551,736
Outflows
Repayment of long term borrowings (109,115) - (35,673)
Purchase of A ordinary shares (20,204) (16,542) (33,751)
Payment of finance lease liabilities (1,103) (978) (2,061)
Redemption of loan notes payable (9,842) (19,872) (25,237)
(140,264) (37,392) (96,722)
Cash flows from financing activities (138,253) 487,685 455,014
Net (decrease) / increase in cash and cash equivalents (81,903) 245,886 185,606
Cash and cash equivalents at the beginning of the period 291,844 105,822 105,822
Effect of exchange rate fluctuations on cash held (2,655) 791 416
Cash and cash equivalents at the end of the period 207,286 352,499 291,844
Cash and cash equivalents are broken down as follows: 334,023
Cash at bank and short term deposits 255,250 396,748
Overdrafts (47,964) (44,249) (42,179)
207,286 352,499 291,844
Grafton Group plc
Notes to interim results for the half year ended 30 June 2006
1. General Information and Accounting Policies
The interim Financial Statements have been prepared in accordance with the
Group's accounting policies under International Financial Reporting Standards
(IFRS) as set out in the Group's 2005 Annual Report. The comparative numbers at
30 June 2005 have been restated to reflect final accounting policies adopted
under IFRS at 31 December 2005.
2. Revenue and Operating Profit by Geographic Segment
The amount of revenue by geographic segment is as follows:
Six months to Six months to Twelve months to
30 June 2006 30 June 2005 31 Dec 2005
(Unaudited) (Unaudited) (Audited)
€'000 €'000 €'000
Revenue
Ireland 590,654 499,995 1,032,899
United Kingdom 836,504 793,334 1,596,565
1,427,158 1,293,329 2,629,464
Operating profit before property profit and intangible
amortisation
Ireland 57,106 43,486 107,702
United Kingdom 49,815 54,124 108,244
Operating profit before property profit and intangible
amortisation 106,921 97,610 215,946
Intangible amortisation - Ireland (1,097) (1,060) (2,176)
105,824 96,550 213,770
Operating profit before property profit
Ireland 56,009 42,426 105,526
United Kingdom 49,815 54,124 108,244
105,824 96,550 213,770
Property profit
Ireland 24,104 4,251 7,963
United Kingdom 4,019 1,677 1,677
28,123 5,928 9,640
Operating profit
Ireland 80,113 46,677 113,489
United Kingdom 53,834 55,801 109,921
133,947 102,478 223,410
Finance costs (net) (15,673) (15,089) (31,229)
Profit before tax 118,274 87,389 192,181
3. Analysis of Revenue by Business Segment
Six months to Six months to Twelve months to
30 June 2006 30 June 2005 31 Dec 2005
(Unaudited) (Unaudited) (Audited)
€'000 €'000 €'000
Revenue
UK merchanting 803,121 761,774 1,533,700
Irish merchanting 407,604 337,483 690,549
Irish DIY 147,007 127,383 272,589
Irish and UK manufacturing 69,426 66,689 132,626
1,427,158 1,293,329 2,629,464
4. Reconciliation of Net Cash Flow to Movement in Net Debt
For the six months ended 30 June 2006 30 June 30 June 31 Dec
2006 2005 2005
€'000 €'000 €'000
Net (decrease) / increase in cash and cash equivalents (81,903) 245,886 185,606
Cash-flow from movement in debt and lease financing 120,060 (326,120) (310,107)
Change in net debt resulting from cash flows 38,157 (80,234) (124,501)
Loan notes issued on acquisition of subsidiary - (867) (867)
undertakings
Bank loans and loan notes acquired with subsidiary (89,519)
undertakings (2,926) (81,861)
Finances leases acquired with subsidiary undertakings (87) (7,652) (7,934)
Translation adjustment 4,047 (19,653) (12,457)
Net movement in derivative financial instruments 1,052 (1,937) (1,332)
Movement in net debt in the period 40,243 (192,204) (236,610)
Net debt at 1 January (584,182) (349,229) (349,229)
IAS 32/39 adjustment at 1 January 2005 - 1,657 1,657
Net debt restated at 1 January (584,182) (347,572) (347,572)
Net debt at end of the period (543,939) (539,776) (584,182)
5. Earnings per Share
The computation for basic, diluted and adjusted earnings per share is set out in
the table below.
Half Year Half Year Year Ended
30 June 2006 30 June 2005 31 Dec 2005
€'000 €'000 €'000
Numerator for basic, adjusted and diluted earnings per share:
Profit after tax for the financial period 101,716 75,308 166,079
Numerator for basic and diluted earnings per share 101,716 75,308 166,079
Property profit after tax (24,186) (5,116) (7,731)
Intangible amortisation after tax 960 928 1,904
Numerator for adjusted earnings per share 78,490 71,120 160,252
Number of Number of Number of Grafton
Grafton Units Grafton Units Units
Denominator for basic and adjusted earnings per share:
Weighted average number of Grafton Units in issue 237,841,649 235,445,159 236,371,547
Effect of potential dilutive Grafton Units 4,913,765 5,517,180 5,023,349
Denominator for diluted earnings per share 242,755,414 240,962,339 241,394,896
Earnings per share (cent)
- Basic 42.77 31.99 70.26
- Diluted 41.90 31.25 68.80
Adjusted earnings per share (cent)
- Basic 33.00 30.21 67.80
6. Share Purchase
The Board has approved the purchase of one A ordinary share per Grafton Unit for
a cash consideration of 8.25 cent. The purchase of the A ordinary share will
take effect in respect of Grafton Units on the register at close of business 6
October 2006 (record date) and the cash consideration will be paid on 18 October
2006.
7. Exchange Rates
The results and cash flows of the Group's United Kingdom subsidiaries have been
translated into Euro using the average exchange rate. The related balance
sheets of the Group's United Kingdom subsidiaries at 30 June 2006 and 30 June
2005 have been translated at the rate of exchange ruling at the balance sheet
date.
The average Euro / Sterling rate of exchange for the six months ended 30 June
2006 was Stg68.70p (six months to 30 June 2005: Stg68.59p and twelve months to
31 December 2005: Stg68.38p). The Euro / Sterling exchange rate at 30 June 2006
was Stg69.21p (30 June 2005: Stg67.42p and 31 December 2005: Stg68.53p).
Independent review report to Grafton Group plc
Introduction
We have been engaged by the Company to review the financial information which
comprises the Group Interim Income Statement, Group Interim Balance Sheet, Group
Interim Statement of Recognised Income and Expense, Group Interim Cash Flow
Statement and related notes. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Irish Stock Exchange and the UK Financial Services Authority. Our
review has been undertaken so that we might state to the Company those matters
we are required to state to it in this report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our review work, for this report, or for the
conclusions we have reached.
Directors' responsibilities
This interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in Ireland and the United Kingdom. A review consists principally of
making enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
KPMG
Chartered Accountants
Dublin
12 September 2006
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