Final Results

RNS Number : 5139B
Grafton Group PLC
05 March 2014
 



 

 

                                                         GRAFTON GROUP PLC

 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013

 

Grafton Group plc ("the Group"), the builders merchanting and DIY Group with operations in the UK, Ireland and Belgium, announces its final results for the year ended 31 December 2013. Following its listing on the London Stock Exchange during 2013, the Group now reports its results in sterling.

 

Financial Highlights

·     Revenue up 8% to £1.9 billion

·     Underlying operating profit up 27% to £77.2 million from £61.0 million

·     Group operating profit margin increased by 60 basis points to 4.1% from 3.5%

·     Underlying profit before taxation up 35% to £64.9 million from £48.1 million

·     Adjusted basic earnings per share up 48% to 22.3p

·     21% dividend increase reflects continuing improvement in trading performance

·     Strong cash generation from operations of £95.3 million and year-end gearing of 15%

 

Operating Highlights

·     Strong UK merchanting performance benefited from self-help measures adopted over recent years and expansion of the branch network

·     The merchanting business in Ireland returned to growth in the second half

·     DIY market in Ireland stabilised

·     Tight management of gross margins in competitive markets and disciplined control of costs

 



2013

2012*




£'m

£'m

% change

Revenue


1,900

1,761

+8%

Underlying

(Before pension credit and property impairment in 2013

and before restructuring costs and amortisation in 2012)


Operating profit


77.2

61.0

+27%

Profit before tax


64.9

48.1

+35%

Profit after tax


51.7

35.0

+48%

Adjusted earnings per share - basic


22.3p

15.1p

+48%

Statutory


Operating profit


80.0

37.9

+111%

Profit before tax


67.7

25.1

+170%

Profit after tax


62.1

31.6

+96%

Earnings per share - basic


26.8p

13.6p

+97%

Dividend


8.5p

7.0p

+21%

Net debt


133.7

164.9

-19%

Total equity


874.3

817.6

+7%

 

*Restated as required by IFRS following the adoption of IAS 19 (Revised) 'Employee Benefits'.

 

 

Gavin Slark, Chief Executive Officer commented:

 

"The Group recovery is making good progress in markets that are still challenging. We are maintaining the disciplined approach to costs and margins demonstrated by these results. Grafton continues to develop a balanced growth strategy combining both organic growth and acquisitive growth where appropriate.  Trading in the current year has been encouraging and, while we expect recovery in our markets to be gradual, the Group is confident of building on its strong 2013 performance in 2014."

 

 

Webcast details

 

A results presentation hosted by Gavin Slark and David Arnold for analysts and investors will be held today 5 March 2014 at 10am (Irish Time).   

The web address to access the live webcast is as follows;

www.graftonplc.com/webcast/

 

Replay

The webcast will be available to watch later in the day.

 

The results presentation can be viewed/downloaded at http://www.graftonplc.com

 

 

 

For further information please contact:



Grafton Group plc + 353 1 216 0600


Gavin Slark, Chief Executive Officer


David Arnold, Chief Financial Officer




Murray Consultants + 353 1 498 0300


Joe Murray


 

MHP Communications + 44 20 3128 8100 James White


 

Cautionary Statement

Certain statements made in this announcement are forward-looking statements.  Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by these forward looking statements.  They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of Directors and senior management concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies and the businesses operated by the Group.  The Directors do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

 

 

 

 

 

 

 

Final Results

 

For the Year Ended 31 December 2013

 

Group Results

 

The Group made solid progress during the year and delivered a strong set of results against the backdrop of improving trading conditions in the UK and Irish merchanting markets and stabilisation of the DIY market in Ireland. Strong growth was achieved in profits and earnings.

 

The overall increase in Group revenue of 7.9 per cent was driven by an increase of 3.4 per cent in the like-for-like business, new branches and acquisitions.  There was a strong benefit to profit from the increase in revenue due to tight control of costs and focus on margin.

 

The highlight of these results was the performance of the merchanting business in the UK which increased operating profit by 19.8 per cent to £75.9 million (2012: £63.4 million) and grew its operating profit margin by 60 basis points to 5.5 per cent (2012: 4.9 per cent).

 

Trading conditions in the merchanting business in Ireland stabilised in the first half and in the second half showed a return to growth and a significantly improved result was achieved from a low base following the restructuring and self-help measures implemented in 2012.

 

The Group continued to be strongly cash generative and ended the year with net debt of £133.7 million, its lowest year-end net debt since 2001. The gearing ratio fell to 15 per cent (December 2012:  20 per cent) and, in addition to strong cash flow from operations, significant cash resources and undrawn facilities were retained to fund operating activities and investment in the business.

 

Non-recurring Income and Expenditure 

 

The defined benefit pension schemes in the UK and Ireland were restructured to provide for more sustainable future benefits at an affordable cost resulting in a once-off credit of £30.0 million (£25.2 million after tax). A strategic review of freehold properties gave rise to a non-cash impairment charge of £27.2 million (£23.4 million after tax) to the Income Statement.  The impairment charge related mainly to properties located in the Republic of Ireland. 

 

Listing Arrangements and Reporting Currency

 

As previously announced, following a review of listing arrangements Grafton now has a sole listing of its Units on the London Stock Exchange.  Grafton Group plc was admitted to the FTSE UK Index Series on 23 December 2013 where its Units trade in sterling.

 

The Group is presenting its results in sterling for the first time having previously reported in euro.  This change should help to provide a clearer understanding of the Group's financial performance as three quarters of its revenue has for some time been generated in sterling. 

 

Dividend

 

The second interim dividend approved has been increased by 22 per cent to 5.5p from 4.5p (5.5 cent) giving a total dividend for the year of 8.5p, an increase of 21 per cent from 7.0p (8.5 cent) in 2012.  The dividend cover increased to 2.6 times from 2.2 times. The increase in dividend is in line with the Board's progressive dividend policy which is based on increasing dividends as underlying earnings recover and reflects the improvement in results for the year and strong cash flow from operations.

 

 

 

Outlook

 

There are signs that the relatively recent recovery underway in the UK economy has gained momentum as growth has strengthened in recent quarters.  House price increases, improved access to finance and an increase in housing transactions should continue to support a recovery in the housing and Repair, Maintenance and Improvement (RMI) markets.

 

In Ireland, the economy is expected to improve moderately in 2014.  A very gradual pick-up in house building in Dublin and the regional cities is expected in response to the shortage of family homes due to the very low level of house building over the past five years.  The volume of expenditure on residential RMI is expected to return to growth in 2014 following the sharp declines experienced in recent years. Growth in employment and consumer confidence should have a positive effect on consumer spending but demand in retail markets generally including DIY is likely to be tempered by weak growth in disposable incomes with households continuing to pay down debt. 

 

Trading in the seasonally quieter months of January and February 2014 reflected more favourable weather conditions than the freezing temperatures experienced last year together with improving trends in the merchanting and mortar manufacturing businesses. Daily like-for-like revenue in the UK merchanting business increased by 9.8 per cent and by 7.1 per cent in the merchanting business in Ireland.  Like-for-like revenue growth of 1.6 per cent was reported by the DIY business in Ireland.

 

The overall outlook is more favourable than it has been for some time and, as the UK's third largest merchanting business and the market leader in the Irish merchanting and DIY markets, the Group is well placed to capitalise on an improvement in trading conditions while recognising that the recovery is likely to be gradual and involve its own challenges.

 

Operating Review

 

Merchanting Segment (89% of Group Revenue)

 

Merchanting revenue increased by 8.3 per cent to £1.69 billion (2012: £1.56 billion).  Operating profit was up by 22.5 per cent to £81.8 million (2012: £66.7 million) and the operating profit margin increased by 56 basis points to 4.8 per cent (4.3 per cent).

 

UK Merchanting revenue increased by 6.7 per cent to £1.39 billion (2012: £1.3 billion) and operating profit grew by 19.8 per cent to £75.9 million (2012: £63.4 million).

 

The operating profit margin increased by 60 basis points to 5.5 per cent.  The operating profit margin grew by 15 basis points in the first half to 5.0 per cent and by 1.0 percentage point in the second half to 5.9 per cent.  The gross profit margin was slightly lower in the year as turnover growth in higher margin businesses almost offset competitive pricing pressure.

 

The increase in revenue of 6.7 per cent comprised growth in average daily like-for-like revenues of 3.2 per cent, 0.4 per cent growth due to an additional trading day and growth of 3.1 per cent from new branches, acquisitions and branch consolidations.  Average daily like-for-like revenue increased by 1.7 per cent in the first half and by 4.7 per cent in the second half as spending on residential construction and RMI increased over the course of the year.  Price inflation over the year was estimated at 1.8 per cent and merchanting volumes increased by 1.4 per cent.

 

The resumption of volume growth in the merchanting market follows five years of flat or declining volumes.  The improvement in market conditions was driven by the recovery in the wider economy that took hold during the year.  The economy grew at its strongest rate since 2007 supported by increased employment, a decline in the savings ratio and increased availability of credit.  Activity in the housing market also picked up. Housing transactions, a lead indicator of demand in the merchanting market, increased by 15.0 per cent with growth concentrated in the second half of the year.  The number of home loans approved increased by 20 per cent with the rate of growth accelerating towards the end of the year in what was the most positive lending environment for six years.

 

The Buildbase business benefited from generally improved economic conditions and increased activity in the new housing and RMI markets.  Against this backdrop and with a disciplined focus on pricing and cost control, Buildbase grew revenues and delivered a significant increase in operating profit and the operating margin.  Buildbase continued to implement its strategy of developing its market position acquiring Thompsons, a five branch merchanting business that extended market coverage into the North East of England.  It also acquired a single branch merchanting business in Oban on the West Coast of Scotland.   The Buildbase Civils & Lintels branches benefited from strong activity in the house building market but tough competition in the sector exerted downward pressure on prices.  The specialist drywall and insulation products branches increased revenue and operating profit. These branches were successfully repositioned to focus on low volume new build residential projects.

 

As outlined at the Capital Markets Day in November the Group is developing an efficient route to market implant model to drive revenue growth in its UK merchanting branches. Hirebase implants were opened in 15 branches prior to the year-end taking the number of Hirebase implants in Buildbase branches to 93.  Electricbase implants were opened in 20 Buildbase branches following a successful trial of the concept.

 

Plumbase increased operating profit from a low base due to growing demand in the plumbing and heating market and good returns from restructuring initiatives.  The principal focus during the year was on positioning the business for further profit improvement under a new management team. The specialist bathroom products distribution business had a good year increasing revenue and profit strongly due to a number of product range, marketing and customer service initiatives.

 

Towards the end of the financial year, the Group launched a new format, Plumbase Industrial, aimed at the commercial building and industrial process markets.  The first branch was opened on an existing Group property at Hayes, West London supplying pipeline and mechanical engineering products. Since the year end, a second branch servicing East London was opened in Barking which is complemented by an Electricbase implant serving a similar customer base.

 

Selco Builders Warehouse, a trade only business that operates a retail style self-select format, made good progress during the year from its continued focus on the residential RMI market. Revenue increased due to organic growth in the established branches and development of new branches.  With the benefit of increased revenue and tight control over gross margins and costs, the business achieved a significant increase in operating profit.

 

The Selco brand, which is differentiated from competitors by its trading format, competitive pricing, product ranges and service, continued to improve its position in the London market.  Revenue growth was driven by a very strong performance in the first full year of trading in the Hanworth and Tottenham stores.  Significant market penetration was quickly achieved in the South London market following the very successful opening of stores at Old Kent Road and Wimbledon.  Selco ended the year trading from 34 branches including 18 in the London area.

 

Macnaughton Blair, the Northern Ireland merchanting business reported growth in revenue and profit for the year.  The business benefited from a modest recovery in the local economy which got underway in the summer months.  There were also signs of a recovery in the housing market.  House prices, housing transactions and mortgage approvals increased from a very low base.  Demand for new houses was partly met by builders completing developments that were started prior to the downturn.  Turnover growth was broadly based across the new housing, RMI and infrastructure markets.  Competitive gains were made by a number of the provincial branches.  Revenue was lower in the Belfast area due to a decline in public sector and commercial new build projects.

 

Irish Merchanting revenue increased by 6.7 per cent to £243.0 million (£227.7 million).  The increase in like-for-like revenue was 3.6 per cent.  Operating profit almost doubled to £5.2 million.

 

The Irish housing market showed signs of improvement during 2013.  Housing transactions rose by 15 per cent to almost 29,000 and prices rose nationally by 6.5 per cent driven by the Dublin market where a shortage of supply contributed to the increase in values.  Mortgage approvals rose by 4.1 per cent to 18,000.  Actual house building is estimated at 4,500 houses compared to potential demand of 20,000 to 25,000 units per year based on demographic trends.  Lead indicators pointed to a pick-up in house building activity in the second half of the year.  This was the first period of growth in almost six years and an early indication that a recovery in the new housing markets was starting to take hold.

 

The merchanting branches in Ireland grew like-for-like revenue by 1.0 per cent in the first half and by 6.2 per cent in the second half which reflected a strong finish to the year with fourth quarter growth of 6.6 per cent.  This was the first year since 2006 for the merchanting business in Ireland to report growth in like-for-like revenue.  The business has emerged from the Irish recession, which saw its revenue contract by two thirds, having strengthened its leadership position in the builders and plumbers merchanting markets through its national branch network.

 

The market recovery was initially concentrated in Dublin City but extended into the greater Dublin area and surrounding counties as the year progressed.  There was also evidence of a recovery in the key urban centres of Cork and Limerick.  Competitive gains and branch upgrades contributed to revenue growth in the North West and Mid-West regions.  Market conditions were challenging in the Midlands region where revenue was lower for the year.

 

The improvement in market conditions, growth in plumbing and heating revenues and cost saving benefits from consolidating a number of branches in the second half of 2012 contributed to the increase in profitability for the year.

 

Belgium

 

The business was consolidated as a subsidiary with effect from October 2012 having been previously accounted for as a joint venture.  The change of accounting treatment and the acquisition of Holvoet, a two branch merchanting business, in October 2012 accounted for an increase in revenue to £58.8 million from £30.8 million.

 

While the Belgium economy was more resilient than neighbouring economies, revenue was lower in the like-for-like business due to a softening of demand in a weak residential construction and renovation market and disruption to trading in the early months of the year caused by prolonged winter weather conditions.   Operating profit was marginally lower than the prior year at £0.6 million.

 

The Group completed the acquisitions of Binje Ackermans SA, a six branch merchanting business based in Brussels, on 3 February 2014 following approval of the transaction by the Belgium Competition Authority.  The acquired branches are a very good geographic fit with the 11 existing branches that are located in the west of Belgium. 

 

Ms. Catherine de Miribel has been appointed Chief Executive Officer of Grafton Belgium.  She was previously Chief Financial Officer of Saint-Gobain Distribution Belgium.

 

Retail Segment (9% of Group Revenue)

 

Revenue increased by 3.8 per cent to £167.9 million (2012: £161.8 million).  Turnover was down by 0.9 per cent in constant currency following the closure of two stores in the second half of 2012 and up by 1.5 per cent in the like-for-like business.  Operating profit increased to £1.2 million from £0.2 million including the benefit of a property credit of £0.9 million.

 

Irish retail sales recovered in the second half of 2013 and rose by 3 per cent in the year following declines in each of the previous five years.  Consumer confidence rose steadily over the year to its highest level in over six years.  While concerns eased following a very deep recession, consumers remained relatively cautious about their personal finances. 

 

Trading conditions in the DIY market were affected by severe weather conditions in March and April which impacted footfall and reduced revenue from outdoor products.  Prolonged periods of good weather in May, June and July stimulated strong demand for seasonal products including barbeques, lawnmowers and garden furniture which increased average transaction values.  Revenue showed more modest growth in the latter months of the year with the benefit of promotional activity.

 

The result for the year benefited from revenue growth in the Glasnevin and Blanchardstown stores in West Dublin that were extended and upgraded during 2012 and from the restructuring during 2012 that involved the closure of two stores and the realignment of rents to current open market levels in ten stores.  There were also market share gains in a number of towns due to store closures by competitors.

 

Like-for-like transactions were unchanged at over eight million in 38 stores and average transaction values increased by 2.4 per cent due to increased sales of high value outdoor products and the successful trial of a range of kitchens in three stores.  Three stores were upgraded during the year.  Woodie's launched a refreshed web site which increased product availability on-line.  The site provides for improved navigation, mobile functionality and a reserve and collect facility.

 

As previously announced, Declan Ronayne was appointed Chief Executive of Woodie's DIY in August 2013. The customer proposition will be focused during 2014 on the core strengths of the business in the DIY, Home and Garden product categories.  Driving operational efficiencies and improving the stock turn will also be priorities for the new management team.

 

Revenue was lower in the seven store In-House kitchens business in a very competitive environment for kitchen retailers.  The business offset lower revenues in Ireland by establishing an assembly facility on a Group property in Milton Keynes to supply a range of kitchens to Selco stores.

 

Manufacturing Segment (2% of Group Revenue)

 

Revenue increased by 7.1 per cent to £37.0 million (2012: £34.5 million) and operating profit more than doubled to £3.9 million (2012: £1.7 million).  The segment operating profit margin increased to 10.7 per cent from 4.8 per cent.

 

CPI EuroMix, the market leader in the supply of silo based mortar from eight manufacturing plants in England and one in Scotland increased revenue by 16.4 per cent to £33.9 million (2012: £29.1 million).  Trading was impacted by adverse weather conditions in the early months of the year and revenue was flat in the first half.  Trading conditions were very favourable in the second half due to the recovery in the new housing market and revenue increased by 35 per cent.  Growth in volumes and improved plant and transport utilisation contributed to strong growth in profit.

 

Activity in the new housing market, which accounted for three quarters of revenue, rose to its highest level since 2007 with housing registrations, a lead indicator of housing starts, up 28 per cent from a low base to almost 134,000.  Increased demand for new houses was driven by the recovery in the economy, wider access to mortgage finance stimulated by Government funding initiatives, low interest rates and an improvement in consumer confidence.

 

Revenue in the Irish Manufacturing business declined to £3.1 million (2012: £5.4 million) due to rationalisation of the division in 2012.  MFP, the PVC drainage and roofline products business, improved its performance from the supply of increased volumes of its roofline facia and soffit system through the Selco branch network. The business was returned to profit having traded at breakeven in 2012.

 

Financial Review

 

The Group made further progress during the year as the individual businesses were well positioned to increase profitability, cash flow and returns on capital as markets started to recover.  Like-for-like revenue growth of 3.4 per cent across the business accounted for the strong growth in operating profit with the benefit of tight management of gross margins in competitive markets and a disciplined focus on controlling costs.  Acquisitions, new branches and branch consolidations also contributed to profit growth.

 

The focus on cash generation over the past five years has strengthened the quality of the balance sheet and enabled investment in the business during the year.  Return on capital employed increased to 7.8 per cent from 6.1 per cent and capital turn to 1.9 times from 1.8 times.

 

Pensions

 

As previously announced, new arrangements were agreed, following consultations with the trustees and active members of the defined benefit pension schemes in Ireland and the UK.  The changes are based on sharing the costs of funding the deficit and provide for more sustainable future benefits at an affordable cost while reducing the financial risks of the schemes to the Group.

 

The Group agreed to make additional cash contributions over a period of eleven years as part of the arrangements agreed.  A payment of £5.0 million will be made over the next three years. A non-cash reduction in pension liabilities of £30.0 million related to the new arrangements is recognised in the income statement.

 

The IAS 19 pre-tax deficit on the defined benefit pension schemes reduced to £7.1 million from £51.4 million.  The return on scheme assets was £22.4 million and contributions of £7.4 million were made to the scheme during the year.  Benefits paid during the year of £27.9 million formed part of the new arrangements.

 

Property

 

Following completion of restructuring and cost saving measures which were implemented across the Group during 2011 and 2012, the Group focused on maximising return on capital employed through a number of initiatives during 2013, including a review of its estate.   The Group Property Director, who was appointed in 2012, completed a review of the Group's properties.  A number of these properties have become vacant and are being held pending a recovery in the property market or with a view to enhancing their development potential by securing alternative use planning and are classified as investment properties while others are being actively marketed and classified as held for sale.

 

Valuations were reassessed on the basis of future cash flows expected to be generated by individual properties.  A non-cash impairment charge of £27.2 million has been recognised in the income statement.

 

Net Finance Income and Expense

 

The net finance charge for the year was £12.3 million (2012: £12.9 million).  The net bank and loan note interest charge declined to £9.8 million from £10.9 million due to the benefit of low short-term interest rates, the maturity of an interest rate swap and lower net debt.

 

Adoption of amendments to IAS 19 required the return on defined benefit pension scheme assets to be based on the discount rate that is used to discount scheme liabilities.  The charge for 2012 has been restated on a comparable basis in accordance with IFRS.  The net finance expense charge includes £1.4 million (2012: £1.4 million) in respect of pension scheme obligations.

 

There was a net charge of £0.8 million (2012: £0.3 million) due to movements on hedges and foreign exchange.

 

Taxation

 

The effective rate of tax on underlying profit, which excludes the pension scheme credit and property impairment charge, was 20.4 per cent (2012: 27.5 per cent).  This reflects the mix of profits between the UK, Ireland and Belgium and the disallowance of a tax deduction for certain items of expenditure including depreciation on buildings and incorporates the impact on deferred tax assets and liabilities of a reduction in the UK rate of corporation tax by 3 per cent to 20 per cent over the period to 1 April 2015. The effective rate of 20.4 per cent excludes a once-off credit of £8.5 million due to the recognition of a deferred tax asset for trading losses carried forward in the Irish business (2012: Nil).

 

Cash Flow

 

The strength of the Group's cash generative businesses continued to be demonstrated with cash flow from operations of £95.3 million (2012: £85.7 million).

 

Capital and Development Expenditure

 

Net capital expenditure of £22.5 million (2012: £21.0 million) was incurred on replacing distribution vehicles, branch upgrades and on developments that should provide a platform for the future profitable growth of the business including new Selco stores and Hire and Electrical branch implants.

 

A strategic review of IT systems across the Group was completed and a programme of investment in systems and infrastructure is planned over a number of years that will result in the upgrading and consolidation of the systems that support a number of businesses.

 

An investment of £5.9 million was made in acquiring the five branch Thompsons business in the North East of England, the acquisition of a single branch business in Oban, Scotland and the payment of deferred consideration on a prior year acquisition made by the Belgium merchanting business.

 

Net Debt and Financing

 

Net debt declined by £31.2 million to £133.7 million (31 December 2012: £164.9 million) with the benefit of seasonally lower investment in working capital in December.  The gearing ratio declined to 15 per cent from 20 per cent.  Net debt declined by two thirds (£281.2 million) over the five years since 2008 due to a sustained focus on cash generation.  The Group continued to retain good liquidity through the holding at the year-end of deposits and cash balances of £151.1 million (31 December 2012: £128.0 million) and undrawn bank loans of £112 million.

 

A new three year revolving term loan facility for €50.0 million (£41.7 million) was put in place with Barclays Bank Ireland plc and the maturity profile of a facility for €85.0 million (£70.9 million) with Ulster Bank was extended until October 2016.

 

The Group continued to pursue policies consistent with a view to recovering its investment grade credit rating and it will seek to manage it future financing requirements by diversifying its sources of funding and considering alternative funding sources.

 

Underlying EBITDA interest cover for 2013 was 10.7 times (2012: 8.6 times) and year end debt was 1.23 times EBITDA (2012: 1.77 times).

 

Shareholders' Equity

 

Shareholders' equity increased to £870.3 million at 31 December 2013 (31 December 2012: £813.5 million). Profit after tax increased equity by £62.1 million.  There was an actuarial gain of £6.4 million on the defined benefit pension schemes, a currency gain of £2.1 million on translation of net euro assets to sterling at the year-end sterling/euro rate of exchange and £2.0 million was raised from the issue of shares under the Group employees share schemes. Shareholder equity was reduced by dividend payments of £17.7 million.

 

 

 

Grafton Group plc

 

Group Condensed Income Statement

For the year ended 31 December 2013

 

 

















 

 

Continuing activities


Notes



2013

£'000


Restated*

2012

£'000









Revenue


2



1,899,768


1,760,779









Operating costs


3



(1,849,717)


(1,722,856)









Operating income


3



29,964


-









Operating profit





80,015


37,923









Finance expense


4



(13,660)


(14,664)









Finance income


4



1,366


1,801

















Profit before tax





67,721


25,060









Income tax


16



(5,622)


6,583









Profit after tax for the financial year





62,099


31,643

















Profit attributable to:








Owners of the Company





62,179


31,643









Non-controlling interests


8



(80)


-

Profit after tax for the financial year





62,099


31,643

























Earnings per ordinary share - basic


5



26.79p


13.64p









Earnings per ordinary share - diluted


5



26.67p


13.64p









 

 

*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).

 

 

Grafton Group plc

 

Group Condensed Statement of Comprehensive Income

For the year ended 31 December 2013

 

 



2013


Restated*

2012



Notes

£'000


£'000














Profit after tax for the financial year


62,099


31,643








Other comprehensive income






Items that may be reclassified subsequently to the income statement






Currency translation effects

 - on foreign currency net investments


1,176


(2,053)


 - on foreign currency borrowings and derivatives designated as net investment hedges


908


220


Fair value movement on cash flow hedges:






- Effective portion of changes in fair value of cash flow hedges


(66)


(185)


- Net change in fair value of cash flow hedges transferred from equity


577


635


Deferred tax on cash flow hedges


(63)


(54)




2,532


(1,437)








Items that will not be reclassified to the income statement






Actuarial gain/(loss) on Group defined benefit pension schemes

13

7,442


(27,458)


Deferred tax on Group defined benefit pension schemes

13

(1,032)


3,961


Deferred tax on capital gains tax rate increase


-


(459)




6,410


(23,956)








Total other comprehensive income


8,942


(25,393)








 

Total comprehensive income for the financial year


71,041


6,250








Total comprehensive income attributable to:






 







 

Owners of the Company


71,121



6,250

 

Non-controlling interests

8

(80)



-

 

Total comprehensive income for the financial year


71,041



6,250

 

 

 

*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).

 

 

 

Grafton Group plc

 

Group Condensed Balance Sheet as at 31 December 2013

 



 

31 Dec 2013

(Audited)

£'000

 

31 Dec 2012

(Audited)

£'000


Notes



ASSETS






Non-current assets






Goodwill

15


481,020


476,166

Property, plant and equipment

9


413,401


458,335

Investment properties

9


19,861


-

Deferred tax assets



17,666


26,877

Retirement benefit assets

13


718


-

Derivative financial instruments

11


835


2,196

Other financial assets



124


144

Total non-current assets



933,625


963,718







Current assets






Inventories

10


246,220


249,332

Trade and other receivables

10


307,822


271,303

Derivative financial instruments

11


835


1,097

Cash and cash equivalents

11


151,099


128,027

Properties held for sale

9


11,352


14,452

Total current assets



717,328


664,211







Total assets



1,650,953


1,627,929







EQUITY






Equity share capital



8,302


8,283

Share premium account



206,554


204,614

Capital redemption reserve



621


621

Revaluation reserve



13,978


20,660

Shares to be issued reserve



2,875


2,072

Cash flow hedge reserve



98


(350)

Foreign currency translation reserve



66,346


64,262

Retained earnings



575,419


517,239

Treasury shares held



(3,897)


(3,897)

Equity attributable to owners of the Company



870,296


813,504

Non-controlling interests

8


4,051


4,131

Total equity



874,347


817,635







LIABILITIES






Non-current liabilities






Interest-bearing loans and borrowings

11


272,610


272,991

Provisions



22,663


25,285

Retirement benefit obligations

13


7,840


51,391

Derivative financial instruments

11


-


32

Deferred tax liabilities

16


30,746


36,056

Total non-current liabilities



333,859


385,755







Current liabilities






Interest-bearing loans and borrowings

11


13,863


22,700

Trade and other payables

10


410,011


383,160

Current income tax liabilities

16


8,201


11,056

Derivative financial instruments

11


33


481

Provisions



10,639


7,142

Total current liabilities



442,747


424,539







Total liabilities



776,606


810,294







Total equity and liabilities



1,650,953


1,627,929

 

 

 

 

Grafton Group plc

Group Condensed Cash Flow Statement

For the year ended 31 December 2013

                                                                                                                                                                                                                                                                                               




Restated*



Twelve Months

 to 31 Dec 2013

(Audited)

Twelve Months

to 31 Dec 2012

(Audited)


Notes


£'000


£'000

Profit before taxation



67,721


25,060

Finance income



(1,366)


(1,801)

Finance expense



13,660


14,664

Operating profit



80,015


37,923

Depreciation

9


31,463


32,048

Intangible amortisation



-


1,817

Share-based payments charge



1,396


618

Non-cash movement in operating provisions



1,717


761

Claims paid on insurance and other provisions



(4,875)


(2,462)

Non-cash movement on asset impairment



27,160


1,980

Profit on sale of property, plant and equipment

9


(718)


(433)

Non-cash decrease in pension liabilities (net of pension provision)



(29,964)


-

Contributions to pension schemes in excess of IAS 19 charge

13


(4,320)


(5,054)

(Increase)/decrease in working capital

10


(6,607)


18,540

Cash generated from operations



95,267


85,738

Interest paid



(12,025)


(13,367)

Income taxes paid



(6,321)


(3,279)

Cash flows from operating activities



76,921


69,092

Investing activities






Inflows






Proceeds from sale of property, plant and equipment

9


2,184


1,976

Sale of financial assets



20


-

Interest received



753


1,664




2,957


3,640

Outflows






Acquisition of subsidiary undertakings and businesses

14


(4,032)


(14,760)

Net cash acquired with subsidiary undertakings



-


4,204

Deferred acquisition consideration paid



(1,889)


(1,646)

Purchase of financial assets



-


(7)

Purchase of property, plant and equipment

9


(24,670)


(22,974)




(30,591)


(35,183)

Cash flows from investing activities



(27,634)


(31,543)

Financing activities






Inflows






Proceeds from the issue of share capital



1,959


383

Proceeds from borrowings



34,407


20,887




36,366


21,270

Outflows






Repayment of borrowings



(34,282)


-

Dividends paid

6


(17,684)


(14,698)

Movement on finance lease liabilities



(570)


(521)

Redemption of loan notes payable net of derivatives



(11,124)


(28,262)




(63,660)


(43,481)

Cash flows from financing activities



(27,294)


(22,211)







Net increase in cash and cash equivalents



21,993


15,338

Cash and cash equivalents at 1 January



128,027


112,431

Effect of exchange rate fluctuations on cash held



1,079


258

Cash and cash equivalents at the end of the year



151,099


128,027

 

*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 Dec 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).


Grafton Group plc

Group Condensed Statement of Changes in Equity


Equity share capital

Share premium

account

Capital redemption reserve

Revaluation reserve

Shares to be issued reserve

Cash Flow

hedge reserve

Foreign currency translation reserve

Retained earnings

Treasury shares

Total

Non-Controlling Interests

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Year to 31 December 2013 (Audited)













At 1 January 2013

8,283

204,614

621

20,660

2,072

(350)

 

64,262

517,239

(3,897)

813,504

4,131

817,635

Profit after tax for the financial year

-

-

-

-

-

-

-

62,179

-

62,179

(80)

62,099

Total other comprehensive income













Actuarial gain on pensions (net of tax)

-

-

-

-

-

-

-

6,410

-

6,410

-

6,410

Movement in cash flow hedge reserve (net of tax)

-

-

-

-

-

448

-

-

-

448

-

448

Currency translation effect on foreign currency net investments

-

-

-

-

-

-

1,176

-

-

1,176

-

1,176

Currency translation effect on foreign currency borrowings and derivatives designated as net investment hedges

 

-

 

-

 

-

 

-

 

-

 

-

 

908

 

-

 

-

 

908

 

-

 

908

Total other comprehensive income

-

-

-

-

-

448

2,084

6,410

-

8,942

-

8,942

Total comprehensive income

-

-

-

-

-

448

2,084

68,589


71,121

(80)

71,041

Transactions with owners of the Company recognised directly in equity













Dividends paid

-

-

-

-

-

-

-

(17,684)

-

(17,684)

-

(17,684)

Issue of Grafton Units (net of issue expenses)

19

1,940

-

-

-

-

-

-

-

1,959

-

1,959

Share based payments charge

-

-

-

-

1,396

-

-

-

-

1,396

-

1,396

Transfer from shares to be issued reserve

-

-

-

-

(593)

-

-

593

-

-

-

-

Transfer from revaluation reserve

-

-

-

(6,682)

-

-

-

6,682

-

-

-

-


19

1,940

-

(6,682)

803

-

-

(10,409)

-

(14,329)

-

(14,329)

At 31 December 2013

8,302

206,554

621

13,978

2,875

98

66,346

575,419

(3,897)

870,296

4,051

874,347














Year to 31 December 2012 (Audited)













At 1 January 2012

8,277

204,238

621

21,285

2,275

(746)

66,095

522,804

(3,897)

820,952

-

820,952

Profit after tax for the financial year

-

-

-

-

-

-

-

31,643

-

31,643

-

31,643

Total other comprehensive income













Actuarial loss on pensions (net of tax)

-

-

-

-

-

-

-

(23,497)

-

(23,497)

-

(23,497)

Deferred tax due to capital gains tax rate increase

-

-

-

(459)

-

-

-

-

-

(459)

-

(459)

Movement in cash flow hedge reserve (net of tax)

-

-

-

-

-

396

-

-

-

396

-

396

Currency translation effect on foreign currency net investments

-

-

-

-

-

-

(2,053)

-

-

(2,053)

-

(2,053)

Currency translation effect on foreign currency borrowings and derivatives designated as net investment hedges

 

-

 

-

 

-

 

-

 

-

 

-

 

220

 

-

 

-

 

220

 

-

 

220

Total other comprehensive income

-

-

-

(459)

-

396

(1,833)

(23,497)

-

(25,393)

-

(25,393)

Total comprehensive income

-

-

-

(459)

-

396

(1,833)

8,146

-

6,250

-

6,250

Transactions with owners of the Company recognised directly in equity













Dividends paid

-

-

-

-

-

-

-

(14,698)

-

(14,698)

-

(14,698)

Issue of Grafton Units (net of issue expenses)

6

376

-

-

-

-

-

-

-

382

-

382

Share based payments charge

-

-

-

-

618

-

-

-

-

618

-

618

Transfer from shares to be issued reserve

-

-

-

-

(821)

-

-

821

-

-

-

-

Transfer from revaluation reserve

-

-

-

(166)

-

-

-

166

-

-

-

-


6

376

-

(166)

(203)

-

-

(13,711)

-

(13,698)

-

(13,698)

Acquisition of subsidiary with non-controlling interest

-

-

-

-

-

-

-

-

-

-

4,131

4,131

At 31 December 2012

8,283

204,614

621

20,660

2,072

(350)

64,262

517,239

(3,897)

813,504

4,131

817,635














*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).


Grafton Group plc

Notes to Final Results for the year ended 31 December 2013

 

1.   General Information

 

The financial information presented in this report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the European Union and as set out in the Group's annual financial statements in respect of the year ended 31 December 2012 except as noted below. The financial information does not include all the information and disclosures required in the annual financial statements.  The Annual Report will be distributed to shareholders and made available on the Company's website www.graftonplc.com in due course.  It will also be filed with the Company's Annual Return in the Companies Registration Office. The auditors have reported on the financial statements for the year ended 31 December 2013 and their report was unqualified and did not contain any matters to which attention was drawn by way of emphasis.  The financial information for the year ended 31 December 2012 represents an abbreviated version of the Group's statutory financial statements on which an unqualified audit report was issued and which have been filed with the Companies Registration Office.

 

Basis of Preparation, Accounting Policies and Estimates

 

(a)  Basis of Preparation and Accounting Policies

 

The Group is presenting its results in sterling for the first time having previously reported in Euro.  This change should help to provide a clearer understanding of the Group's financial performance as three quarters of its revenue has for some time been generated in sterling. 

 

The accounting policies applied by the Group in these condensed financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2012 with the exception of (i) a new accounting policy on Investment Property shown below and (ii) Retirement Benefits Obligations the impact of which is disclosed below. Certain comparative information has been presented in line with IAS 19 (Amendment) and IAS 1 (Amendment).

 

The adoption of other new standards and interpretations (as set out in the 2012 Annual Report) that became effective for the Group's financial statements for the year ended 31 December 2013 did not have any significant impact on the results or financial position of the Group.

 

 

Accounting Policy - Investment Property

Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in profit or loss.

 

Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. When investment property that was previously classified as property, plant and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings.

 

IAS 19 (Amendment) - Employee Benefits (2011)

IAS 19 (Amendment) - Employee Benefits (2011) was effective for the Group from 1 January 2013 and has had an impact on the results and financial position of the Group.

 

Amended IAS19 - Employee Benefits (endorsed by the EU in June 2012) changes a number of disclosure requirements for post-employment benefits and restricts the options currently available on how to account for defined benefit pension plans. This standard is effective for annual periods beginning on or after 1 January 2013 with retrospective application required. Under the amended IAS19, the expected return on assets and interest cost on scheme liabilities will be replaced by a single net finance income/expense figure which is required to be calculated using the liability discount rate rather than using an assumed long term expected rate of return for calculating the expected return on assets element. In addition all past service costs and credits are required to be recognised immediately. Note 20 discloses the impact of these changes on the condensed financial statements.

 

The following standards were effective for the Group and only affect the presentation of the condensed consolidated financial statements of the Group:

 



Effective Date

IAS 1 (Amendment)

Presentation of Financial Statements

1 January 2013


The amendment to IAS 1 has revised the layout of the Group Condensed Statement of Comprehensive Income but has no impact on the results or financial position of the Group





 

 

The following standards and interpretations were effective for the Group from 1 January 2013 but did not have a material effect on the results or financial position of the Group.

 

 

IFRS 7 (Amendment)

Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments

IFRS 13

Fair Value Measurement

IAS 1 (Amendment)

Presentation of Financial Statements

IAS 16 (Amendment)

Property, Plant & Equipment

IAS 28 (Amendment)

Investments in Associates and Joint Ventures

IAS 32 (Amendment)

Financial Instruments: Presentation

IAS 12 (Amendment)

Income Tax

 

 

 

 (b) Estimates

 

The preparation of the Final Results requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing the Final Results, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2012 with the exception of the assessment of the fair value of investment properties which are now separately classified in non-current assets on the balance sheet.

 

 

 

2.   Segmental Analysis

The amount of revenue and operating profit/(loss) under the Group's operating segments of Merchanting, Retailing and Manufacturing is as follows:

 



Restated*


Twelve months to 31 Dec 2013 (Audited)

£'000

Twelve months to 31 Dec 2012 (Audited)

£'000

Revenue





Merchanting


1,694,881


1,564,458

Retailing


167,889


161,783

Manufacturing


44,698


40,676

Less: Inter-segment revenue - manufacturing


(7,700)


(6,138)



1,899,768


1,760,779






Segment operating profit before non-recurring income/(costs)





Merchanting


81,750


66,723

Retailing


1,165


208

Manufacturing


3,945


1,658



86,860


68,589

 

Non-recurring income/(costs)

 

 




Merchanting


5,215


(10,819)

Retailing


-


(8,515)

Manufacturing


(2,411)


(1,887)



2,804


(21,221)






Segment operating profit/(loss) after non-recurring income/(costs)





Merchanting


86,965


55,904

Retailing


1,165


(8,307)

Manufacturing


1,534


(229)



89,664


47,368

Reconciliation to consolidated operating profit





Central activities


(9,649)


(7,628)

Intangible amortisation


-


(1,817)

Operating profit


80,015


37,923






Finance expense


(13,660)


(14,664)

Finance income


1,366


1,801






Profit before tax


67,721


25,060






Income tax


(5,622)


6,583






Profit after tax for the financial year


62,099


31,643

 

 

*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).

 

 

Operating segment assets are analysed below:

 


 

31 Dec 2013 (Audited)

£'000

 

31 Dec  2012 (Audited)

£'000

Segment assets





Merchanting


1,375,099


1,353,922

Retailing


64,545


73,264

Manufacturing


40,032


42,402



1,479,676


1,469,588

Unallocated assets





Deferred tax assets


17,666


26,877

Retirement benefit assets


718


-

Other financial assets


124


144

Derivative financial instruments


1,670


3,293

Cash and cash equivalents


151,099


128,027






Total assets


1,650,953


1,627,929

 

The amount of revenue by geographic area is as follows:


Twelve months to 31 Dec 2013 (Audited)

£'000

Twelve  months to 31 Dec 2012 (Audited)

£'000

 

Revenue






United Kingdom


1,426,888


1,335,056


Ireland


414,031


394,925


Belgium


58,849


30,798




1,899,768


1,760,779








 

 

 

3.   Operating Costs and Operating Income

 

Included within operating income and operating costs are a non-recurring pension credit and property impairments in 2013 and restructuring costs in 2012 as analysed below:

 


Year to

31 Dec 2013 (Audited)

£'000

Year to

31 Dec 2012 (Audited)

£'000











Pension scheme





Past service credit


18,534


-






Settlement gain


16,932


-

Settlement contribution liability


(5,014)


-

Net settlement gain


11,918


-






Professional fees


(488)


-

Pension scheme credit


29,964


-






Property impairment - UK and Ireland





Impairment - Irish properties


(23,180)


-

Impairment - UK properties


(3,980)


-



(27,160)


-






Restructuring costs:





Redundancy costs


-


(8,904)

Other restructuring costs


-


(1,134)

Impairment of plant and equipment


-


(1,559)



-


(11,597)






Onerous lease provision


-


(1,764)

Current asset impairments


-


(1,630)

Cost of Atlantic Home Care Limited examinership


-


(8,767)

Release of onerous lease provision relating

to Atlantic Home Care Limited


 

-


 

2,537








2,804


(21,221)






 

 

Pension scheme credit

The past service credit of £18.5 million arose due to the implementation of a permanent pensionable salary freeze in the United Kingdom and a pensionable salary freeze in Ireland for five years, together with an alignment of the normal retirement age and the State pension age in Ireland. The net settlement gain of £11.9 million arose due to the settlement of transfer values with the deferred members.

 

Property impairment

A strategic review of freehold properties gave rise to a non-cash impairment charge of £27.2 million to the Income Statement.  The impairment charge related mainly to properties located in the Republic of Ireland. 

 

Restructuring costs

The 2012 restructuring costs of £21.2 million relate primarily to (i) redundancy costs in the merchanting and manufacturing segments, (ii) costs related to the Atlantic Home Care Limited examinership, (iii) fixed asset and other asset impairments in the merchanting and DIY retailing businesses. The cost of the Atlantic Home Care Limited examinership comprises landlord compensation on termination of leases, examinership fees, redundancies and asset impairment relating to the two stores that closed.

 

 

 

4.   Finance Expense and Finance Income

                                                                                                                                   



Restated #  

 


Twelve months to

31 Dec 2013 (Audited)

£'000

Twelve months to

31 Dec 2012 (Audited)

£'000

 

Finance expense






Interest on bank loans and overdrafts


(10,256)

*

(10,831)

*

Interest on loan notes


(413)

*

(1,151)

*

Net change in fair value of cash flow hedges transferred from equity


 

(577)


 

(635)


Interest on finance leases


(278)


(287)


Net finance cost on pension scheme obligations


(1,403)

#

(1,359)

#

Fair value movement on hedged financial liabilities


-


(294)


Fair value movement on fair value hedges


-


128


Fair value movement on derivatives (Cross Currency Interest Rate Swaps (CCIRS) not in hedging relationships)


 

 

(1)


 

 

(217)


Ineffectiveness on cash flow hedges


(10)


(18)


Foreign exchange loss


(722)


-




(13,660)


(14,664)








Finance income






Foreign exchange gain


537


688


Interest income on bank deposits


829

*

1,113

*



1,366


1,801








Net finance expense


(12,294)


(12,863)


 

*           Net bank/loan note interest of £9.8 million (2012: £10.9 million).

#          IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).

 

 

 

 

5.   Earnings per Share

 

The computation of basic, diluted and underlying earnings per share is set out below. 

 

 


 

Year Ended

31 Dec 2013

Restated*

Year Ended

31 Dec 2012


(Audited)

(Audited)


£'000

£'000






Numerator for basic, adjusted and diluted earnings per share:










Profit after tax for the financial year


62,099


31,643

Non-controlling interest


80


-






Numerator for basic and diluted earnings per share


62,179


31,643






Intangible amortisation


-


1,817

Deferred tax relating to intangible amortisation


-


(227)

Non-recurring pension credit


(29,964)


-

Tax relating to non-recurring pension credit


4,729


-

Property impairment


27,160


-

Deferred tax relating to property impairment


(3,774)


-

Recognition of deferred tax asset


(8,546)


-

Taxation credit


-


(18,651)

Non-recurring restructuring costs


-


21,221

Tax relating to non-recurring restructuring costs




(805)






Numerator for adjusted earnings per share


51,784


34,998












Number of Grafton Units

Number of Grafton Units







Denominator for basic and adjusted earnings per share:










Weighted average number of Grafton Units in issue


232,112,552


231,951,127

Effect of potential dilutive Grafton Units


987,480


-






Denominator for diluted earnings per share


233,100,032


231,951,127






Earnings per share (pence)





- Basic


26.79


13.64

- Diluted


26.67


13.64






Adjusted earnings per share  (pence)





- Basic


22.31


15.09

- Diluted


22.22


15.09






 

 

*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).

 

 

 

 

6.   Dividends

 

The payment in 2013 of a second interim dividend for 2012 of 4.5 pence (5.50 cent) on the 'C' Ordinary shares in Grafton Group (UK) plc from UK-sourced income amounted to £10.8 million. A 2013 interim dividend of 3.0 pence (3.5 cent) per share was paid on 4 October 2013 on the 'C' Ordinary shares in Grafton Group (UK) plc from UK-sourced income and amounted to £6.9 million.

 

A second interim dividend for 2013 of 5.5 pence per share will be paid on the 'C' Ordinary Shares in Grafton Group (UK) plc from UK-sourced income to all holders of Grafton Units on the Company's Register of Members at the close of business on 14 March 2014 (the 'Record Date').  The dividend will be paid on 11 April 2014. A liability in respect of this second interim dividend has not been recognised at 31 December 2013, as there was no present obligation to pay the dividend at the year-end.

 

7.   Exchange Rates

 

The results and cash flows of subsidiaries with euro functional currencies have been translated into sterling using the average exchange rate for the year.  The balance sheets of subsidiaries with euro functional currencies have been translated into sterling at the rate of exchange ruling at the balance sheet date.

 

The average sterling/euro rate of exchange for the year ended 31 December 2013 was Stg84.93p (year to 31 December 2012: Stg81.09p).  The sterling/euro exchange rate at 31 December 2013 was Stg83.37p (31 December 2012: Stg81.61p).

 

8.   Non-Controlling Interests

 

The Group acquired a controlling interest in YouBuild NV (formerly BMC Groep NV) on 31 October 2012.  This company is now accounted for as a subsidiary undertaking with a non-controlling interest.

 

9.   Property, Plant and Equipment


 

Property, plant and equipment

 

Properties

held for sale

 

Investment properties


£'000

£'000

£'000

Net Book Value




As at 1 January 2013

458,335

14,452

-

Additions

24,670

-

-

Acquisitions

3,660

-

-

Depreciation

(31,463)

-

-

Disposals

(990)

(476)

-

Transfer to properties held for sale

(4,249)

4,249

-

Transfer to investment properties

(14,649)

(5,212)

19,861

Impairment of properties

(25,448)

(1,712)

-

Foreign exchange

3,535

51

-

As at 31 December 2013

413,401

11,352

19,861





 

 

10. Movement in Working Capital

 


 

 

Inventory

Trade

 and other receivables

Trade and other

payables

 

 

Total


£'000

£'000

£'000

£'000






At 1 January 2013

249,332

271,303

(383,160)

137,475

Translation adjustment

1,746

1,289

(2,629)

406

Interest accrual and other movements

-

(195)

(635)

(830)

Acquisitions through business combinations

373

-

-

373

Movement in 2013

(5,231)

35,425

(23,587)

6,607






At 31 December 2013

246,220

307,822

(410,011)

144,031






 

 

11. Interest-Bearing Loans, Borrowings and Net debt

 

 



31 Dec 2013

£'000


31 Dec

2012

£'000

Non-current liabilities





Bank loans


256,335


243,235

Loan notes


12,546


25,625

Finance leases


3,729


4,131

Total non-current interest-bearing loans and borrowings


272,610


272,991






Current liabilities





Bank loans


812


9,224

Loan notes


12,615


12,879

Finance leases


436


597

Total current interest-bearing loans and borrowings


13,863


22,700






Derivatives-non current





Included in non-current assets


(835)


(2,196)

Included in non-current liabilities


-


32






Derivatives-current





Included in current assets


(835)


(1,097)

Included in current liabilities


33


481






Total derivatives


(1,637)


(2,780)






Cash and cash equivalents


(151,099)


(128,027)






Net debt


133,737


164,884

 

 

The fair value of financial assets and liabilities together with the carrying amounts shown in the balance sheet are as follows:

At 31 December 2013

Cashflow hedge

Fair value hedges

Other assets at fair value

Liabilities at amortised cost

Total carrying value

Fair value


£'000

£'000

£'000

£'000

£'000

£'000

Other financial assets

-

-

124

-

124

124

Cross-currency interest rate swaps

-

-

1,670

-

1,670

1,670

Interest rate swap

(33)

-

-

-

(33)

(33)

2005 unsecured senior US dollar loan notes

-

 

-

 

-

(25,161)

 

(25,161)

 

(24,761)

 

 

Financial assets and liabilities recognised at amortised cost

Except as detailed above, it is considered that the carrying amounts of financial assets and liabilities including trade payables, trade receivables, net debt and deferred consideration which are recognised at amortised cost in the condensed consolidated financial statements approximate their fair values.

Financial assets and liabilities carried at fair value

These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined in the 2012 Annual Report together with the method for determining the fair value of the financial assets and liabilities. All of the Group's financial assets and liabilities which are carried at fair value are classified as Level 2 in the fair value hierarchy. There have been no transfers between levels in the current year.

Investment properties and properties held for sale

Investment properties of £19.9 million which are separately classified in non-current assets are carried at fair value in the financial statements. An internal review undertaken by the Group Property Director was used to determine fair values.  The valuation techniques used were the market value of comparable transactions recently completed or on the market. In cases where there are no recent precedent transactions, valuations were based on estimated rental yields and consultations with external agents who have knowledge of local property markets.

 

The carrying value of properties held for sale of £11.4 million are shown in the balance sheet at the lower of their carrying amount and fair value less any disposal costs. Six properties are included at a fair value of £2.8 million and have been valued as outlined in the paragraph above.

 

12. Reconciliation of Net Cash Flow to Movement in Net Debt

 



31 Dec 2013

£'000


31 Dec 2012

£'000








Net increase in cash and cash equivalents


21,993


15,338


Net movement in derivative financial instruments


1,091


804


Cash-flow from movement in debt and lease financing


11,569


7,896








Change in net debt resulting from cash flows


34,653


24,038








Finance leases acquired with subsidiary undertakings


-


(100)


Bank loans and loan notes acquired with subsidiary undertakings


 

-


 

(5,292)


Translation adjustment


(3,506)


5,202








Movement in net debt in the year


31,147


23,848








Net debt at 1 January


(164,884)


(188,732)








Net debt at end of the year


(133,737)


(164,884)








Gearing


15%


20%


 

 

13. Retirement Benefits

 

The principal financial assumptions employed in the valuation of the Group's defined benefit scheme liabilities for the current and prior year were as follows:

 


                      Irish Schemes

                    UK Schemes


At 31 Dec

2013

At 31 Dec

2012

At 31 Dec

2013

At 31 Dec

2012







%

%

%

%

Rate of increase in salaries

3.00%*

3.00%*

0.0%

2.50%

Rate of increase of pensions in payment

-

-

3.70%

2.90%

Discount rate

3.65%

3.75%

4.65%

4.50%

Inflation

2.00%

2.00%

3.70%**

2.90%**





*3% applies from 2 January 2019 (31 December 2012: from January 2014)


** The inflation assumption shown for the UK is based on the Retail Price Index (RPI)

 

 

The following table provides a reconciliation of the scheme assets (at bid value) and the actuarial value of scheme liabilities:


         Assets

         Liabilities

Net asset/(deficit)


Year to

31 Dec

Year to 31 Dec

Year to

31 Dec

Year to

31 Dec

Year to

31 Dec

Year to 31 Dec


2013

2012

2013

2012

2013

2012


£'000

£'000

£'000

£'000

£'000

£'000








At 1 January

176,729

159,587

(228,120)

(187,620)

(51,391)

(28,033)

Interest income on plan assets

7,128

7,967*

-

-

7,128

7,967

Contributions by employer

6,029

6,207

-

-

6,029

6,207

Contributions by members

1,329

1,419

(1,329)

(1,419)

-

-

Benefit payments

(27,852)

(5,279)

27,852

5,279

-

-

Current service cost

-

-

(2,253)

(1,876)

(2,253)

(1,876)

Past service credit - non-recurring

-

-

18,534

-

18,534

-

Past service credit

-

-

552

723

552

723

Settlement gain - non-recurring

-

-

16,932

-

16,932

-

Settlement gain - other

-

-

84

-

84

-

Curtailment loss

-

-

(92)

-

(92)

-

Interest cost on scheme liabilities

-

-

(8,531)

(9,326)

(8,531)

(9,326)

Actuarial gains/(losses)

15,264

8,497*

(7,822)

(35,955)

7,442

(27,458)

Translation adjustment

2,036

(1,669)

(3,592)

2,074

(1,556)

405








At 31 December

180,663

176,729

(187,785)

(228,120)

(7,122)

(51,391)

Related deferred tax asset (net)





836

7,422

Net pension liability





(6,286)

(43,969)

 

 

*IAS 19 (Revised) 'Employee Benefits' has been adopted as required by IFRS for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated (refer to note 20).

 

The pension scheme deficit of £7,122,000 is shown in the Group balance sheet as retirement benefit obligations (non-current liabilities) of £7,840,000 relating to the Irish schemes and retirement benefit assets (non-current assets) of £718,000 relating to the UK schemes.

 

 

14.    Acquisitions

 

The Group acquired the trade and selected assets of Thompson Building Centres and Thompson Associated Plumbing Supplies (acquired: 27 March 2013) and the trade and assets of a single branch merchanting business in Oban, Scotland (acquired: 29 November 2013).

 

The total acquisition consideration was cash of £4.0 million and the fair value of the net assets acquired was £4.0 million consisting largely of property, plant and equipment. The income statement impact of these transactions in the year was not material.  Goodwill acquired in the amount of £1,000 was allocated to the merchanting cash generating unit.

 

Details of the acquisitions made in 2012 are disclosed in the Group's 2012 Annual Report.

 

 

15.    Goodwill

 

Goodwill is subject to impairment testing on an annual basis and more frequently if an indicator of impairment is considered to exist.  The Group, having performed impairment testing, is satisfied that the carrying value of goodwill has not been impaired. The increase in goodwill in the period reflects a currency translation movement.

 

 

16.    Taxation

 

The effective rate of tax on profit, excluding the non-recurring pension scheme credit, property impairment and recognition of a deferred tax asset for trading losses carried forward in the Irish businesses, was 20.4 per cent (2012: 27.5 per cent).  This reflects the mix of profits between the UK, Ireland and Belgium and the disallowance of a tax deduction for certain items of expenditure including depreciation on buildings.  The underlying charge of £13.2 million also incorporates the unwinding of deferred tax assets and provisions recognised in prior years and the impact on deferred tax assets and liabilities of a reduction in the UK rate of corporation tax by 3 per cent to 20 per cent over the period to 1 April 2015.

 

The tax charge includes a once-off credit of £8.5 million due to the recognition of a deferred tax asset for trading losses carried forward in the Irish businesses.

 

The amount shown for current taxation includes a liability for tax uncertainties and is based on the Directors best probability weighted estimate of the probable outflow of economic resources that will be required. As with all estimates, the actual outcome may be different to the current estimate.

 

Accounting estimates and judgements

Management is required to make judgements and estimates in relation to taxation provisions and exposures. In the ordinary course of business, the Group is party to transactions for which the ultimate tax determination may be uncertain. As the Group is subject to taxation in a number of jurisdictions, an open dialogue is maintained with Revenue Authorities with a view to the timely agreement of tax returns. The amounts provided/recognised for tax are based on management's estimate having taken appropriate professional advice. If the final determination of these matters is different from the amounts that were initially recorded such differences will impact the income tax and deferred tax provisions and assets in the period in which the determination was made.

 

Deferred tax

At 31 December 2013, there were unrecognised deferred tax assets in relation to capital losses of £4.7 million (31 December 2012: £4.1 million), trading losses of £0.9 million (31 December 2012: £9.3 million) and deductible temporary differences of £5.0 million (31 December 2012: £4.1 million). Deferred tax assets were not recognised in respect of capital losses as they can only be recovered against certain classes of taxable profits and the Directors cannot foresee such profits arising in the foreseeable future. The trading losses and deductible temporary differences arose in entities that have incurred losses in recent years and the Directors have no certainty as to when there will be sufficient taxable profits in the relevant entities against which they can be utilised.

 

17.    Related Party Transactions

 

There have been no related party transactions or changes in related parties from those described in the 2012 Annual Report that materially affected the financial position or the performance of the Group during the year to 31 December 2013.

 

18.    Grafton Group plc Long Term Incentive Plan (LTIP)

        

         Share awards over 986,542 Grafton Units were made under the LTIP on 16 April 2013. The total fair value of the awards is £3.7 million and this will be charged to the income statement over the vesting period of three years. The 2012 Annual Report discloses details of the LTIP scheme.

 

19.    Issue of Shares

 

         During the year 426,300 Grafton Units were issued under the Grafton Group Share Option Scheme and a further 8,694 Grafton Units were issued under the Group's Savings Related Share Option Scheme (SAYE) to eligible UK employees.

 

 

20.    Change in Accounting Policy

 

            IAS 19 (Revised) 'Employee Benefits' has been adopted for the year ended 31 December 2013. The comparatives for the year ended 31 December 2012 have been restated. The effect of the change in accounting policy was to reduce the expected return on pension plan assets in the prior year income statement by £2.1 million (£1.7 million after tax) and to reduce the actuarial loss on the defined benefit pension scheme by £2.1 million (£1.7 million after tax).

        

         The finance cost on pension scheme liabilities and the expected return on pension plan assets are now shown as a net pension cost in the income statement.

 

         The impact of IAS 19 (Revised) on earnings per share was as follows:

                                                                                                                                                                   



Year to

31 Dec 2012

Reported


Year to

31 Dec 2012

Restated

Earnings per share (pence)





- Basic


14.38p


13.64p

- Diluted


14.38p


13.64p






Underlying earnings per share (pence)





- Basic


15.82p


15.09p

- Diluted


15.82p


15.09p






 

 

21.    Events after the Balance Sheet Date

 

There have been no material events subsequent to 31 December 2013 that require adjustment to or disclosure in this report except that the Group completed the acquisition of Binje Ackermans SA, a six branch merchanting business based in Brussels, on 3 February 2014 following approval of the transaction by the Belgium Competition Authority. The total consideration amounted to €20.0 million.

                                                                                                                                                          

22.    Board Approval

 

This announcement was approved by the Board of Grafton Group plc on 4 March 2014.


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