Grafton Group posts record results for 2015

Grafton Group plc the builders merchanting and DIY Group with operations in the UK, Ireland, Belgium and the

Netherlands, saw revenue up 6% to a record £2.21 billion for the year end December 31 2015.

Grafton Group posts record results for 2015

Group operating profit was also up, by 15% to £126.8 million.

In the UK Merchanting revenue – which includes Selco, Buildbase, Plumbase, Civils & Lintels – increased by 8.9%to £1.66bn and operating profit, including property profit and excluding an exceptional pension credit, was up by 13.8 % to £105.58m. The operating profit margin increased to 6.4%.

The UK Merchanting operating profit margin, before property profit and before an exceptional pension credit, was unchanged at 6.0 per cent.

Revenue was driven by increased activity in the residential RMI and new build markets. Price inflation was estimated at one per cent for the year and likeforlike merchanting volumes increased by circa 3.%. New branches, implants, acquisitions and branch consolidations contributed revenue growth of 5.%.

The overall gross margin increased by ten basis points due to favourable mix changes relating to Selco and acquisitions that more than offset competitive pricing pressure in the traditional merchanting business, principally in Plumbase.

It was a more difficult year for the traditional merchanting business as the benefit of likeforlike

revenue growth was more than offset by a decline in the gross margin and increased costs incurred in the ordinary course of business, upgrading legacy IT systems and strategic development initiatives.

Gavin Slark, Chief Executive Officer said: “Grafton made continuing progress in 2015 producing record revenue and solid growth in operating profit. We continued to

invest in organic growth initiatives and selective acquisitions, most notably Isero in the Netherlands. We are confident about the overall prospects for the Group and expect to deliver organic growth in the year ahead and to also benefit from recent development activity as well as exposure to the strengthening economies in Ireland and the Netherlands.”

Selco Builders Warehouse grew revenue and operating profit and operating margin. Strong likeforlike

revenue growth was largely influenced by demand from trade and business customers operating in the residential RMI market and by an increase in average transaction values and footfall. Expansion of the branch network – five in 2015 – improved operating leverage through economies of scale in procurement and marketing.The programme of branch openings increased the network to 40 including 24 in London and the South East. A similar number of branch openings are planned for 2016.

Buildbase delivered positive results increasing revenue, operating profit and operating margin supported by organic growth from solid demand in the residential RMI and new build markets and good contributions from the ten branches acquired in the second half of last year. The benefit of increased demand in the likeforlike business and an improvement in the gross margin was partially offset by increased costs related to strategic initiatives. The overall business showed a healthy increase in revenue and profit and Buildbase increased its share of a competitive market.

The Hirebase implants posted strong results and continued to develop its market position following the opening of 22 new implants in 2014 and 15 in 2015.

The Electricbase strategic initiative made significant progress performing ahead of expectations and

reporting an operating profit. A range of electrical products are now available through implants in 80 Buildbase branches

including 23 that were opened in 2015.

In November, Buildbase acquired Wollens, a general merchanting business trading from two branches in Glastonbury and Cannington. Since the yearend, coverage of the merchanting market was enhanced with the purchase of T. Brewer, a specialist timber business trading from three branches in London and Allsands, a general builders merchanting business located in Larkfield, Kent.

Plumbase showed a modest decline in revenue against the background of a softer residential heating market. The gross margin was lower due to intense price competition for lower volumes in the domestic heating market. The deterioration in market conditions led to a significant decline in operating profit for the year. A range of measures were implemented including the closure of eleven branches and six further branches were consolidated into properties that are shared with other Group businesses in response to the weaker market over the past year. Management continued to focus on securing procurement gains,tight cost control, growing revenue and tightly controlling working capital. The specialist bathroom products distribution business had another good year.

The Contracts business comprises Buildbase Civils and a number of specialist distribution businesses where demand is mainly influenced by activity in the residential, infrastructure and commercial new build markets. Revenue increased but operating profit was reduced due to gross margin pressure in a competitive market.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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