Increase in Half-year Revenue for Grafton Group by 3.2%
In the first half of 2022, Grafton Group, a leading distributor of building materials in Europe, faced a series of challenges that impacted its trading performance. Despite these difficulties, the company anticipates delivering full-year operating profit in line with expectations.
The average daily like-for-like revenue in Finland saw a marginal decline due to a softening in demand, primarily attributed to a decline in residential and non-residential construction. Similarly, the distribution businesses in Ireland, the UK, and Finland experienced lower volumes, a result of cost-of-living increases and rising interest rates.
Chadwicks, a part of Grafton Group, reported lower demand for materials supplied for housing renovation and maintenance projects (RMI) and the construction of single homes. On the other hand, the Selco business in the UK is experiencing challenging trading conditions in the residential RMI market.
However, revenue growth in the Netherlands was driven by product price inflation, increased sales to customers operating in the RMI market, and key account customers engaged on large commercial construction projects. Woodie's DIY business in Ireland saw a revenue increase of around 3%, driven by demand for seasonal products.
The CEO, Eric Born, stated that the company achieved a resilient first-half trading performance despite challenging market conditions and a strong prior year comparator. He also mentioned that they are maintaining their guidance for the year while being mindful of the potential impact of the macro-economic environment on trading.
Industry patterns and related company disclosures suggest that Grafton's trading performance was challenged by softer demand, cost pressures from inflation and interest rates, and competitive market conditions, leading to margin compression and cautious revenue growth or slight decline in core segments. Efforts focused on market share recovery and operational efficiency were expected responses.
The group's revenue for the first half of the year is £1.19 billion, an increase of 3.2%. In the second half, the management teams' focus will be on supporting customers in their market-leading businesses, tightly managing the cost base, and responding quickly to evolving trading conditions. Volumes were broadly unchanged in the Netherlands.
People are cutting investment on home improvements and discretionary spending on repairs and maintenance in the UK residential RMI market, contributing to more competitive markets and margin pressure in the distribution businesses in Ireland and the UK. Grafton Group will publish interim results at the end of August.
[1] Travis Perkins Interim Results 2022: https://www.travisperkins.co.uk/investors/results-centre/interim-results-2022 [2] Merchanting segment performance in the early 2020s: https://www.constructionweekonline.com/finance-and-economics/building-materials-distributors-face-soft-demand-and-competitive-pricing-pressure-during-early-2020s/
- The softening demand in the retail sector, particularly in home improvement and home-and-garden products, is contributing to more competitive markets and margin pressure in Grafton Group's distribution businesses.
- As the finance industry grapples with inflation and rising interest rates, these cost pressures are impacting the manufacturing industry, such as the builders' merchants within Grafton Group, leading to margin compression.
- Despite these challenging conditions, the lifestyle sector, specifically the home improvement market, continues to show potential for growth, as demonstrated by Woodie's DIY business in Ireland achieving a 3% revenue increase due to demand for seasonal products.
- The management of Grafton Group anticipates the second half of the year to be focused on supporting their market-leading businesses, optimizing operational efficiency, and adapting swiftly to evolving trading conditions in the finance, retail, and manufacturing industries.
