TIDMGFTU
RNS Number : 6675J
Grafton Group PLC
25 August 2021
Grafton Group plc
Half Year Report for the Six Months Ended 30 June 2021
Grafton Group plc ("Grafton"), the international building
materials distributor and DIY retailer is pleased to announce its
half year results for the period ended 30 June 2021.
Continuing Operations(1) H1 2021 H1 2020(3) Change
(restated)
Revenue GBP1,028m GBP704m +46.1%
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Adjusted(2) operating profit GBP157.8m GBP46.9m +236.2%
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Adjusted operating profit before
property profit GBP142.4m GBP46.9m +203.9%
------------ ------------ -----------
Adjusted profit before tax GBP148.6m GBP33.8m +340.1%
------------ ------------ -----------
Adjusted earnings per share 50.4p 11.1p +355.2%
------------ ------------ -----------
Dividend 8.5p - -
------------ ------------ -----------
Net cash (before IFRS 16 leases) GBP302.5m GBP57.0m +GBP245.5m
(4)
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Net (debt) - (including IFRS 16 (GBP209.9m) (GBP479.2m) -GBP269.3m
leases) (5)
------------ ------------ -----------
Statutory Results - Continuing Operations H1 2021 H1 2020 Change
(restated)
------------ ------------ -----------
Operating profit GBP152.1m GBP42.7m +256.6%
------------ ------------ -----------
Profit before tax GBP142.9m GBP29.5m +384.8%
------------ ------------ -----------
Basic earnings per share 48.5p 9.6p +403.4%
------------ ------------ -----------
(1) Supplementary financial information in relation to
Alternative Performance Measures (APMs) is set out on pages 43 to
48.
(2) The term "Adjusted" means before exceptional items and
amortisation of intangible assets arising on acquisitions in both
years.
(3) H1 2020 has now been restated as the Traditional Merchanting
Business in Great Britain is now classified as a discontinued
operation. Details are set out in Note 14.
(4) Net cash from total operations (before IFRS 16 lease
liabilities), which includes cash of the discontinued
operations.
(5) Net debt from total operations (including IFRS 16 lease
liabilities), which includes the discontinued operations.
Operational Highlights
-- Strong performance across the Group and a notable record
contribution from the Woodie's DIY, Home and Garden business in
Ireland
-- Agreement to divest Traditional Merchanting Business in Great
Britain for an enterprise value of GBP520 million
-- Completed acquisition of IKH in Finland on 1 July 2021
-- Good contribution from StairBox acquisition which performed ahead of plan
-- Continued progress of sustainability agenda
Financial Highlights
-- Record half year adjusted operating profit of GBP142.4 million (before property profit)
-- Record Group adjusted operating profit margin of 13.9%
(before property profit) and adjusted return on capital employed of
20.5%
-- Record half year cash generation of GBP255.3 million from all operations
-- Net cash at 30 June 2021 of GBP302.5 million (before IFRS 16 lease liabilities)
Gavin Slark, Chief Executive Officer Commented :
" I want to thank all of our colleagues for their tremendous
contribution and commitment in delivering an exceptional first half
outcome in which Grafton achieved record operating profits and
margins as well as record cash generation.
2021 marks a key phase of a very considered strategic
transformation we have executed at Grafton over recent years, which
today comprises a portfolio of high returning, differentiated
businesses with the capacity to grow and outperform in our chosen
markets.
The overall outlook for the Grafton businesses is positive given
the strength of our current market positions, geographic diversity,
strong balance sheet and investment pipeline, alongside supportive
sector and macro trends together with the successful rollout of
vaccines to date in the four countries where the Group now
operates."
Webcast and Conference Call Details
A pre-recorded results presentation and a copy of the results
presentation document are available at 7:00am today via the home
page of the Company's website www.graftonplc.com .
A live audio conference call for analysts and investors will be
hosted by Gavin Slark and David Arnold at 9:00am tod ay. If
investors would like to listen to the conference call, they can do
so either via the "Live Audio Conference Call" webcast link on the
home page of the Company's website or by clicking on the following
link: https://brrmedia.news/GFTU_H121
Analysts will be invited to raise questions on the call. Should
investors wish to submit a question in advance, they can do so
before 8.15am today by sending an email to ir@graftonplc.com . A
recording of the call will be available on the Company's website
later today.
Enquiries:
Grafton Group plc + 353 1 216 0600
Gavin Slark, Chief Executive Officer
David Arnold, Chief Financial Officer
Murray + 353 1 498 0300
Pat Walsh
MHP Communications + 44 20 3128 8549
Tim Rowntree/Rachel Mann
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.
Interim Results for the Six Months to 30 June 2021
Statement from Gavin Slark, Chief Executive Officer
This was a half year of high performance, operational excellence
and significant strategic development.
Results for Half Year
The results for the half year highlight the success of our
strategy and the exceptional management teams and colleagues across
the Group who have again delivered excellent results and
outperformance against the backdrop of favourable market
conditions. We continued to innovate and deliver a great experience
for our customers while also investing strategically to develop and
grow our businesses.
Our strategic growth focus is to invest in higher returning
businesses with good market positions that have a differentiated
customer offering. The end use market for these businesses is
primarily the more resilient residential repair, maintenance and
improvements ("RMI") sector and we saw the benefits of this
strategy in the half year. We continued to invest in our digital
channels to increase traffic to our websites and on-line engagement
and transactions with our customers.
Despite the disruption caused by the pandemic, we have delivered
adjusted operating profit of GBP142.4 million (before property
profit) in continuing operations, which excludes the Traditional
Merchanting Business in Great Britain that is now classified as
discontinued operations. This level of profitability established a
new half year record for Grafton and the adjusted operating profit
margin of 13.9 per cent was also a record performance.
Each of our market leading businesses in the UK, Ireland and the
Netherlands contributed to these record results with a notable
record profit contribution from the Woodie's DIY, Home and Garden
retail business in Ireland.
Our colleagues responded with enterprise and agility to the
significant pressure on the Group's supply chains during the half
year that was caused by elevated international demand for building
materials, disruption to supply and container shipping logistics
issues.
Cashflow generated from total operations, including discontinued
operations, for the half year more than doubled to GBP255.3 million
and the Group ended the half year with net cash of GBP302.5 million
before IFRS 16 lease liabilities, up from GBP181.9 million at the
start of the year. On 1 July 2021 the Group completed the IKH
acquisition at a cost of EUR199.3 million.
When we divested our Belgium distribution business in 2019, we
retained the freehold properties. We completed the sale of these
properties in the half year for GBP13.6 million and this
transaction accounted for most of the property profit of GBP5.3
million on disposals realised in the half year. A further property
profit of GBP10.1 million related to an uplift in fair value
recognised on investment properties.
Group Strategy
We announced on 1 July 2021 that the Group had entered into an
agreement to divest its Traditional Merchanting Business in Great
Britain for an enterprise value of GBP520 million and that it will
retain freehold properties with development potential that have a
market value of circa GBP25 million. The decision to divest this
business followed a comprehensive strategic review which concluded
that exiting this segment of the building materials distribution
market in Great Britain would enable the Group to optimise
shareholder value. Divestment provides an opportunity to deploy our
capital resources towards more differentiated, higher growth
potential businesses offering superior returns and greater
resilience through the cycle. This transaction will complete our
programme of disposals and we thank all of our colleagues in this
business for their longstanding and valued contribution to Grafton
and wish them every success in the future.
Divestment of the Traditional Merchanting Business in Great
Britain will enable increased focus on our international
development strategy which will be a key priority over the coming
years.
Our entry into the Netherlands market at the end of 2015 and the
acquisition of Leyland SDM in 2018, Polvo in 2019 and StairBox in
2020 demonstrate our disciplined use of capital and our track
record of creating shareholder value through growth and
development.
Our very successful Selco Builders Warehouse business now
accounts for almost three quarters of our UK distribution
activities. The remainder of our UK distribution business now
comprises the very successful MacBlair operations in Northern
Ireland and the TG Lynes and Leyland SDM specialist distributors
which trade in and around London. The operating profit margin in
the continuing UK distribution business was 13.3 per cent in the
half year which marks a significant uplift on the margin of 6.4 per
cent returned for the first half of 2019 including the businesses
that we have agreed to divest.
We were pleased to announce that Grafton completed the
acquisition of Isojoen Konehalli Oy and Jokapaikka Oy ("IKH") in
Finland on 1 July 2021. IKH is one of the largest workwear,
personal protective equipment ("PPE"), tools, spare parts and
accessories wholesalers and distributors in Finland. It has a track
record of over twenty years of uninterrupted revenue growth and has
a number two market position in its core tools and PPE segment. IKH
is a very good strategic and cultural fit for Grafton and we are
delighted to welcome our new colleagues in Finland to Grafton and
look forward to working with them over the coming years.
The acquisition of IKH strengthens our operations in mainland
Europe in line with our development strategy and provides Grafton
with a new growth platform in the Nordic region. IKH also expands
our product ranges and customer reach into attractive core and
adjacent markets.
Through a combination of organic growth and the acquisition of
high potential businesses trading in segments of our markets that
exhibit good structural growth drivers, we will continue to
allocate capital to those opportunities that allow us to deliver
strong and sustainable value and superior returns.
Implementing Our Sustainability Strategy
Grafton is committed to building a sustainable business for all
of its stakeholders. The Board and the management teams recognise
that sustainability is a core element of our strategy and is
critical to the long-term success of our portfolio of businesses.
Our sustainability agenda is based on reflecting the interests of
stakeholders in our business decisions and focusing on those areas
in our distribution, retailing and manufacturing businesses that
are likely to have the most success and that can deliver tangible
results and outcomes that make a real difference to
stakeholders.
Our strategy is aligned with the UN Sustainable Development
Goals and identifies five key areas of focus and activity which are
Customers and Products; People; Resources, Communities and
Ethics.
We have made further progress during the half year and the
commentaries that follow on the individual businesses highlight a
range of initiatives implemented that are linked to these
goals.
Capital Markets Day
We intend to hold a Capital Markets Day for investors towards
the end of the year to update investors on the progress of the
Group and its businesses, capital allocation model and
sustainability strategy.
Gavin Slark
Chief Executive Officer
Group Results - Trading Summary, Cashflow, Dividend and
Outlook
The strength of the customer offering in the Group's market
leading distribution, retailing and manufacturing business together
with strong demand in the RMI and new housing markets contributed
to a very positive performance and record operating profit for the
half year.
Trading in January and February was subdued due to national
restrictions at a time when rollout of vaccines was still in the
early stages. Strong revenue growth trends developed in the Group's
continuing operations in March and April and were maintained
through May and June.
Distribution
UK (Continuing Business)
The Group's continuing distribution business in the UK now
comprises Selco, Leyland SDM, MacBlair and TG Lynes following the
agreement to dispose of the Traditional Merchanting Business in
Great Britain. The continuing business fully recovered from the
impact of the lockdown in the first half of last year and average
daily like-for-like revenue in the first half 2021 was 16.7 per
cent ahead of the first half of 2019. There was a strong advance in
operating profit in the continuing business and the operating
profit margin of 13.3 per cent was up from 10.2 per cent in 2019.
The strategic investment made to develop the Selco branch network,
which accounted for almost three quarters of UK distribution
revenue in the half year, was well rewarded as its self-select
operating model and well stocked branches were ideally placed to
support an increased level of spending on home and garden
improvement projects.
Ireland
Chadwicks branches remained open to support those parts of the
construction sector that were permitted to continue operating from
early January to mid-April when a phased re-opening of the
construction sector including house building got under way.
Chadwicks, the market leader in Ireland, experienced exceptional
demand in the residential RMI and new build markets from mid-April.
Half year profitability was materially higher than the pre-pandemic
result for the first half of 2019 and the operating profit margin
was 11.6 per cent, 310 basis points ahead of the first half of
2019. Daly Brothers, the Dundalk builders merchant acquired last
year was fully integrated into the network and Proline, the
architectural ironmongery business acquired in February, performed
in line with plan.
The Netherlands
The Isero ironmongery, tools and fixings business, that was
permitted to continue operating as an essential distributor during
2020, reported good growth in revenue and profitability for the
half year. Trading conditions were generally favourable as the
economy recovered faster than expected. Volume gains in the
substantial Polvo business acquired in July 2019 contributed to the
positive outcome. The operating profit margin was 10.8 per cent, 60
basis points ahead of the prior year.
Retailing
Woodie's market leading DIY, Home and Garden business in Ireland
managed an unprecedented level of demand and volume of products
flowing through its stores in the half year. Whilst Covid
restrictions affected much of Irish retail, Woodie's was deemed an
essential retailer and permitted to trade throughout the first
half. As a result, new records were decisively established for
revenue and profitability leading to a more than doubling of the
operating profit margin to 21.6 per cent.
Manufacturing
The manufacturing segment now incorporates our long established
market leading CPI EuroMix dry mortar business in Great Britain,
StairBox, the staircase manufacturing business in Stoke-on-Trent
that we were pleased to acquire at the end of November 2020 and
MFP, a manufacturer of PVC drainage and roofline products based in
Dublin .
Volumes in the CPI EuroMix mortar manufacturing business started
to recover in March and continued on an improving trend although
they remained below pre-pandemic levels in line with the gradual
upturn in house building. This business has a flexible operating
model and produced an operating margin of 21.6 per cent in the half
year.
StairBox had an excellent start under Grafton ownership
performing ahead of expectations. It produced an operating profit
margin of 36.7 per cent, the highest level ever reported by a
Grafton business. The half year performance endorsed our
pre-acquisition assessment of this high quality business and
management team. Stairbox, a leader in technology in its field,
gives Grafton access to a new cohort of customers in an attractive
segment of the residential RMI market in Great Britain.
Cash Flow
The Group's cashflow generated from total operations in the half
year more than doubled to GBP255.3 million from GBP121.5 million.
This excellent cash generation was driven by better trading in the
Group's businesses and included cashflow of GBP37.7 million
released from working capital.
The Group had net cash of GBP302.5 million at 30 June 2021
before IFRS 16 lease liabilities having started the year with net
cash of GBP181.9 million. Net debt on an IFRS 16 basis which
includes lease liabilities was GBP209.9 million (31 December 2020:
GBP355.0 million), an improvement of GBP145.1 million in the half
year.
Dividend
The Group had a cash outflow on dividends of GBP64.6 million
during the half year comprising the second interim dividend for
2019 of 12.5p per share that was paid on 19 February 2021 in the
amount of GBP29.9 million and the final dividend for the year ended
31 December 2020 of 14.5p per ordinary share that was paid on 5 May
2021 and amounted to GBP34.7 million.
The Board has decided to pay an interim dividend for 2021 of
8.5p per share in the amount of approximately GBP20.4 million. This
interim dividend is in line with the Board's progressive dividend
policy and reflects both the Group's strong profitability and
cashflow from operations for the half year and its (pre-IFRS 16)
net cash position at 30 June 2021.
The interim dividend will be paid on 1 October 2021 by Grafton
Group plc, following the simplification of the Grafton Unit that
was approved by shareholders at the EGM on 21 January 2021, to
shareholders on the Register of Members at the close of business on
3 September 2021, the record date. The Ex-dividend date is 2
September 2021.
Outlook
The overall outlook for the Grafton businesses is positive
following the successful rollout of vaccines to date in the four
countries where the Group now operates. Risks nevertheless remain
that a further spread of Covid-19 in communities following the
lifting of most restrictions or the emergence of new vaccine
resistant variants could require restrictions to be reimposed and
slow or reverse the international recovery that is now becoming
established.
It is expected that supply chains will continue to be disrupted
to some extent over the coming months and we will continue to work
with our partners to minimise the impact on our customers.
The recovery in the UK economy is on track and the outlook is
positive. Some elements of the construction sector including
housing RMI saw volumes fall sharply during the first lockdown then
quickly recover by the end of last year. The UK RMI housing market
was not directly impacted by further lockdowns this year and
performed strongly in the first half at a time of reduced spending
on travel, leisure and hospitality. We believe that this trend is
likely to continue in the second half given the desire of
households to improve the amount and quality of indoor and outdoor
living space. The spending of an element of savings built up during
the pandemic on housing RMI is also likely to add some impetus to
the market. The recovery in housebuilding in the UK is expected to
continue and to be sustained beyond the ending of the stamp duty
holiday in September supported by good demand at a time when the
stock of new houses for sale is low.
In Ireland, there are encouraging signs that economic activity
is normalising following the lifting of restrictions and the
near-term outlook for the economy is favourable. Activity in the
residential RMI market is predicted to remain strong and, following
the reopening of sites in April, house building is expected to gain
momentum in response to the scarcity of supply and the high level
of pent up and forecast demand. The exceptional revenue growth
trends in the Woodie's DIY, Home and Garden business eased as
expected following the reopening of non-essential retail and
leisure activities and it is anticipated that this trend will
continue in the second half.
The Netherlands economy saw a pick-up in activity in the second
quarter and the outlook is favourable with an expectation of a
return to a steady growth path by the year end. Consumers have
become more confident and underlying demand in the RMI and new
build housing markets should sustain a continuation of the positive
first half trends in the ironmongery, tools and fixings
distribution market.
Average daily like-for-like Group revenue increased by 4.4 per
cent in the period from 1 July to 15 August 2021. This comprised
increases of 6.9 per cent in UK Distribution, 9.4 per cent in Irish
Distribution, 9.7 per cent in Netherlands Distribution and by 7.4
per cent in Manufacturing. Average daily like-for-like revenue
declined as anticipated by 16.7 per cent in Retailing which
compares to growth of 35.6 per cent in the same period last
year.
We are very encouraged by the strong first half performance
across the Group and, while our markets are not without risk
concerning how demand will unfold, we are confident in the delivery
of full year Group adjusted operating profit in continuing
operations of approximately GBP240 million, as previously guided,
subject to increasing property profit by GBP10 million related to
the retention of four investment properties as part of the
divestment of the traditional merchanting business in Great
Britain.
Operating Review - Continuing Operations
The Distribution businesses in the UK, Ireland and the
Netherlands contributed 79.8 per cent of Group revenue (2020: 82.3
per cent), Retailing 15.4 per cent (2020: 14.1 per cent) and
Manufacturing 4.8 per cent (2020: 3.6 per cent).
UK businesses contributed 44.8 per cent (2020: 39.0 per cent) of
Group revenue, Ireland 40.9 per cent (2020: 41.4 per cent) and the
Netherlands 14.3 per cent (2020: 19.6 per cent).
Distribution Segment (80% of Group Revenue)
2021 2020 2019
GBP'm GBP'm GBP'm Change*
------
Revenue 820.3 579.0 651.6 41.7%
Adjusted operating profit before property
profit 101.2 39.3 63.5 157.3%
Adjusted operating profit margin before
property profit 12.3% 6.8% 9.7% +550bps
Adjusted operating profit 111.9 39.4 67.3 183.7%
Adjusted operating profit margin 13.6% 6.8% 10.3% +680bps
------ ------ ------ ---------
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
UK distribution generated 40.3 per cent (2020: 35.7 per cent) of
Group revenue, Irish Distribution 25.2 per cent (2020: 27.0 per
cent) and Netherlands Distribution 14.3 per cent (2020: 19.6 per
cent).
UK Distribution
2021 2020 2019
GBP'm GBP'm GBP'm Change*
------
Revenue 414.1 250.7 344.4 65.2%
Adjusted operating profit before
property profit 55.1 10.1 35.2 448.0%
Adjusted operating profit margin
before property profit 13.3% 4.0% 10.2% +930bps
Adjusted operating profit 65.0 10.1 39.0 540.3%
Adjusted operating profit margin 15.7% 4.0% 11.3% +1,170bps
------ ------ ------ ----------
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
The results of the UK distribution business for the half year
and comparative results for 2020 do not include the Traditional
Merchanting Business in Great Britain which is classified as
discontinued operations.
Revenue growth of 65.2 per cent reflects strong underlying
demand continuing the trends that developed in the second half of
last year and a weaker performance in the comparative period in
2020 because of the measures adopted in the second quarter to
contain the spread of Covid-19. These measures resulted in the
closure of all branches, except for the Leyland SDM branches, on 24
March and the phased reopening in May and June.
Average daily like-for-like revenue was up by 63.5 per cent on
the first half of 2020 and by 16.7 per cent on the first half of
2019. There was one less trading day in the first half of 2021.
The GDC Paints business acquired in July 2020 contributed
revenue of GBP3.6 million in the half year and new Selco and
Leyland SDM branches contributed revenue of GBP3.9 million.
The gross margin was up by 100 basis points on the level
reported for the first half of 2019, when trading conditions were
more comparable than 2020. This improvement was attributed to
changes in product mix, improved procurement arrangements and stock
gains realised from materials price inflation.
First half operating profit before property profit increased to
GBP55.1 million (H1 2020: GBP10.1 million) at an operating profit
margin of 13.3 per cent that represents a structural shift in the
quality of the UK Distribution business following the agreement to
divest the Traditional Merchanting Business in Britain.
There was no recognition of rates relief of GBP3.8 million
received in the continuing UK distribution business in the period
which is in the process of being repaid.
Selco Builders Warehouse
Selco Builders Warehouse experienced a remarkable level of
demand and a step up in revenue in the half year. This strong
performance endorsed the benefits of a multi-year strategic
investment programme in the branch network and digital
infrastructure that made it possible to support more customers and
deliver record breaking sales.
Selco management and colleagues accomplished a great deal in the
half year in their response to a very dynamic trading and
operational environment while at all times prioritising the health
and safety of customers and each other.
Average daily like-for-like revenue increased by 74.4 per cent
on the same period in 2020. This follows a decline in total revenue
of 30.7 per cent in the first half of 2020 compared to the first
half of 2019 as all branches were closed on 24 March 2020, because
of the pandemic, and reopened on a phased basis between 6 May 2020
and 22 June 2020. Half year average daily-like-for-like revenue
growth of 18.4 per cent over the two years to the end of June 2021
is more reflective of the excellent progress made by the
business.
Revenue growth trends improved in the second half of last year
and continued into the early weeks of this year. Trading began to
show a further improvement in the second half of February and
gained significant momentum in March that carried through to the
end of the half year.
The improved performance was broadly based across the branch
network with branches outside of the Greater London Area, that
accounted for almost one-third of revenue, making the strongest
advances.
Selco is primarily exposed to the residential RMI market which
recovered quickly following the lifting of lockdown measures. The
pandemic appears to have changed the relationship between
households and their homes and the sharp rise in savings from
reduced spending on leisure, travel and non-essential retail has
provided the resources to invest in the home at a time of increased
demand for more and better quality space both inside and outside
the home. This has taken the form of multiple projects inside the
home including extensions, loft works and garage conversions.
Outdoor projects have typically involved paving, decking, fencing
and construction of garden sheds.
There was significant pressure on the supply chain because of
shortages of core materials at various stages during the half year
including aggregates, cement, plasterboard, treated timber, sheet
materials, landscaping, steel and plastics. The procurement team
worked closely and successfully with supply chain partners to
diminish the impact on customers and optimise our in-stock
positions. Supply chain pressures also contributed to significant
price inflation, particularly in core products including timber,
and we estimate that overall cost price inflation was circa 7.5 per
cent compared to the first half of last year.
The new branches that were opened last year in Orpington and
Salford, the Bristol branch that was relocated to an enlarged
modern facility and the Chessington branch that was extended into
an adjoining unit materially outperformed plan.
The operational leverage from the strong growth in revenue and
an increase in the gross margin contributed to an improvement in
the operating profit margin to 13.7 per cent.
Last year Selco completed a major upgrade to its website to
incorporate several new features that make it easier for customers
to transact online. This significantly improved on-line engagement
and continues to be the focus of investment with the goal of
further enhancing the customer experience. Digital sales accounted
for 5.4 per cent of first half revenue and approximately 80 per
cent of on-line orders were fulfilled through deliveries from
branches and delivery hubs.
The branch estate increased to 70 with the opening of a new
branch in Liverpool, where early trading indications are very
encouraging, and new branches will open later this year in Canning
Town and Rochester while a pipeline of branch openings over the
coming years is being actively developed. Major upgrades were
completed to the Catford and Ruislip branches as part of a rolling
programme of investment in the branch estate and mini upgrades were
also completed on a number of branches.
Following the success of the delivery hub in Edmonton, that
centralised customer deliveries for six branches in North London, a
second hub was recently opened that will centralise deliveries on a
phased basis for the seven branches in the Birmingham Area. These
hubs also provide a fulfilment service for heavyside products
ordered on-line through the Click & Deliver facility.
The Selco Sustainability Pledge, a blueprint including targets
and commitments for what can be achieved over the next decade, was
recently launched. The business has already taken decisive action
this year, as part of its responsibility to the environment, with
the launch of 'Selco Forest', an initiative designed to accelerate
the process of offsetting its carbon footprint. The trees planted
this year will offset 8,000 tonnes of carbon during their life
cycle which is equivalent to the amount of carbon used on customer
deliveries over two years. Selco is also testing and trialling
greener delivery vehicles utilising compressed natural gas
technology.
Leyland SDM
Leyland SDM, London's largest specialist decorators' merchant,
was categorised as an essential business and continued to trade
throughout 2020. Like-for-like revenue and operating profit were in
line with the first half of last year. While the re-opening of
non-essential retail on 12 April 2021 helped to increase footfall
and the level of transactions conducted with retail customers,
demand from trade customers was weak because the limited number of
workers and international tourists in central London has
significantly reduced investment particularly in offices,
restaurants and the leisure sector. This backdrop was reflected in
revenue in the like-for-like stores being down by 7.4 per cent on
the first half of 2019. The stores located in the commuter belt
continued to make gains from increased spending by households and
trade customers on painting and decorating products.
The five store GDC Paints acquired in July 2020 completed a
successful first year under Grafton ownership and performed ahead
of expectation. The five branches were integrated into the Leyland
SDM store network and ERP system and now benefit from the
distinctive branding and corporate identity of Leyland SDM. The new
store that opened in Kingston-Upon-Thames in November 2020 is
developing a revenue stream and in June Leyland SDM opened its
30(th) store in Clapham Junction. The Shoreditch, Chelsea and
Victoria stores were upgraded.
MacBlair
The Northern Ireland distribution business traded very strongly
in the second half of last year and this trend gathered pace
leading to record revenue and operating profit for the first half
while the operating profit margin of 12.0 per cent also established
a new record for the business and compares to the full year outturn
of 8.6 per cent for 2020. First half revenue was ahead of last year
by 58.3 per cent and up by 26.7 per cent on 2019.
MacBlair experienced exceptional demand in the attractive
residential RMI market which was the strongest driver of revenue
growth. There was notable growth in the volume of landscaping,
fencing, decking and timber products supplied. The new housing
sector returned to growth in March and traded strongly in the run
up to the end of the half year with most of the increase in
activity concentrated on self build customers and smaller house
builders. Demand from the major house builders in the province
involved in housing scheme developments was more subdued. Trading
with customers operating in the commercial and industrial sectors
was also very positive. The higher proportion of revenue from the
residential RMI end-use market, product price inflation stock gains
and changes in product mix contributed to a favourable gross margin
outcome.
TG Lynes
Revenue in TG Lynes, a leading distributor of commercial pipes
and fittings in London, recovered to within four per cent of the
level reported for the first half of 2019. In line with the trend
that developed in the second half of last year, demand was
strongest from subcontractors engaged in upgrades to existing
properties, residential new build, public sector and RMI projects.
Investment in the hotel, leisure, retail and office sub-sectors
continued to be impacted by the pandemic although there were
indications of improving order books at the end of the half year.
Good pricing discipline was maintained in a competitive market and
a strong operating profit performance was delivered with a high
double digit operating profit margin for the half year coming in
only marginally behind the level reported prior to the
pandemic.
TG Lynes installed solar panels on the roof of its 55,000 sq.
ft. freehold property in Enfield. Generating solar energy for use
on this site will lower demand for energy from the national grid
and reduce the company's carbon footprint. The business also
demonstrated its commitment to sustainability by replacing
traditional light fittings with LED lighting and supported
colleagues switching to electric cars by installing electric
vehicle charging points at its workplace. The ERP system was
updated to a solution designed for distributors that provides
greater visibility on the trading, operations and performance of
the business.
Irish Distribution
2021 2020 2019 Constant
Currency
GBP'm GBP'm GBP'm Change* Change*
------ ---------- ----------
Revenue 258.7 190.2 226.2 36.1% 37.3%
Adjusted operating profit before
property profit 30.1 15.2 19.3 97.6% 102.8%
Adjusted operating profit margin
before property profit 11.6% 8.0% 8.5% +360bps -
Adjusted operating profit 30.9 15.2 23.1 102.9% 107.5%
Adjusted operating profit margin 11.9% 8.0% 10.2% +390bps -
------ ------ ------ ---------- ----------
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
Trading in the half year fell into two distinct phases that were
linked to the introduction of lockdown measures in Ireland to
reduce a surge in Covid-19 cases at the turn of the year and the
subsequent phasing out of these measures. The first phase covered
the period from early January to mid-April when non-essential
construction, with certain exceptions, was required to cease and
sites were closed. During this period all Chadwicks branches
remained open to support those elements of construction that were
permitted to continue operating. Customer activity in our branches
was down and average daily like-for-like revenue declined by 2.0
per cent on the same period in 2019.
There was a significant acceleration in trading in the second
phase which started with the lifting of restrictions on house
building from mid-April and the complete reopening of the
construction sector from early May. Trading across the branch
estate was very strong as households invested in a wide variety of
home maintenance and improvement projects and house building
restarted in Dublin and other provincial cities. Average daily
like-for-like revenue in the period from mid-April to the end of
June increased by circa 30 per cent compared to the same period in
2019 in response to exceptional levels of customer demand. Revenue
growth incorporates materials price inflation estimated at circa
6.9 per cent which affected a number of core commodities including
steel and timber categories.
In May and June Chadwicks performed at its highest level of
activity since 2008 which contributed to overall growth in average
daily like-for-like revenue of 11.7 per cent for the half year
compared to the first half of 2019.
The Steel division, a value-added segment of the business that
differentiates Chadwicks from competitors and provides early-stage
supply opportunities to support new build projects, performed
strongly and made a significant contribution to profitability.
There was a shortage of certain building materials due to
exceptional demand in May and June that was mainly resolved by
working closely with supply chain partners to prioritise the
stocking of core lines.
There was a marked recovery in housing starts following the
lifting of restrictions in mid-April. There were 12,700 units
started in the second quarter and 27,000 units in the year to end
of June which remains well short of underlying annual demand which
is estimated at 40,000 units. House completions quickly recovered
in the second quarter and 9,000 units were completed in the half
year partly driven by a doubling of the number of apartments
completed, particularly in Dublin.
The sharp improvement in the operating margin reflected
operating leverage from growth in revenue and an increase in the
gross margin that benefitted from favourable changes to mix and
inflation related stock gains realised in core categories.
Chadwicks opened its third Fixings Centre, a concept that
provides builders, engineers and trades people with a wide range of
fixings and tools, as part of the upgrade to the Galway branch.
The acquisition of Proline Architectural Hardware ("Proline")
that completed on 11 February 2021 brought specialist expertise to
Chadwicks in the distribution of architectural ironmongery
products. Proline performed in line with plan in the period and
generated an operating profit margin of 21.9 per cent. The Daly
Brothers branch in Dundalk, County Louth acquired in July 2020 was
integrated into the Chadwicks branch network and ERP system and
performed ahead of plan.
Our multi-year programme of branch upgrades continued with an
upgrade to the Galway branch that incorporates Chadwicks first
dedicated ECO Centre to showcase sustainable products for energy
efficient new build and retrofit projects. This development is part
of a wider programme by Chadwicks, a member of the Irish Green
Council, to take a leading role supporting customers and
communities in Ireland through the distribution of building
materials that improve the sustainability of buildings.
Netherlands Distribution
2021 2020 2019 Constant
Currency
Change*
---------------------------------- ----------
GBP'm GBP'm GBP'm Change*
---------------------------------- ------ ------ -------- ----------
Revenue 147.5 138.1 80.9 6.8% 7.6%
Adjusted operating profit 16.0 14.1 9.0 13.9% 15.1%
Adjusted operating profit margin 10.8% 10.2% 11.1% +60bps -
------ ------ ------ -------- ----------
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
The specialist Isero and Polvo ironmongery, tools and fixings
business in the Netherlands was categorised as an essential
business and continued to trade throughout the pandemic. These very
good results for the half year show a continuation of the strong
performance reported for last year.
The business worked closely with supply chain partners during
the period to reduce lead times and optimise the stock holding of
ironmongery, tools and fixings products at a time of supply
shortages.
Growth in operating profit and the operating margin progression
were primarily driven by the drop-through from growth in average
daily like-for-like revenue of 5.6 per cent and an increase in the
gross margin from purchasing initiatives that more than offset the
adverse mix effect of increased revenue from volume projects.
There was a pick-up in the rate of growth in like-for-like
revenue in the second quarter as the Netherlands economy reopened
and consumer sentiment recovered. There was also a rise in
confidence in the housing market as a shortage of new builds
combined with strong demand, a reduction in property transfer tax
for first time buyers and a relaxation of certain mortgage lending
conditions contributed to double digit year-on-year growth in house
prices.
Spending on residential RMI projects benefitted generally from a
strong labour market and households channelling a proportion of
savings set aside during the pandemic into home improvement
projects. Demand was also strong from national key account
customers engaged in house building, commercial construction and
renovation projects.
The performance of the Polvo business, acquired in July 2019,
was very positive and underpinned by broadly based growth across
its markets including increased demand in the new housing and
projects markets and outperformance by branches in the Southern
region of the Netherlands.
Activity in the Amsterdam Area was most affected by the lockdown
with the loss of revenue from retail customers for a period in a
small number of end-consumer orientated ironmongery branches.
Revenue from Housing Corporations involved in the maintenance and
refurbishment of social housing in the City was lower and demand
also continued to be weaker in the tourism, leisure and
entertainment sectors due to the pandemic. Revenue in the Schiphol
branch, that was acquired in late 2019 and integrated into the
Polvo branch network last year, was impacted by reduced activity in
the airport due to the pandemic.
The acquisition in April of Govers B.V, an ironmongery, tools
and workwear business, expanded geographic coverage for the first
time into the North West Netherlands region where Govers trades
from four branches. In January, the acquisition of Van den Anker
Ijzerhandel Katwijk B.V., a single branch distributor of
ironmongery, tools and fasteners, strengthened the market position
of Polvo in the Mid-Western region.
Organic developments in the period included the opening of a
branch in Lelystad, a growth city in the centre of the Netherlands,
and relocation of one of the Rotterdam branches in February to a
higher profile location that has since then made good progress
growing in-branch customer collection transactions.
The half year performance of the Netherlands business reflects
the success of the strategic investments made over the last two
years while there was also a focus in the half year on laying the
foundations for the future growth and development of the
business.
Retail Segment (15% of Group Revenue)
2021 2020 2019 Constant
Currency
Change*
------------------------- ----------
GBP'm GBP'm GBP'm Change*
------------------------- ------ ------ ---------- ----------
Revenue 158.4 99.3 99.9 59.4% 62.2%
Operating profit 34.2 9.7 9.5 252.4% 268.3%
Operating profit margin 21.6% 9.8% 9.5% +1,180bps -
------ ------ ------ ---------- ----------
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
Woodie's outstanding performance in the second half of 2020
continued through the first half 2021 as the business delivered
record half year revenue and operating profit while more than
doubling the operating profit margin to 21.6 per cent.
Growth in demand was broadly based across all DIY, home and
garden categories and reflected the benefits of a colleague and
customer centred strategy so successfully pursued in recent years.
The retail backdrop that saw Woodie's categorised as an essential
retailer, and allowed to continue trading during the lockdown, was
also supportive.
The rate of growth in revenue moderated, as anticipated,
following the full re-opening in May of non-essential retail in
Ireland that had been closed since the beginning of the year.
Woodie's flexible operating model and managements agile response
to exceptional demand conditions in the half year provided
customers with a great shopping experience in a safe environment.
These results demonstrate the hard work and commitment of Woodie's
colleagues to deliver an exceptional service to customers. Service
levels were maintained with the appointment of 150 additional
colleagues during the period.
Management ensured that Woodie's branches were well stocked for
an early start to seasonal trading at the beginning of March and
exceptional demand was experienced through to the end of the second
quarter for outdoor products including garden furniture, barbeques,
garden sheds, plants, shrubs and composts. Households also
undertook a range of projects inside the home and we saw
significant growth in the sale of decorative and DIY products.
Woodie's procurement colleagues worked closely with domestic and
international supply chain partners to mitigate the impact of
disruption to the supply of certain products at a time of
unprecedented global demand. Record levels of stock were moved
through branches during the half year with a particular focus on
the supply of fast moving lines and seasonal categories.
The increase in revenue was broadly split between an increase in
the number of shopping transactions and an increase in the average
basket value related to the purchase of higher value seasonal
products and an increase in the range of products purchased during
a single store visit.
The gross margin expanded due to several factors including a
more favourable sales mix and reduced promotional activity.
Woodie's branches have a "new look and feel" following the
multi-year investment programme, including two branches upgraded in
the half-year, that has created a unique DIY, Home and Garden
retail proposition in the Irish market.
Upgrading the branch network was complemented with further
investment in Woodie's digital platform to improve the on-line
customer experience and strengthen Woodie's longer term competitive
advantage. Working with partners, the on-line platform was upgraded
to increase the speed and improve the user experience. The
marketing content was made more relevant and customer on-line
communications were streamlined onto a single platform.
The efficiency of the on-line order fulfilment and delivery
service was also improved with the creation of a new 15,000 sq. ft.
home delivery service that utilises spare capacity in the Drogheda
branch. We also deployed the latest electronic labelling, track and
trace and proof of delivery technology. These strategic investments
are essential elements of Woodie's ongoing response to evolving
customer preferences as the proportion of on-line transactions
increase. On-line transactions represented 3.1 per cent of revenue
in the first half.
Woodie's was recently recognised with a national award in
Ireland for the connection it created between its learning and
development programmes and colleague engagement and business
performance. All people managers completed "conscious inclusion"
training over the past 18 months as part of Woodie's diversity
programme which also benefitted from the use of artificial
intelligence tools to substantially remove unconscious bias in
recruitment.
Manufacturing Segment (5% of Group Revenue)
2021 2020 2019 Constant
Currency
Change*
------------------------- ----------
GBP'm GBP'm GBP'm Change*
------------------------- ------ ------ ---------- ----------
Revenue 49.1 25.4 40.7 93.5% 93.6%
Operating profit 12.7 3.6 9.2 256.4% 254.0%
Operating profit margin 25.9% 14.1% 22.5% +1,180bps -
------ ------ ------ ---------- ----------
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
CPI EuroMix, which pioneered the use of dry mortar technology in
Great Britain, supplies national, regional and local house builders
and plastering contractors with high quality mortars from ten
plants that provide almost national coverage of the market.
Mortar demand was soft in January and February due to the
disruption to house building caused by the pandemic before starting
to gradually recover in March. This recovery continued in the
second quarter although volumes remained below the same period in
2019. Trading towards the end of the second quarter was impacted by
a shortage of cement and tight delivery capacity. The operating
profit margin recovered to 21.7 per cent in the half year from
14.0% in the first half of 2020.
Government support for first time buyers, improving levels of
mortgage availability and long term under supply continued to
provide favourable demand conditions for new housing, the primary
end-market for CPI EuroMix products.
CPI EuroMix ended the half year with a healthy order book and a
record number of mortar silos on customers sites providing a
competitive advantage and further enhancing its market leading
reputation for quality and service.
The manufacturing segment now incorporates the results of
StairBox, the staircase manufacturer, that was acquired on 30
November 2020 for a total consideration of GBP44.0 million.
Stairbox uses technology to design and manufacture an extensive
range of high-quality customised staircases from its facility in
Stoke-on-Trent.
Revenue, operating profit and cashflow outperformed plan and
StairBox had a very successful half year under Grafton ownership.
Revenue in the period was GBP12.8 million and operating profit was
GBP4.7 million, an operating margin of 36.7 per cent.
The StairBuilder on-line stairs designer software, the first of
its kind in the UK, was updated in June to provide a new version of
this interactive software with additional features and improved
functionality making it easier for customers to design, price and
buy a staircase on-line. The new features include a live 3D model
that updates with each click as customers create their own unique
staircase designs virtually.
Operating Review - Discontinued Operations
Discontinued Operations
2021 2020 2019
GBP'm GBP'm GBP'm Change*
------
Revenue 522.9 354.7 521.4 47.4%
Adjusted operating profit/(loss) before
property profit 30.4 (7.8) 20.2 -
Adjusted operating profit/(loss) margin
before property profit 5.8% (2.2%) 3.9% +800bps
*Change represents the movement between 2021 v 2020 and is based
on unrounded numbers
The Group entered an agreement on 30 June 2021 to divest the
Traditional Merchanting Business in Great Britain which comprises
the Buildbase, Civils & Lintels, PDM Buildbase, The Timber
Group, Frontline, Bathroom Distribution Group and NDI brands for an
enterprise value of GBP520 million. The Group will also retain
freehold properties with development potential that have a market
value of circa GBP25 million and will retain responsibility for the
UK defined benefit pension scheme which was closed to future
accrual at the end of 2020 when alternative arrangements were put
in place.
The Share Purchase Agreement was signed on 30 June 2021 and from
that date Grafton ceased to have rights to variable returns from
its shareholdings in the entities being divested and will instead
receive an agreed daily amount up to the date of completion.
International Financial Reporting Standards requires the business
being divested to be treated as discontinued operations for the
half year and as a deemed disposal at 30 June 2021.
A net gain on the deemed disposal of GBP95.3 million, net of the
costs of disposal, has been recognised and more details are set out
in Note 14.
The Group balance sheet reflects a debtor of GBP465.7 million
relating to proceeds receivable on completion. In addition, the
Group will receive GBP116.0 million on settlement of inter-Group
amounts that are outstanding. The net debt position of GBP209.9m at
30 June 2021 includes net debt of GBP36.7 million (cash and the
lease liability) which form part of the deemed disposal.
Revenue increased by 47.4 per cent to GBP522.9 million from
GBP354.7 million in the first half of 2020 and by 0.3 per cent from
GBP521.4 million in the first half of 2019. Average daily
like-for-like revenue was up 53.3 per cent on the first half of
2020 and by 5.3 per cent on the first half 2019. There was one less
trading day in the first half of 2021 and the consolidation and
closure of branches reduced revenue by GBP11.8 million. The Timber
Group opened a new branch in Poole that contributed revenue of
GBP1.3 million.
Like-for-like revenue was down by GBP161.8 million during the
first half of 2020 as a result of the closure of branches on 24
March, except for a limited service to provide emergency supplies,
and their phased reopening between early May and mid-June.
Good revenue and operating profit growth was achieved by all
brands in the period supported by a strong recovery in the
residential RMI and new build markets.
Financial Review
Revenue
Group revenue from continuing operations, which excludes the
Traditional Merchanting Business in Britain that is classified as
discontinued, increased by 46.1 per cent to GBP1.03 billion from
GBP703.7 million in the first half of 2020 and was up by 29.7 per
cent from GBP792.2 million in the first half of 2019. First half
revenue in the continuing like-for-like business increased by 42.3
per cent (GBP297.9 million) on the prior year and by 17.8 per cent
on the first half of 2019. Acquisitions contributed revenue of
GBP27.0 million and new branches GBP3.9 million. A currency
translation loss reduced revenue by GBP4.7 million.
Adjusted Operating Profit
Adjusted operating profit from continuing operations of GBP157.8
million (2020: GBP46.9 million) was up by 236.2 per cent due to the
decline in profitability last year in the distribution and
manufacturing businesses in the UK and the distribution business in
Ireland as a result of the temporary closure of branches and
plants.
Adjusted operating profit before property profit of GBP142.4
million (2020: GBP46.9 million) grew by 203.9 per cent and the
adjusted operating profit margin increased by 7.2 per cent to 13.9
per cent before property profit.
Property
The Group recognised property profits of GBP15.4 million in the
half year in continuing operations.
The disposal of properties in Belgium that were retained
following divestment of the distribution business in 2019, together
with small number of properties in Ireland and the UK that were
held for sale, generated proceeds of GBP17.0 million (2020: GBP1.1
million) and a profit on disposal of GBP5.3 million (2020: GBP0.3
million).
In addition, a fair value gain GBP10.1 million was recognised on
five properties which were transferred to investment properties
during the period. Four of these were properties which were
retained by the Group following the agreement to divest the
Traditional Merchanting business in Great Britain. These four
properties have a fair value of GBP15.75 million and a market value
of circa GBP25 million.
Net Finance Income and Expense
The net finance expense decreased by GBP3.9 million to GBP9.2
million (2020: GBP13.2 million). This charge includes GBP7.2
million (2020: GBP7.8 million) of an interest charge on lease
liabilities recognised under IFRS 16.
Interest payable on bank borrowings and US Private Placement
Senior Unsecured Notes, net of bank interest received on deposits,
decreased by GBP0.9 million to GBP3.1 million (2020: GBP4.0
million). The decline was mainly due to the repayment of cash
drawndown during the first half of 2020 as a precautionary measure
to increase liquidity in response to the Covid-19 crisis. The rate
of interest receivable on bank deposits declined in the first half
of 2021 because of excess liquidity in the banking system which led
to lower interest rates on sterling deposits and an increase in
negative interest rates on euro deposits.
The net finance expense included a foreign exchange translation
gain of GBP1.4 million which compares to a loss of GBP1.1 million
in the same period last year.
Taxation
The income tax expense of GBP26.9 million (2020: GBP6.5 million)
is equivalent to an effective tax rate of 18.8 per cent on profit
from continuing operations (2020: 22.1 per cent) and is based on
the current forecast rate for the year. This is a blended rate of
corporation tax on profits in the three jurisdictions where the
Group operates. The forecast charge includes a once-off increase in
deferred tax arising from the UK tax rate increasing to 25 per cent
from 19 per cent which is effective from 1 April 2023. This change
was enacted in UK legislation in May 2021 and adds 0.7 per cent to
the tax rate on profits in the Group's continuing operations.
Certain items of expenditure charged in arriving at profit
before tax, including depreciation on buildings, are not eligible
for a tax deduction. This factor increased the rate of tax payable
on profits above the headline rates that apply in the UK, Ireland
and the Netherlands.
Cashflow
Cash generated from total operations increased to GBP255.3
million (2020: GBP121.5 million) including the release of GBP37.7
million from working capital (2020: GBP25.1 million).
The reduction in working capital in the first half was a
reflection of the strong trading in the Group's cash based
businesses, notably Selco and Woodie's, and we would expect this
position to reverse in the second half of the year.
Expenditure on acquisitions and capital expenditure amounted to
GBP30.0 million (2020: GBP13.6 million).
Capital Expenditure and Investment in Intangible Assets
We maintained disciplined control over the allocation of capital
and capital expenditure for the period was GBP17.1 million (2020:
GBP13.2 million). There was also expenditure of GBP0.5 million
(2020: GBP0.3 million) on software costs that is classified as
intangible assets.
Proceeds of GBP17.0 million (2020: GBP1.4 million) were received
on disposal of fixed assets generating a net outflow of GBP0.6
million from assets sold and purchased (2020: GBP12.2 million net
outflow).
The Group incurred capital expenditure of GBP5.1 million (2020:
GBP6.5 million) on a range of development initiatives including new
branches in Selco, Leyland SDM and the Netherlands, upgrades to
Woodie's, Chadwicks, Selco and Leyland SDM branches and the
creation of additional manufacturing capacity in StairBox.
Asset replacement capital expenditure of GBP12.0 million (2020:
GBP6.7 million) compares to the depreciation charge on property,
plant and equipment of GBP22.5 million and related principally to
replacement of the distribution fleet that supports customer
deliveries, replacement of fixtures and fittings, plant and
machinery, forklifts, plant and tools for hire by customers and
other assets required to operate the Group's branch network.
Pensions
The IAS 19 deficit on defined benefit pension schemes was
GBP33.3 million at 30 June 2021, a decrease of GBP17.3 million from
GBP50.6 million at 31 December 2020. Changes to financial
assumptions decreased scheme liabilities by GBP11.1 million.
Experience gains reduced the deficit by GBP3.0 million and changes
in demographics by GBP1.6 million.
There was an increase in discount rates used to discount scheme
liabilities in line with increases in corporate bond rates. The
rate used to discount UK liabilities increased by 50 basis points
to 1.9 per cent and the rate used to discount Irish liabilities
increased by 45 basis points to 1.15 per cent.
There was an actuarial gain of GBP0.9 million on plan assets due
to the investment performance in the period exceeding the assumed
interest income on assets.
A payment of GBP20.0 million was made in July 2021 as part of a
funding arrangement with Trustees to reduce the deficit on the UK
defined benefit scheme.
Grafton will retain responsibility for the UK defined benefit
pension scheme which was closed to future accrual at the end of
2020 when alternative arrangements were put in place.
Net Cash/Debt
The Group's net cash position, before recognising lease
liabilities, increased to GBP302.5 million at 30 June 2021, up from
GBP181.9 million at 31 December 2020. This includes cash of
GBP103.8 million that are in discontinued operations.
On 1 July 2021 the Group completed the IKH acquisition at a cost
of EUR199.3 million.
The Group remains in a very strong financial position with
pre-IFRS 16 EBITDA interest cover of 53.1 times (Year ended 31
December 2020: 30.7 times).
Net debt including lease obligations declined by GBP145.1
million to GBP209.9 million at 30 June 2021 from GBP355.0 million
at 31 December 2020. This includes GBP67.1 million of lease
obligations that are in the discontinued operations.
The Group's policy is to maintain its investment grade credit
rating while investing in organic developments and acquisition
opportunities that are expected to generate attractive returns and
maintain a progressive dividend policy.
Liquidity
Grafton started the year in a very strong financial position
with excellent liquidity, net cash before IFRS 16 lease liabilities
and a robust balance sheet.
The Group had liquidity of GBP913.5 million at 30 June 2021 (30
June 2020: GBP693.4 million) of which GBP560.2 million (30 June
2020: GBP419.0 million) was held in accessible cash and GBP353.3
million (30 June 2020: GBP274.4 million) in undrawn revolving bank
facilities.
At 30 June 2021, the Group had bilateral loan facilities of
GBP478.8 million with six relationship banks and debt obligations
of GBP137.3 million (31 December 2020: GBP143.8 million) from the
issue of unsecured senior notes in the US Private Placement
market.
The average maturity of the committed bank facilities and
unsecured senior notes at 30 June 2021 was 3.1 years.
The Group's key financing objective continues to be to ensure
that it has the necessary liquidity and resources to support the
short, medium and long-term funding requirements of the business.
These resources together with strong cash flow from operations
provide good liquidity and the capacity to fund investment in
working capital, routine capital expenditure and development
activity including acquisitions.
The Group's gross debt is drawn in euros and provides a hedge
against exchange rate risk on euro assets in the businesses in
Ireland, the Netherlands and Finland following the acquisition of
IKH on 1 July 2021.
IFRS 16 Leases
Leases that are recorded on the balance sheet principally relate
to properties, cars and distribution vehicles.
IFRS 16 increased operating profit by GBP6.3 million and the
finance (interest) expense by GBP7.2 million in the half year.
Profit before tax was reduced by GBP0.9 million and profit after
tax by GBP0.8 million as a result of IFRS 16.
The right-of-use asset in the balance sheet at 30 June 2021 in
total operations was GBP480.5 million (31 December 2020: GBP505.9
million). The right of use asset includes GBP60.8 million in
respect of the Traditional Merchanting Business in Great Britain
which was deemed to have been disposed.
IFRS 16 does not alter the overall cashflows or the economic
effect of the leases to which the Group is a party. Similarly,
there is no effect on Grafton's banking covenants as a result of
the adoption of IFRS 16 in 2019.
Shareholders' Equity
The Group's balance sheet strengthened further with
shareholders' equity up by GBP170.1 million to GBP1.64 billion.
Profit after tax increased shareholders' equity by GBP231.4 million
and there was a loss of GBP14.4 million on translation of euro
denominated net assets to sterling. Shareholders' equity was
increased by GBP13.5 million for a remeasurement loss on pension
schemes and reduced for dividends paid of GBP64.6 million. Other
changes increased equity by GBP4.2 million.
Return on Capital Employed
Return on Capital Employed in continuing operations before
recognising IFRS 16 leased assets improved by 1,580 basis points to
29.3 per cent (30 June 2020: 13.5 per cent) and by 1,080 basis
points to 20.5 per cent (30 June 2020: 9.7 per cent) including
leased assets.
Principal Risks and Uncertainties
The primary risks and uncertainties affecting the Group are set
out on pages 59 to 65 of the 2020 Annual Report and will be updated
in the 2021 Annual Report. These risks refer to Macro Economic
Conditions in the UK, Ireland, the Netherlands and Finland
including the Impact of Brexit; Colleagues; Pandemic Risk -
Covid-19 Virus; Competition in Distribution, Retailing and
Manufacturing Markets; Sustainability and Climate Change;
Information Technology Systems and Infrastructure; Cyber Security
and Data Protection; Health and Safety; Acquisition and Integration
of New Businesses; Supplier Management and Rebates; and Internal
Controls and Fraud.
As noted above, the Group experienced supply chain disruption
and significant building materials price inflation in the first
half which is expected to continue in the second half with the risk
that the Group is unable to fulfill customer demand because of
volume shortages or because customer demand reduces due to
increased prices.
The Covid-19 pandemic has increased the potential impact of
certain of these risks and the longer term impacts will depend on a
range of factors including the duration and scope of the pandemic,
the impact of the pandemic on economic activity in the UK, Ireland,
the Netherlands and Finland and the nature and severity of measures
adopted by governments in these countries, including restrictions
on or temporarily requiring the closure of the Group's businesses
including, distribution branches, DIY, Home and Garden stores and
manufacturing plants, travel, regulations that require avoiding
large gatherings and orders to self-quarantine or self-isolate. The
Covid-19 pandemic may have significant negative impacts in the
medium and long term on the Group's businesses. Changes in consumer
behaviour as a result of government imposed lock downs and the need
for people to self-quarantine or self-isolate or observe social
distancing for an indeterminate period of time may lead to the
closure of distribution branches, DIY, Home and Garden stores and
manufacturing plants. The severity of government-imposed lock downs
and the period for which they continue in the UK, Ireland, the
Netherlands and Finland will have an impact on customer demand in
those countries. A deterioration in the financial position of
customers and consumers as a result of Covid-19 pandemic may also
impact demand for the Group's distribution, DIY and mortar
products. In addition, disruptions as a result of Covid-19 in
manufacturing, supply and distribution arrangements may also
adversely impact the performance of the overall Group.
Period End Financial Information
The consolidated period-end financial statements presented on
pages 20 to 42 comprise:
-- the Group condensed balance sheet as at 30 June 2021;
-- the Group condensed income statement and Group condensed
statement of comprehensive income for the six months to 30 June
2021;
-- the Group condensed statement of cash flows for the six months to 30 June 2021;
-- the Group condensed statement of changes in equity; and
-- the explanatory notes to the condensed consolidated half year
financial statements on pages 26 to 42.
Grafton Group plc
Group Condensed Income Statement
For the six months ended 30 June 2021
Notes Six months Six months
to 30 June to 30 June
2021 2020
(unaudited) (unaudited)
Restated
GBP'000 GBP'000
Revenue 2 1,027,787 703,675
Operating costs (891,081) (661,101)
Property profits 3 15,418 83
------------- -------------
Operating profit 152,124 42,657
Finance expense 4 (10,730) (13,700)
Finance income 4 1,490 515
------------- -------------
Profit before tax 142,884 29,472
Income tax expense 17 (26,855) (6,512)
------------- -------------
Profit after tax for the financial
period from continuing operations 116,029 22,960
Profit/(loss) after tax from discontinued
operations 14 115,387 (7,006)
Profit after tax for the financial
period 231,416 15,954
Profit attributable to:
Owners of the Company 231,416 15,954
Profit attributable to:
Continuing operations 116,029 22,960
Discontinued operations 115,387 (7,006)
Earnings per ordinary share (continuing
operations) - basic 5 48.5p 9.6p
Earnings per ordinary share (continuing
operations) - diluted 5 48.4p 9.6p
Earnings per ordinary share (discontinued
operations) - basic 5 48.2p (2.9p)
Earnings per ordinary share (discontinued
operations) - diluted 5 48.2p (2.9p)
Earnings per ordinary share (total)
- basic 5 96.7p 6.7p
Earnings per ordinary share (total)
- diluted 5 96.6p 6.7p
Grafton Group plc
Group Condensed Statement of Comprehensive Income
For the six months ended 30 June 2021
Notes Six months Six months
to 30 June to 30 June
2021 (Unaudited) 2020 (Unaudited)
GBP'000 GBP'000
Profit after tax for the financial
period 231,416 15,954
------------------ ------------------
Other comprehensive income
Items that are or may be reclassified
subsequently to the income statement
Currency translation effects:
- on foreign currency net investments (14,397) 16,034
Fair value movement on cash flow
hedges:
- effective portion of changes in
fair value of cash flow hedges 194 (68)
- net change in fair value of cash - -
flow hedges transferred from equity
Deferred tax on cash flow hedges - -
------------------ ------------------
(14,203) 15,966
------------------ ------------------
Items that will not be reclassified
to the income statement
Remeasurement gain/(loss) on Group
defined benefit pension schemes 13 16,602 (22,998)
Deferred tax on Group defined benefit
pension schemes (3,148) 4,089
------------------ ------------------
13,454 (18,909)
------------------ ------------------
Total other comprehensive expense (749) (2,943)
------------------ ------------------
Total comprehensive income for the
financial period 230,667 13,011
------------------ ------------------
Total comprehensive income attributable
to:
Owners of the Company 230,667 13,011
Total comprehensive income for the
financial period 230,667 13,011
================== ==================
Grafton Group plc - Group Condensed Balance Sheet as at 30 June
2021
Notes 30 June 30 June 31 Dec
2021 2020 (Unaudited) 2020 (Audited)
(Unaudited)
ASSETS GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 15 570,132 676,450 704,064
Intangible assets 16 81,506 99,764 115,905
Property, plant and equipment 9 298,322 498,208 493,539
Right-of-use asset 8 419,685 504,012 505,922
Investment properties 9 27,491 12,752 12,328
Deferred tax assets 10,441 12,143 13,386
Lease receivable 259 2,266 2,015
Retirement benefit assets 13 3,843 890 2,099
Other financial assets 127 128 128
------------- ------------------ ----------------
Total non-current assets 1,411,806 1,806,613 1,849,386
------------- ------------------ ----------------
Current assets
Properties held for sale 9 6,984 19,936 18,058
Inventories 10 245,491 303,163 321,558
Trade and other receivables 10 804,081 294,462 336,944
Lease receivable 26 151 301
Derivative financial instruments 11 113 - -
Cash and cash equivalents 11 460,428 422,988 456,028
Total current assets 1,517,123 1,040,700 1,132,889
------------- ------------------ ----------------
Total assets 2,928,929 2,847,313 2,982,275
============= ================== ================
EQUITY
Equity share capital 8,583 8,552 8,569
Share premium account 217,902 213,785 216,496
Capital redemption reserve 621 621 621
Revaluation reserve 12,631 12,864 12,733
Shares to be issued reserve 8,749 8,745 6,714
Cash flow hedge reserve 129 (59) (65)
Foreign currency translation
reserve 67,522 86,176 81,919
Retained earnings 1,324,927 1,049,926 1,143,933
Treasury shares held (3,897) (3,897) (3,897)
------------- ------------------ ----------------
Equity attributable to owners
of the Parent 1,637,167 1,376,713 1,467,023
Total equity 1,637,167 1,376,713 1,467,023
------------- ------------------ ----------------
LIABILITIES
Non-current liabilities
Interest-bearing loans and
borrowings 11 261,821 364,308 274,030
Lease liabilities 11 395,538 480,656 479,019
Provisions 15,663 17,742 20,620
Retirement benefit obligations 13 37,146 45,572 52,683
Deferred tax liabilities 17 42,301 49,342 54,399
------------- ------------------ ----------------
Total non-current liabilities 752,469 957,620 880,751
------------- ------------------ ----------------
Current liabilities
Lease liabilities 11 49,759 57,144 57,915
Trade and other payables 10 461,812 424,154 545,949
Current income tax liabilities 17 20,593 22,824 21,116
Derivative financial instruments 11 - 62 65
Provisions 7,129 8,796 9,456
------------- ------------------ ----------------
Total current liabilities 539,293 512,980 634,501
------------- ------------------ ----------------
Total liabilities 1,291,762 1,470,600 1,515,252
------------- ------------------ ----------------
Total equity and liabilities 2,928,929 2,847,313 2,982,275
============= ================== ================
Grafton Group plc - Group Condensed Cash Flow Statement
For the six months ended 30 June 2021 Notes Six months Six months
to 30 June to 30 June
2021 (Unaudited) 2020
Restated
GBP'000 (Unaudited)
GBP'000
Profit before taxation from continuing
operations 142,884 29,472
Profit/(loss) before taxation from discontinued
operations 14 124,811 (8,994)
------------------ -------------
Profit before taxation 267,695 20,478
Finance income (1,490) (515)
Finance expense 4,14 11,973 15,161
------------------ -------------
Operating profit 278,178 35,124
Depreciation 8,9 53,872 53,270
Amortisation of intangible assets 16 7,810 6,829
Share-based payments charge 2,599 949
Movement in provisions (1,027) 248
Loss on sale of property, plant and equipment 106 293
Property profits - continuing operations (5,258) (83)
Property profits - discontinued operations (396) (225)
Fair value gains recognised as property (10,160) -
profits
Profit on deemed disposal of Group businesses 14 (107,240) -
Asset impairment adjustments - 506
Gain on derecognition of leases (576) -
Contributions to pension schemes in excess
of IAS 19 charge (298) (592)
Decrease in working capital 10 37,691 25,137
Cash generated from operations 255,301 121,456
Interest paid (10,402) (14,791)
Income taxes paid (24,715) (10,251)
------------------ -------------
Cash flows from operating activities 220,184 96,414
------------------ -------------
Investing activities
Inflows
Proceeds from sale of property, plant
and equipment 9 95 304
Proceeds from sale of properties held
for sale 9 16,945 1,078
Interest received 106 515
17,146 1,897
------------------ -------------
Outflows
Acquisition of subsidiary undertakings
(net of cash acquired) 14 (12,323) -
Net cash deemed disposed with Group businesses 14 (103,778) -
Investment in intangible asset - computer
software 16 (504) (336)
Purchase of property, plant and equipment 9 (17,137) (13,232)
(133,742) (13,568)
------------------ -------------
Cash flows from investing activities (116,596) (11,671)
------------------ -------------
Financing activities
Inflows
Proceeds from the issue of share capital 1,455 102
Proceeds from borrowings 316 261,099
------------------ -------------
1,771 261,201
------------------ -------------
Outflows
Repayment of borrowings - (262,640)
Dividends paid 6 (64,577) -
Payment on lease liabilities (29,686) (19,164)
(94,263) (281,804)
------------------ -------------
Cash flows from financing activities (92,492) (20,603)
------------------ -------------
Net increase in cash and cash equivalents 11,096 64,140
Cash and cash equivalents at 1 January 456,028 348,787
Effect of exchange rate fluctuations on
cash held (6,696) 10,061
------------------ -------------
Cash and cash equivalents at the end of
the period 460,428 422,988
================== =============
Cash and cash equivalents are broken down
as follows:
------------------ -------------
Cash at bank and short-term deposits 460,428 422,988
================== =============
Grafton Group plc
Group Condensed Statement of Changes in Equity
Shares Cash Foreign
Equity Share Capital to be flow currency
share premium redemption Revaluation issued hedge translation Retained Treasury Total
capital account reserve reserve reserve reserve reserve earnings shares equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months to
30
June 2021
(Unaudited)
At 1 January
2021 8,569 216,496 621 12,733 6,714 (65) 81,919 1,143,933 (3,897) 1,467,023
Profit after
tax
for the
financial
period - - - - - - - 231,416 - 231,416
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Total other
comprehensive
income
Remeasurement
loss
on pensions
(net
of tax) - - - - - - - 13,454 - 13,454
Movement in
cash
flow hedge
reserve
(net of tax) - - - - - 194 - - - 194
Currency
translation
effect on
foreign
currency net
investments - - - - - - (14,397) - - (14,397)
Total other
comprehensive
expense - - - - - 194 (14,397) 13,454 - (749)
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Total
comprehensive
income - - - - - 194 (14,397) 244,870 - 230,667
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Transactions
with
owners of the
Company
recognised
directly
in equity
Dividends paid - - - - - - - (64,577) - (64,577)
Issue of
Grafton
Units 49 1,406 - - - - - - - 1,455
Cancellation
of A
Shares (35) - - - - - - 35 - -
Share based
payments
charge - - - - 2,599 - - - - 2,599
Transfer from
shares
to be issued
reserve - - - - (564) - - 564 - -
Transfer from
revaluation
reserve - - - (102) - - - 102 - -
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
14 1,406 - (102) 2,035 - - (63,876) - (60,523)
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
At 30 June
2021 8,583 217,902 621 12,631 8,749 129 67,522 1,324,927 (3,897) 1,637,167
======= ======= ========== =========== ======= ======= =========== ========= ======== =========
Six months to
30
June 2020
(Unaudited)
At 1 January
2020 8,516 213,719 621 12,954 12,889 9 70,142 1,047,698 (3,897) 1,362,651
Profit after
tax
for the
financial
period - - - - - - - 15,954 - 15,954
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Total other
comprehensive
income
Remeasurement
loss
on pensions
(net
of tax) - - - - - - - (18,909) - (18,909)
Movement in
cash
flow hedge
reserve
(net of tax) - - - - - (68) - - - (68)
Currency
translation
effect on
foreign
currency net
investments - - - - - - 16,034 - - 16,034
Total other
comprehensive
expense - - - - - (68) 16,034 (18,909) - (2,943)
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Total
comprehensive
income - - - - - (68) 16,034 (2,955) - 13,011
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Transactions
with
owners of the
Company
recognised
directly
in equity
Dividends paid - - - - - - - - - -
Issue of
Grafton
Units 36 66 - - - - - - - 102
Share based
payments
charge - - - - 949 - - - - 949
Transfer from
shares
to be issued
reserve - - - - (5,093) - - 5,093 - -
Transfer from
revaluation
reserve - - - (90) - - - 90 - -
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
36 66 - (90) (4,144) - - 5,183 - 1,051
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
At 30 June
2020 8,552 213,785 621 12,864 8,745 (59) 86,176 1,049,926 (3,897) 1,376,713
======= ======= ========== =========== ======= ======= =========== ========= ======== =========
Grafton Group plc
Group Condensed Statement of Changes in Equity (continued)
Shares Cash Foreign
Equity Share Capital to be flow currency
share premium redemption Revaluation issued hedge translation Retained Treasury Total
capital account reserve reserve reserve reserve reserve earnings shares equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year to 31
December
2020 (Audited)
At 1 January
2020 8,516 213,719 621 12,954 12,889 9 70,142 1,047,698 (3,897) 1,362,651
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Profit after
tax
for the
financial
year - - - - - - - 107,542 - 107,542
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Total other
comprehensive
income
Remeasurement
loss
on pensions
(net
of tax) - - - - - - - (18,070) - (18,070)
Movement in
cash
flow hedge
reserve
(net of tax) - - - - - (74) - - - (74)
Currency
translation
effect on
foreign
currency net
investments - - - - - - 11,777 - - 11,777
Total other
comprehensive
expense - - - - - (74) 11,777 (18,070) - (6,367)
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Total
comprehensive
income - - - - - (74) 11,777 89,472 - 101,175
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
Transactions
with
owners of the
Company
recognised
directly
in equity
Dividends paid - - - - - - - - - -
Issue of
Grafton
Units 53 2,777 - - - - - - - 2,830
Share based
payments
charge - - - - 719 - - - - 719
Tax on share
based
payments - - - - (352) - - - - (352)
Transfer from
shares
to be issued
reserve - - - - (6,542) - - 6,542 - -
Transfer from
revaluation
reserve - - - (221) - - - 221 - -
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
53 2,777 - (221) (6,175) - - 6,763 - 3,197
------- ------- ---------- ----------- ------- ------- ----------- --------- -------- ---------
At 31 December
2020 8,569 216,496 621 12,733 6,714 (65) 81,919 1,143,933 (3,897) 1,467,023
======= ======= ========== =========== ======= ======= =========== ========= ======== =========
Grafton Group plc
Notes to Condensed Consolidated Half Year Financial Statements
for the six months ended 30 June 2021
1. General Information
Grafton Group plc ("Grafton" or "the Group") is an international
distributor of building materials to trade customers who are
primarily engaged in residential repair, maintenance and
improvement projects and house building.
The Group has leading regional or national market positions in
the distribution markets in the UK, Ireland and the Netherlands.
Grafton is also the market leader in the DIY retailing market in
Ireland and is the largest manufacturer of dry mortar in Great
Britain where it also operates a staircase manufacturing
buisenss.
The Group's origins are in Ireland where it is headquartered,
managed and controlled. It has been a publicly quoted company since
1965 and its Units (shares) are quoted on the London Stock Exchange
where it is a constituent of the FTSE 250 Index and the FTSE
All-Share Index.
The condensed consolidated half year financial statements for
the six months ended 30 June 2021 are unaudited but have been
reviewed by the auditor whose report is set out on pages 50 and
51.
The 2020 income statement has been restated as a result of the
divestment of the GB Traditional Merchanting Business which is
treated as discontinued operations.
The financial information presented in this report has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union. These condensed consolidated half
year financial statements do not include all the information and
disclosures required in the Group annual financial statements and
should be read in conjunction with the Group's annual financial
statements in respect of the year ended 31 December 2020 that are
available on the Company's website www.graftonplc.com .
The condensed consolidated half year financial statements
presented do not constitute financial statements prepared in
accordance with IFRS. The financial information included in this
report in relation to the year ended 31 December 2020 does not
comprise statutory annual financial statements within the meaning
of section 295 of the Companies Act 2014. The 2020 annual financial
statements have been filed with the Registrar of Companies and the
audit report thereon was unqualified and did not contain any
matters to which attention was drawn by way of emphasis.
Basis of Preparation, Accounting Policies and Estimates
(a) Basis of Preparation and Accounting Policies
The condensed consolidated half year financial statements have
been prepared in accordance with the Transparency Rules of the
Financial Conduct Authority ('FCA') and International Accounting
Standard ("IAS") 34 Interim Financial Reporting". They do not
include all the information and disclosures necessary for a
complete set of financial statements prepared in accordance with
IFRS. However, selected explanatory notes are included to explain
events and transactions that are significant to an understanding of
the changes to the Group's financial position and performance since
the last annual financial statements as at and for the year ended
31 December 2020.
The accounting policies applied by the Group in the condensed
consolidated half year financial statements are the same as those
applied by the Group in its annual financial statements as at and
for the year ended 31 December 2020.
Having made enquiries, the Directors have a reasonable
expectation that Grafton Group plc, and the Group as a whole, have
adequate resources to continue in operational existence for the
foreseeable future, being at least 12 months from the date of
approval of the financial statements. Having reassessed the
principal risks, the directors considered it appropriate to adopt
the going concern basis of accounting in preparing its condensed
interim financial statements.
1. General Information (continued)
Basis of Preparation, Accounting Policies and Estimates
(continued)
The financial statements are prepared in GBP (Sterling) which is
the functional currency of the majority of the Group's
business.
(a) Basis of Preparation and Accounting Policies (continued)
The financial information includes all adjustments that
management considers necessary for a fair presentation of such
financial information. All such adjustments are of a normal
recurring nature.
(b) Estimates
The preparation of half-yearly financial statements 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 these condensed consolidated half year financial
statements, 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
Group's annual financial statements as at and for the year ended 31
December 2020.
Impacts of standards and interpretations in issue but not yet
effective
Certain new accounting standards and interpretations have been
published that are not mandatory for the current reporting period
and have not been early adopted by the Group. These standards are
not expected to have a material impact on the Group in the current
or future reporting periods and on foreseeable future
transactions.
Impacts of standards effective from 1 January 2021
Certain new accounting standards and interpretations have been
published that are effective from 1 January 2021. These standards
did not have a material impact on the Group in the current
reporting period and are not expected to have a material impact on
future reporting periods and on foreseeable future
transactions.
2. Segmental Analysis
The amount of revenue and operating profit under the Group's
reportable segments of Distribution, Retailing and Manufacturing is
shown below. Segment profit measure is operating profit before
exceptional items and amortisation of intangible assets arising on
acquisitions. The UK distribution, United Kingdom revenue and
distribution assets and liabilities exclude amounts related to the
discontinued operations in both the current and comparative
values.
Six months Six months
to 30 June to 30 June
2021 2020 (Unaudited)
(Unaudited) Restated
GBP'000 GBP'000
Revenue
UK distribution 414,085 250,706
Ireland distribution 258,735 190,150
Netherlands distribution 147,522 138,125
------------------
Total distribution - continuing 820,342 578,981
Retailing 158,354 99,319
Manufacturing 55,478 29,680
Less: inter-segment revenue - manufacturing (6,387) (4,305)
------------------
Total revenue from continuing operations 1,027,787 703,675
------------------
Segmental operating profit before
exceptional items and intangible amortisation
arising on acquisitions
UK distribution 55,145 10,061
Ireland distribution 30,099 15,231
Netherlands distribution 16,005 14,055
------------------
Total distribution - continuing 101,249 39,347
Retailing 34,158 9,694
Manufacturing 12,717 3,568
------------- ------------------
148,124 52,609
Reconciliation to consolidated operating
profit
Central activities (5,707) (5,745)
------------- ------------------
142,417 46,864
Property profits 15,418 83
------------- ------------------
Operating profit before exceptional
items and intangible amortisation
arising on acquisitions 157,835 46,947
Amortisation of intangible assets
arising on acquisitions (5,711) (4,290)
------------- ------------------
Operating profit 152,124 42,657
Finance expense (10,730) (13,700)
Finance income 1,490 515
------------- ------------------
Profit before tax 142,884 29,472
Income tax expense (26,855) (6,512)
------------- ------------------
Profit after tax for the financial
period from continuing operations 116,029 22,960
Profit/(loss) after tax from discontinued
operations 115,387 (7,006)
------------- ------------------
Profit after tax for the financial
period 231,416 15,954
------------- ------------------
2. Segmental Analysis (continued)
The amount of revenue by geographic area is as follows:
Six months Six months
to 30 June to 30 June
2021 (Unaudited) 2020 (Unaudited)
Restated
GBP'000 GBP'000
Revenue*
United Kingdom 460,174 274,226
Ireland 420,091 291,324
Netherlands 147,522 138,125
------------------ ------------------
Total revenue - continuing operations 1,027,787 703,675
================== ==================
*Service revenue, which is recognised over time, amounted to
GBP18.0 million for the period (2020: GBP12.6 million)
30 June 2021 30 June 2020
(Unaudited) (Unaudited)
GBP'000 GBP'000
Segment assets
Distribution* 2,148,343 2,147,057
Retailing 202,153 216,111
Manufacturing 103,481 47,996
------------- -------------
2,453,977 2,411,164
Unallocated assets
Deferred tax assets 10,441 12,143
Retirement benefit assets 3,843 890
Other financial assets 127 128
Cash and cash equivalents 460,428 422,988
Derivative financial instruments (current) 113 -
Total assets 2,928,929 2,847,313
============= =============
*Distribution segment assets at 30 June 2021 include amounts
receivable of GBP581.7 million (Note 10) in relation to the deemed
disposal of the Traditional Merchanting Business in Great
Britain.
30 June 2021 30 June 2020
(Unaudited) (Unaudited)
GBP'000 GBP'000
Segment liabilities
Distribution 678,397 750,830
Retailing 222,027 224,542
Manufacturing 29,477 13,120
------------- -------------
929,901 988,492
Unallocated liabilities
Interest bearing loans and borrowings (current
and non-current) 261,821 364,308
Retirement benefit obligations 37,146 45,572
Deferred tax liabilities 42,301 49,342
Current income tax liabilities 20,593 22,824
Derivative financial instruments (non-current) - 62
Total liabilities 1,291,762 1,470,600
============= =============
3. Operating Profit
Operating profit, from total operations, includes Government
Assistance of GBPNil (2020: GBP25.1 million) in respect of the
Coronavirus Job Retention Scheme in the UK and the Temporary
Covid-19 Wage Subsidy Scheme in Ireland.
The property profit of GBP5.3 million (2020: GBP0.3 million)
relates to the disposal of one UK property, one Irish property and
six properties in Belgium (2020: four UK properties).
In addition, a fair value gain GBP10.1 million was recognised on
five properties which were transferred to investment properties
during the period. Four of these were properties which were
retained by the Group following the agreement to divest the
Traditional Merchanting business in Great Britain. These four
properties have a fair value of GBP15.75 million and a market value
of circa GBP25 million.
4. Finance Expense and Finance Income
Six months Six months
to 30 June to 30 June
2021 (Unaudited) 2020 (Unaudited)
Restated
GBP'000 GBP'000
Finance expense
Interest on bank loans, US senior notes
and overdrafts 3,237 * 4,555 *
Net change in fair value of cash flow - -
hedges transferred from equity
Interest on lease liabilities 7,232 * 7,831 *
Net finance cost on pension scheme obligations 261 169
Foreign exchange loss - 1,145
10,730 13,700
================== ==============
Finance income
Interest income on bank deposits (106) * (515) *
Foreign exchange gain (1,384) -
(1,490) (515)
================== ==============
Net finance expense 9,240 13,185
------------------ --------------
* Net bank and US senior note interest of GBP3.1 million (2020:
GBP4.0 million). Including interest on lease liabilities, this
amounts to GBP10.4 million (2020: GBP11.9 million)
5. Earnings per Share
The computation of basic, diluted and underlying earnings per
share is set out below:
Half Year 30 Half Year 30
June 2021 (Unaudited) June 2020 (Unaudited)
Restated
GBP'000 GBP'000
Numerator for basic, adjusted and diluted
earnings per share:
Profit after tax for the financial period
from continuing operations 116,029 22,960
Profit/(loss) after tax for the financial
period from discontinued operations 115,387 (7,006)
Numerator for basic and diluted earnings
per share 231,416 15,954
----------------------- -----------------------
Profit after tax for the financial period
from continuing operations 116,029 22,960
Amortisation of intangible assets arising
on acquisitions 5,711 4,290
Tax relating to amortisation of intangible
assets arising on acquisitions (1,226) (874)
Numerator for adjusted earnings per share 120,514 26,376
----------------------- -----------------------
Number of Number of
Grafton Grafton
Units Units
Denominator for basic and adjusted earnings
per share:
Weighted average number of Grafton Units
in issue 239,275,910 238,352,174
Dilutive effect of options and awards 353,873 -
Denominator for diluted earnings per share 239,629,783 238,352,174
----------------------- -----------------------
Earnings per share (pence) - from total
operations
- Basic 96.7 6.7
- Diluted 96.6 6.7
Earnings per share (pence) - from continuing
operations
- Basic 48.5 9.6
- Diluted 48.4 9.6
Earnings per share (pence) - from discontinued
operations
- Basic 48.2 (2.9)
- Diluted 48.2 (2.9)
Adjusted earnings per share (pence) - from
continuing operations
- Basic 50.4 11.1
- Diluted 50.3 11.1
6. Dividends
On 24 March 2020, the Group announced that, as a precautionary
measure to preserve liquidity in light of Covid-19, it was
suspending the second interim dividend for 2019 of 12.5p per share,
which was due to be paid on 6 April 2020. On 21 January 2021, the
Group announced the reinstatement of this dividend and it was paid
on 19 February 2021 in the amount of GBP29.9 million.
A final dividend for the year ended 31 December 2020 of 14.5p
per ordinary share was paid on 5 May 2021 in the amount of GBP34.7
million. An interim dividend for 2021 of 8.5p per share will be
paid to all holders of Grafton Units on the Company's Register of
Members at the close of business on 3 September 2021 (the 'Record
Date'). The Ex-dividend date is 2 September 2021. The cash
consideration will be paid on 1 October 2021. A liability in
respect of the interim dividend has not been recognised at 30 June
2021, as there was no obligation to pay any dividends at the end of
the half-year.
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 half-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 six months
ended 30 June 2021 was Stg86.80p (six months to 30 June 2020:
Stg87.46p). The sterling/euro exchange rate at 30 June 2021 was
Stg85.81p (30 June 2020: Stg91.24p and 31 December 2020:
Stg89.90p).
8. Right-Of-Use Asset
Right-of-use
asset
GBP'000
Recognised at 1 January 2021 505,922
Additions 10,562
Disposals (2,372)
Depreciation (31,358)
Remeasurements 5,400
Arising on acquisition (Note 14) 2,108
Deemed disposal of Group businesses (Note 14) (60,838)
Currency translation adjustment (9,739)
-------------
As at 30 June 2021 419,685
-------------
9. Property, Plant and Equipment, Properties Held for Sale and Investment Properties
Property, Properties Investment
plant and held for sale properties
equipment
Net Book Value GBP'000 GBP'000 GBP'000
As at 1 January 2021 493,539 18,058 12,328
Additions 17,137 - -
Depreciation (22,514) - -
Disposals (201) (11,291) -
Fair value gains - - 10,160
Transfer to properties held for sale (324) 882 (558)
Transfer to investment properties (5,900) - 5,900
Arising on acquisition (Note 14) 743 - -
Deemed disposal of Group businesses (177,515) - -
(Note 14)
Currency translation adjustment (6,643) (665) (339)
----------- --------------- ------------
As at 30 June 2021 298,322 6,984 27,491
----------- --------------- ------------
10. Movement in Working Capital
Trade Trade
and other and other
Inventories receivables payables Total
Current GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 - Continuing 228,463 184,694 (365,909) 47,248
At 1 January 2021 - Discontinued 93,095 152,250 (180,040) 65,305
-------------- ------------- ----------- ---------
At 1 January 2021 321,558 336,944 (545,949) 112,553
Currency translation adjustment (6,773) (5,671) 10,639 (1,805)
Deemed disposal of Group businesses
(Note 14) (99,253) (212,547) 242,167 (69,633)
Deferred acquisition consideration
(Note 14) - - (658) (658)
Proceeds receivable on deemed disposal
(Note 14) - 465,734 - 465,734
Other receivables on deemed disposal
(Note 14) - 115,969 - 115,969
Arising on acquisition (Note 14) 2,932 2,323 (1,964) 3,291
Working capital movement in 2021 27,027 101,329 (166,047) (37,691)
At 30 June 2021 245,491 804,081 (461,812) 587,760
============== ============= =========== =========
Working Capital Movement
Discontinued operations 6,158 60,297 (62,127) 4,328
Continuing operations 20,869 41,032 (103,920) (42,019)
Total working capital movement 27,027 101,329 (166,047) (37,691)
======= ======== ========== =========
The increase in trade receivables and other receivables reflects
increased activity including seasonality.
11. Interest-Bearing Loans, Borrowings and Net Debt
30 June 30 June 31 Dec
2021 2020 2020
GBP'000 GBP'000 GBP'000
Non-current liabilities
Bank loans 125,115 219,020 130,842
US senior notes 136,706 145,288 143,188
Total non-current interest-bearing
loans and borrowings 261,821 364,308 274,030
---------- ---------- ----------
Leases
Included in non-current liabilities 395,538 480,656 479,019
Included in current liabilities 49,759 57,144 57,915
---------- ---------- ----------
Total leases 445,297 537,800 536,934
---------- ---------- ----------
Derivatives
Included in current liabilities - 62 65
Included in current assets (113) - -
Total derivatives (113) 62 65
---------- ---------- ----------
Cash and cash equivalents (460,428) (422,988) (456,028)
Net debt 246,577 479,182 355,001
========== ========== ==========
11. Interest-Bearing Loans, Borrowings and Net Debt
(continued)
The following table shows the fair value of financial assets and
liabilities, all of which are within level 2 of the fair value
hierarchy. It does not include fair value information for financial
assets and liabilities not measured at fair value if the carrying
amount is a reasonable approximation of fair value.
30 June 31 Dec
2020 2020
GBP'000 GBP'000
Assets/liabilities measured and recognised at fair
value
Designated as hedging instruments
Interest rate swaps and other derivatives (113) 65
--------- ------------
Liabilities not measured at fair value
Liabilities recognised at amortised cost
Bank loans 125,537 131,521
US senior notes 137,296 143,840
--------- ------------
Financial assets and liabilities recognised at amortised
cost
It is considered that the carrying amounts of other financial
assets and liabilities including trade payables, trade receivables
and deferred consideration, which are recognised at amortised cost
in the condensed consolidated half year financial statements,
approximate to their fair values.
Financial assets and liabilities carried at fair value
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 period. Fair value measurements are categorised into
different levels in the fair value hierarchy based on the inputs to
valuation techniques used. The fair values of interest rate swaps
and other derivatives are calculated as the present value of the
estimated future cash flows based on the terms and maturity of each
contract and using forward currency rates and market interest rates
as applicable for a similar instrument at the measurement date.
Fair values reflect the credit risk of the instrument and include
adjustments to take account of the credit risk of the Group entity
and counterparty where appropriate.
12. Reconciliation of Net Cash Flow to Movement in Net Debt
30 June 30 June
2021 2020
GBP'000 GBP'000
Net increase in cash and cash equivalents 11,096 64,140
Net movement in derivative financial instruments 178 (69)
Lease liabilities deemed disposed (Note 67,100 -
14)
Movement in debt and lease financing 13,858 7,228
Change in net debt resulting from cash
flows 92,232 71,299
Currency translation adjustment 16,192 (16,647)
Movement in net debt in the period 108,424 54,652
Net debt at 1 January (355,001) (533,834)
Net debt at end of the period (reported) (246,577) (479,182)
========== ==========
Net cash deemed disposed (Note 14) 36,678 -
---------- ----------
Net debt including cash/debt deemed disposed (209,899) (479,182)
========== ==========
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 30 June At 31 Dec At 30 June At 31 Dec
2021 2020 2021 2020
Rate of increase in salaries 2.70% 2.25% 0.00% * 0.00% *
Rate of increase of pensions
in payment - - 2.70% 2.70%
Discount rate 1.15% 0.70% 1.90% 1.40%
Inflation 1.50% 1.05% 2.50% ** 2.00% **
* Pensionable salaries are not adjusted for inflation
** The inflation assumption shown for the UK is based on the
Consumer Price Index (CPI)
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)
Half year Year Half year Year Half year Year
to 30 June to 31 to 30 June to 31 to 30 June to 31
2021 Dec 2020 2021 Dec 2020 2021 Dec 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 263,604 249,933 (314,188) (271,116) (50,584) (21,183)
Interest income on
plan assets 1,357 3,998 - - 1,357 3,998
Contributions by employer 1,955 4,209 - - 1,955 4,209
Contributions by members 234 598 (234) (598) - -
Benefit payments (5,146) (11,701) 5,146 11,701 - -
Current service cost - - (1,191) (2,443) (1,191) (2,443)
Other long term benefit
(expense) - - (66) (81) (66) (81)
Past service cost
(exceptional) - - - (5,000) - (5,000)
Curtailment loss (exceptional) - - - (2,463) - (2,463)
Interest cost on scheme
liabilities - - (1,618) (4,337) (1,618) (4,337)
Administration costs (400) (305) - - (400) (305)
Administration costs
(exceptional) - (556) - - - (556)
Remeasurements
Actuarial gains/(loss)
from:
-experience variations - - 3,027 (4,433) 3,027 (4,433)
-financial assumptions - - 11,070 (27,394) 11,070 (27,394)
-demographic assumptions - - 1,616 (534) 1,616 (534)
Return on plan assets
excluding interest
income 889 10,582 - - 889 10,582
Translation adjustment (6,003) 6,846 6,645 (7,490) 642 (644)
At 30 June / 31 December 256,490 263,604 (289,793) (314,188) (33,303) (50,584)
============ ========== ============ ==========
Related deferred tax
asset (net) 7,551 8,660
------------ ----------
Net pension liability (25,752) (41,924)
============ ==========
13. Retirement Benefits (continued)
The Group will retain responsibility for the UK defined benefit
pension scheme which was closed to future accrual at the end of
2020 when alternative arrangements were put in place.
The net pension scheme deficit of GBP33.3 million (31 December
2020: GBP50.6 million) is shown in the Group balance sheet as (i)
retirement benefit obligations (non-current liabilities) of GBP37.1
million (31 December 2020: GBP52.7 million) and (ii) retirement
benefit assets (non-current assets) of GBP3.8 million (31 December
2020: GBP2.1 million). GBP10.9 million (31 December 2020: GBP18.3
million) of the retirement benefit obligations relates to schemes
in Ireland and the Netherlands and GBP26.2 million (31 December
2020: GBP34.3 million) relates to one UK scheme.
14. Acquisitions and Discontinued Operations
Acquisitions
On 22 December 2020, the Group announced that it had agreed to
acquire Proline Architectural Hardware Limited ("Proline"), a
leading distributor of architectural ironmongery products for doors
from a single location in Dublin. Proline specialises in the supply
of a wide range of high quality traditional and contemporary
architectural ironmongery products, in a variety of designs and
finishes, including door locks, hinges and handles. The acquisition
was completed on 11 February 2021 and is incorporated in the
distribution segment.
On 13 January 2021, the Group acquired the entire share capital
of Van Den Anker IJzerhandel Katwijk B.V. ("VDA"). VDA is a single
branch merchanting business based in the Netherlands and is
incorporated in the distribution segment. On 21 April 2021, the
Group acquired the entire share capital of Govers B.V. ("Govers").
Govers is a four-branch business located in the Netherlands that
complements the Isero branch network and is incorporated in the
distribution segment.
The provisional fair value of assets and liabilities acquired in
2021 are set out below:
Total
GBP'000
Property, plant and equipment 743
Right-of-use asset 2,108
Intangible assets - trade names 2,465
Intangible assets - customer relationships 2,275
Inventories 2,932
Trade and other receivables 2,323
Trade and other payables (1,964)
Lease liability (2,108)
Corporation tax asset 45
Deferred tax liability (593)
Cash acquired 3,248
Net assets acquired 11,474
Goodwill 4,755
Consideration 16,229
=========
Satisfied by:
Cash paid 15,571
Deferred consideration (Note 10) 658
---------
16,229
---------
Net cash outflow - arising on acquisitions
Cash consideration 15,571
Less: cash and cash equivalents acquired (3,248)
12,323
---------
14. Acquisitions and Discontinued Operations (continued)
The fair value of the net assets acquired have been determined
on a provisional basis. Goodwill on these acquisitions reflects the
anticipated cashflows to be realised as part of the enlarged
Group.
Any adjustments to provisional fair value of assets and
liabilities including recognition of any newly identified assets
and liabilities, will be made within 12 months of respective
acquisition dates.
Acquisitions contributed revenue of GBP6.4 million and operating
profit of GBP1.0 million for the period from the date of
acquisition to 30 June 2021. If all three acquisitions had occurred
on 1 January 2021, they would have contributed revenue of GBP9.3
million and operating profit of GBP1.1 million in the year. The
Group incurred acquisition costs of GBP0.2 million in 2021 (2020:
GBP1.4 million) which are included in operating costs in the Group
Income Statement.
Deferred consideration is payable within 3 years and is not
contingent. In addition to this deferred consideration, the Group
has an agreement to make further payments to selling shareholders
who as part of the agreement are required to remain in employment
with the Group for the deferred period.
Discontinued Operations - Traditional Merchanting Business in
the UK
In April 2021, the Group announced that it had appointed
Rothschild & Co to undertake a review of certain of its
traditional merchanting businesses in Great Britain. This strategic
review was focused solely on the Buildbase, Civils & Lintels,
PDM Buildbase, The Timber Group, Bathroom Distribution Group and
NDI businesses.
On 30 June 2021, the Group entered into an agreement to divest
its Traditional Merchanting Business in Great Britain ("the
Business") for an enterprise value of GBP520.0 million to Huws
Gray, one of the UK's largest independent builders' merchants, that
is controlled by equity funds managed by Blackstone. The Group will
retain freehold properties with development potential that have a
market value of circa GBP25 million.
The decision to divest followed a comprehensive strategic review
of the Business which concluded that exiting this segment of the
building materials distribution market in Great Britain would
enable the Group to optimise shareholder value. Completion of this
transaction will also enable the Group to focus on its
international development strategy which will be a key priority
over the coming years.
Huws Gray has notified the transaction to the Competition and
Markets Authority ("CMA"). The divestment is expected to close by
the end of the first quarter of 2022 and completion is not
conditional on the outcome of the CMA process.
In accordance with IFRS, for reporting purposes, the deemed
disposal of the Traditional Merchanting Business in Great Britain
has been accounted for as discontinued operations. As a result, the
net assets of the Group increased by GBP95.3 million representing
an overall profit on deemed disposal after costs of disposal. The
profit on the deemed disposal reflects the expected cash
consideration of GBP465.7 million offset by the net book value of
the assets being disposed of GBP358.5 million. The net assets
deemed disposed include the write-off of the carrying value of the
allocated goodwill of GBP126.3 million.
The proceeds, which amount to GBP465.7 million, were receivable
at 30 June 2021. In addition to this, GBP116.0 million was due to
Grafton Group and this will be settled as part of the disposal.
14. Acquisitions and Discontinued Operations (continued)
The carrying value of assets and liabilities deemed disposed are
as follows:
Total
GBP'000
Goodwill 126,291
Intangible assets 29,827
Property, plant and equipment 177,515
Right-of-use assets 60,838
Finance lease receivable 2,143
Deferred tax asset 1,729
Inventory 99,253
Trade and other receivables 212,547
Cash 103,778
Trade and other payables (242,167)
Amounts owed by discontinued operations to the Group (115,969)
Provisions (5,339)
Lease liabilities (current and non-current) (67,100)
Deferred tax liability (18,691)
Income tax liability (6,161)
Net assets of deemed disposal 358,494
Cash consideration receivable (Note 10) (465,734)
Net profit on deemed disposal of discontinued operations,
before disposal costs (107,240)
==========
Net cash/debt movement of deemed disposal
GBP'000
Cash and cash equivalents 103,778
Lease liabilities (67,100)
Net cash flow movement 36,678
---------
Amounts recognised in the period within discontinued
operations
GBP'000
Gross profit on deemed disposal 107,240
Disposal costs* (11,945)
---------
Profit on deemed disposal, net of disposal costs 95,295
Result for the period from discontinued operations 20,092
Total amount recognised in discontinued operations 115,387
---------
* Disposal costs include professional fees of GBP4.9 million,
legal fees of GBP1.0 million, vendor financial, tax & IT due
diligence fees of GBP0.9 million, property related costs of GBP0.3
million and GBP4.8 million of other costs related to the divestment
of the business.
14. Acquisitions and Discontinued Operations (continued)
Results from discontinued operations
30 June 30 June 31 December
2020
2021 2020 (unaudited)
(unaudited) (unaudited) GBP'000
GBP'000 GBP'000
Revenue 522,895 354,737 829,842
Operating costs (492,532) (362,495) (808,470)
------------- ------------- -------------
Operating profit before
property profits 30,363 (7,758) 21,372
Property profits 396 225 2,699
Operating profit pre-exceptional
items 30,759 (7,533) 24,071
Exceptional items* 95,295 - (12,820)
------------- ------------- -------------
Operating profit 126,054 (7,533) 11,251
Net finance costs (1,243) (1,461) (2,746)
------------- -------------
Profit before tax 124,811 (8,994) 8,505
Income tax (9,424) 1,988 (1,151)
------------- ------------- -------------
Profit after tax for the
financial period 115,387 (7,006) 7,354
------------- ------------- -------------
* Exceptionals items at 30 June 2021 relate to the profit on the
deemed disposal, net of disposal costs.
Cash flows from discontinued operations
30 June 30 June 31 December
2020
2021 2020 (unaudited)
(unaudited) (unaudited) GBP'000
GBP'000 GBP'000
Net cash flow from operating
activities 36,592 37,195 84,427
Net cash flow from investing
activities (3,346) (723) 530
Net cash flow from financing
activities (4,794) (4,312) (9,845)
------------- ------------- -------------
Net cash flow from discontinued
operations 28,452 32,160 75,112
------------- ------------- -------------
The overall impact on the Group income statement for June 2021
and June 2020 is set out below. The results for the period ended 30
June 2020 have been restated to include the Traditional Merchanting
Business of Great Britain as discontinued operations.
Impact on the Group Condensed Income Statement for the six
months ended 30 June 2021
2021 2021 2021
(unaudited) (unaudited) (unaudited)
Continuing Discontinued Total
GBP'000 GBP'000 GBP'000
Revenue 1,027,787 522,895 1,550,682
Operating costs (891,081) (492,532) (1,383,613)
------------- -------------- -------------
Operating profit before property
profits 136,706 30,363 167,069
Property profits 15,418 396 15,814
------------- -------------- -------------
Operating profit before exceptional
items 152,124 30,759 182,883
Exceptional items - 95,295 95,295
------------- -------------- -------------
Operating profit 152,124 126,054 278,178
Finance expense (10,730) (1,243) (11,973)
Finance income 1,490 - 1,490
------------- -------------- -------------
Profit before tax 142,884 124,811 267,695
Income tax expense (26,855) (9,424) (36,279)
------------- -------------- -------------
Profit after tax for the financial
period 116,029 115,387 231,416
------------- -------------- -------------
14. Acquisitions and Discontinued Operations (continued)
Impact on the Group Condensed Income Statement for the six
months ended 30 June 2020
2020 2020 2020
(unaudited) (unaudited) (unaudited)
Continuing Discontinued Total
Restated Restated Reported
GBP'000 GBP'000 GBP'000
Revenue 703,675 354,737 1,058,412
Operating costs (661,101) (362,495) (1,023,596)
------------- -------------- -------------
Operating profit before property
profits 42,574 (7,758) 34,816
Property profits 83 225 308
------------- -------------- -------------
Operating profit before exceptional
items 42,657 (7,533) 35,124
Exceptional items - - -
------------- -------------- -------------
Operating profit 42,657 (7,533) 35,124
Finance expense (13,700) (1,461) (15,161)
Finance income 515 - 515
------------- -------------- -------------
Profit before tax 29,472 (8,994) 20,478
Income tax expense (6,512) 1,988 (4,524)
------------- -------------- -------------
Profit after tax for the financial
period 22,960 (7,006) 15,954
------------- -------------- -------------
15. Goodwill
Goodwill is subject to impairment testing on an annual basis at
31 December and additionally during the year if an indicator of
impairment is considered to exist. The deemed disposal of the
Traditional Merchanting Business in Great Britain has resulted in a
movement of GBP126.3 milion in the period ended 30 June 2021. There
were no indications of impairment during the period (2020:
GBPNil).
Goodwill
GBP'000
Net Book Value
As at 1 January 2021 704,064
Deemed disposal of Group businesses (Note 14) (126,291)
Arising on acquisition (Note 14) 4,755
Currency translation adjustment (12,396)
As at 30 June 2021 570,132
----------
16. Intangible Assets
Customer
Computer Relationships
Software Trade Names & Technology Total
GBP'000 GBP'000 GBP'000 GBP'000
Net Book Value
As at 1 January 2021 32,946 11,157 71,802 115,905
Additions 504 - - 504
Amortisation (2,099) (913) (4,798) (7,810)
Arising on acquisition (Note
14) - 2,465 2,275 4,740
Deemed disposal of Group businesses
(Note 14) (27,522) (222) (2,083) (29,827)
Currency translation adjustment (130) (203) (1,673) (2,006)
As at 30 June 2021 3,699 12,284 65,523 81,506
---------- ------------ --------------- ---------
16. Intangible Assets (continued)
The computer software asset of GBP3.7 million at 30 June 2021
(December 2020: GBP32.9 million) primarily reflects the cost of the
Group's investment on upgrading the IT systems and
infrastructure.
The amortisation expense of GBP7.8 million (H1 2020: GBP6.8
million) has been charged in 'operating costs' in the income
statement. Amortisation on intangible assets arising on
acquisitions amounted to GBP5.7 million (H1 2020: GBP4.3
million).
17. Taxation
The income tax expense of GBP26.9 million (2020: GBP6.5 million)
is equivalent to an effective tax rate of 18.8 per cent on profit
from continuing operations (2020 Full Year: 19.0 per cent) and is
based on the current forecast rate for the year. This is a blended
rate of corporation tax on profits in the three jurisdictions where
the Group operates. The forecast charge includes a once-off
increase in deferred tax arising from the UK tax rate increasing to
25 per cent from 19 per cent which is effective from 1 April 2023.
This change was enacted in UK legislation in May 2021, and it adds
0.7 per cent to the tax rate on profits in the Group's continuing
operations.
Certain items of expenditure charged in arriving at profit
before tax, including depreciation on buildings, are not eligible
for a tax deduction. This factor increased the rate of tax payable
on profits above the headline rates that apply in the UK, Ireland
and the Netherlands.
The liability shown for current taxation includes a liability
for tax uncertainties and is based on the Directors' estimate of
(i) the most likely amount; or (ii) the expected value 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 could
materially impact the income tax and deferred tax liabilities and
assets in the period in which the determination was made.
Deferred tax
At 30 June 2021, there were unrecognised deferred tax assets in
relation to capital losses of GBP1.9 million (31 December 2020:
GBP1.7 million), trading losses of GBP1.9 million (31 December
2020: GBP2.0 million) and deductible temporary differences of
GBP8.4 million (31 December 2020: GBP7.7 million).
Deferred tax assets were not recognised in respect of certain
capital losses as they can only be recovered against certain
classes of taxable profits. The Directors believe that it is not
probable that such profits will arise in the foreseeable future.
The trading losses arose in entities that have incurred historic
losses and the Directors believe that it is not probable there will
be sufficient taxable profits in the particular entities against
which they can be utilised. Separately, the Directors believe that
it is not probable the deductible temporary differences will be
utilised.
18. Related Party Transactions
There have been no new related party transactions. There were no
other changes in related parties from those described in the 2020
Annual Report that materially affected the financial position or
the performance of the Group during the period to 30 June 2021.
19. Grafton Group plc Long Term Incentive Plan (LTIP)
LTIP awards were made over 683,694 Grafton Units on 17 May 2021.
The fair value of the awards of GBP7.4 million, which are subject
to vesting conditions, will be charged to the income statement over
the vesting period of three years. The 2020 Annual Report discloses
details of the LTIP scheme.
20. Issue of Shares
During the year 82,675 Grafton Units were issued under the 2011
Grafton Group Long Term Incentive Plan (LTIP) on the vesting of the
2018 grants. A further 218,302 Grafton Units were issued under the
Group's Savings Related Share Option Scheme (SAYE) to eligible UK
employees.
21. Events after the Balance Sheet Date
Further to the announcement on 22 June 2021, the Group completed
the acquisition of Isojoen Konehalli Oy and Jokapaikka Oy ("IKH")
on 1 July 2021. IKH is one of the largest workwear, personal
protective equipment ("PPE"), tools, spare parts and accessories
technical wholesalers and distributors in Finland. The business
will be incorporated in the distribution segment.
IKH reported revenue of EUR158.8 million and an adjusted
operating profit of EUR21.0 million for the year ended 28 February
2021. The purchase consideration of EUR199.3 million, on a cash and
debt free basis, was funded from the Group's existing cash
resources. Due to the short time frame between completion date and
the date of issuance of this report, it was not possible to
reliably estimate the fair value of assets and liabilities or the
goodwill associated with the acquisition.
Other than the above, there have been no material events
subsequent to 30 June 2021 that would require adjustment to or
disclosure in this report.
22. Board Approval
These condensed consolidated half year financial statements were
approved by the Board of Grafton Group plc on 24 August 2021.
Supplementary Financial Information
Alternative Performance Measures
Certain financial information set out in this consolidated half
year financial statements is not defined under International
Financial Reporting Standards ("IFRS"). These key Alternative
Performance Measures ("APMs") represent additional measures in
assessing performance and for reporting both internally and to
shareholders and other external users. The Group believes that the
presentation of these APMs provides useful supplemental information
which, when viewed in conjunction with IFRS financial information,
provides readers with a more meaningful understanding of the
underlying financial and operating performance of the Group.
None of these APMs should be considered as an alternative to
financial measures drawn up in accordance with IFRS. The key
Alternative Performance Measures ("APMs") of the Group are set out
below. As amounts are reflected in GBP'm some non-material rounding
differences may arise. Numbers that refer to 2020 are available in
the 2020 Annual Report and the 2020 Half Year Report, subject to
restatement for discontinued operations.
Note: The Traditional Merchanting Business in Great Britain is
now classified as discontinued operations for the period ended 30
June 2021. In the computation of APMs below the revenue and
operating profit of the business are excluded from the Group.
Revenue and the operating result are reflected in the profit/(loss)
after tax from discontinued operations. Prior year comparatives
have been updated to conform to the current year presentation.
APM Description
Adjusted operating Profit before amortisation of intangible assets
profit/EBITA arising on acquisitions, exceptional items,
net finance expense and income tax expense.
Operating profit margin Profit before net finance expense and income
tax expense as a percentage of revenue.
Adjusted operating Profit before profit on the disposal of Group
profit/EBITA before properties, amortisation of intangible assets
property profit arising on acquisitions, exceptional items,
net finance expense and income tax expense.
Adjusted operating Adjusted operating profit/EBITA before property
profit/EBITA margin profit as a percentage of revenue.
before property profit
Adjusted profit before Profit before amortisation of intangible assets
tax arising on acquisitions, exceptional items
and income tax expense.
Adjusted profit after Profit before amortisation of intangible assets
tax arising on acquisitions and exceptional items
but after deducting the income tax expense.
Capital Turn Revenue for the previous 12 months divided
by average capital employed (where capital
employed is the sum of total equity and net
debt at each period end).
Constant Currency Constant currency reporting is used by the
Group to eliminate the translational effect
of foreign exchange on the Group's results.
To arrive at the constant currency change,
the results for the prior period are retranslated
using the average exchange rates for the current
period and compared to the current period reported
numbers.
EBITDA Profit before exceptional items, net finance
expense, income tax expense, depreciation and
amortisation of intangible assets. EBITDA (rolling
12 months) is EBITDA for the previous 12 months.
EBITDA Interest Cover EBITDA divided by net bank/loan note interest.
Gearing The Group net debt divided by the total equity
attributable to owners of the Parent times
100, expressed as a percentage.
Like-for-like revenue Changes in like-for-like revenue is a measure
of underlying revenue performance for a selected
period. Branches contribute to like-for-like
revenue once they have been trading for more
than twelve months. Acquisitions contribute
to like-for-like revenue once they have been
part of the Group for more than 12 months.
When branches close, or where a business is
disposed of, revenue from the date of closure,
for a period of 12 months, is excluded from
the prior year result.
Return on Capital Employed Operating profit divided by average capital
employed (where capital employed is the sum
of total equity and net debt at each period
end) times 100, expressed as a percentage.
Adjusted Operating Profit/EBITA before
Property Profit Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Revenue - continuing 1,027.8 703.7
Operating profit 152.1 42.7
Property profit (15.4) (0.1)
Amortisation of intangible assets arising
on acquisitions 5.7 4.3
------------- ----------------
Adjusted operating profit/EBITA before property
profit 142.4 46.9
------------- ----------------
Adjusted operating profit/EBITA margin before
property profit 13.9% 6.7%
------------- ----------------
Operating Profit Margin
Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Revenue - continuing 1,027.8 703.7
Operating profit 152.1 42.7
Operating profit/EBITA margin 14.8% 6.1%
------------- ----------------
Adjusted Operating Profit/EBITA
Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Revenue - continuing 1,027.8 703.7
Operating profit 152.1 42.7
Amortisation of intangible assets arising
on acquisitions 5.7 4.3
------------- ----------------
Adjusted operating profit/EBITA 157.8 46.9
------------- ----------------
Adjusted operating profit/EBITA margin 15.4% 6.7%
------------- ----------------
Adjusted Profit before Tax
Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Profit before tax 142.9 29.5
Amortisation of intangible assets arising
on acquisitions 5.7 4.3
------------- ----------------
Adjusted profit before tax 148.6 33.8
------------- ----------------
Adjusted Profit after Tax
Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Profit after tax 116.0 23.0
Amortisation of intangible assets arising
on acquisitions 5.7 4.3
Related tax on amortisation of intangible
assets arising on acquisitions (1.2) (0.9)
------------- ----------------
Adjusted profit after tax 120.5 26.4
------------- ----------------
Reconciliation of Profit to EBITDA - Continuing
Operations Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Profit after tax 116.0 23.0
Net finance expense 9.2 13.2
Income tax expense 26.9 6.5
Depreciation 40.8 39.0
Intangible asset amortisation 5.9 4.4
------------- ------------------
EBITDA - continuing operations 198.8 86.1
------------- ------------------
Net Debt to EBITDA
Six months Six months
to 30 June to 30 June
2021 2020 Restated
Impact GBP'm
GBP'm
EBITDA (rolling 12 months) 350.1 214.9
Net debt including discontinued operations 209.9 479.2
------------- --------------------
Net debt to EBITDA - times 0.60 2.23
------------- --------------------
EBITDA Interest Cover (including interest
on lease liabiliites) Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
EBITDA 198.8 86.1
Net bank/loan note interest including interest
on lease liabilities 10.4 11.9
------------- ----------------
EBITDA interest cover - times 19.2 7.3
------------- ----------------
EBITDA Interest Cover (excluding interest
on lease liabiliites) Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
EBITDA 198.8 86.1
Net bank/loan note interest excluding interest
on lease liabilities 3.1 4.0
------------- ----------------
EBITDA interest cover - times 63.5 21.3
------------- ----------------
Gearing
30 June 2021 30 June 2020
Reported Restated
GBP'm GBP'm
Total equity 1,637.2 1,376.7
Net debt including discontinued operations 209.9 479.2
--------------- ---------------
Gearing 13% 35%
--------------- ---------------
Return on Capital Employed - Continuing
Operations Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Operating profit (rolling 12 months) 257.9 130.8
Exceptional items (rolling) 11.9 -
Amortisation of intangible assets arising
on acquisitions (rolling) 9.8 8.1
Adjusted operating profit (rolling 12
months) 279.6 138.8
------------- ----------------
Total equity - current period end 1,637.2 1,376.7
Deemed disposal adjustment - 115.4
Net debt including discontinued operations 209.9 479.2
Net cash of discontinued operations 36.7 -
Deemed disposal adjustment (581.7) (545.0)
------------- ----------------
Capital employed - current period end 1,302.0 1,426.3
------------- ----------------
Total equity - prior period end 1,376.7 1,313.5
Deemed disposal adjustment 115.4 115.4
Net debt - prior period end 479.2 540.5
Deemed disposal adjustment (545.0) (545.0)
------------- ----------------
Capital employed - prior period end 1,426.3 1,424.4
------------- ----------------
Average capital employed 1,364.2 1,425.4
Return on capital employed 20.5% 9.7%
------------- ----------------
Capital Turn
Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Revenue H2 prior period 975.6 851.3
Revenue H1 current period 1,027.8 703.7
Total revenue for previous 12 months 2,003.4 1,555.0
Average capital employed 1,364.2 1,425.4
------------- ----------------
Capital turn - times 1.5 1.1
------------- ----------------
Liquidity
30 June 30 June
2021 2020 Reported
Reported GBP'm
GBP'm
Cash and cash equivalents 460.4 423.0
Cash included in discontinued operations 103.8 -
Less: cash held against letter of
credit (4.0) (4.0)
Accessible cash 560.2 419.0
Undrawn revolving bank facilities 353.3 274.4
----------- ----------------
Liquidity 913.5 693.4
----------- ----------------
Net Debt (Including Discontinued Operations)
30 June 30 June
2021 2020 Reported
Reported GBP'm
GBP'm
Net debt reported 246.6 479.2
Cash included in discontinued operations (103.8) -
Lease liabilities included in discontinued 67.1 -
operations
Net Debt - Including discontinued
operations 209.9 479.2
----------- ----------------
Net Cash - before IFRS 16 Leases
30 June 30 June
2021 2020 Reported
Reported GBP'm
GBP'm
Net cash at 30 June (before IFRS 16
Leases) 198.7 57.0
Cash included in discontinued operations 103.8 -
Net Cash - Including discontinued
operations 302.5 57.0
----------- ----------------
The Impact of IFRS 16 "Leases" on APM's
Reconciliation of Profit to EBITDA - pre-IFRS
16 (Continuing) Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
Profit after tax 116.9 24.8
Net finance expense 2.0 5.4
Income tax expense 27.0 6.9
Depreciation 14.5 13.7
Intangible asset amortisation 5.9 4.4
------------- ----------------
EBITDA 166.2 55.2
------------- ----------------
EBITDA Interest Cover - pre-IFRS 16 (excluding
interest on lease liabilities) Six months Six months
to 30 June to 30 June
2021 2020 Restated
Reported GBP'm
GBP'm
EBITDA 166.2 55.2
Net bank/loan note interest excluding interest
on lease liabilities 3.1 4.0
------------- ----------------
EBITDA interest cover - times 53.1 13.7
------------- ----------------
Responsibility Statement in Respect of the Six Months Ended 30
June 2021
The Directors, whose names and functions are listed on pages 78
and 79 in the Group's 2020 Annual Report, are responsible for
preparing this interim management report and the condensed
consolidated half year financial statements in accordance with the
Transparency (Directive 2004/109/EC) Regulations 2007, the related
Transparency Rules of the Central Bank of Ireland and with IAS 34,
Interim Financial Reporting as adopted by the European Union.
The Directors confirm that, to the best of their knowledge:
-- the condensed consolidated interim financial statements for
the half year ended 30 June 2021 have been prepared in accordance
with the international accounting standard applicable to interim
financial reporting, IAS 34 as adopted by the EU;
-- the interim management report includes a fair review of the
important events that have occurred during the first six months of
the financial year, and their impact on the condensed consolidated
interim financial statements for the half year ended 30 June 2021,
and a description of the principal risks and uncertainties for the
remaining six months;
-- the interim management report includes a fair review of
related party transactions that have occurred during the first six
months of the current financial year and that have materially
affected the financial position or the performance of the Group
during that period, and any changes in the related party
transactions described in the last annual report that could have a
material effect on the financial position or performance of the
Group in the first six months of the current financial year.
On behalf of the Board:
Gavin Slark David Arnold
Chief Executive Officer
Chief Financial Officer
Independent review report to Grafton Group plc
Report on the condensed consolidated half year financial
statements
Our conclusion
We have reviewed Grafton Group plc's condensed consolidated half
year financial statements (the "interim financial statements") in
the Half Year Report of Grafton Group plc for the six month period
ended 30 June 2021. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements, comprise:
the Group Condensed Balance Sheet as at 30 June 2021;
the Group Condensed Income Statement and Group Condensed
Statement of Comprehensive Income for the period then ended;
the Group Condensed Cash Flow Statement for the period then
ended;
the Group Condensed Statement of Changes in Equity for the
period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year
Report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
The financial reporting framework that has been applied in the
preparation of the full annual financial statements of the group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Half Year Report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the Half
Year Report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Half Year Report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom and Ireland. A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (Ireland)
and, consequently, does not enable us to obtain assurance that we
would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Half Year
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers
Chartered Accountants
24 August 2021
Dublin
Notes:
(a) The maintenance and integrity of the Grafton Group plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
(b) Legislation in the Republic of Ireland governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
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END
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