Final Results - Year Ended 31 December 1999

Grafton Group PLC 9 March 2000 Grafton Group plc Preliminary announcement of results For year ended 31 December 1999 Highlights - Group pre-tax profits up 35% to Euro 38.2 million - Earnings per share, before goodwill, increased by 38% to 206.9c - Dividend per share up by 37% to 48.0c - Turnover up by 45% to Euro 620.2 million - UK turnover grew by 84% to Euro 344.4. - UK operating profit increased by 189% Euro 16.6 million - 1999 Acquisition spend ?48.2 million - Capital expenditure exceeded Euro 29.5 million Commenting on the results today, Michael Chadwick, Chairman said: 'The Group intends to continue to build on its sound and focused strategy, its established business base and its experienced management which has continued to deliver strong results for shareholders across its Irish and UK operations. As in previous years, the Group's operations continue to be strongly cash generative with EBITDA of Euro 58.9 million in 1999, up 46% on Euro 40.3 million earned in 1998. Since the Group became an independent plc in 1987, it has achieved uninterrupted turnover growth and compound EPS growth per annum of 29%.' Grafton Group plc Preliminary announcement of results For year ended 31 December 1999 Grafton Group announces strong results for 1999, increasing pre-tax profits by 35% to Euro 38.2 million from Euro 28.2 million in 1998. Earnings per share, before goodwill, increased by 38% to 206.9c, compared to 150.2c in 1998. A final dividend of 29.3c is proposed, giving a full year dividend of 48.0c, an increase of 37%. Continuing 16 years of consecutive growth, turnover advanced strongly by 45% to Euro 620.2 million from Euro 427.6 million in 1998. Operating profit improved by 40% to Euro 46.3 million, from Euro 33.1 million in 1998. These results highlight the Group's sound positions in its market sectors, and the benefit of its consistent strategic thrust in Ireland and the UK. Operations - Republic of Ireland A positive construction environment, sustained by favourable economic and demographic factors, provided the backdrop to the continuing strong performance of the Group's Irish operations. Turnover in a highly competitive market grew by 15% to Euro 275.7 million, compared to Euro 240.3 million in 1998. Operating profit increased by 12.7% to Euro 30.9 million from Euro 27.4 million in 1998. Operating margins at 11.2% compared to 11.4% in 1998. Irish Merchanting and Wholesaling Division This division turned in another strong performance, growing turnover by 16% to Euro 194.7 million from Euro 167.9 million in 1998, ahead of growth in the market. Having opened new branches in Limerick and Walkinstown in 1998, Chadwicks, Ireland's leading builders merchants, acquired two further new locations in Clonmel and Kilkenny during 1999. Expansion continued with the Lucan and Midleton branches adding new hire centres, together with bathroom, tile and timber flooring showrooms. The new powered access division set up at the beginning of 1999 experienced strong demand for its services. Strong like for like growth was experienced across the entire branch network. Irish Manufacturing Division Irish manufacturing turnover which, at the half year, had shown no increase due to the effects of the construction industry's scaffolding strike in the second quarter, resumed its upward path, growing by 9% in the second half giving a full year turnover increase of 5% to Euro 24.2 million. Servicing the market in the greater Dublin and Leinster region, CPI the Group's concrete operation had a good start to the year with strong growth in the first quarter. Volumes in the second and third quarters were adversely affected by the effects of the construction industry scaffolders' strike and its aftermath, and the reduction in apartment building in Dublin. CPI recovered for the full year to achieve its 1998 turnover levels. CPI continued its product development programme and provided technical and marketing support to the Group's expanding EuroMix operations in the UK. MFP, the Group's plastics manufacturing specialists, produced another excellent trading performance. Despite weak prices in the market for much of the year, turnover in the Republic and Northern Ireland continued to grow, led by the Eavemaster roofline and Classic gutter ranges which performed exceptionally well. MFP continues to invest in the expansion of these ranges and in new tooling and technology. Irish Retailing Woodie's DIY continued to build on its strong market position, generating turnover growth of 15% to Euro 56.8 million for the year, with all ten stores contributing. The company's development programme included major improvements to stores in Galway, Cork, and Dun Laoire. The year saw an increase in the number of product lines on offer to Woodie's customers, and further growth in sales per square foot across all stores and Woodie's award winning garden centres. Operations - United Kingdom The Group's UK operations have expanded significantly, creating leadership positions in regional markets and generating strong growth in turnover and operating profit. The Group benefited from the ongoing integration of acquisitions made in previous years and has continued its aggressive acquisition programme during 1999 as the Group actively participated in the consolidation of the UK merchanting market. In addition to new branch openings, the Group experienced significant like-for-like sales growth from existing outlets and very strong growth in the silo mortar business. The Group is now established as the 4th largest player in both builders merchanting and plumbers merchanting, trading from over 120 locations in the UK. UK turnover, which accounted for over 56% of total Group turnover, grew by 84% to Euro 344.4 million (STG£214.1), while operating profit in the UK has increased very significantly by 189% from Euro 5.7 million in 1998 to Euro 16.6 million in 1999. UK operating profit accounted for 35% of the Group's operating profit before goodwill amortisation, whilst operating margins improved to 4.8% from 3.1% in 1998. The strength of Sterling against the Euro during 1999 resulted in an increase on conversion of Euro 2.0 million in UK operating profit and Euro 0.9 million in UK profit before tax. Builders Merchanting With the Buildbase brand firmly established and now trading from a total of 44 builders merchanting locations, sales more than doubled during the year. As the largest regional player in London, the South East, and the Midlands, our builders merchanting operations enjoyed significant like-for-like growth during the year. Acquisitions during 1999 included the Coventry based Niall Bailey Building Supplies, in March, and Latham Timber Centres based in Milton Keynes, acquired in November. During the year the Group made substantial investments in developing its branch network, bolting on new activities, and improving its service to customers. The integration benefits from the Group's acquisition programme continued to flow through. In Northern Ireland, Macnaughton Blair, trading from four locations continued to improve its sales and profitability. Plumbers Merchanting Plumbase, the most important regional player in the South East, significantly increased its sales and profits during the year. In addition to establishing four new greenfield locations, Plumbase benefited from the integration of earlier acquisitions. In February 2000 Plumbase acquired Thompsons, the market leader in the South West of England, complementing its strengths and leadership positions in the South East and the Midlands, and increasing its number of locations to 67. UK Manufacturing The Group continued to expand its UK EuroMix dry mortar activities with the completion and successful commissioning of the Group's third EuroMix dry mortar plant in Beaconsfield, West of London at year-end. The two existing EuroMix plants at Northfleet, East of London, and Coatbridge, near Glasgow, significantly increased their turnover during the year. With the Group's two other silo mortar plants in Manchester and Cardiff, the Group now has a total of five silo plants in production in the UK and is established as the market leader for silo dry mortar. Financial Review The Group's progressive expansion continued with Euro 48.2 million being invested in new acquisitions in both Ireland and the UK. In addition to its acquisition programme the Group has invested strongly in existing operations. During 1999 a total of Euro 29.5 million was spent by the Group on capital expenditure projects. Depreciation charges increased from Euro 7.1 million in 1998 to Euro 11.5 million in 1999. Acquisitions continue to deliver enhanced earnings for the Group with further improvements still to be realised as the integration programme progresses. During the year the Group invested Euro 18.8 million in acquiring 6,943,253 Ordinary shares (14.7%) in Heiton Holdings plc at an average share price of Euro 2.68. Through the year some market integration and rationalisation costs were incurred and have been charged to the profit and loss account in line with Group policy. The actual cost of integrating new acquisitions during 1999 was lower than anticipated. The accounting treatment for goodwill has resulted in an amortisation charge of Euro 1.1 million against operating profit. This charge is materially up on the Euro 75,000 charged in 1998. In line with current practice, the E.P.S. figure before goodwill amortisation reflects the true performance of the Group when compared to 1998 and prior years. During the year the Group successfully placed 800,000 ordinary shares in the market at a price of Euro 19.40 per share, raising Euro 15.5 million. The funds raised were used to part finance the Group's expansion programme during the year. Two of the British Dredging plc surplus properties have been sold for circa Euro 4 million in line with the fair value taken into account on acquisition, and no material profit or loss was realised. As in previous years, the Group's operations continue to be strongly cash generative with EBITDA of Euro 58.9 million in 1999, up 46% on Euro 40.3 million in 1998. At the end of the year, shareholders' funds were Euro 181.3 million and Group gearing was 59%. The Group's corporation tax rate has resulted from a combination of the mix of earnings taxable at different rates of corporation tax, the benefit of non-reversing capital allowances on investments brought forward from previous years, the high level of capital expenditure qualifying for capital allowances during the year, the deductibility of interest costs associated with UK acquisitions, and the further reduction in the standard rate of Irish corporation tax. A strong balance sheet and operational cash generation continue to leave the Group well placed to take advantage of further development opportunities as they arise. Outlook Since the Group became an independent plc in 1987, it has achieved uninterrupted turnover growth. Compound EPS growth was 29% per annum over the same period. The Group's strong performance yet again in 1999 flows from a sound and consistent strategy of capitalising on market opportunities in core businesses, and diversifying the Group's earnings base, resulting in above average returns for its shareholders. In Ireland, which now accounts for just 44% of total Group turnover, although some bottlenecks are emerging in the economy, which may dampen economic growth from the significant levels of recent years, this should lead to a soft landing and more modest sustainable growth levels into the future. A sound backdrop for continuing Irish growth opportunities for Grafton will be provided by labour force growth, healthy public finances, the Government's upcoming Planning and Development Bill, and the Euro 52 billion National Development Plan, even allowing for some slippage in the quantum and timescale of this Plan. The proposed Programme for Prosperity and Fairness (PPF) should provide for more certainty and stability in industrial relations, creating a favourable environment for all our Irish businesses. Grafton's strong Irish brands will benefit from positive market conditions. In the UK, now for the first time accounting for more than half of total Group turnover, the market for builders and plumbers merchanting continues to show growth in a reasonably stable economic climate. Now ranked at No.4 in that market, Grafton's Buildbase and Plumbase operations are well positioned as strong regional players to take advantage of ongoing acquisition opportunities and integration benefits, and to improve like for like sales and margins. The Group's five silo mortar plants and EuroMix branding form the platform for further expansion in the UK market. The Group intends to continue to build on its sound and focused strategy, its solid business base, and its experienced management which has continued to deliver strong results for shareholders across its Irish and UK operations. March 9, 2000 For reference: For reference: Michael Chadwick Joe Murray Executive Chairman Murray Consultants Grafton Group plc Telephone: (++353) (01) 661 4666 Telephone: (++353) (01) 216 0600 Ginny Pulbrook Citigate Dewe Rogerson Telephone: (++44) (0171) 282 2945 This statement is also available on our web site www.graftonplc.com Grafton Group plc Group Profit & Loss Account For The Year Ended 31 December 1999 1999 1998 Euro '000 Euro '000 Turnover Continuing operations 587,241 427,598 Acquisitions 32,931 - ______ ______ Total turnover 620,172 427,598 ====== ====== Operating profit Continuing operations 44,766 33,135 Acquisitions 2,677 - ______ ______ 33,135 Goodwill amortisation 1,126 75 ______ ______ Total operating profit 46,317 33,060 Interest payable (net) 8,155 4,864 ______ ______ Profit on ordinary activities before taxation 38,162 28,196 Tax on profit on ordinary activities 4,586 3,948 ______ ______ Profit on ordinary activities after taxation 33,576 24,248 Dividend on ordinary Shares Paid 3,207 2,174 Proposed 5,030 3,540 ______ ______ 8,237 5,714 Profit retained for 25,339 18,534 the financial year ====== ====== Earnings per share 200.2c 149.7c Earnings per share before goodwill amortisation 206.9c 150.2c Diluted earnings per share 195.9c 146.1c Grafton Group plc Statement of Total Recognised Gains and Losses For the year ended 31 December 1999 1999 1998 Euro '000 Euro '000 Profit for the financial year attributable to Group shareholders 33,576 24,248 Revaluation of tangible fixed assets - 35,370 Currency translation adjustment - on foreign currency net investments 7,041 (1,534) - on foreign currency borrowings (6,299) 1,492 ______ ______ Total recognised gains and losses for the year 34,318 59,576 ====== ====== Reconciliation of Movements in Group Shareholders' Funds For the year ended 31 December 1999 1999 1998 Euro '000 Euro '000 Total recognised gains And losses for the year 34,318 59,576 Dividends (8,237) (5,714) Issue of ordinary Share capital 15,450 7,364 ______ ______ Net addition to shareholders' Funds 41,531 61,226 Opening shareholders' Funds 139,808 78,582 ______ ______ Closing shareholders' Funds - equity 181,339 139,808 ======= ======= Grafton Group plc Group Balance Sheet As at 31 December 1999 1999 1998 Euro '000 Euro '000 Fixed assets Intangible assets - goodwill 31,714 9,763 Tangible assets 175,847 140,660 Financial assets 19,045 212 ______ ______ 226,606 150,635 ______ ______ Current assets Stock 84,759 67,371 Debtors 125,034 87,981 Cash at bank and in hand 67,536 67,407 ______ ______ 277,329 222,759 Creditors (amounts falling Due within one year) 173,246 128,218 ______ ______ Net current assets 104,083 94,541 ______ ______ Total assets less Current liabilities 330,689 245,176 ______ ______ Creditors (amounts falling Due after more than one year) 135,440 93,005 Provisions for liabilities And charges 13,910 12,363 ______ ______ 149,350 105,368 ______ ______ 181,339 139,808 ====== ====== Capital and reserves Share capital 8,644 5,225 Share premium account 32,424 17,388 Revaluation reserve 43,221 43,504 Profit and loss account 97,050 73,691 ______ ______ Shareholders' funds - equity 181,339 139,808 ====== ====== Grafton Group plc Group Cash Flow Statement For the Year Ended 31 December 1999 1999 1998 Euro '000 Euro '000 Net cash inflow from operating activities 54,115 28,023 Servicing of finance (8,962) (4,114) Taxation (3,273) (2,473) ______ ______ 41,880 21,436 ______ ______ Capital expenditure and financial investment Purchase of tangible fixed assets (29,517) (20,621) New finance leases - 15 ______ ______ (29,517) (20,606) Sale of tangible fixed assets 8,962 3,525 Purchase of financial fixed assets (18,814) (67) ______ ______ (39,369) (17,148) ______ ______ Acquisitions and Disposals Acquisition of subsidiary Undertakings (48,155) (45,275) Net cash acquired with subsidiary undertakings 3,962 387 Disposal of business held for resale - 7,573 ______ ______ (44,193) (37,315) ______ ______ Equity dividends paid (6,746) (5,018) ______ ______ Cash outflow before use of liquid resources and financing (48,428) (38,045) ______ ______ Management of liquid Resources Increase in short term deposits (622) (1,352) Redemption of loan notes receivable - 2,481 ______ ______ (622) 1,129 Financing Issue of ordinary share capital 15,450 34 Increase in term debt 38,884 41,932 Capital element of finance leases repaid (644) (622) Redemption of loan notes payable (616) (188) ______ ______ 52,452 42,285 ______ ______ Increase in cash in the year 4,024 4,240 ===== ===== Reconciliation of net cash flow to movement in net debt 1999 1998 Euro '000 Euro '000 Increase in cash in the year 4,024 4,240 Cash inflow from increase in debt and lease financing (37,624) (41,122) Cash flow from management of liquid resources 622 (1,129) ______ ______ Change in net debt resulting from cash flows (32,978) (38,011) Loan notes issued on acquisition of subsidiary undertakings (72) (1,091) Liquid resources acquired with subsidiary undertakings - 2,481 Finance leases acquired with subsidiary undertakings (13) (1,092) New finance leases - (15) Translation adjustment (15,583) 2,948 _______ ______ Movement in net debt in the year (48,646) (34,780) Net debt at 1 January (58,714) (23,934) _______ ______ Net debt at 31 December (107,360) (58,714) ======= ====== Notes to the profit and loss account 1. Turnover The amount of turnover by class of activity is as follows: 1999 1998 Euro '000 Euro '000 Irish merchanting And wholesaling 194,670 167,872 Irish manufacturing and Related activities 24,248 23,170 DIY retailing 56,813 49,224 ______ ______ Total turnover from Irish activities 275,731 240,266 UK merchanting and Other activities 344,441 187,332 ______ ______ 620,172 427,598 ====== ====== 2. Operating Profit 1999 1998 Euro '000 Euro '000 Republic of Ireland 30,856 27,386 Great Britain and Northern Ireland 16,587 5,749 ______ ______ 47,443 33,135 Goodwill amortisation (1,126) (75) ______ ______ 46,317 33,060 ====== ====== 3. Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 Euro '000 Euro '000 Operating profit 46,317 33,060 Depreciation 11,475 7,116 Goodwill amortisation 1,126 75 Profit on disposal of (1,592) (857) fixed assets Increase in working (3,211) (11,371) capital ______ ______ Net cash inflow from operating activities 54,115 28,023 ===== ===== Increase in working capital 1999 1998 Euro '000 Euro'000 Stock 6,041 9,003 Debtors 20,139 6,478 Creditors (22,969) (4,110) ______ ______ 3,211 11,371 ====== ====== 4. Earnings per Share Earnings per share of 200.2c (1998: 149.7c) have been calculated on profits after taxation of Euro 33,576,000 (1998: Euro 24,248,000) and a weighted average number of shares of 16,771,393 (1998 : 16,198,941). Diluted earnings per share have been calculated on profits after taxation of Euro 33,576,000 (1998 : Euro 24,248,000) and the weighted average number of shares in issue during the year adjusted for the number of dilutive shares deemed to have been issued under the Grafton Group Share Option Scheme and the 1999 Grafton Group Share Scheme for no consideration. 1999 1998 Profit on ordinary activities after taxation (Euro '000) 33,576 24,248 ______ ______ Weighted average shares outstanding during the year 16,771,393 16,198,941 Earnings per share 200.2c 149.7c ______ ______ Number of dilutive shares under option 643,799 599,475 Number of shares that would have been issued at fair value (272,368) (205,605) ______ ______ 371,431 393,870 ______ ______ 17,142,824 16,592,811 ______ ______ Diluted earnings per share 195.9c 146.1c ====== ====== Earnings per share, adjusted for goodwill, of 206.9c (1998:150.2c) is based on profit after taxation of Euro 33,576,000 (1998: Euro 24,248,000) plus goodwill of Euro 1,126,000 (1998: Euro 75,000) and a weighted average number of shares in issue of 16,771,393 (1998: 16,198,941) The number of shares in issue at 31 December 1999 was 17,288,709 including 120,000 treasury shares. 5. Dividends The Board is recommending the payment of a final dividend of 29.3c per share to be paid, subject to shareholder approval, on 8 May 2000 to shareholders registered at close of business on 7 April 2000. 6. Year End Exchange rates The year end Euro / Sterling exchange rate was STG62.2p (1998: STG70.5p) and the equivalent Irish Pound / Sterling rate was STG78.9p (1998: STG89.6p). Statistics 1999 1998 Change Turnover (Euro '000) 620,172 427,598 +45% Profit before taxation (Euro '000) 38,162 28,196 +35% EBITDA (Euro '000) 58,918 40,251 +46% Earnings per share before goodwill amortisation 206.9c 150.2c +38% Dividend per share 48.0c 35.0c +37% Dividend cover (times) 4.3 4.3 - Interest cover (times) 5.8 6.8 - Cash flow per share 275c 194c +42% Net assets per share 1,049c 849c +24% Net debt to shareholders' funds 59% 42% - Depreciation charge (Euro '000) 11,475 7,116 - Goodwill amortisation (Euro '000) 1,126 75 - Acquisition and investment expenditure (Euro '000) 66,969 45,342 - Capital expenditure (Euro '000) 29,517 20,621

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