Interim Results

GRAFTON GROUP PLC 26 August 1999 Grafton Group plc Interim Results for the Six Months Ended 30 June 1999 Highlights - Group pre-tax profits up 33% to Euro 15.4 million - Adjusted earnings per share up 40% to 84.4c - Interim dividend increased by 40% to 18.7c - Turnover grew by 46% to Euro 285 million - Strong performances in all Irish and UK divisions - UK turnover exceeds Irish turnover for the first time - UK operating profit increased by 191% Grafton Group Plc Announcement of Interim Results Six Months Ended 30 June 1999 Grafton Group reports pre-tax profits of Euro 15.4 million for the half-year ended June 30, 1999, a growth of 33% on profits of Euro 11.6 million in the first half of 1998. Earnings per share, before goodwill amortisation, ('adjusted earnings per share') increased by 40% to 84.40c compared to 60.44c in 1998. An interim dividend of 18.70c has been declared, representing an increase of 40% on the 1998 interim dividend of 13.33c. Turnover for the half-year grew by 46% to Euro 285.1 million (1998: Euro 195.9). Operating profit rose by 44% to Euro 19.4 million compared to Euro 13.5 million in first half 1998. These strong results reflect positive performances across all the Group's Irish and UK divisions. The following table highlights the result of the Group's strategy in terms of operating profit performance, before goodwill amortisation, and the significant improvement in operating profits being achieved in the UK. The Group turnover in the UK exceeded that recorded in the Republic of Ireland for the first time during the period. Six Months Six Months Percentage to to Improvement 30 June 99 30 June 98 (unaudited) (unaudited) Euro Euro millions millions Turnover Republic of Ireland 131.3 115.3 14% Great Britain & 153.8 80.6 91% Northern Ireland ------- ------ ------- Total 285.1 195.9 46% ======= ======= ====== Operating profit Republic of Ireland 12.7 11.1 15% Great Britain & 7.1 2.4 191% Nth. Ireland ------- ------- ------- Total 19.8 13.5 47% ======= ======= ======= Operations - Republic of Ireland The Group's Irish divisions increased turnover by 14% to Euro 131.3 million, reflecting market leadership positions in a positive construction environment. Operating profit grew by 15% to Euro 12.7 million in highly competitive markets at a consistent margin of 9.6%. These strong results in the first half, would have been even better but for the effects of the scaffolders strike in the second quarter. Irish merchanting and wholesaling turnover increased by 15% to Euro 92.4 million with the Chadwicks branches in Limerick and Walkinstown which opened in 1998 contributing for the full six month period. A powered access division has recently been launched, complementing Chadwicks existing contract scaffold and direct hire services. The Irish manufacturing division's turnover was broadly in line with 1998 at Euro 11.8 million, with improved profits. CPI, the Group's Dublin based concrete business, performed well in the first quarter. Its results were adversely affected in the second quarter by the scaffolders strike which closed down a number of construction sites in the normally busy months of April and May. MFP, specialising in plastic products for the building industry, recorded increased volumes, particularly in its Eavemaster range, and profits were ahead of last year. Woodie's DIY capitalised on its clear market leadership position, increasing its turnover by 16% to Euro 27.2 million, with strong performances across all 10 stores. Woodie's ongoing investment programme included the major refurbishment of the Dunlaoire, Cork and Galway stores, resulting in growth in sales per square foot and profitability. Woodie's is a successful and significant contributor to both the Group's profitability and cash flow, and continues to seek potential sites for its ongoing expansion. Operations - United Kingdom UK turnover was Euro 153.8 million (Stg£101.0 million) for the half-year compared to Euro 80.6 million in the same period last year, an increase of 91%. The virtual doubling of scale resulted from our aggressive acquisition programme and substantial like-for-like sales growth. More importantly, operating profit almost trebled by 191% to Euro 7.1 million leading to an improved margin of 4.6% (1998: 3.0%). The Group's UK builders merchanting business now spans 49 branches, following substantial acquisition activity of 1998, and the six-branch network of the Niall Bailey merchanting business acquired in April 1999. The phased integration of acquired businesses into Buildbase is progressing satisfactorily and the planned operational benefits are being realised. Plumbase, the Group's UK plumbing and heating business, trading from 41 branches, continued to increase sales and profitability, and is now established as the most significant regional player in the South East. Belfast based builders merchants, Macnaughton Blair successfully integrated its 1998 acquisitions in Antrim and Coleraine and recorded increased profits. Your Group is an active participant in the consolidation of the UK merchanting market and is now ranked fourth in terms of sales. The acquisition multiples now being paid for merchanting chains underline the value created for our shareholders. We remain determined to continue to grow in this core market. The Group's three UK silo mortar plants traded strongly during the period with all plants performing profitably and ahead of expectations. The construction of a fourth mortar plant in Beaconsfield, west of London, is well advanced with commissioning planned for later this year. Given the proven success of EuroMix silo mortar in both the Irish and UK markets, the Group intends to establish additional manufacturing plants in strategic locations in the UK. Finance The Group's operations continued to be strongly cash generative during the six months, with net cash from operating activity increasing to Euro 15.7 million, up 44% on the Euro 10.9 million achieved in the same period last year. As in previous periods the Group's acquisitions, investments, and capital expenditure programme continued at high levels with Euro 20.0 million, Euro 15.3 million and Euro 12.1 million being invested respectively. The acquisition of Niall Bailey Building Supplies, the Group's investment in Heiton Holdings plc, at an average share price of Euro 2.67, the development of the EuroMix mortar operations and the ongoing refurbishment of the acquired companies account for the majority of the combined expenditure of Euro 47.4 million. Shareholders' funds at 30th June were Euro 165.9 million and net debt amounted to Euro 89 million representing a net debt to equity ratio of 54%, following the Euro 15.5 million successfully raised when the Group placed 800,000 ordinary shares with existing shareholders in June 1999. The Group's strong balance sheet and healthy cash flow leaves it well placed to finance further expansion opportunities. Outlook The strong momentum achieved in the first half throughout the Group has been maintained into the second half and we look forward with confidence. In Ireland the combination of a continuing strong local economy, a buoyant construction market and strong market positioning of our core businesses provides the solid background for further growth opportunities. In the UK, Buildbase and Plumbase will continue to consolidate and benefit from the integration of earlier acquisitions as the market shows signs of improvement. We seek to identify bolt-on opportunities and continue to focus on acquiring and building regional leadership positions in selected market areas. EuroMix dry mortar is expected to expand its operations further. The Group continues to actively seek opportunities for profitable growth across its markets. 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 Half Year Ended 30 June 1999 Twelve Six Six Months Months to Months to to 31 30 June 30 June Dec 98 99 98 (audited) (unaudited) (unaudited) Euro '000 Euro '000 Euro '000 Turnover 378,099 Continuing 275,005 195,882 operations 49,499 Acquisitions 10,106 - ------- ------- ------- 427,598 Total turnover 285,111 195,882 ======= ======= ======= Operating profit 33,779 Continuing 18,556 13,494 operations (719) Acquisitions 813 - ------ ------ ------ 33,060 Total operating 19,369 13,494 profit 4,864 Interest payable 3,959 1,910 ------ ------ ------ 28,196 Profit on ordinary activities before 15,410 11,584 taxation 3,948 Taxation 2,003 1,740 ------ ------ ------ Profit on ordinary activities after 24,248 taxation 13,407 9,844 5,714 Dividend 3,207 2,170 ------ ------ ------ 18,534 Profit retained 10,200 7,674 ====== ====== ====== 149.7c Earnings per share 81.87c 60.44c Adjusted earnings 150.15c per share 84.40c 60.44c 35.0c Dividend per share 18.70c 13.33c Grafton Group Plc Consolidated Balance Sheet As at 30 June 1999 31 Dec 30 June 30 June 98 99 98 (audited) (unaudited) (unaudited) Euro '000 Euro '000 Euro '000 Fixed assets Intangible assets - 9,763 goodwill 20,570 617 140,660 Tangible assets 157,135 97,705 212 Financial assets 15,533 1,406 ------- ------- ------- 150,635 193,238 99,728 ------- ------- ------- Current assets 67,371 Stock 79,226 61,586 87,981 Debtors 109,985 82,181 - Financial assets - 8,375 Cash at bank and 67,407 in hand 58,318 66,287 ------- ------- ------- 222,759 247,529 218,429 ------- ------- ------- Creditors (amounts falling due within 133,392 one year) 176,341 122,585 ------- ------- ------- 89,367 Net current assets 71,188 95,844 ------- ------- ------- Total assets less 240,002 current liabilities 264,426 195,572 ------- ------- ------- Creditors (amounts falling due after 93,005 more than one year) 91,147 100,487 Provision for liabilities and 7,189 charges 7,314 2,734 ------- ------- ------- 100,194 98,461 103,221 ------- ------- ------- 139,808 165,965 92,351 ======= ======= ======= Capital and reserves 5,225 Share capital 8,488 5,204 17,388 Share premium 32,641 16,109 account 43,504 Revaluation reserve 43,504 8,134 Profit and loss 73,691 account 81,332 62,904 ------- ------- ------- Shareholders' 139,808 funds - equity 165,965 92,351 ======= ======= ======= Grafton Group Plc Group Cash Flow Statement For the Half Year Ended 30 June 1999 Twelve Six Months Six Months Months To 31 To 30 June To 30 June Dec 98 99 98 (audited) (unaudited) (unaudited) Euro '000 Euro '000 Euro '000 Net cash inflow from operating 28,023 activities 15,709 10,870 Servicing of (4,114) finance (4,546) (1,219) (2,473) Taxation (1,417) (1,268) Capital expenditure and financial investment Purchase of tangible fixed (20,621) assets (12,105) (9,934) 15 New finance leases 0 0 ------- ------- ------- (20,606) (12,105) (9,934) Sale of tangible 3,525 fixed assets 3,411 1,539 Purchase of (67) financial fixed (15,305) (67) assets ------- ------- ------- (17,148) (23,999) (8,462) Acquisitions and disposals Acquisition of subsidiary (45,275) undertakings (22,168) (33,905) Net cash acquired with subsidiary 387 undertakings 2,176 5,250 Disposal of 7,573 business held for 0 0 resale ------- ------- ------- (37,315) (19,992) (28,655) Equity dividends (5,018) paid (3,540) (2,844) Cash outflow before use of liquid (38,045) resources and (37,785) (31,578) financing Management of liquid resources Decrease/(Increase) (1,352) in short term 212 (14,165) deposits Redemption of loan 2,481 notes receivable 0 2,653 ----- ------ ------ 1,129 212 (11,512) Financing Issue of ordinary 34 share capital 15,511 33 41,932 Increase in term 14,138 42,515 debt Capital element of finance leases (622) repaid (305) (292) Redemption on loan (188) notes payable (255) (183) ------ ------ ------ (Decrease)/increase 4,240 in cash in the (8,484) (1,017) ===== period ======= ======= Reconciliation of net cash flow to movement in net debt (Decrease)/increase 4,240 in cash in the period (8,484) (1,017) Cash inflow from increase in debt and (41,122) lease financing (13,578) (42,040) Cash flow from management (1,129) of liquid resources (212) 11,512 ------- ------- ------- Change in net debt resulting from cash (38,011) flows (22,274) (31,545) Loan notes issued on acquisition of (1,091) subsidiary undertakings (72) (1,036) Liquid resources acquired 2,481 with subsidiary 0 2,653 undertaking Finance leases acquired with subsidiary (1,092) undertakings (13) (185) (15) New finance leases 0 0 2,948 Translation adjustment (7,950) (3,179) ------ ------- ------- Movement in net debt (34,780) in the period (30,309) (33,292) (23,934) Net debt at 1 January (58,714) (23,934) -------- -------- -------- (58,714) Net debt at 30 June (89,023) (57,226) ======= ======= ======= Notes 1. Movements in Group Shareholders' Funds Twelve Six Six Months Months Months To 31 Dec To 30 To 30 98 June 99 June 98 (audited) (unaudited) (unaudited) Euro '000 Euro '000 Euro '000 Profit on ordinary activities after 24,248 taxation 13,407 9,844 5,714 Dividends 3,207 2,170 ------ ------ ------ 18,534 10,200 7,674 Issue of ordinary 7,364 share capital 15,511 6,064 Currency translation adjustment - on foreign currency net (1,534) investments 3,949 1,814 - on foreign 1,492 currency borrowings (3,503) (1,783) Revaluation of tangible 35,370 fixed assets 0 0 ------ ------ ------ Net movement on 61,226 shareholders' funds 26,157 13,769 Opening 78,582 shareholders' funds 139,808 78,582 ------ ------ ------- Closing 139,808 shareholders' funds 165,965 92,351 ====== ====== ====== 2. Dividends An interim dividend at the rate of 18.70c per ordinary share (1998: 13.33c) is payable on 24 September 1999 to shareholders on the register at the close of business on 10 September 1999. 3. Earnings per share The calculation of earnings per ordinary share is based on the profit on ordinary activities after taxation. The weighted average number of ordinary shares in issue during the period amounted to 16,376,881 (1998: 16,288,724). Adjusted earnings per share is calculated on the same basis but excluding amortisation of goodwill. 4. Exchange rates Financial statements of the Group's United Kingdom subsidiaries are translated at the rate of exchange prevailing at the balance sheet date. The Euro / Sterling exchange rate at 30 June 1999 was Stg65.63p (30 June 1998: Stg66.15p and 31 December 1998: Stg70.54p) 5. Year 2000 compliance Many computer systems which express dates using only the last two digits of the year may malfunction due to the date change to the Year 2000. This risk to the business relates not only to the Group's computer systems, but also to some degree on those of our customers and suppliers. The Group has conducted a Year 2000 review of its business systems at all locations and has established a formal Year 2000 project to modify or replace all the non-compliant systems. Many of the non-compliant systems identified were due to be replaced or upgraded, for operational and functional reasons unconnected with the Year 2000 issue. The incremental cost of Year 2000 compliance is not material to the Group. Work on all business critical systems is at an advanced stage and in line with the Group's implementation plan. 6. Turnover The amount of turnover by class of activity is as follows: Twelve Six Six Months Months Months To 31 To 30 To 30 Dec 98 June 99 June 98 (audited) (unaudited) (unaudited) Euro Euro Euro '000 '000 '000 Irish merchanting 167,872 and wholesaling 92,370 80,158 Irish manufacturing and related 23,170 activities 11,755 11,701 49,224 DIY retailing 27,171 23,404 ------- ------- ------- Total turnover for 240,266 Irish activities 131,296 115,263 UK merchanting and 187,332 other activities 153,815 80,619 ------- ------- ------- 427,598 285,111 195,882 ======= ======= ======= 7. Operating Profit Twelve Six Six Months Months Months To 31 To 30 To 30 Dec 98 June 99 June 98 (audited) (unaudited) (unaudited) Euro Euro Euro '000 '000 '000 27,386 Republic of Ireland 12,663 11,056 Great Britain and 5,749 Northern Ireland 7,121 2,444 ------ ------ ------- 33,135 19,784 13,500 (75) Goodwill amortisation (415) (6) ------ ------ ----- 33,060 19,369 13,494 ====== ===== ===== 8. Interim statement The interim figures for the half year to 30 June 1999 and the comparative figures for the half year to 30 June 1998 are unaudited. The figures shown for the year ended 31 December 1998 have been extracted from the full accounts for the year. A copy of these accounts, on which the Auditors have issued an unqualified report, has been delivered to the registrar of companies. This statement will be sent by post to all registered shareholders. Non shareholders may obtain copies from the company's registered office at Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. Independent Review Report to Grafton Group plc Introduction We have been instructed by the company to review the financial information set out on pages 4-7 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Irish Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express and audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 1999. KPMG Chartered Accountants Registered Auditors Dublin 25 August 1999

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