With the release of its Half Year Report for the six months ended 30 June 2020, Grafton Group plc says it is “emerging from lockdown in a strong position” despite Group revenue being 19% lower and adjusted operating profit in continuing its operations down 61% due to the impact of the Covid-19 pandemic.
Overall, the business cites an “encouraging start” to the second half of the year, with average daily like-for-like revenue up by 3.8%.
Gavin Slark, Chief Executive Officer Commented: “We are very pleased with the performance of our business which was made possible by the outstanding efforts and commitment of colleagues in a half year outturn that demonstrates the resilience and the cash generative qualities of our Group and the agility of our management teams in responding to the Covid-19 pandemic.
“Grafton’s resilience, market positioning and geographic diversity together with its low debt and strong liquidity leaves the Group well positioned for continuing progress. We are very encouraged by the performance of the Group in recent months as it emerged in a strong position from the Covid-19 lockdown and based on current trends the Group should deliver a similar level of adjusted operating profit in the second half to the comparable period last year.”
The report notes that trading across the Group was “broadly in line with expectations until the second half of March” whilst the impact of Covid-19 on trading over the remainder of the first half “varied by country and market and was influenced by the nature and duration of the lockdown measures adopted”.
Focusing on its UK merchanting operations, the Half Year Report notes that the majority of its branches were closed from 24 March until the beginning of May when reopening commenced on a phased basis with “practically the entire branch estate” reopened on a full-service basis by the end of June.
Selco in particular is said to have benefitted from the “marked post-lockdown recovery” in the residential repair, maintenance and improvement (RMI) market. The report added: “House building sites began reopening at a more gradual pace from mid-May and as a consequence the recovery in this end-use segment of the distribution market was less advanced at the end of the half year”.
Outlook
Grafton notes that the outlook for the Group’s businesses remains uncertain due to the Covid-19 pandemic. It expects some social distancing and other measures to remain in place for some time, including possible local or national lockdowns which will impact “sentiment, trading and the broader economic environment over the remainder of the year”.
It adds: “The recovery in the UK housing RMI market is likely to have benefitted from pent-up demand and an increase in household savings during the lockdown. RMI spending over the remainder of the year will be influenced by consumer sentiment at a time of significant uncertainty and the willingness of households to undertake indoor projects due to concerns about social distancing.”
Overall, the report notes: “We are very encouraged by the performance of the Group in recent months as it emerged in a strong position from the Covid-19 lockdown but we remain cautious about revenue trends in our markets over the remainder of the year. Based on current trends the Group should deliver a similar level of adjusted operating profit in the second half to the comparable period last year.”
Performance — UK Distribution (ie: merchanting operations)
On a like-for-like basis (ie: excluding Plumbase which was sold in October last year), revenue for H1 2020 was £605.4m compared to £865.8m for H1 2019. Revenue for the half year was further reduced by £5.4 million following the consolidation of a number of branches while the opening of new Selco and Leyland SDM branches contributed revenue of £3.6 million.
At Selco, for example, the report notes that a major upgrade to the brand’s website and digital capability — completed in February — “better positioned the business to support a higher proportion of online revenue on reopening”. Online click & deliver and click & collect accounted for 18% of revenue in May, with digital also contributing 12% of revenue in June.
For Buildbase, average daily like-for-like revenue had returned to 86% of the prior year level for the month of June. Buildbase had also upgraded its website offering in the first half “which led to growth in online activity”.
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Grafton video interviews with CEO Gavin Slark and Group Chief Financial Officer David Arnold
