- Earnings sink on lack of property gains
- Company raises interim dividend
- New buyback a further positive
Shares in Dublin-based building materials distributor and DIY retailer Grafton Group (GFTU) gained 2.6% to 878p in spite of a sharp fall in first-half profits due to ‘challenging’ markets and a lack of property disposals.
Investors focused instead on the 8% increase in the interim dividend and the surprise news of a further £50 million share buyback.
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SHORT-TERM HEADWINDS
The firm posted a 3% increase in turnover to £1.19 billion but a 30.5% fall in operating profit from £151 million to £105 million largely due to an absence of gains of the sale of property.
However, even excluding the lack of gains, underlying operating profit was still down 21.6% to just under £104 million leading to a 29% fall in reported pre-tax profit to £93.6 million.
The bulk of the drop in operating profit was down to the UK and Irish distribution units as a result of tough RMI (repair, maintenance and improvement) markets, while the retail and manufacturing businesses saw a small rise in earnings.
Volumes were lower in the distribution business, ‘where inflationary pressures in building materials and construction supplies moderated significantly with sharp and sustained falls in steel and timber prices from record highs’ which put downward pressure on gross margins.
At the same time, wage inflation meant payroll costs increased at ‘the fastest rate in decades’ amid tight labour markets.
Chief executive Eric Born described the results as ‘a resilient performance in the face of challenging conditions during the first half’, and said while the outlook remained uncertain the group was exceptionally well positioned to benefit as the cycle turns, markets normalise and consumer confidence gains momentum’.
INCREASED SHAREHOLDER RETURNS
On the plus side, cash generation remained strong allowing the firm to return close to £133 million to shareholders in dividend payments and buybacks.
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With net cash of £438 million at the end of June, after dividends and buybacks but before lease liabilities, the board announced a new share buyback programme for up to £50 million while still leaving a strong balance sheet, which ‘together with our nimble operating structure will allow us to take advantage of organic and acquisitive growth opportunities’ added Born.
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