Turnover And Profit Rises At Grafton Group

• Profit growth despite varied market backdrop  

Grafton Group plc ("Grafton" or "the Group"), the international building materials distributor and DIY retailer is pleased to announce its half year results for the period ended 30 June 2025.

Financial Highlights

• First half adjusted operating profit was in line with expectations, increasing by 9.5 per cent to £91.0 million (H1 2024: £83.1 million) driven in large part by the contribution of Salvador Escoda
  
  
• Continued focus on margin management led to gross margin improvement of 60 basis points which offset the impact of increased overheads connected to inflationary pressure and higher labour costs
  
  
• Group operating margin maintained at 7.3% (H1 2024: 7.3%) with adjusted return on capital employed of 10.9% at a similar level to prior year (H1 2024: 11.1%)
  
  
• Adjusted earnings per share increased by 6.5% to 35.5p (H1 2024: 33.4p)
  
  
• Strong balance sheet of £245.8 million net cash (before lease liabilities) providing significant firepower to capitalise on organic and inorganic development opportunities
  
  
• Interim dividend increased by 2.4 per cent and a further £25.0 million share buyback to commence, funded by strong free cash flow generated in 2025
  
  
• Full year adjusted operating profit is expected to be broadly in line with analysts' expectations 1 with the important Autumn trading period still to come

Operational Highlights

• Ongoing investment to strengthen and consolidate market positions notwithstanding cyclical lows in activity in some of our geographies
  
  
• Integration of Salvador Escoda is progressing well - positive progress in pursuit of further organic and inorganic growth opportunities in Iberia, an attractive and fragmented growth market
  
  
• Strong performance in Ireland - acquisition of HSS Hire Ireland complements Chadwicks' hire business, while Woodie's delivered a strong performance in the first half
  
  
• UK Distribution returned to profit growth for the first time since 2021 despite a challenging RMI market
  
  
• Activity in the Netherlands remains relatively subdued and in Finland a strengthened management team is in place to maximise opportunities when the market recovers from historical lows

¹ Grafton compiled consensus analysts' forecasts for 2025 show adjusted operating profit of circa £185.1 million and a range of £184.0 million to £187.3 million.

² Supplementary financial information in relation to Alternative Performance Measures (APMs) is set out on pages 39 to 44.

³ The term "Adjusted" means before exceptional items, amortisation of intangible assets arising on acquisitions and acquisition related items in both periods, which are defined on page 39. 

Eric Born, Chief Executive Officer Commented:             

"Grafton delivered a resilient performance in the first half, with revenue and profit approximately 10 per cent higher than the same period last year, driven by strong contributions from Spain and Ireland.  Following the platform acquisition of Salvador Escoda, non-UK markets now account for approximately 64 per cent of the Group's turnover.  Given our ambition to be a leading player in the European building materials distribution market and our exposure to the growing and fragmented Iberian market, we would expect that diversification trend to continue.

"Whilst we saw an easing of trading momentum towards the end of May and into June, the start of the second half has seen a return to growth of Group average daily like-for like revenue.  Outlook for the full year varies by market, but in the round, and with the important Autumn trading months to come, we expect full year adjusted operating profit to be broadly in line with analysts' expectations.    

"More widely, after having returned over £403 million to shareholders by buying back almost one fifth of the Group's shares since May 2022, our strong balance sheet and liquidity leaves Grafton in an excellent position to execute our growth strategy.  Despite lingering cyclical lows, we continue to invest in the UK, the Netherlands and Finland, given their strong recoverability potential over time.  In addition to organic development, we are actively pursuing bolt-on and platform acquisitions in our chosen European markets."

The full results publication is available here 

Business Review 

Grafton's trading performance in the first half of 2025 reflects the resilience of its diversified operations and the tangible benefits of self-help actions, despite a continuing weak trading environment outside of Ireland and Spain.  Supported by our strong free cash flow generation and balance sheet, we continue to invest to strengthen and consolidate our market positions despite cyclical lows in activity in some of our geographies; this positions the Group to leverage meaningful profitability growth when the recovery gets underway.  We believe there are many opportunities for consolidation across our markets and remain focused on identifying and executing acquisitions to reinforce and increase our presence and support our long-term growth ambition to be a leading player in the European building materials distribution market.

Following a slow start to the year, trading activity gained momentum as weather conditions improved but then eased from mid-May and into June across many of our businesses, coinciding with a spike in global uncertainties which impacted customer confidence.

The Group's gross margin improved by 60 basis points in the first half, reflecting a strong focus on margin management across all businesses. This was underpinned by targeted pricing actions and a focus on delivering value for our customers, procurement efficiencies, and successful negotiations for enhanced supplier support.

Our management teams have taken decisive action to mitigate cost pressures by optimising staff rosters and deployment, streamlining processes and implementing efficiency initiatives.  As a result, the improvement in gross margin offset the impact of continuing cost pressures being felt across the Group because of substantial increases in minimum wage levels, national insurance in the UK and local collective labour agreements, alongside higher property costs where rents are often linked to inflation benchmarks.

Adjusted operating profit increased to £91.0 million (2024: £83.1 million) in the first half with the increase driven in large part by the contribution from the recently acquired Salvador Escoda business in Spain.

We are pleased with the results of our Ireland Distribution and Retailing businesses, both of which achieved good growth in profitability in the first half of 2025.  Chadwicks performed well in the first half, with revenue higher as a result of materials price inflation and benefiting from its strong market position, despite a broadly flat construction market.  Profitability improved largely due to higher sales and an improvement in gross margin more than offsetting increased overheads. Woodie's delivered a robust performance, supported by a continuous focus on strengthening its customer proposition and resilient consumer spending in Ireland, to further grow profitability and operating margin in the first half.

Our UK Distribution business returned to profit growth, from a cyclically low base, in the first half despite a continuing weak RMI market backdrop, especially in the greater London area. Targeted commercial actions improved gross margin which more than offset significant cost pressures, particularly from rising labour and property-related expenses. 

In the Netherlands, construction activity remains subdued and profitability declined in the first half largely due to inflationary pressure on overheads.  Good progress was made as part of a multi-year business improvement project covering the operating model and supporting systems which will realise benefits to customers, increase efficiencies and reduce the cost to serve.

In Spain, the integration of Salvador Escoda, which was acquired by the Group on 30 October 2024, continues to progress well. The business is benefitting from ongoing active collaboration with Group functions and sister businesses to identify and execute opportunities to further build on its strong position in the Spanish market.  Trading in the first half, which was in line with pre-acquisition expectations, contributed revenue of £104.2 million and adjusted operating profit of £6.5 million.  The Group continues to support the local management team to drive organic growth while actively assessing acquisition opportunities in the attractive and fragmented Iberian market, where we have the opportunity to be both a consolidator and a compounder.

Our Finland Distribution business, IKH, reported a significant drop in profitability in the first half. Trading activity declined largely due to historically weak market conditions and adverse weather impacting seasonal sales but there were also some temporary operational challenges which are being actively addressed by the strengthened management team.  

In our manufacturing segment, CPI EuroMix delivered strong profitability growth, supported by higher volumes and improved fixed cost absorption.  Following a strong start to the year, driven by housebuilding customers accelerating build in the early part of the year, momentum eased in the second quarter.  StairBox delivered improved profitability, despite RMI demand remaining relatively weak, largely due to active management of input costs and gross margin management together with tight cost control.

The full results publication is available here 

A share buyback programme has commenced

Outlook

We expect to deliver full year adjusted operating profit broadly in line with analysts’ expectations recognising the important Autumn trading season has still to come.

Positive trading conditions are expected to continue in Ireland and Spain; however, we anticipate a continuation of similar trading conditions in our other geographies in the second half of 2025. In our recent trading update in early July, we noted an easing of trading momentum from mid-May into June however since then and up to 24 August, we have seen a return to growth of Group average daily like-for-like revenue.   

Notwithstanding the impact of US imposed tariffs and any associated economic consequences, the medium-term fundamentals remain positive for Grafton, with structural housing shortages across all our geographies and an expected recovery in RMI demand after several consecutive years of low levels of investment by households.

In Ireland, the outlook for the economy in the second half remains cautiously optimistic and construction activity in the second half of 2025 is expected to mirror the trends observed in the first half.  The prospects for growth in the construction market remain positive, driven by strong government support and the recently announced revised €112 billion National Development Plan aimed at housing and infrastructure. 

In the UK, we remain cautious on the near-term outlook for RMI demand.  We are well positioned to capitalise on a recovery in demand, though believe a meaningful recovery of volumes is unlikely this year particularly as a result of recent speculation around property taxes.  However, higher household savings and pent-up demand are expected to progressively support increased investment in home improvement projects once confidence returns. The pace of growth in new housebuilding in the UK, which indirectly affects RMI spend through its linkage with housing transactions and which directly affects the performance of CPI EuroMix, remains uncertain though structural underinvestment makes this a key focal point for Government policy. 

The anticipated recovery in construction activity in 2025 in the Netherlands has yet to materialise in a meaningful way and both the timing and extent of any activity upturn remains uncertain.  Nevertheless, the medium-term outlook is positive, supported by a robust project pipeline and a persistent housing shortage underpinned by population growth. Spain continues to be one of the fastest-growing economies in Europe. 

Spain’s construction sector is set to grow by 3–4 per cent in 2025, supported by strong economic performance, increased Foreign Direct Investment and a rise in building permits. The medium-term outlook for construction remains positive, supported by ongoing population growth and a structural housing shortage.  The heating, ventilation, air conditioning (“HVAC”) segment is particularly well-positioned for growth due to regulatory pressure to improve energy efficiency and the adoption of advanced technologies in renovation and retrofit projects, in addition to climate change projects linked to increasing temperatures on the Iberian Peninsula.

Indicators show that confidence in Finland’s construction sector remain very weak with the overall economy expected to see relatively little growth in 2025 before returning to modest levels of growth in 2026.  The operational improvements we are making in IKH, combined with its strong market position, mean it is well positioned to benefit from the recovery in the wider economy.

Source : Grafton Group plc

Image : Grafton Group plc

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