Grafton Group Plc · LSE:GFTU
Grafton — H1 2016 Earnings Presentation
42 slides from Grafton's earnings presentation, August 2016
Slide 1: Interim Results 2016
Interim Results 2016 Period Ended 30 June 2016
Slide 2: Agenda
Agenda Introduction & Highlights Gavin Slark Financial Review David Arnold Strategic Progress & Outlook Gavin Slark Questions Cautionary Statement Certain statements made in this presentation are forward-looking statements. Such statements are based on current expectations and are subject to a numbe
Slide 3: Introduction & Highlights
Introduction & Highlights Gavin Slark, CEO 3
Slide 4: Group Financial Highlights
Group Financial Highlights Revenue up 13% to £1.23 billion (12% in constant currency) Like-for-like revenue growth of 4% Adjusted EBITA before property profit up 18% 6% increase in dividend in line with progressive dividend policy Excellent cash generation from operations of £108.0m (2015: £73.2 mil
Slide 5: Group Operational Highlights
Group Operational Highlights After an encouraging start in Q1, market conditions in the UK merchanting business grew progressively more challenging in Q2 Contrasting H1 performance between Selco and traditional merchanting Organisational restructuring in UK traditional merchanting to mitigate market
Slide 6: Financial Review
Financial Review David Arnold, CFO 6
Slide 7: Income Statement – H1 2016
Income Statement – H1 2016 Movement £m Constant 2016 2015 Reported currency Revenue 1,228.4 1,083.7 +13.3% +11.7% Adjusted EBITA pre property profits 64.8 55.1 +17.6% Property profits 3.5 6.1 Adjusted EBITA 68.4 61.2 +11.8% Net finance cost (3.3) (3.3) Adjusted profit before tax 65.0 57.9 +12.3% +12
Slide 8: Revenue Growth
Revenue Growth Like-for-Like daily revenue 2015 2016 H1 2016 Q3 Q4 Q1 Q2 H1 Total Revenue Constant Merchanting Reported currency UK 3.8%. 3.3%) 5.3%. 1.6%) 3.3%) 8.2%) 8.2%) Ireland 6.2%. 7.9%) 12.3%. 10.9%) 11.7%) 12.6%) 19.8%) Belgium (0.2%) (3.9%) (5.4%) (9.5%) (7.4%) (13.3%) (7.4%) Retailing 5.4
Slide 9: Revenue Growth Analysis
Revenue Growth Analysis £’m 1,250 16 1,228 64 1,200 64 1,150 1,100 1,084 1,050 1,000 H1 2015 Organic Growth Acquisitions FX H1 2016 9
Slide 10: Organic Revenue Growth Analysis
Organic Revenue Growth Analysis £’m 80 20.0 70 64.2 60 (9.5) 4.4 0.8 17.8 50 (2.6) 40 33.3 30 20 10 0 UK Ireland Belgium Retail Manufacturing Growth Branch Organic Merchanting Merchanting Merchanting Initiatives Consolidations/ Growth Disposals LFL Business Constant currency 10
Slide 11: Adjusted EBITA Analysis
Adjusted EBITA Analysis £’m 75 6.8 0.6 68.4 70 65 3.1 61.2 (2.6) 60 (0.7) 55 50 45 40 35 30 H1 2015 Like for Like Growth Acquisitions Property FX H1 2016 Business Initiatives Disposals 11
Slide 12: Like for Like Business EBITA Analysis
Like for Like Business EBITA Analysis £’m 5.0 4.0 1.0 3.0 2.3 (0.8) Group 2.0 3.1 2.8 1.0 0.0 (0.6) -1.0 -2.0 (1.6) UK Irish Belgium Retail Manufacturing Central Like for Like Merchanting Merchanting Merchanting Business 12
Slide 13: Like for Like Business EBITA Analysis
Like for Like Business EBITA Analysis £’m 5.0 125% 4.0 51% 6% 3.0 Group 2.0 16% 1.0 (5%) 0.0 -1.0 -2.0 UK Irish Belgium Retail Manufacturing Central Like for Like Merchanting Merchanting Merchanting Business 13
Slide 14: UK Merchanting
UK Merchanting £m 2016 2015 Movement Revenue 884.0 816.7 +8.2% Adjusted EBITA pre-property profits 46.9 47.4 (0.9%) Adjusted EBITA 50.5 53.5 (5.6%) Operating margin pre-property profits 5.3% 5.8% (50bps) Operating margin 5.7% 6.6% (90bps) Growth in average daily like-for-like turnover of 3.3% - volu
Slide 15: Irish Merchanting
Irish Merchanting Movement Constant £m 2016 2015 Reported Currency Revenue 158.3% 132.1% +19.8% +12.6% EBITA 10.7% 7.5% +43.5% +35.1% Operating margin 6.8% 5.7% +110 bps Strong market leadership position leveraged to outperform recovering market Customer focus, national network and breadth of propos
Slide 16: Belgium Merchanting
Belgium Merchanting Movement Constant £m 2016 2015 Reported Currency Revenue 41.2)% 44.4% (7.4%) (13.3%) EBITA (0.1)% 0.4% (132.9%) (131.8%) Operating margin (0.3%) 0.8% (110 bps) Trading adversely affected by weakness in the Belgium economy, particularly Brussels Cost reductions and efficiencies im
Slide 17: Retailing
Retailing Movement Constant £m 2016 2015 Reported currency Revenue 73.1% 64.2% +13.8% +6.4% EBITA 3.1% 0.6% +404.9% +288.2% Operating margin 4.2% 1.0% +320 bps Significantly refocussed business to a more customer centred, service driven proposition 7 stores reformatted – c.25% of revenue in reformat
Slide 18: Manufacturing
Manufacturing £m Movement 2016 2015 Revenue 30.4% 26.3% 15.3% EBITA 5.7% 4.5% 28.7% Operating margin 18.9% 16.9% +200 bps Overall growth in volumes in H1 in UK mortar business Slowing housing activity as H1 progressed led to volume decline in Q2 Strong management action on pricing and operational ef
Slide 19: Balance Sheet
Balance Sheet £m June June 2016 2015 Intangible assets 598.9% 483.3... Tangible assets 483.0% 443.7... Working capital 141.9% 135.0... Other assets/(liabilities) (66.6)* (53.2) . Pension deficit (46.2)* (18.8) . 1,111.0% 990.0... Net debt (95.7). (51.1) . Equity 1,015.3% 938.9... ROCE 12.1% 12.2% Ne
Slide 20: Working Capital
Working Capital £m June June 2016 2015 Trading working capital at 1 January 166.1 127.1 FX translation, interest accrual and other 3.6 6.1 Acquisitions net of disposals (0.6) 4.0 H1 working capital (reduction) (27.2) (2.2) (£25.0m) Trading working capital at 30 June 141.9 135.0 H1 Revenue 1,228.4 1,
Slide 21: Cash Flow
Cash Flow 2016 2015 Cash from operations 108.0 73.2 +£34.8m Interest and tax (8.9) (10.3) Replacement capex net of disposals (3.9) (6.2) Free cash flow 95.2 56.7 +£38.5m Investment capex (17.9) (10.8) Dividends (18.8) (16.3) Share issue 0.5 0.1 Acquisitions (11.9) (21.4) Net cash flow before FX tran
Slide 22: Strategic Progress & Outlook
Strategic Progress & Outlook Gavin Slark, CEO 22
Slide 23: Strategic Progress and Outlook
Strategic Progress and Outlook Addressing UK traditional merchanting market challenges Continuing to invest in growth in Selco Isero – performing well Current trading Outlook and summary 23
Slide 24: UK Traditional Merchanting Market
UK Traditional Merchanting Market Pricing under relatively greater pressure than volume in traditional merchanting Plumbing and Heating and Contract sectors remain structurally most challenged - lower gross margins and less differentiated proposition between competitors Our focus is on those parts o
Slide 25: Selco – Investment in New Stores
Selco – Investment in New Stores Stores Opened / To be Opened in 12 months ended FORECAST 10 9 8 6 5 4 3 2 0 0 June 14 June 15 June 16 June 17 Stores open at end 34 37 42 51 25
Slide 26: Selco Investment Delivering
Selco Investment Delivering Selco delivers strong operating margins and ROCE – key growth focus for Grafton Selco’s unique trade only product and service model is primarily focused on customers engaged in small residential RMI projects R&M spend historically less volatile – Improvement spend more di
Slide 27: Isero – Good Progress to Date
Isero – Good Progress to Date Acquired in November 2015 for €91.5m (£64.1m equivalent) H1 EBITA €6.0m (£4.7m) representing an operating margin of 11% Pleased with performance to date – consistent with expectations Generally positive news flow on Dutch economy and housing market Acquisition and organ
Slide 28: Current Trading – July to August 2016
Current Trading – 1 July to 21 August 2016 Like-for-like daily revenue H1 2016 1 July to 21 Aug 2016 Merchanting UK 3.3% 0.1% Ireland 11.7% 11.2% Belgium (7.4%) (7.5)% Retailing 6.4% 3.6% Manufacturing 2.1% 9.1% Total Group 4.2% 1.8% 28
Slide 29: Outlook - UK
Outlook - UK Still too early to assess likely impact on UK economy of vote to leave the EU Demand was relatively flat during July and August with markets remaining very price competitive Progressing a number of initiatives with a focus on cost control and sustainable improvements to help mitigate ma
Slide 30: Outlook – Ireland
Outlook – Ireland Quality and strength of our Irish businesses should continue to support market outperformance Irish economy continues to grow robustly and the momentum is expected to be sustained Consumer spending and investment expected to be key drivers of growth Recovery in house building and c
Slide 31: Outlook – The Netherlands and Belgium
Outlook – The Netherlands and Belgium The Netherlands Good opportunities for further growth – both organic and acquisition Recovery in Dutch economy expected to be sustained and the outlook is positive Strong demand fundamentals should support growth in spending from a low base on house building and
Slide 32: Summary
Summary Continuing to invest in Selco – strong returns and good growth potential Taking decisive action to address performance in more uncertain UK market – tougher market conditions expected to continue Significant exposure to the faster growing economies of Ireland and the Netherlands Financial st
Slide 33: Questions
Questions 33
Slide 34: Appendices
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Slide 35: Appendix 1 Notes & Definitions
Appendix 1 Notes & Definitions Notes With effect from 1 January 2016, In-House Kitchens has been reclassified from the Retail to Merchanting segment. It is now shown within Irish Merchanting. Prior year comparatives have been restated, where applicable, to reflect this change. No like-for-like analy
Slide 36: Appendix 2 Operating Profit Bridge – Statutory to Adjusted
Appendix 2 Operating Profit Bridge – Statutory to Adjusted H1 2016 H1 2015 Change £’m £’m £’m Revenue 1,228.4% 1,083.7% 144.7 Statutory operating profit 66.1% 61.2% 4.9 Intangible asset amortisation on acquisitions 1.1% -% 1.1 Exceptional restructuring costs 1.2% -% 1.2 Adjusted EBITA 68.4% 61.2% 7.
Slide 37: Appendix 3 Operating Margin Analysis
Appendix 3 Operating Margin Analysis* H1 H2 H1 H2 H1 2016 2015 2015 2014 2014 UK Merchanting 5.7%) 6.2%) 6.5%) 6.1%) 6.1%) Irish Merchanting 6.8%) 7.9%) 5.7%) 7.4%) 4.1%) Belgium Merchanting (0.3%) (1.7%) 0.8%) 0.4%) 1.5%) Netherlands Merchanting 11.3%) 3.8%) - - - Total Merchanting 5.8%) 6.1%. 6.2%
Slide 38: Appendix 4 UK Housing Transactions 2007 - 2016
Appendix 4 UK Housing Transactions 2007 - 2016 ‘000 500 450 400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 •Quarterly Seasonally Adjusted Source: HM Revenue & Customs UK Property Transactions Count 38
Slide 39: Appendix 5 Housing Starts & Completions – England
Appendix 5 Housing Starts & Completions – England: 1999 - 2016 ‘000 Starts Completions 200 180 160 140 120 100 80 60 40 20 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: UK Department for Communities & Local Government on a rolling 12 month basis
Slide 40: Appendix 6 UK Mortgage Approvals 2008 - 2016
0 40 10 20 30 50 60 70 80 90 '000 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Appendix 6 Source: Bank of England Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 UK Mortgage Approvals UK: 2008 - 2016 Mar-14 Jun-14 Sep-14 Dec-
Slide 41: Appendix 7 House Completions – Ireland 1994 - 2016
Appendix 7 House Completions – Ireland 1994 - 2016 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: Department of the Environment, Community & Local Government - (DoELG) on a rolling 12 month basis 41
Slide 42: Appendix 8 Mortgages Approvals in Ireland: 2002 - 2015
Appendix 8 Mortgages Approvals in Ireland: 2002 - 2015 Value Value Volume Volume €bn ‘000 45 250 40 35 200 30 150 25 20 100 15 10 50 5 - - 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: IBF on a rolling 12 month basis 42