Grafton Group Plc · LSE:GFTU
Grafton — H1 2017 Earnings Presentation
45 slides from Grafton's earnings presentation, August 2017
Slide 1: Interim Results 2017
Interim Results 2017 Interim Results 2017
Slide 2: Cautionary Statement and Notes
Cautionary Statement and Notes Cautionary Statement Certain statements made in this presentation are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially fro
Slide 3: Agenda
Agenda Introduction & Highlights Gavin Slark Financial Review David Arnold Strategic Progress & Outlook Gavin Slark Questions Interim Results 2017 3
Slide 4: Group Financial Highlights
Group Financial Highlights Revenue up 9% to £1.3bn (6.2% in constant currency) Adjusted operating profit before property profit up 19% to £77.0m Adjusted EPS up 16% and dividend up 11% Adjusted operating profit margin (pre property profits) up 50bps to 5.8% ROCE up 70 bps to 13.2% Interim Results 20
Slide 5: Strong H1 Performance Across the Business
Strong H1 Performance Across the Business Profit improvement generated primarily in like-for-like operations Good progress in UK Merchanting Very good profit growth in Irish Merchanting and DIY Retailing Growth in scale and profitability of Netherlands Merchanting Return to profitability in Belgium
Slide 6: Grafton – What Differentiates Us? Selco
Grafton – What Differentiates Us? Selco • RMI focus offers more stable growth prospects over medium term • Proven track record in rolling out the Selco brand • Ongoing store opening programme to drive future growth • Nine new branches opened in the year to date with at least two more to open this ye
Slide 7: Builders Warehouse Branch Openings
BUILDERS WAREHOUSE BRANCH OPENINGS = Grafton Group ple Interim Results 2017
Slide 8: Grafton – What Differentiates Us? Ireland
Grafton – What Differentiates Us? Ireland • Market leading brands with exposure to a fast growing economy • Strong improvement in operating margin in H1 • Increased branch footprint in Merchanting • Continued successful investment in reformatting Woodie’s stores Interim Results 2017 8
Slide 9: Interim Results 2017
Interim Results 2017 9
Slide 10: Grafton – What Differentiates Us? The Netherlands
Grafton – What Differentiates Us? The Netherlands • Favourable outlook for economy and construction market • Strong and growing presence as market leader • G&M acquisition in January performing in line with expectations • Ongoing opportunities for organic and acquisitive growth Interim Results 2017
Slide 11: Interim Results 2017
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Slide 12: Grafton – What Differentiates Us? Financial Strength and Track Record
Grafton – What Differentiates Us? Financial Strength and Track Record • Further improvement in operating margin and ROCE • Another period of strong cash generation - gearing down to 7% • Dividend increase of 11% with improved cover • Strong record of investing in organic and acquisitive growth Inter
Slide 13: Operating Profit Margin and ROCE – 2010 to 2017
Operating Profit Margin and ROCE – 2010 to 2017 14.0% 13.2% 13.0% 12.5% 12.2% 12.0% 11.1% 11.0% 10.0% 9.0% 7.8% 8.0% 7.0% 6.1% 5.6% 5.5% 5.8% 6.0% 5.2% 4.6% 5.0% 4.0% 3.8% 4.0% 3.4% 2.7% 3.0% 2.4% 2.0% 1.0% 0.0% FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 H1 17 ROCE Adjusted operating margin pre prope
Slide 14: Financial Review
Financial Review David Arnold, CFO Interim Results 2017 14
Slide 15: Income Statement
Income Statement Movement £m Constant 2017 2016 Reported currency Revenue 1,338.6 1,228.4 +9.0% +6.2% Adjusted operating profit pre property profits 77.0 64.8 +18.8% Property profit 2.0 3.5 Adjusted operating profit 79.1 68.4 +15.6% Exceptional charge 0.0 (1.2) Amortisation (1.4) (1.1) Statutory ope
Slide 16: Income Statement (cont'd)
Income Statement (cont’d) 2017 2016 Movement Adjusted operating margin pre property profits 5.8% 5.3% +50 bps Adjusted operating margin 5.9% 5.6% +30 bps Underlying tax rate 18.5% 20.0% (150 bps) Adjusted earnings per share 25.9p 22.3p +16.1% Dividend per share 5.25p 4.75p +10.5% Interim Results 201
Slide 17: Revenue Growth
Revenue Growth Like-for-Like Daily Revenue 2016 2017 H1 2017 Q3 Q4 Q1 Q2 H1 Total Revenue Constant Merchanting Reported Currency UK 0.5% 4.6% 4.4% 4.7% 4.5% 4.0% 4.0% Ireland 11.8% 11.4% 14.6% 10.2% 12.2% 10.6% 21.9% Belgium (3.2%) (6.9%) (4.5%) 6.2% 1.5% 0.4% 10.8% Netherlands - - 4.2% 4.4% 4.3% 38
Slide 18: Revenue Growth Analysis
Revenue Growth Analysis £’m 1,400 1,350 34 1,339 15 1,300 62 1,250 1,228 1,200 1,150 1,100 1,050 1,000 H1 2016 Organic Growth Acquisitions FX H1 2017 Interim Results 2017 18
Slide 19: Organic Revenue Growth Analysis
Organic Revenue Growth Analysis (Constant Currency) £’m 100 24.8 (31.7) 90 80 4.6 2.2 70 20.5 0.2 2.3 61.8 60 50 38.9 40 30 20 10 0 UK Ireland Belgium Netherlands Retail Manufacturing Growth Branch Organic Initiatives Rationalisation/ Growth Merchanting Disposals LFL Business Interim Results 2017 19
Slide 20: Adjusted Operating Profit Analysis
Adjusted Operating Profit Analysis £’m 90 12.3 1.2 1.2 79.1 80 (2.5) (1.5) 70 68.4 60 50 40 30 H1 2016 Like for Like Growth Acquisitions Property FX H1 2017 Business Initiatives Disposals Interim Results 2017 20
Slide 21: Incremental Drop Through Analysis
Incremental Drop Through Analysis £’m 14.0 1.3 12.0 1.3 (0.1) 0.6 0.3 10.0 3.8 8.0 Group 6.0 5.1 12.3 4.0 2.0 0.0 Like for Like UK Ireland Belgium Netherlands Retail Manufacturing Central Business Merchanting Interim Results 2017 21
Slide 22: Incremental Drop Through Analysis
Incremental Drop Through Analysis £’m 14.0 57% 18% 12.0 28% 11% 243% 10.0 19% 8.0 Group 6.0 13% 4.0 2.0 0.0 Like for Like UK Ireland Belgium Netherlands Retail Manufacturing Central Business Merchanting Interim Results 2017 22
Slide 23: UK Merchanting
UK Merchanting £m 2017 2016 Movement Revenue 919.5 884.0 +4.0% Adjusted operating profit pre property profits 50.1 46.9 +6.8% Adjusted operating profit 51.1 50.5 +1.2% Adjusted operating margin pre property profits 5.5% 5.3% +20 bps Adjusted operating margin 5.6% 5.7% (10bps) Like-for-like revenue g
Slide 24: Irish Merchanting
Irish Merchanting Movement Constant £m 2017 2016 Reported Currency Revenue 193.0% 158.3% +21.9% +10.6% Operating profit pre property profits 15.4% 10.7% +44.1% +30.4% Operating profit 16.5% 10.7% +54.0% +39.4% Operating margin pre property profits 8.0% 6.8% +120 bps Operating margin 8.5% 6.8% +170 b
Slide 25: Netherlands Merchanting
Netherlands Merchanting Movement Constant £m 2017 2016 Reported Currency Revenue 63.3% 41.5% +52.5% +38.1% Adjusted operating profit 6.6% 4.7% +39.3% +26.0% Adjusted operating margin 10.4% 11.3% (90bps) Like-for-like revenue growth of 4.3% 14 branch G&M acquisition completed January 2017 - first pha
Slide 26: Belgium Merchanting
Belgium Merchanting Movement Constant £m 2017 2016 Reported Currency Revenue 45.6% 41.2% +10.8% +0.4% Operating profit 0.4% (0.1)% +459.4% +365.1% Operating margin 0.9% (0.3%) +120 bps Pleased to see return to profitability in H1 Continuing to refocus on more profitable elements of customer base Cos
Slide 27: Retailing
Retailing Movement Constant £m 2017 2016 Reported Currency Revenue 84.4% 73.1% +15.5% +4.7% Operating profit 4.7% 3.1% +53.2% +41.0% Operating margin 5.6% 4.2% +140bps Continued investment transforming the Woodie’s shopping experience for customers Four stores upgraded in the first half and a furthe
Slide 28: Manufacturing
Manufacturing £m Movement 2017 2016 Revenue 32.8% 29.9% +9.6% Operating profit 7.0% 5.7% +22.5% Operating margin 21.4% 19.1% +230bps Market leadership position in UK silo mortar market Good growth in volumes supplied to house building market Improvement in gross margin and tight control of overheads
Slide 29: Balance Sheet
Balance Sheet £m June Dec 2017 2016 Intangible assets 640.2% 610.8... Tangible assets 514.5% 491.8... Working capital 152.7% 166.7... Other assets/(liabilities) (85.6)* (76.5) . Pension deficit (20.2)* (31.3) . 1,201.6% 1,161.5... Net debt (80.2). (96.3) . Equity 1,121.4% 1,065.2... ROCE 13.2% 12.5%
Slide 30: Cash Flow
Cash Flow £m June June 2017 2016 Cash from operations 117.9 108.0 Interest and tax (10.2) (8.9) Replacement capex net of disposals (8.1) (3.9) Free cash flow 99.6 95.2 Investment capex (25.1) (17.9) Dividends (21.3) (18.8) Share issue 0.1 0.5 Acquisitions (30.7) (11.9) Net cash flow before FX transl
Slide 31: Current Trading & Outlook
Current Trading & Outlook Gavin Slark, CEO Interim Results 2017 31
Slide 32: Current Trading – 1 July to 27 August 2017
Current Trading – 1 July to 27 August 2017 Like-for-like Daily Revenue H1 2017 1 July to 27 Aug 2017 Merchanting UK 4.5% 5.5% Ireland 12.2% 9.3% Belgium 1.5% (2.7%) Netherlands 4.3% 5.9% Retailing 6.6% 10.8% Manufacturing 9.1% 20.3% Total Group 5.7% 6.5% Interim Results 2017 32
Slide 33: Outlook
Outlook UK • Housing RMI market expected to be broadly flat and competitive • House building activity expected to hold up well Ireland • Outlook for economy remains positive • Strong market positions in merchanting and retailing The Netherlands and Belgium • Favourable outlook for Dutch economy and
Slide 34: Summary – Strong H1 Performance
Summary – Strong H1 Performance Strong market positions in fast growing economies of Ireland and the Netherlands Good progress improving performance of the traditional UK merchanting business Continued investment in resilient Selco model Making progress towards medium term targets of 7% operating ma
Slide 35: Questions
Questions Interim Results 2017 35
Slide 36: Appendices
Appendices Interim Results 2017 36
Slide 37: Appendix 1 Notes & Definitions
Appendix 1 Notes & Definitions Notes As amounts are reflected in £’m some non-material rounding differences may arise. Definitions Adjusted earnings per share is earnings before intangible asset amortisation relating to acquisitions and exceptional costs Adjusted operating profit is operating profit
Slide 38: Appendix 2 Operating Profit Bridge – Statutory to Adjusted
Appendix 2 Operating Profit Bridge – Statutory to Adjusted H1 2017 H1 2016 Change £’m £’m £’m Revenue 1,338.6 1,228.4 +110.2 Statutory operating profit 77.7 66.1 +11.6 Exceptional items 0.0 1.2 (1.2) Amortisation of acquired intangible assets 1.4 1.1 +0.3 Adjusted operating profit 79.1 68.4 +10.7 Pr
Slide 39: Appendix 3 Operating Margin Analysis
Appendix 3 Operating Margin Analysis* H1 H2 H1 H2 H1 H2 H1 2017 2016 2016 2015 2015 2014 2014 UK Merchanting 5.5% 5.4% 5.3%) 6.1%) 5.8%) 6.1%) 5.9%) Irish Merchanting 8.0% 8.6% 6.8%) 7.9%) 5.7%) 6.8%) 4.1%) Netherlands Merchanting 10.4% 9.5% 11.3%) 3.8%) - - - Belgium Merchanting 0.9% (1.3%) (0.3%)
Slide 40: Appendix 4 Operating Margin Analysis
Appendix 4 Operating Margin Analysis* H1 H2 H1 H2 H1 H2 H1 2017 2016 2016 2015 2015 2014 2014 UK Merchanting 5.6% 5.5% 5.7%) 6.2%) 6.5%) 6.1%) 6.1%) Irish Merchanting 8.5% 8.6% 6.8%) 7.9%) 5.7%) 7.4%) 4.1%) Netherlands Merchanting 10.4% 9.5% 11.3%) 3.8%) - - - Belgium Merchanting 0.9% (1.3%) (0.3%)
Slide 41: Appendix 5 UK Housing Transactions 2007 – 2017
Appendix 5 UK Housing Transactions 2007 – 2017 ‘000 500 450 400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 •Quarterly Seasonally Adjusted Source: HM Revenue & Customs UK Property Transactions Count Interim Results 2017 41
Slide 42: Appendix 6 Housing Starts & Completions – England
Appendix 6 Housing Starts & Completions – England: 1999 - 2017 ‘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 2017 Source: UK Department for Communities & Local Government on a rolling 12 month b
Slide 43: Appendix 7 UK Mortgage Approvals: 2008 - 2017
Appendix 7 UK Mortgage Approvals: 2008 - 2017 '000 90 80 70 60 50 40 30 20 10 0 Source: Bank of England Interim Results 2017 43
Slide 44: Appendix 8 House Completions – Ireland 1995 - 2017
Appendix 8 House Completions – Ireland 1995 - 2017 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 June 17 Source: Department of Housing, Planning, Community and Local Government - on a rolling 12 month basis Interim Results 2017
Slide 45: Appendix 9 Mortgages Approvals in Ireland: 2002 - 2017
Appendix 9 Mortgages Approvals in Ireland: 2002 - 2017 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 2016 2017 Source: BPFI on a rolling 12 month basis Interim Results 2017 45