Grafton Group Plc · LSE:GFTU
Grafton — FY2019 Earnings Presentation
43 slides from Grafton's earnings presentation, 2020
Slide 1: Final Results 2019
Building progress together Final Results 2019 Financial Year Ended 31 December 2019
Slide 2: Cautionary Statement & Notes
Cautionary Statement & 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 from
Slide 3: Gavin Slark, Chief Executive; David Arnold, Chief Financial Officer
Gavin Slark David Arnold Chief Executive Chief Financial Officer Officer Grafton Group plc – Final Results 2019 3
Slide 4: Introduction & Highlights
Introduction & Highlights Gavin Slark, CEO Final Results Financial Year Ended 31 December 2019
Slide 5: 2019 Overview
2019 Overview • Softer trading in UK merchanting – weak economy and RMI market, particularly in H2 • Strong organic growth in Irish Merchanting and Retailing • Important strategic and operational initiatives completed • Transformational acquisition of Polvo in The Netherlands • Divestment of Plumbas
Slide 6: Group Financial Highlights – Continuing Operations
Group Financial Highlights – Continuing Operations Revenue Adjusted operating profit up 3% to £2.67bn up 4% to £194.3m Adjusted operating margin ROCE up 10bps to 7.3% down 30bps at 14.4% Adjusted EPS Dividend up 4% to 66.0p up 6% to 19.0p Strong cash generation Net cash of £7.8m Grafton Group plc –
Slide 7: Financial Review
Financial Review David Arnold, CFO Final Results Financial Year Ended 31 December 2019
Slide 8: Income Statement – Continuing Operations
Income Statement – Continuing Operations Pre IFRS 16 2018 £m 2019 2019 Restated Change Revenue 2,672.3 2,672.3 2,603.1 +3% Adjusted operating profit pre property profit 197.9 187.4 182.7 +3% Property profit 6.9 6.9 4.9 Adjusted operating profit 204.8 194.3 187.6 +4% Amortisation & other (7.0) (7.0)
Slide 9: Revenue Growth Analysis
Revenue Growth Analysis £’m Grafton Group plc – Final Results 2019 9
Slide 10: Incremental Revenue from Organic Growth (Constant Currency)
Incremental Revenue from Organic Growth (Constant Currency) £’m LFL Business UK Ireland NL Retail Manufacturing New Branches Selco Hire Disposal of Organic Boole’s & Plumbworld Growth Merchanting Grafton Group plc – Final Results 2019 10
Slide 11: Adjusted Operating Profit Analysis
Adjusted Operating Profit Analysis £’m 2018 Like-for-Like New Branches Branch Selco Hire/ Acquisitions Property FX 2019 Business opening costs Disposals Disposals Grafton Group plc – Final Results 2019 11
Slide 12: Like-for-Like Business Incremental Operating Profit Movement
Like-for-Like Business Incremental Operating Profit Movement £’m UK Ireland NL Retail Manufacturing Central Like-for-like Business Grafton Group plc – Final Results 2019 12
Slide 13: UK Merchanting
UK Merchanting Pre IFRS 16 £m 2019 2019 2018 Change Revenue 1,710.8 1,710.8 1,729.5 (1.1%) Operating profit pre property profit 105.1 98.0 104.0 (5.7%) Operating margin pre property profit 6.1% 5.7% 6.0% (30bps) • UK economy and merchanting market impacted by uncertainty as year progressed • Average
Slide 14: Irish Merchanting
Irish Merchanting Pre IFRS 16 Change Reported Constant £m 2019 2019 2018 Currency Revenue 464.8 464.8 441.1 +5.4% +6.2% Operating profit pre property profit 43.1 42.8 41.3 +3.7% +4.8% Operating margin pre property profit 9.3% 9.2% 9.4% (20bps) • Average daily like-for-like revenue growth moderated t
Slide 15: Netherlands Merchanting
Netherlands Merchanting Pre IFRS 16 Change Reported Constant £m 2019 2019 2018 Currency Revenue 211.8 211.8 155.5 +36.2% +37.3% Adjusted operating profit 19.9 19.6 16.0 +23.0% +24.3% Adjusted operating margin 9.4% 9.3% 10.3% (100bps) • Significant growth in scale of business as a result of Polvo acq
Slide 16: Retailing
Retailing Pre IFRS 16 Change Reported Constant £m 2019 2019 2018 Currency Revenue 205.5 205.5 198.2 +3.7% +4.7% Operating profit 22.6 19.9 16.8 +18.8% +20.5% Operating margin 11.0% 9.7% 8.5% +120bps • Like-for-like revenue growth of 4.7% across the 35 store estate • Transactions up 1.5% with average
Slide 17: Manufacturing
Manufacturing Pre IFRS 16 Change Reported Constant £m 2019 2019 2018 Currency Revenue 79.4 79.4 78.8 +0.7% +0.8% Operating profit 18.6 18.6 19.2 (3.4%) (3.3%) Operating margin 23.4% 23.4% 24.4% (100bps) • Strong performance following exceptional growth in prior year • Marginal growth in volumes supp
Slide 18: Balance sheet
Balance sheet Pre IFRS 16 £m 2019 2019 2018 Intangible assets 761.1 761.1 726.0 Right-of-use assets 522.2 0.0 0.0 Tangible assets 529.7 531.9 548.3 Working capital 196.5 190.6 192.6 Other assets/(liabilities) (91.9) (100.6) (97.1) Pension deficit (21.2) (21.2) (20.2) 1,896.5 1,361.8 1,349.6 Net (deb
Slide 19: Cash flow
Cash flow Pre IFRS 16 £m 2019 2019 2018 Cash from operations 291.1 219.1 209.2 Interest and tax (56.6) (37.0) (30.0) Replacement capex net of asset disposals (9.9) (9.9) (21.8) Free cash flow 224.6 172.2 157.4 Development capex (25.2) (25.2) (40.9) Dividends (44.0) (44.0) (38.6) Share issue/(repurch
Slide 20: 2020 Technical Guidance
2020 Technical Guidance • Full year property profits expected to be circa.£2m-£3m • Depreciation expected to be circa.£110m post IFRS 16 or circa. £50m pre IFRS 16 • Capex spend of circa. £70m split roughly 60/40 between replacement/development • Finance costs circa.£8m • Increase in tax rate to cir
Slide 21: Strategic Update & Outlook
Strategic Update & Outlook Gavin Slark, CEO Final Results Financial Year Ended 31 December 2019
Slide 22: Strategic Focus
Strategic Focus • Continue to pursue focused growth strategy • Focus remains on investing in higher margin, growth businesses with strong market positions and development potential • Disciplined approach to allocation of capital Grafton Group plc – Final Results 2019 22
Slide 23: Focus on Higher Returning Businesses: Acquisition of Polvo
Focus on Higher Returning Businesses Acquisition of Polvo • Delighted with Polvo acquisition which consolidates Isero’s market leading position • Excellent geographic fit with Isero branch network - 51 branches acquired expanded network to 113 branches at year end • Purchase for €131m completed on 1
Slide 24: Divestment of Plumbase and Belgium Merchanting
Focus on Higher Returning Businesses Divestment of Plumbase and Belgium Merchanting Plumbase disposal completed on 1 October • 2018 revenue of £258.0m (2017: £259.7m) • 2018 operating profit of £6.0m (2017: £3.0m) • Net cash consideration of £62.5m received Belgium disposal completed on 4 October •
Slide 25: Strategic Update – Operational Milestones Achieved in 2019
Strategic Update – Operational Milestones Achieved in 2019 Buildbase Selco • ERP back office systems well • Delivery hub opened to service established and bedded-in customers in North East London • New Distribution Centre opened in • First four branches live on new Oxford to drive branch productivit
Slide 26: Strategic Update – Operational Milestones Achieved in 2019
Strategic Update – Operational Milestones Achieved in 2019 Chadwicks Woodie’s Isero • Rebranded and upgraded 12 • Upgraded format covers 90% of • Relocated to new purpose built branches to the new Chadwicks revenue distribution centre (120,000 sq. ft brand identity warehouse plus offices) • Online r
Slide 27: Current Trading – 1 January 2020 to 23 February 2020
Current Trading – 1 January 2020 to 23 February 2020 Average Daily Like-for-Like Revenue Growth 1 January to 23 February Q4 2019 2020 Merchanting UK (4.0%) (1.5%) Ireland 2.7% 2.0% Netherlands (1.4%) 1.3% Retailing 5.6% (0.3%) Manufacturing (1.9%) 6.7% Total Group (1.8%) (0.4%) Grafton Group plc – F
Slide 28: Outlook
Outlook United Kingdom Ireland The Netherlands • Reduced uncertainty and early signs • Outlook for economy remains • Positive underlying fundamentals of an improvement in confidence positive with some moderation in • Government actively addressing • May take time for a recovery in RMI growth Nitroge
Slide 29: What Makes Grafton Different
What Makes Grafton Different Balance sheet capacity and Leading market positions Exposure to diverse markets consistent cash generation Focused and disciplined M&A: Good track record approach to capital allocation Progressive dividend policy and further prospects Grafton Group plc – Final Results 20
Slide 30: Questions
Questions Final Results 2019 Financial Year Ended 31 December 2019
Slide 31: Appendices
Appendices Final Results 2019 Financial Year Ended 31 December 2019
Slide 32: Appendix 1 - Notes & Definitions
Appendix 1 - Notes & Definitions Notes As amounts are reflected in £’m some non-material rounding differences may arise. Plumbase and the Belgium Merchanting business are now classified as discontinued operations. The revenue and operating profit of both businesses are excluded from the Group. Reven
Slide 33: Appendix 2 - Operating Profit Margin and ROCE Progression
Appendix 2 - Operating Profit Margin and ROCE Progression 14.7% 14.4% 13.6% 12.5% 12.70% 12.2% 11.1% 7.8% 6.1% 7.7% 7.2% 7.3% 4.6% 5.8% 6.0% 5.7% 5.3% 4.1% 3.5% 2.7% FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 19 (Restated) (Pre-IFRS 16) (Post IFRS 16) ROCE Adjusted operating margin Gra
Slide 34: Appendix 3 - Income Statement – Pre IFRS 16
Appendix 3 - Income Statement – Pre IFRS 16 Continuing Discontinued Total Operations Operations Operations Reported £m 2019 2019 2019 2018 Change Revenue - total 2,672.3 251.8 2,924.1 2,952.7 (1%) Adjusted operating profit pre property profit 187.4 5.4 192.8 189.6 +2% Property profit 6.9 0.0 6.9 4.9
Slide 35: Appendix 4 - Income Statement - Impact of IFRS 16 and Discontinuing Operations
Appendix 4 - Income Statement - Impact of IFRS 16 and Discontinuing Operations Total Discontinued Continuing Operations Operations Operations IFRS 16 Reported £m 2019 2019 2019 2019 2019 Revenue - total 2,924.1 (251.8) 2,672.3 0.0 2,672.3 Adjusted operating profit pre property profit 192.8 (5.4) 187
Slide 36: Appendix 5 - Operating Margin Analysis
Appendix 5 - Operating Margin Analysis* H2 H1 H2 H1 2019 2019 2018 2018 UK Merchanting 5.5% 6.0% 6.0% 6.0% Irish Merchanting 9.9% 8.5% 10.6% 8.1% Netherlands Merchanting 8.4% 10.7% 10.0% 10.5% Total Merchanting 6.7% 6.8% 7.2% 6.7% Retailing 11.3% 8.1% 9.4% 7.5% Manufacturing 24.5% 22.4% 25.4% 23.5%
Slide 37: Appendix 6 - Revenue Growth
Appendix 6 - Revenue Growth 2019 Average Daily Like-for-Like Revenue Growth* 2019 Q1 Q2 Q3 Q4 FY Total Revenue* Constant Merchanting Reported Currency UK 6.7% 1.1% (0.8%) (4.0%) 0.6% (1.1%) (1.1%) Ireland 12.7% 4.5% 5.9% 2.7% 6.2% 6.2% 5.4% Netherlands 5.3% 1.1% (2.8%) (1.4%) 0.6% 37.3% 36.2% Retail
Slide 38: Appendix 7 - IFRS 16 – New Lease Standard
Appendix 7 - IFRS 16 – New Lease Standard • New lease standard became effective 1 Jan 2019 • All leases brought onto balance sheet with effect from 1 Jan 2019 • Leases reflected on balance sheet as a right-of-use asset and lease liability • No restatement of comparatives • No impact on cash flows, c
Slide 39: Appendix 8 – IFRS 16 Income Statement Bridge
Appendix 8 – IFRS 16 Income Statement Bridge Pre IFRS 16 £m IFRS 16 Impact Reported Revenue 2,672,281 0 2,672,281 Operating costs (2,491,842) 10,450 (2,481,392) Operating profit before property profits 180,439 10,450 190,889 Property profits 6,894 0 6,894 Operating profit 187,333 10,450 197,783 Fina
Slide 40: Appendix 9 – 2019 IFRS 16 Cash Flow Bridge
Appendix 9 – 2019 IFRS 16 Cash Flow Bridge December 2019 Pre IFRS 16 Incl Dec £m IFRS 16 Impact IFRS 16 2018 Cash from operations 219.1 72.0 291.1 209.2 Interest and tax (37.0) (19.6) (56.6) (30.0) Replacement capex net of asset disposals (9.9) 0.0 (9.9) (21.8) Free cash flow 172.2 52.4 224.6 157.4
Slide 41: Appendix 10 – 2019 IFRS 16 Balance Sheet Bridge
Appendix 10 – 2019 IFRS 16 Balance Sheet Bridge December 2019 Pre IFRS 16 £m IFRS 16 Impact Reported Intangible Assets 761.1 0.0 761.1 Tangible Assets 531.9 (2.2) 529.7 Right of Use Asset 0.0 522.2 522.2 Working Capital 190.6 5.9 196.5 Other Assets / (liabilities) (100.6) 8.7 (91.9) Pension deficit
Slide 42: Appendix 11 – 2019 IFRS 16 Segmental Bridge
Appendix 11 – 2019 IFRS 16 Segmental Bridge £m December 2019 Segmental operating profit before exceptional items and intangible IFRS 16 Pre amortisation arising on acquisitions Impact Reported IFRS 16 UK Merchanting 98.0 7.1 105.1 Ireland Merchanting 42.8 0.3 43.1 Netherlands Merchanting 19.6 0.3 19
Slide 43: Appendix 12 – 2019 IFRS 16 EPS Bridge
Appendix 12 – 2019 IFRS 16 EPS Bridge December 2019 £m IFRS 16 Pre Impact Reported IFRS 16 Numerator for basic, adjusted and diluted EPS: Profit after tax for the financial period from continuing operations 151.5 (7.6) 143.9 (Loss) after tax for the financial period from discontinuing operations (25