Grafton Group Plc · LSE:GFTU
Grafton — H1 2019 Earnings Presentation
47 slides from Grafton's earnings presentation, 2019
Slide 1: Interim Results 2019
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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 Officer
Gavin Slark David Arnold Chief Executive Chief Financial Officer Officer Grafton Group plc - Interim Results 2019 3
Slide 4: Introduction & Highlights
Introduction & Highlights Gavin Slark, CEO Grafton Group plc - Interim Results 2019 4
Slide 5: What Makes Grafton Different
What Makes Grafton Different Leading market positions Exposure to faster growing European markets Balance sheet capacity and consistent cash generation M&A: Good track record and further prospects Steady improvement in margin and ROCE Grafton Group plc - Interim Results 2019 5
Slide 6: H1 Highlights
H1 Highlights • Strong organic growth in Ireland • Good growth in The Netherlands and scale increased with Polvo • Operating margin in UK Merchanting ahead in softer market – focus on self help • Conditional agreement to exit Belgium • Important operational milestones achieved in a number of busines
Slide 7: Group Financial Highlights
Group Financial Highlights Revenue Adjusted operating profit up 2% to £1.44bn up 6% to £97.7m Adjusted EPS Dividend up 6% Up 8% to 6.50p Adjusted operating margin ROCE up 20bps to 6.8% up 100bps to 15.0% All figures shown before the impact of IFRS 16 Grafton Group plc - Interim Results 2019 7
Slide 8: Operating Profit Margin and ROCE Progression
Operating Profit Margin and ROCE Progression 16.0% 15.0% 15.0% 15.0% 14.0% 13.6% 13.0% 12.5% 12.2% 12.0% 11.1% 11.0% 10.0% 9.0% 8.0% 7.8% 6.6% 6.8% 7.0% 6.0% 6.1% 5.8% 5.7% 6.0% 5.3% 5.0% 4.6% 4.1% 4.0% 3.5% 2.7% 3.0% 2.0% 1.0% 0.0% FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 H1 19 ROCE Adjusted
Slide 9: Financial Review
Financial Review David Arnold, CFO 9 Grafton Group plc - Interim Results 2019 9
Slide 10: Income Statement – continuing operations
Income Statement – continuing operations Movement (pre IFRS 16) Reported Pre IFRS 16 IFRS 16 Constant £m H1 2019 H1 2019 H1 2018 Reported Currency Revenue 1,437.3 1,437.3 1,402.5 +2% +3% Adjusted operating profit pre property profit 99.2 93.0 88.0 +6% Property profit 4.7 4.7 4.5 Adjusted operating p
Slide 11: Revenue Growth Analysis
Revenue Growth Analysis £’m £’m 1,600 1,550 1,500 1,448 (45) 1,450 8 (3) 1,437 29 Revenue 1,403 1,400 1,350 1,300 1,250 1,200 H1 2018 Belgium H1 2018 Organic Growth Acquisitions FX 2019 Reported Restated Grafton Group plc - Interim Results 2019 11
Slide 12: Incremental Revenue from Organic Growth
Incremental Revenue from Organic Growth (Constant Currency) £’m £’m 60 13 (25) 50 3 1 40 2 16 Revenue 30 29 20 19 10 0 UK Ireland Netherlands Retail Manufacturing Organic Growth Branch Organic Growth Initiatives Consolidations Merchanting /Disposals LFL Business All figures shown before the impact o
Slide 13: Incremental Revenue from Organic Growth
Incremental Revenue from Organic Growth (Constant Currency) £’m £’m 60 13 (25) 50 3 1 40 2 16 Revenue 30 29 Disposal of 20 19 Boole's and Plumbworld reduced revenue by 10 £20m 0 UK Ireland Netherlands Retail Manufacturing Organic Growth Branch Organic Growth Initiatives Consolidations Merchanting /D
Slide 14: Adjusted Operating Profit Analysis
Adjusted Operating Profit Analysis £’m £’m 100 99 98 0.3 (0.2) 97.7 1.7 97 2.1 (0.8) EBITA Revenue 96 Adjusted 95 2.2 94 93 92.5 (0.1) 92.4 92 91 90 H1 2018 Belgium H1 2018 Like-for-Like Growth Branch Acquisitions Property FX H1 2019 Reported Restated Business Initiatives Consolidations/ Disposals D
Slide 15: Adjusted Operating Profit Analysis
Adjusted Operating Profit Analysis £’m £’m 100 99 98 0.3 (0.2) 97.7 1.7 97 2.1 (0.8) EBITA Revenue 96 Adjusted 95 2.2 94 Selco store 93 opening 92.5 (0.1) 92.4 costs 92 reduced by £2.7m 91 90 H1 2018 Belgium H1 2018 Like-for-Like Growth Branch Acquisitions Property FX H1 2019 Reported Restated Busin
Slide 16: Like-for-Like Incremental Operating Profit Drop-Through Analysis
Like-for-Like Business Incremental Operating Profit Drop-Through Analysis £’m 4.0 3.5 3.0 2.5 0.7 (0.2) 0.1 2.0 0.3 Group 1.5 2.2 2.2 1.0 0.5 (0.9) 0.0 -0.5 -1.0 UK Ireland Netherlands Retail Manufacturing Central Like-for-Like Business Merchanting All figures shown before the impact of IFRS 16 Graf
Slide 17: Like-for-Like Incremental Operating Profit Drop-Through Analysis
Like-for-Like Business Incremental Operating Profit Drop-Through Analysis £’m 4.0 3.5 3.0 2.5 0.7 (0.2) 0.1 2.0 0.3 Group 1.5 2.2 2.2 1.0 One less UK trading day 0.5 worth £2.0m (0.9) 0.0 -0.5 -1.0 UK Ireland Netherlands Retail Manufacturing Central Like-for-Like Business Merchanting All figures sho
Slide 18: Like-for-Like Incremental Operating Profit Drop-Through Analysis
Like-for-Like Business Incremental Operating Profit Drop-Through Analysis £’m 4.0 3.5 3.0 2.5 2.0 1.5 Group 1.0 5% 0.5 0.0 -0.5 -1.0 UK Ireland Netherlands Retail Manufacturing Central Like-for-Like Business Merchanting All figures shown before the impact of IFRS 16 Grafton Group plc - Interim Resul
Slide 19: UK Merchanting
UK Merchanting Reported IFRS 16 Movement £m H1 2019 H1 2019 H1 2018 (pre IFRS 16) Revenue 989.5 989.5 976.0 +1.4% Adjusted operating profit pre property profit 59.6 55.5 53.7 +3.3% Adjusted operating margin pre property profit 6.0% 5.6% 5.5% +10bps • Average daily like-for-like revenue growth of 2.8
Slide 20: Irish Merchanting
Irish Merchanting Movement (pre IFRS 16) Reported IFRS 16 Constant £m H1 2019 H1 2019 H1 2018 Reported Currency Revenue 226.2 226.2 212.1 +6.7% +7.4% Operating profit pre property profit 19.3 19.2 17.1 +12.0% +12.5% Operating margin pre property profit 8.5% 8.5% 8.1% +40bps • Strong average daily li
Slide 21: Netherlands Merchanting
Netherlands Merchanting Movement (pre IFRS 16) Reported IFRS 16 Constant £m H1 2019 H1 2019 H1 2018 Reported Currency Revenue 80.9 80.9 76.8 +5.4% +6.2% Adjusted operating profit 9.0 8.6 8.1 +7.1% +8.1% Adjusted operating margin 11.1% 10.7% 10.5% +20bps • Average daily like-for-like revenue growth o
Slide 22: Retailing
Retailing Movement (pre IFRS 16) Reported IFRS 16 Constant £m H1 2019 H1 2019 H1 2018 Reported Currency Revenue 99.9 99.9 97.8 +2.2% +2.9% Operating profit 9.5 8.0 7.3 +9.8% +10.0% Operating margin 9.5% 8.1% 7.5% +60bps • Average daily like-for-like revenue growth of 2.9% broadly split between trans
Slide 23: Manufacturing
Manufacturing Reported IFRS 16 Movement £m H1 2019 H1 2019 H1 2018 (pre IFRS 16) Revenue 40.7 40.7 39.9 +2.1% Operating profit 9.2 9.1 9.4 (2.6%) Operating margin 22.5% 22.4% 23.5% (110bps) • Very solid performance given prior year comparator • Average daily like-for-like revenue growth of 2.9% • Vo
Slide 24: Balance Sheet
Balance Sheet Reported IFRS 16 £m H1 2019 H1 2019 H1 2018 Intangible Assets 714.8 714.8 727.0 Tangible Assets 534.9 537.3 547.1 Right of Use Asset 525.5 - - Lease Receivable 2.4 - - Working Capital 186.9 182.3 172.6 Other Assets / (liabilities) (92.5) (100.8) (97.5) Assets / Liabilities - Discontinu
Slide 25: Cash Flow
Cash Flow Reported IFRS 16 £m H1 2019 H1 2019 H1 2018 Cash from operations 157.6 118.9 109.7 Interest and tax (27.3) (17.5) (12.4) Replacement capex net of asset disposals (2.8) (2.8) (8.2) Free cash flow 127.5 98.6 89.1 Development capex (8.6) (8.6) (26.0) Dividends (28.5) (28.5) (24.3) Share (purc
Slide 26: IFRS 16 – New Lease Standard
IFRS 16 – New Lease Standard • New lease standard effective 1 Jan 2019 • Adopted modified retrospective approach. All leases brought onto balance sheet on a consistent basis with effect from 1 Jan 2019 • No restatement of comparatives • Bridges from pre to post IFRS 16 included in appendices • No im
Slide 27: Full Year Technical Guidance
Full Year Technical Guidance • Full year property profits expected to be c.£5.5m (previous guidance c.£3m) • Depreciation currently forecast at c.£110m in total – £46m on a pre IFRS 16 basis • Guidance on 2019 gross capex spend (ex acquisitions) unchanged i.e. replacement spend of c.£50m and develop
Slide 28: Strategic Update & Outlook
Strategic Update & Outlook Gavin Slark, CEO Grafton Group plc - Interim Results 2019 28
Slide 29: Strategic Update
Strategic Update • Focus remains on higher margin, growth markets with strong market positions and further potential, such as The Netherlands • Significant operational milestones achieved • Sale of Belgium business following strategic review • Acquisition of Polvo an important transaction for our Du
Slide 30: Strategic Update – Significant Operational Milestones Achieved
Strategic Update – Significant Operational Milestones Achieved • Buildbase ✓ First branch live on new trading system ✓ Backoffice functionality up and running ✓ Branch rollout scheduled over next 18-24 months • Selco ✓ New delivery hub opened in Edmonton, north London ✓ Delivers direct to customers
Slide 31: Strategic Update – Agreement to Sell Belgium Merchanting
Strategic Update – Agreement to Sell Belgium Merchanting • Strategic review prompted sale of Belgian business • Belgium 2018 operating profit £0.8m (2017: £0.9m) • Entered into a conditional agreement to sell to Aurelius for EV of £11m • Grafton retains freehold properties valued at c.£12.5m – separ
Slide 32: Strategic Progress – Purchase of Polvo Completed
Strategic Progress – Purchase of Polvo Completed • Acquisition of Polvo for €131m completed on 1 July • Excellent geographic fit with Isero network - 51 branches acquired which expands network to 113 branches in total • Consolidates Isero’s market leading position – combined business will have reven
Slide 33: Current Trading – July 2019
Current Trading – 1 July 2019 to 31 July 2019 Average Daily Like-for- Like Revenue Growth H1 2019 July 2019 Merchanting UK 2.8% 1.4% Ireland 8.3% 5.9% Netherlands 3.1% 0.5% Retailing 2.9% 16.9% Manufacturing 2.9% (0.1%) Total Group – continuing operations 3.6% 3.0% Belgium – discontinued operations
Slide 34: Outlook
Outlook UK Ireland The Netherlands • Softer market backdrop • Outlook for economy • Outlook for economy • Expect some continuing remains positive remains favourable with volume and pricing • Further growth in growth set to continue to pressure consumer spending moderate • Focus on self-help expected
Slide 35: Summary – Well Positioned
Summary – Well Positioned Continued H1 Ongoing focus on Robust balance Confident in long progress in margin growth and self sheet supported term prospects and ROCE help by a pedigree of strong cash generation Grafton Group plc - Interim Results 2019 35
Slide 36: Questions
Questions Grafton Group plc - Interim Results 2019 36
Slide 37: Appendices
Appendices Grafton Group plc - Interim Results 2019 37
Slide 38: 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 arising on acquisitions and before profit/loss on disposal of Group businesses • Adjus
Slide 39: Appendix 2 - Income Statement – Pre IFRS 16
Appendix 2 - Income Statement – Pre IFRS 16 Continuing Discontinued Total Movement Operations Operations Operations Reported (pre £m H1 2019 H1 2019 H1 2019 H1 2018 IFRS 16) Revenue - total 1,437.3 45.3 1,482.6 1,447.7 2% Adjusted operating profit pre property profit 93.0 0.4 93.4 88.0 6% Property p
Slide 40: Appendix 3 - Income Statement - Impact of IFRS 16 and Discontinued Operations
Appendix 3 - Income Statement - Impact of IFRS 16 and Discontinuing Operations Total Discontinued Continuing Operations Operations Operations IFRS 16 Reported £m H1 2019 H1 2019 H1 2019 H1 2019 H1 2019 Revenue - total 1,482.6 (45.3) 1,437.3 - 1,437.3 Adjusted operating profit pre property profit 93.
Slide 41: Appendix 4 - Operating Margin Analysis
Appendix 4 - Operating Margin Analysis H1 H2 H1 H2 H1 2019 2018 2018 2017 2017 UK Merchanting 5.6% 5.6% 5.5% 5.5% 5.5% Irish Merchanting 8.5% 10.6% 8.1% 9.0% 8.0% Netherlands Merchanting 10.7% 10.0% 10.5% 8.9% 10.4% Total Merchanting 6.4% 6.7% 6.2% 6.3% 6.1% Retailing 8.1% 9.4% 7.5% 6.7% 5.6% Manufa
Slide 42: Appendix 5 - Revenue Growth
Appendix 5 - Revenue Growth Average Daily Like-for-Like Revenue Growth H1 2019 2018 2019 Q3 Q4 Q1 Q2 H1 Total Revenue Constant Merchanting Reported Currency UK 3.9% 3.4% 5.3% 0.6% 2.8% 1.4% 1.4% Ireland 8.5% 9.8% 12.7% 4.5% 8.3% 7.4% 6.7% Netherlands 6.0% 3.6% 5.3% 1.1% 3.1% 6.2% 5.4% Retailing 4.1%
Slide 43: Appendix 6 – H1 19 IFRS 16 Income Statement Bridge
Appendix 6 – H1 19 IFRS 16 Income Statement Bridge IFRS 16 £ Pre IFRS 16 Impact Reported Revenue 1,437,316 0 1,437,316 Operating costs (1,346,982) 6,156 (1,340,826) Operating profit before property profits 90,334 6,156 96,490 Property profits 4,737 0 4,737 Operating profit 95,071 6,156 101,227 Finan
Slide 44: Appendix 7 – H1 19 IFRS 16 Cash Flow Bridge
Appendix 7 – H1 19 IFRS 16 Cash Flow Bridge June 2019 Pre IFRS 16 Incl June £m IFRS 16 Impact IFRS 16 2018 Cash from operations 118.9 38.7 157.6 109.7 Interest and tax (17.5) (9.8) (27.3) (12.4) Replacement capex net of asset disposals (2.8) 0.0 (2.8) (8.2) Free cash flow 98.6 28.9 127.5 89.1 Develo
Slide 45: Appendix 8 – June 19 IFRS 16 Balance Sheet Bridge
Appendix 8 – June 19 IFRS 16 Balance Sheet Bridge June 2019 IFRS 16 £m Pre IFRS 16 Impact Reported Intangible Assets 714.8 0.0 714.8 Tangible Assets 537.3 (2.4) 534.9 Right of Use Asset 0.0 525.5 525.5 Lease Receivable 0.0 2.4 2.4 Working Capital 182.3 4.5 186.9 Other Assets / (liabilities) (100.8)
Slide 46: Appendix 9 – H1 19 IFRS 16 Segmental Bridge
Appendix 9 – H1 19 IFRS 16 Segmental Bridge £m June 2019 Segmental operating profit before exceptional items and IFRS 16 intangible amortisation arising on acquisitions Pre IFRS 16 Impact Reported UK Merchanting 55.5 4.1 59.6 Ireland Merchanting 19.2 0.1 19.3 Netherlands Merchanting 8.6 0.4 9.0 Tota
Slide 47: Appendix 10 – H1 19 IFRS 16 EPS Bridge
Appendix 10 – H1 19 IFRS 16 EPS Bridge June 2019 IFRS 16 £m Pre IFRS 16 Impact Reported Numerator for basic, adjusted and diluted EPS: Profit after tax for the financial period from continuing operations 75.3 (2.7) 72.6 (Loss) after tax for the financial period from discontinuing operations (25.7) 0