Shares in building products distributor and retailer Grafton (GFTU) climbed 5.7% to 789p after the firm posted a resilient first half trading update and said it expected second half operating profits to reach a similar level to last year.
The group reported sales for the first half down 19% to £1.058 billion on a continuing operations basis as its UK distribution business - which accounts for 60% of revenues - was affected by branch closures from late March until early May.
Its Irish distribution business Chadwicks was also closed for the best part of two months although its Dutch operations were classed as an essential service and were able to continue trading throughout the first half, with sales helped by the July 2019 acquisition of Polvo.
The Woodie’s retail business, which accounts for 9% of turnover, was also shuttered from late March to early May but saw a leap in sales on reopening with June revenues up more than 60% year on year setting a new monthly record. It also reported a similar level of half-year profit despite the enforced closure of its stores.
The dry mortar manufacturing business, which makes up 3% of turnover, saw volumes recover from almost nothing in April to around 70% of prior-year levels in June as house building sites reopened and construction restarted.
SECOND HALF PICK-UP
Since late May the distribution business has seen a strong rebound in demand as the repair, maintenance and improvement market (RMI) has recovered with homeowners keen to upgrade their properties.
This recovery has continued into July and August as pent-up demand has been released and household savings levels have risen, but the firm is conscious that RMI spending over the remainder of the year depends on consumer sentiment, which in turn depends on employment prospects after the furlough scheme ends and the availability of mortgage finance.
Therefore, while it expects operating profits to recover to year ago levels during the second half, the firm is making organisational changes including the closure of some branches which it says will provide ‘sustainable benefits in 2021 and beyond’.
As a result it will take an exceptional charge of £16 million against current year accounts, including a cash outflow of £6 million which it expects to earn back in under a year as it frees up working capital from closed branches and disposes of the freeholds.
