2 Gavin Slark Group CEO Introduction & Highlights 3 Agenda - - PowerPoint PPT Presentation

Half Year Results Presentation

For the six months ended 30 June 2015

2

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 those expressed or implied by these forward looking statements. They appear in a number of places throughout this presentation and include statements regarding the intentions, beliefs

• r current expectations of Directors concerning, amongst other things, the results of the
• perations, financial condition, liquidity, prospects, growth, strategies and the businesses
• perated by the Group. The Directors do not undertake any obligation to update or revise

any forward-looking statements, whether as a result of new information, future developments or otherwise. Cautionary Statement

3

Gavin Slark

Group CEO Introduction & Highlights

Agenda

4 Highlight 1 Highlight 3 Highlight 4 Highlight 5

Introduction & Highlights - Gavin Slark Financial Review - David Arnold Strategic Progress & Outlook - Gavin Slark Questions

Group Performance Highlights

5 Highlight 1 Highlight 3 Highlight 4 Highlight 5

Operating profit up 21% to £61.2m Basic earnings per share up 31% to 20.2p Excellent cash generation – net debt reduced to £51m Organic growth initiatives progressing well Significant contribution from UK acquisitions and new branches Medium term objectives remain 7% operating margin and 15% ROCE

David Arnold

Group CFO Financial Review

Group Financial Highlights – H1 2015

7

2015 2014

Change Change at constant exchange rates

Revenue (£’m)

1,083.7

1,015.3

+6.7% +9.7%

Operating profit (£’m)

61.2

50.6

+20.9%

Operating margin

5.6%

5.0%

+60 bps

Operating profit (£’m) (pre property)

55.1

49.0

+12.4%

Operating margin (pre property)

5.1%

4.8%

+30 bps

Earnings per share (pence)

20.2

15.4

+31.2%

Interim dividend (pence)

4.50

3.75

+20.0%

Net debt (£’m)

51.1

101.1

• £50.0m

ROCE

12.4%

10.2%

+220 bps

Revenue Growth

8

Like-for-like 2014 2015 2015

Q3 Q4 Q1 Q2 H1 Total Revenue

Constant currency Reported

Merchanting UK

5.9%. 4.0%. 3.5%. 5.1% 4.3% 9.6% 9.6%.

Ireland

16.3%. 12.4%. 16.4%. 11.1% 13.7% 14.8% 2.3%.

Belgium

(12.7%) (2.7%) (2.0%) 3.1% 1.1% 8.0% (3.9%)

Irish Retailing

(2.0%) (3.3%) 3.0% 1.1% 1.8% 2.0% (9.3%)

Manufacturing

28.0% 25.6% 14.1% 16.1% 15.1% 15.1% 14.2%

Total Group

6.4% 4.7% 4.9% 5.6% 5.3% 9.7% 6.7%

Revenue Growth Analysis

9

1,000 1,020 1,040 1,060 1,080 1,100 1,120 2014 Organic Growth Acquisitions FX 2015

1,015 69 27 (27) 1,084

£’m

Organic Revenue Growth Analysis

10 10 20 30 40 50 60 70 80

UK Merchanting Ireland Merchanting Belgium Merchanting Retail Manufacturing Growth Initiatives Branch Consolidations/ Disposals

32.1 14.8 0.3 1.2 3.5 18.7 (1.8)

LFL

£’m

Organic Growth

68.8

Constant currency

Operating Profit Analysis

30 35 40 45 50 55 60 65 £’m

11

Like for Like Growth Initiatives 2014 2015 Property Disposals

Acquisitions

FX

3.4 0.5 2.5 4.5 (0.3) 61.2 50.6

Like for Like Operating Profit Analysis

12

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 UK Merchanting Irish Merchanting Belgium Merchanting Retail Manufacturing Central £’m Like for Like Operating Profit

0.5 2.5

• 0.3

1.4 (1.3) Group 3.4

Operating Profit Drop Through

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 UK Merchanting Irish Merchanting Belgium Merchanting Retail Manufacturing Central £’m Like for Like Operating Profit

2% Group 17% 40% 6% 25% (1.3)

Operating Profit Drop Through

14

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 UK Merchanting Irish Merchanting Belgium Merchanting Retail Manufacturing Central £’m Like for like Operating Profit

8%

Drop Through ex Plumbase

8%

Group 17% 40% 6% 25% (1.3)

15

UK Merchanting

2015 £m 2014 £m % Change Revenue

816.7 745.0 +9.6%

Operating profit

53.5 45.2 +18.3%

Operating margin

6.5% 6.1% +40 bps

Trading

Growth in average daily like-for-like turnover of 4.3% Building materials price inflation estimated at 1.0% to 1.5% and volume growth of c.3% Held gross margin at H1 2014 level in a competitive market Selco performed strongly - increased revenue, profit and operating margins Includes property profit of £6.1m (H1 2014: £1.6m)

16

Irish Merchanting

2015 £m 2014 £m % Change

Reported Constant currency

Revenue

124.1 121.4 +2.3% +14.8%

Operating profit

7.4 5.6 +33.9% +50.2%

Operating margin

6.0% 4.6% +140 bps

• Trading

Strong competitive position delivered like-for-like turnover growth of 13.7% Focus on underpinning gross margin - broadly in line with H1 2014 Strong profit improvement in current year - continued self help initiatives of prior years New branch in Cork city opened at end of 2014

17

Belgian Merchanting

2015 £m 2014 £m % Change

Reported Constant currency

Revenue

44.4 46.3

• 3.9%

+8.0%

Operating profit

0.4 0.7

• 46.3%
• 39.8%

Operating margin

0.8% 1.5%

• 70 bps
• Trading

Like-for-like revenue increased by 1.1%. Disposal of non core and capital hungry readymix business completed Focus on implementing performance improvement measures and synergy opportunities

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Revenue up by 1.8% per cent in like-for-like stores Stable pricing environment following a number of years of deflationary pressure Good progress on improving customer proposition across stores

Retailing

2015 £m 2014 £m % Change

Reported Constant currency

Revenue

72.2 79.6

• 9.3%

+2.0%

Operating profit

0.6 0.4 +61.6% +81.3%

Operating margin

0.9% 0.5% +40 bps

Trading

19

Manufacturing

2015 £m 2014 £m % Change Revenue

26.3 23.0 +14.2%

Operating profit

4.5 3.1 +44.7%

Operating margin

16.9% 13.3% +360 bps

Trading

Pace of revenue growth moderated to +14.2% in H1 2015 Pricing and gross margin gains during 2014 continued in H1 2015 Acquisition of Carlton completed in July 2015 - increases capacity and market share in bagged products

20

Property

The Group has a significant freehold estate (December 2014: £280m) to support its branch operations The Group has historically sought to maintain a balance between freehold and leasehold property In addition 23 properties (June 2015: £9.0m) are held for sale (largely in the UK) and 21 properties (June 2015: £19.1m) are held as investment (largely in Ireland and having longer term development value) Property profits are expected to contribute 10-20bps towards operating profit on average though this will vary from one year to the next Property profit in H1 2015 was £6.1m, largely as a result of the disposal of a small branch at Stoke Newington. It would have taken over 20 years to have generated the same post tax cash flows as the sale proceeds Management of the Group’s property portfolio is an important component of maximising Grafton’s ROCE

21

Finance and Tax

30 June 2015 30 June 2014 Net debt: EBITDA (12 month rolling)

0.33x 0.79x

Gearing

5% 12%

Tax Rate (underlying)

21% 22%

EBITDA interest cover

26.8x 15.2x Net debt of £51m at lowest level since 1998 Finance charge fell by £1.4m to £3.3m - impact of lower debt and refinancing Strong liquidity at period end - cash of £190m and undrawn facilities of over £190m Strong balance sheet - net worth of £935m

22

Free Cash Flow

10 20 30 40 50 60 70 80 90 Operating profit Depreciation and amortisation EBITDA Pensions, claims paid & other non cash items Working capital Interest and tax Replacement capex (net of asset sales) Free cash flow £’m

61.2 16.1 77.3 (6.3) 2.2 (10.3) (6.2) 56.7

23

Free Cash Flow

10 20 30 40 50 60 70 80 90 Operating profit Depreciation and amortisation EBITDA Pensions, claims paid & other non cash items Working capital Interest and tax Replacement capex (net of asset sales) Free cash flow £’m

61.2 16.1 77.3 (6.3) 2.2 (10.3) (6.2) 56.7 93% of

• perating

profit

24

Movement in Net Debt

10 20 30 40 50 60 70 80 Net Debt Dec 2014 Free cash flow Acquisitions net of disposals Development capex Dividends F/x / shares issued etc Net Debt June 2015

75.3 (56.7) 21.4 10.8 16.3 (16.0) 51.1

£’m

25

Gavin Slark

Group CEO Strategic Progress & Outlook

Capital Turn 1.8x

2013 H1

Capital Turn 2.2x

2015 H1

+0.4x

Operating Margin 3.4%

2013 H1

Operating Margin 5.6%

2015 H1

+220 bps

Revenue £912m

2013 H1

Revenue £1.08bn

2015 H1

+18.8%

Grafton’s Strategic Pillars

Good progress since Capital Markets Day in November 2013 26

Good Progress on Growth Initiatives

74 Electricbases, 118 Hirebases and 23 SelcoHires

• pen at end June

13 Plumbase Industrial branches open at end June New Selco in Redhill opened in January 2015 and Coventry in July 2015 40 Selco stores open by end December 2015 (June 2015 : 36) Selco Direct launched in June 2015 Click and collect to commence in Selco by year end Continued development of Woodie’s new store format

27

Acquisitions Growth

TG Lynes acquired in February 2015 which strengthens the Group’s growing position in mechanical services and complements Plumbase Industrial Carlton acquired in July 2015 which expands UK Mortar business presence in bagged products

Parkes Services Ltd acquired in August 2015 expands Plumbase Industrial’s geographical coverage 28

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Current Trading - 1 July - 23 August 2015

Like-for-like H1 2015 1 July to 23 August 2015 Merchanting UK 4.3% 3.7% Ireland 13.7% 6.7% Irish Retailing 1.8% 5.7% Total Group 5.3% 4.3%

Improving trends – August outperformed July Group like-for-like currently consistent with H1

30

Outlook - UK

Generally positive for remainder of 2015 with pace of economic growth forecast to continue at similar levels to H1 Activity in the new housing market supported by good underlying demand and low mortgage rates Group’s development activity providing a platform for growth Continued focus on internal margin management and cost initiatives should lead to further progress in H2 2015

31

Outlook - Ireland

Recovery well established and looks set to continue with solid growth forecast for the remainder of 2015 Consumer spending and investment expected to be key drivers of growth Recovery in house building expected to continue and non residential activity expected to increase Increased employment and disposable income should sustain growth in consumer spending

• expected to extend to DIY in due course

32

Summary

Positive half year performance – results reflect success of strategy pursued in recent years Paul Hampden Smith appointed as Non-Executive Director Good pipeline of acquisition opportunities Overall outlook is positive and we are confident of further progress during 2015 Medium term target remains 7% operating margin and 15% ROCE

Questions

33 Highlight 1 Highlight 3 Highlight 4 Highlight 5

Appendices

Operating Margin Analysis

H1 2015 H2 2014 H1 2014 H2 2013 H1 2013 H2 2012 H1 2012 UK Merchanting 6.5% 6.1% 6.1% 5.9% 5.0% 4.9% 4.8% Irish Merchanting 6.0% 8.0% 4.6% 2.9% 1.3% 1.7% 0.7% Belgium Merchanting 0.8% 0.4% 1.5% 1.3% 0.9% 1.7% 3.1% Total Merchanting 6.2%. 6.1%. 5.6%. 5.3%. 4.3%. 4.4%. 4.2%. Retailing 0.9%. 2.5%. 0.5%. 1.1%. 0.3%. 3.8%. (3.6%) Manufacturing 16.9%. 18.8%. 13.3%. 15.3%. 5.1%. 8.2%. 2.1%. 6.1%. 6.1%. 5.4%. 5.1%. 4.0%. 4.4%. 3.4%. Central Activities (0.5%) (0.5%) (0.4%) (0.4%) (0.6%) (0.5%) (0.4%) Total 5.6%. 5.6%. 5.0% 4.7% 3.4% 3.9% 3.0%

Summary Balance Sheet

30 June 2015 £’m 30 June 2014 £’m Change £’m Property, plant and equipment 424.6. 429.9 (5.3) Investment property 19.1. 20.8 (1.7) Intangibles 483.3. 486.3 (3.0) Financial assets 0.1. 0.1

• 927.1

937.1 (10.0) Working capital 135.0. 124.1 10.9 Income and deferred tax (28.8) (28.0) (0.8) Retirement benefit obligations (18.7) (19.6) 0.9 Provisions (24.6) (30.6) 6.0 990.0. 983.0 7.0 Net debt (51.1) (101.1) 50.0 Shareholders’ Equity 938.9. 881.9 57.0 Gearing 5% 12%

UK Housing Transactions 2007 - 2015

50 100 150 200 250 300 350 400 450 500

2007 2008 2009 2010 2011 2012 2013 2014 2015

‘000

• Quarterly Seasonally Adjusted

Source: HM Revenue & Customs UK Property Transactions Count

Housing Starts & Completions – England: 1999 - 2015

20 40 60 80 100 120 140 160 180 200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

‘000 Starts Completions

Source: UK Department for Communities & Local Government on a rolling 12 month basis

UK Mortgage Approvals UK: 2008 - 2015

10 20 30 40 50 60 70 80

Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 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 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

'000

Source: Bank of England

House Completions – Ireland 1993 - 2015

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Source: Department of the Environment, Community & Local Government - (DoELG) on a rolling 12 month basis

Mortgages Approvals in Ireland: 2002 - 2015

• 50

100 150 200 250

• 5

10 15 20 25 30 35 40 45

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Volume ‘000

Value €bn Value Volume

Source: IBF on a rolling 12 month basis