Woodie's DIY and Chadwicks owner Grafton Group said today that its full year adjusted operating profit is anticipated to be broadly in line with expectations.
In a trading update for the period from January 1 to October 20, the company said its Irish operations continue to see a good performance and growth, but trading in the UK and Finland remains "challenging" with little discernible seasonal improvement in volumes.
Today's update was issued in advance of the timetabled announcement on 12 November because of the completion of the acquisition of Salvador Escoda in Spain for a maximum consideration of €132m.
Salvador Escoda is one of Spain's biggest distributors of air conditioning, ventilation, heating, water and renewable products serving professional installers across the residential, commercial and industrial sectors.
Spain is the fourth biggest construction market in the EU and is forecast to have one of the fastest growing economies in Western Europe up to 2026.
Salvador Escoda reported revenue of €231.8m and adjusted operating profit of €16.5m for 2023. Since 2019, its compound growth rate of revenue has been approximately 9% a year.
Grafton said the acquisition is consistent with its strategy of acquiring platform businesses with strong and unique propositions offering exciting growth opportunities and which operate in fragmented markets with strong underlying fundamentals.
The transaction is expected to be earnings enhancing in its first full financial year following acquisition and to deliver an attractive return on invested capital in the medium term, it added.
The transaction is expected to be earnings enhancing in its first full financial year following acquisition and to deliver an attractive return on invested capital in the medium term.
Eric Born, Grafton's chief executive, said the purchase of Salvador Escoda is an excellent fit with its strategy of acquiring platform businesses in new markets which possess strong and unique propositions with the opportunity to drive further growth and scale.
"We see long term structural growth in the Spanish economy and in its fragmented distribution markets for building and construction products," he said.
"Salvador Escoda's leading own brands in categories such as ventilation and air conditioning are an exciting new adjacent channel for Grafton. We look forward to working with the highly experienced and successful team to build on their rich heritage and accelerate what has been an impressive track record of growth," he added.
Meanwhile, in today's trading update, Grafton said that group revenue in the period under review fell by 3.7% to £1.82 billion.
In its retailing business, Grafton said its Woodie's DIY, Home and Garden business in Ireland saw average daily like-for-like revenue rise by 5.8% helped by strong promotional activity, growth in number of transactions and more favourable weather conditions in comparison with the first half.
Meanwhile in its Distribution business, Grafton said its Chadwicks business in Ireland continued to deliver a positive trading performance with overall average daily like-for-like revenue up 1.4%.
It noted that materials price deflation continued to moderate and is estimated at about 2.2% in the period compared to circa 4.9% in the first half, as timber and steel pricing continued to stabilise.
"The outlook for growth in construction remains positive in Ireland, supported by strong government investment to increase housing supply. Whilst residential commencement notices for the 12 months to September 2024 increased to a record 61,500, housing completions in the first nine months of 2024 were lower compared to the same period last year," it noted.
In the UK, average daily like-for-like revenue was down by 4.4% as Repair, Maintenance and Improvement (RMI) demand remains weak, together with some ongoing but moderating effects of price deflation.
Price deflation in Selco has eased from about 4% in the first half to about 1.7% in the third quarter as timber prices stabilised.
But it noted that UK consumer confidence remains relatively weak and the usual seasonal pick up of activity in September did not materialise as expected.
"There are signs of an improving housing market, which in due course, should support a recovery in the RMI sector with the typical lag in timing of 8-12 months. In the meantime, we continue to tightly control operating expenses," the company added.
In the Netherlands, average daily like-for-like revenue was down by 0.3%, showing some improvement in comparison with the first half against easier comparators. There are signs of an improving housing market backdrop as transactions and house prices pick up, it added.
Meanwhile, in Finland, IKH's average daily like-for-like revenue was 2.4% lower as a result of the continued weakness in the domestic economy.
Grafton said the Finland business has not seen a pick up in activity since the summer and markets there remain very competitive.
Eric Born said that Grafton continues to be pleased with the performance of the Irish businesses where the outlook for growth remains positive.
"Elsewhere, market conditions remain challenging, particularly in the UK and Finland. The group remains well positioned to capitalise as markets turn and we retain a tight focus on costs and efficiencies," the CEO added.
"Whilst the recovery in certain markets, particularly the UK & Finland, remains slow, we are confident that our medium term outlook remains positive, supported by strong demand fundamentals, not least in the demand for new housing as markets normalise and consumer confidence improves," Eric Born said.
"In spite of a slower seasonal pick up in the important Autumn trading months and foreign exchange headwinds from our euro denominated businesses, we anticipate delivering adjusted operating profit for 2024 broadly in line with analysts' expectations," he added.
