Grafton Group plc
Final Results
For the Year Ended 31 December 2018
1
Grafton Group plc
Final Results for the Year Ended 31 December 2018
Excellent Progress Towards Medium Term Financial Targets
Grafton Group plc (“the Group”), the international builders merchanting and DIY Group, announces its final
results for the year ended 31 December 2018.
£m*
Revenue
Adjusted**
Operating profit before property profit
Operating profit
Profit before tax
Earnings per share – basic
Statutory results
Operating profit
Profit before tax
Earnings per share – basic
Dividend
Net debt
Gearing
Adjusted operating margin
Return on capital employed
2018
2,953
189.6
194.5
188.4
66.0p
187.5
181.3
63.3p
18.0p
53.1
4%
6.6%
15.0%
2017
2,716
160.9
163.7
157.2
54.9p
160.9
154.5
54.0p
15.50p
62.9
5%
6.0%
13.6%
Change
+9%
+18%
+19%
+20%
+20%
+17%
+17%
+17%
+16%
(£9.8m)
(100bps)
+60bps
+140bps
*Additional information in relation to Alternative Performance Measures (APMs) is set out on pages 36 to 39.
**The term “adjusted” means before amortisation of intangible assets arising on acquisitions, goodwill written off in the period and
profit/(loss) on disposal of Group businesses.
Highlights
• Revenue up 9% to £2.95 billion – 8% growth in constant currency
•
Significant progress towards realising medium term financial objectives - operating profit margin
up 60bps to 6.6% and ROCE up 140bps to 15.0%
Strong organic growth in Ireland and Netherlands Merchanting
12% increase in profit in UK Merchanting with significant contribution from Leyland SDM
acquisition
•
•
• Excellent performances in Woodie’s Retailing in Ireland and Mortar Manufacturing in UK
•
•
Strong cash flow of £209.2 million generated from operations
16% increase in dividend – sixth consecutive year of double-digit growth
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Gavin Slark, Chief Executive Officer commented:
“2018 was another year of strong delivery against our medium-term targets achieved through a combination of
organic and acquisition led initiatives. Grafton continues to benefit from exposure to the fast growing Irish and
Dutch markets and from strong underlying demand fundamentals in the UK market. The Group’s excellent cash
generation from operations, good liquidity and strong balance sheet should continue to support the development
of the business.”
Webcast Details
An analysts and investors results presentation will be hosted by Gavin Slark and David Arnold at 10.00am
(GMT) today 28 February 2019 at The Lincoln Centre, 18 Lincoln’s Inn Fields, London WC2A, 3ED. A live
webcast will be available on www.graftonplc.com/webcastfy18 and we recommend you register in advance. A
recording of this webcast will also be available to replay later in the day. The results presentation can be
viewed/downloaded at http://www.graftonplc.com
Enquiries:
Grafton Group plc
Gavin Slark, Chief Executive Officer
David Arnold, Chief Financial Officer
+ 353 1 216 0600
Murray
Pat Walsh
+ 353 1 498 0300
MHP Communications + 44 20 3128 8778
Tim Rowntree/Kelsey Traynor
Cautionary Statement
Certain statements made in this announcement 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 announcement and include statements regarding the intentions, beliefs or current
expectations of Directors and senior management concerning, amongst other things, the results of operations,
financial condition, liquidity, prospects, growth, strategies and the businesses operated 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.
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Final Results
For the Year Ended 31 December 2018
Group Results
Grafton is pleased to report another set of good results and the delivery of strong growth in revenue, profitability
and earnings per share. Broadly based organic growth in the merchanting, retailing and manufacturing businesses
and the Leyland SDM acquisition contributed to the improved outcome. These record results demonstrate the
benefit of the Group’s market positions and exposure to multiple geographies with operating profit growth of 14
per cent in the UK, 25 per cent in Ireland and 27 per cent in the Netherlands.
We were very pleased to achieve a return on capital employed (ROCE) of 15 per cent in 2018, consistent with the
medium term target we set ourselves in 2015. The Group’s operating margin advanced towards our 7.0 per cent
target, increasing by 60bps in the year to 6.6 per cent.
Merchanting
The UK merchanting business increased its market share through growing revenue organically in new Selco
branches and through the Leyland SDM acquisition that completed in February 2018. The overall business
responded well to generally subdued trading conditions in the residential RMI market and delivered a solid
increase in profitability that included a good contribution from Leyland SDM.
The market leading merchanting business in Ireland delivered strong organic growth for the fifth consecutive
year in a favourable market as house building increased and commercial construction activity strengthened. The
operating profit margin before property profit advanced by 90bps to 9.4 per cent.
The Netherlands business, which has a leadership position in the ironmongery, tools and fixings segment of the
merchanting market, performed strongly growing revenue organically and realising integration benefits from
acquisitions made in 2017. The operating profit margin increased by 70bps to 10.3 per cent.
The results of the Belgian merchanting business were marginally lower in a stable market having absorbed non-
recurring costs that should support the future profitable growth of the business.
Retailing
Woodie’s, the clear market leader in the DIY, Home and Garden market in Ireland, celebrated the 30th
anniversary of the opening of its first store with an exceptional level of organic growth in revenue and profitability,
including a strong performance from seasonal ranges in the summer months. The operating profit margin
increased by 230bps to 8.5 per cent.
Manufacturing
CPI EuroMix, the market leading mortar manufacturing business that operates nationally from ten plants in the
UK, reported excellent growth in revenue and profitability and was a significant contributor to Group profitability.
Segment operating profit margin increased by 150 basis points to 24.4 per cent.
Property Profit
The Group realised a profit of £4.9 million (2017: £2.7 million) and proceeds of £9.1 million on the disposal of
properties that were no longer in use in the merchanting businesses in the UK and Ireland.
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Cash Flow
The Group continued to be very cash generative with cashflow from operations of £209.2 million (2017: £210.7
million) and £23.8 million was realised from the disposal of property, one branch in Belgium and two small non-
core businesses in the UK. A cash outflow of £147.4 million was committed to acquisitions and capital projects
and the Group ended the year with net debt of £53.1 million (31 December 2017: £62.9 million).
Dividend
A second interim dividend of 12.00p (2017: 10.25p) was approved to give total dividends for the year of 18.00p.
This is an increase of 16.1 per cent on dividends of 15.5p paid for 2017 and represents the sixth consecutive year
of double-digit growth in dividend per share. The increase is based on the Board’s policy of increasing dividends
as earnings increase and reflects both the strong cashflow from operations and low level of net debt. Dividend
cover was 3.7 times (2017: 3.5 times).
Outlook
Progress in the Group’s merchanting business will again be focused on outperforming the market by identifying
growth opportunities and increasing revenue and profitability in the 24 Selco stores that were opened over the
past three years. Activity in the UK merchanting market is expected to be slightly weaker in the current year with
housing RMI activity overall likely to be modestly lower on the basis of recent trends in the economy generally
and housing transactions and mortgage approvals. A small increase in the supply of new homes is anticipated
supported by underlying demand and the availability of mortgage finance.
The merchanting and DIY markets in Ireland should continue to benefit from the positive outlook for the economy
although some moderation in the pace of growth in consumer spending is anticipated. Forward looking indicators
point to sustained growth in house building and growth in overall building and construction.
The outlook for the Netherlands economy remains favourable with growth set to continue though easing slightly.
Increased disposable income in a tight labour market should be supportive of growth in the new housing market
and broadly based investment in property renovation.
The Belgian merchanting business should benefit from the initiatives and developments implemented in 2018.
Average daily like-for-like revenue growth in the period from 1 January 2019 to 17 February 2019 was 3.7 per
cent in the overall Group, 1.9 per cent in the UK merchanting business, 10.5 per cent in the Irish merchanting
business, 4.6 per cent in the Dutch merchanting business and 5.5 per cent in the Belgian merchanting business.
Like-for-like revenue was ahead by 5.6 per cent in the retailing business in Ireland and by 1.3 per cent in the
manufacturing business.
Our strategy remains to invest in organic growth opportunities and acquisitions that will create value for
shareholders by delivering sustainable growth in attractive segments of the merchanting market, while
maintaining a disciplined approach to the allocation of capital.
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Operating Review
Merchanting Segment
Revenue
Adjusted operating profit before property profit
Adjusted operating profit margin before property profit
Adjusted operating profit
Adjusted operating profit margin
2018
£’m
2,675.8
168.2
6.3%
173.0
6.5%
2017
£’m
2,469.4
148.9
6.0%
151.6
6.1%
Actual
Change
+8.4%
+13.0%
+30bps
+14.1%
+40bps
The merchanting businesses in the UK, Ireland, the Netherlands and Belgium accounted for 91 per cent of Group
revenue (2017: 91 per cent). Revenue grew by 4.0 per cent in the like-for-like business. Trading conditions were
favourable in the merchanting markets in Ireland and Netherlands and relatively flat in the UK and Belgium
merchanting markets.
UK Merchanting
Revenue
Adjusted operating profit before property profit
Adjusted operating profit margin before property profit
Adjusted operating profit
Adjusted operating profit margin
2018
£’m
1,987.6
110.1
5.5%
114.7
5.8%
2017
£’m
1,845.1
100.9
5.5%
102.6
5.6%
Actual
Change
+7.7%
+9.1%
-
+11.9%
+20bps
The UK merchanting business delivered a good overall result increasing operating profit by 11.9 per cent,
including a good contribution from Leyland SDM.
The UK economy grew by an estimated 1.4 per cent in 2018 and there was a modest reduction in housing
transactions. House prices registered marginal growth for the year while mortgage approvals were slightly down
on the prior year. Housing starts and completions grew by an estimated one to two per cent.
Average daily like-for-like revenue increased by 2.7 per cent as customer activity gained some momentum in the
second half of the year following a decline in volumes in the first half. Building materials price inflation for the
year was estimated at approximately 3.5 per cent. New branches generated revenue growth of 2.9 per cent (£53.1
million) and Leyland SDM contributed revenue growth of 2.4 per cent (£43.9 million). The disposal of two small
non-core businesses and branch consolidations reduced revenue by 0.6 per cent (£11.3 million) which combined
with an extra trading day led to overall revenue growth of 7.7 per cent.
The positive mix effect of market share gains by the higher gross margin Selco business and the Leyland SDM
acquisition increased the gross margin of the UK merchanting business by 30bps. Intense price competition and
pressure on gross margins continued to be a feature of trading in the traditional UK merchanting market.
The adjusted operating profit margin before property profit was maintained at 5.5 per cent.
Selco Builders Warehouse, the retail style merchanting model for trade and business customers, reported double
digit revenue growth and increased operating profit with the benefit of lower branch opening costs. Revenue
growth was primarily driven by the opening of new branches. Comparatively, low revenue growth in the like-
for-like business reflected general weakness in the UK economy, relatively flat trading conditions in the RMI
market, house price declines in London and the transfer of revenue from a number of established branches in
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London and other cities, that were operating close to capacity, to new branches that were opened within the
catchment area of these branches.
Expansion of the Selco branch footprint continued with the opening of seven new branches taking the estate to 66
including 38 in the Greater London Area, which accounted for 72 per cent of revenue in 2018. The opening of
24 branches over the past three years has created a business of scale and one of the UK’s largest and most
successful merchanting brands with revenue exceeding £0.5 billion in 2018. There remains a significant
opportunity to realise economies of scale over the coming years from growing revenue in branches that are
currently in the early stages of development and from continued expansion of the network.
Prior to the year end, Selco successfully relocated its Cricklewood branch to a larger nearby facility when the
current lease came to an end.
Leyland SDM, London’s largest independent specialist decorators merchant, trading from a network of 21 high
street branches in Central London, was acquired in February 2018. The acquisition reflects our focus on a resilient
segment of the RMI market and an emphasis on developing a new channel from exceptional locations that
complements the strong presence of Selco in the Greater London Area.
The performance of the business has met our expectations, delivering revenue in the year of £43.9 million and
generating an operating profit of £6.5 million. We have secured the expected purchasing benefits between
Leyland SDM and other Grafton businesses.
Buildbase experienced mixed trading conditions in the first half of the year reporting modest like-for-like revenue
growth. Activity recovered somewhat in the second half and overall revenue growth for the year was driven by
materials price inflation with volumes remaining broadly flat. The subdued trading conditions contributed to
gross margin pressure in a highly competitive market and operating profit was down on the previous year’s level
due to the planned increase in costs associated with implementing the new trading and back office ERP system.
Against a difficult market backdrop, there was a strong focus on cost control and cash flow generation. A number
of back-office modules of the new ERP system have been successfully implemented and branch testing is currently
ongoing with rollout expected to commence in the second quarter. The incremental costs of implementation and
user training is circa £3.0 million in the current year.
Plumbase made excellent progress for the second successive year with a doubling of operating profit. The
business made gains from streamlining its operating model and new marketing initiatives. The bathroom products
distribution business experienced improved demand in the second half and delivered a good performance. The
distribution centre in Bolton was relocated to a new facility with increased warehouse capacity.
Civils & Lintels, a distributor of heavyside building materials, grew revenue and profitability strongly from
increasing its exposure to the house building market. It entered into a number of new annual and multi-year
supply arrangements for groundworks and civil engineering products with national housebuilders and sub-
contractors. The business also made gains in the steel and concrete lintels market where it is the UKs largest
distributor and in the market for underground plastic drainage products. Market coverage was extended into the
North of England with the opening of a new branch in Leeds which traded ahead of expectations. In Scotland,
where the branches trade under the PDM brand, growth in the new housing market more than offset a slowdown
in the hydroelectric and civils markets.
MacBlair, the Northern Ireland merchanting business, had a very good year increasing revenue and operating
profit with the benefit of its strong exposure to the residential new build and RMI markets. The business also
made procurement and category management gains and leveraged its brand to improve its market position in the
region.
TG Lynes, a leading distributor of commercial pipes and fittings in London, reported a good performance in a
strong market and established new records for revenue and operating profit. Its core customer base of commercial
heating, plumbing and mechanical services contractors continued to develop and support a wide range of
residential, commercial and public sector new build and refurbishment projects.
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Irish Merchanting
Revenue
Operating profit before property profit
Operating profit margin before property profit
Operating profit
Operating profit margin
2018
£’m
441.1
41.3
9.4%
41.5
9.4%
2017
£’m
403.6
34.5
8.5%
35.5
8.8%
Constant
Currency
Change
+8.4%
+18.9%
+16.0%
Actual
Change
+9.3%
+19.8%
+90bps
+16.9%
+60bps
The Irish Merchanting business performed strongly delivering like-for-like revenue growth of 7.7 per cent.
Constant currency operating profit before property profit increased by 18.9 per cent and operating efficiency of
the overall business improved with a 90bps increase in the operating profit margin before property profit to 9.4
per cent.
Underlying market conditions were positive in the residential RMI and new build markets and in sectors of the
non-residential construction market. An increase in the supply of building materials to all phases of house building
was a key contributor to revenue growth. The number of housing units completed in 2018 increased to 18,000
from 14,436 units in 2017. Housing supply in Ireland is gradually picking up although it remains well short of
medium term demand which is estimated at 40,000 units on the basis of demographic factors that included inbound
migration and pent-up demand from a decade of under-supply. The level of house building is expected to increase
over the coming years with planning consent received for almost 30,000 units over the past year which is two
thirds higher than the current level of house building.
The business continued to strengthen its position in the housing RMI market as households responded to the
increase in the equity in their homes and growth in employment and disposable incomes by upgrading their
existing homes. There was also an increase in the number of transactions in the secondary housing market that
created a further stream of RMI activity.
New build and refurbishment activity also increased in the retail, office and hotel sectors. The most active
segments of the civil engineering market related to the provision of water services and transport infrastructure.
The three new branches that were opened in Dublin in 2017 established strong trading positions in their local
markets in their first full year of trading, grew revenue ahead of expectation and produced a good return on
investment. A new Trade Centre and Self Select Showroom trading format was successfully trialled and rolled
out in five branches by the year-end and will be extended on a phased basis to the entire estate with a view to
protecting and enhancing the businesses strong leadership position in the Irish merchanting market.
The business continued to consolidate its branch network onto a single trading system. The migration, when
competed in April 2019, will provide greater insights from a single source of data, streamline processes, deliver
strategic and financial benefits and enhance the user experience of employees and customers.
The contribution from an increase in like-for-like revenue by 7.7 per cent was partially offset by a small mix
related dilution in the gross margin due to an increase in the proportion of delivered revenue to the new build
sector and the creation of 50 new positions to support future growth in revenue. The operating profit margin in
the second half of the year increased by 160bps to 10.6 per cent.
8
Netherlands Merchanting
Revenue
Adjusted operating profit
Adjusted operating profit margin
2018
£’m
155.5
16.0
10.3%
2017
£’m
131.0
12.6
9.6%
Actual
Change
+18.7%
+26.9%
+70bps
Constant
Currency
Change
+17.6%
+25.9%
The continued expansion of the Dutch economy, driven by growth in employment and incomes, and sound
demand fundamentals in the residential and non-residential construction markets provided a generally positive
backdrop. Isero continued to strengthen its market leadership position through organic growth and acquisitions
increasing revenue by 17.6 per cent in constant currency including growth of 6.6 per cent in the like-for-like
business.
The four branch Amsterdam based Scholte & de Vries - Estoppey business acquired in November 2017 was
successfully integrated into Isero and traded in line with expectations. The acquisition of two single branch
businesses increased market coverage.
Organic growth included the openings of branches in Dordrecht and in Almere taking the total number of branches
at the year end to 62. The upgrading of a number of showrooms was well received by customers leading to
encouraging growth in revenue.
Procurement gains and efficiency improvements contributed to a significant increase in operating profit in the 14
branch Gunters en Meuser business that was acquired in January 2017. Very good progress was also made
growing revenue and profitability in the Isero business despite incurring significant costs on a new Distribution
Centre in Waddinxveen currently under construction that will double the size of the current facility and consolidate
all central support functions onto a single site. A new business-to-business e-Commerce platform with improved
functionality, product data and search engine optimisation features was successfully deployed prior to the year-
end and provides an opportunity to increase revenue over the coming year from a strong digital platform.
Belgium Merchanting
Revenue
Operating profit
Operating profit margin
2018
£’m
91.6
0.8
0.9%
2017
£’m
89.6
0.9
1.0%
Actual
Change
+2.2%
(12.2%)
(10bps)
Constant
Currency
Change
+1.3%
(11.9%)
After a slow start to the year the Belgian merchanting business saw better trading conditions in the second half
leaving operating profit marginally behind the prior year.
Encouraging progress was made in improving the underlying performance of a number of branches. The branch
in Central Brussels was relocated and a new satellite branch was opened. The result for the year was impacted by
branch opening and relocation costs and a number of reorganisation initiatives that led to a reduction in the cost
base of the business. The disposal of the non-core and geographically peripheral heavyside branch in St. Vith
was completed in October 2018.
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Retail Segment
Revenue
Operating profit
Operating profit margin
2018
£’m
198.2
16.8
8.5%
2017
£’m
180.4
11.2
6.2%
Actual
Change
+9.9%
+50.1%
+230bps
Constant
Currency
Change
+8.8%
+48.7%
2018 was the third consecutive year of strong growth in revenue and profitability as Woodie’s continued to build
a sustainable business for the long term while also laying the foundations for further growth. The positive outcome
for the year was driven by good market fundamentals and the benefit of the business transformation programme
and investment in branches undertaken in recent years.
The pace of growth in retail spending was strong supported by broadly based growth in employment, income and
consumer spending.
Woodie’s improved its leadership position in the Irish DIY, Home and Garden market growing like-for-like
revenue by 8.8 per cent with the number of transactions up by 4.1 per cent to 8.3 million and average transaction
values 4.7 per cent higher in response to new and extended product ranges.
After a first half that was influenced by extremes of weather, trading patterns were more even in the second half
and the business finished the year on a strong note with very good growth in the Christmas category driven by
range innovation, availability, great value and service.
Improvements to Woodie’s website and order fulfilment delivered sustainable online revenue growth of 70 per
cent from a low base with significant potential for future growth.
The branch modernisation programme is now at an advanced stage. Seven stores were upgraded during the year
and 85 per cent of retail space is now in the new trading format. This has provided a modern and more exciting
shopping experience by changing the layout of how products are categorised and merchandised.
Woodie’s continued to invest in colleagues to ensure that the business meets customers’ expectations for great
service with 170 colleagues graduating under the “Our Seeds for Success” programme and the business improving
its Great Place to Work ranking for the third successive year.
Operating profit grew by 50.1 per cent and the operating profit margin increased by 230bps to 8.5 per cent. This
follows growth of 150bps in the prior year and was driven by revenue growth, an increase in the gross margin,
from an improved product mix, lower promotional activity and tight control of overheads.
Manufacturing Segment
Revenue
Operating profit
Operating profit margin
2018
£’m
78.8
19.2
24.4%
2017
£’m
66.1
15.1
22.9%
Actual
Change
+19.3%
+27.3%
+150bps
Constant
Currency
Change
+19.2%
+27.2%
CPI EuroMix improved its position as the leading supplier of dry mortar in Great Britain. The performance for
the year created new records for volumes, revenue and operating profit. Record output was supported by increased
investment in silos placed on customer’s sites and an increase in the distribution fleet.
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Volume growth significantly outperformed the increase in housebuilding, the principal end-use market of the
businesses that accounts for three quarters of total output. Positive conditions in the new housing market were
supported by good underlying demand, the availability of attractive mortgage finance and the Government Help-
to-Buy scheme.
Improved penetration of the market for packaged mortar and concrete products was achieved from extending the
customer base and product supplied to a number of phases of the Thames Tideway project.
Competitive pricing, changes in product mix and increased fuel and energy costs saw the underlying gross margin
unchanged for the year. Volume growth together with a flexible operating model and increased efficiency from
leveraging spare capacity in the ten plants had a very positive impact on the operating profit margin which
increased 150bps to 24.4 per cent. The operating profit margin has increased by 370bps over the past two years.
Financial Review
The Group produced a strong set of results and made good progress against all of the key metrics that we use to
measure performance. Adjusted operating profit increased by 18.8 per cent, adjusted profit before taxation by
19.8 per cent and adjusted earnings per share by 20.3 per cent. Return on capital employed increased by 140bps
to 15.0 per cent. Cash generation was strong with cash flow from operations of £209.2 million and the Group
ended the year in a position of financial strength with low net debt to EBITDA, high EBITDA interest cover and
shareholders’ equity of £1.3 billion.
Revenue
Group revenue increased by 8.7 per cent to £3.0 billion (2017: £2.7 billion) and by 8.4 per cent in constant
currency. Organic growth of £184.3 million included volume and price growth of £126.4 million (4.7 per cent)
in the like-for-like business and £57.8 million from new branches. Acquisitions contributed revenue of £58.2
million. Branch consolidations and the disposal of two small businesses and a branch in Belgium reduced revenue
by £12.7 million and a favourable currency translation gain, due to the strengthening of the euro, increased sterling
revenue by £7.2 million.
Adjusted Operating Profit
Adjusted operating profit of £194.5 million (2017: £163.7 million) increased by 18.8 per cent due to strong organic
growth and a contribution from the Leyland SDM acquisition. Operating profit before property profit increased
by 17.8 per cent to £189.6 million (2017: £160.9 million).
The adjusted operating profit margin increased by 60bps to 6.6 per cent and by 50bps to 6.4 per cent before
property profit. The improvement was due to a stable operating margin in the UK merchanting business and
strong margin progression in the Irish and Netherlands merchanting businesses and in the retailing and
manufacturing segments.
Property
A profit of £4.9 million (2017: £2.7 million) was realised on the disposal of surplus properties in the UK and
Ireland that had ceased to be used for trading purposes and the proceeds of £9.1 million were redeployed to
generate higher returns elsewhere in the business.
Net Finance Income and Expense
The net finance expense declined by £0.3 million to £6.1 million (2017: £6.4 million). Interest payable on gross
debt of £5.9 million (2017: £4.9 million) comprised bank and loan note interest payable on borrowings that were
drawn, undrawn facility commitment fees and facility arrangement fees. The gross interest charge increased due
to the issue of unsecured senior notes in the US Private Placement market at an average coupon of 2.5 per cent
that replaced euro denominated bank borrowings with an interest charge that was based on negative short term
11
money market rates. Interest income on cash deposits and cash balances increased by £0.3 million to £0.9 million
due to increases in the sterling benchmark interest rate by the Bank of England.
There was a foreign exchange translation loss of £0.2 million on Euro and US dollar denominated cash and
overdrafts, down from a loss of £1.0 million in 2017 and the net finance cost of pension scheme obligations
declined by £0.2 million to £0.5 million.
Taxation
The income tax expense of £30.9 million (2017: £26.6 million) is equivalent to an effective tax rate of 17.1 per
cent (2017: 17.2 per cent) and compares to the underlying tax rate for the year of 18.5 per cent. The effective tax
rate benefitted from the utilisation of previously unrecognised losses brought forward to offset gains on the
disposal of properties and a credit for prior year adjustments. The tax rate for the Group is most sensitive to
changes in the UK rate of corporation tax where the highest proportion of Group profits are earned. The UK rate
is currently 19 per cent and a two percentage point reduction to 17 per cent will take effect on 1 April 2020. It is
expected that the underlying tax rate for the year ended 31 December 2019 will be 18.5 per cent.
Capital Expenditure, Investment in Intangible Assets and Acquisitions
Gross capital expenditure was £66.7 million (2017: £73.7 million) and there was expenditure of £6.9 million
(2017: £7.7 million) on computer software which is classified as intangible assets, a total investment of £73.6
million (2017: £81.4 million). Proceeds of £10.9 million (2017: £8.8 million) were received on the disposal of
property, plant and equipment. The investment in capital expenditure and computer software net of the proceeds
on disposal of fixed assets was £62.7 million (2017: £72.6 million).
Development capital expenditure of £34.1 million (2017: £41.6 million) was incurred on seven new Selco
branches, relocation of the large Selco Cricklewood and Central Brussels branches, the opening of new
merchanting branches in the Netherlands, the UK and Belgium, upgrading Woodie’s and Chadwick’s branches in
Ireland, Isero branches in the Netherlands and Buildbase branches in the UK and other development projects that
should provide a sound platform for the future profitable growth of the Group.
Asset replacement capital expenditure of £32.7 million (2017: £32.1 million) compares to the depreciation charge
for the year of £41.9 million (2017: £39.5 million) and related principally to replacement of the distribution fleet
that supports delivered revenue, replacement of equipment, plant and tools that are hired to customers and other
assets required to operate the Group’s branch network.
The investment of £6.9 million (2017: £7.7 million) on computer software related to the new IT platform in
Buildbase and other software development projects across the Group.
The cash outlay on acquisitions was £73.8 million (2017: £37.7 million) taking the total spend on acquisitions,
capital expenditure and investment in intangible assets for the year to £147.4 million (2017: £119.1 million).
Pensions
The IAS 19 deficit on defined benefit pension schemes was £20.2 million at 31 December 2018, a reduction of
£3.3 million from £23.5 million at 31 December 2017. The positive movement was due to a reduction in liabilities
by £13.9 million which mainly arose in the UK schemes and related to changes in financial assumptions,
principally an increase in the rate used to discount UK liabilities by 30 basis points to 2.9 per cent and experience
gains related to the actual experience of the UK schemes being more favourable than originally estimated. The
early payment of £1.2 million of contributions to the Irish schemes also contributed to the deficit reduction. These
gains were partially offset by a negative return of £7.3 million on plan assets which compared to a projected return
of £5.3 million.
In October 2018, the High Court of Justice of England and Wales issued a judgement that UK pension schemes
should equalise benefits for men and women for the calculation of their guaranteed minimum pension liability.
This ruling impacts the majority of companies with a UK defined benefit pension plan that was in existence before
12
1997. The impact of the equalisation, which is retrospective, on the Group’s UK schemes is an increase in scheme
liabilities by an estimated £1.0 million with a corresponding loss taken through Other Comprehensive Income.
Net Debt
Year-end net debt declined by £9.8 million to £53.1 million (2017: £62.9 million).
The Group remains in a very strong financial position with EBITDA interest cover of 48.0 times (2017: 48.4
times) and net debt was equivalent to 0.22 times EBITDA (2017: 0.31 times). The gearing ratio declined to four
per cent at 31 December 2018 from five per cent at 31 December 2017.
The Group’s policy is to maintain its current investment grade credit rating while maintaining a progressive
dividend policy and investing in organic developments and acquisition opportunities that are expected to generate
attractive returns on investment.
Financing
The Group had bilateral loan facilities of £489.4 million with six relationship banks at the year-end. An option
was exercised in February 2018 to extend facilities of £422.3 million for a further year to March 2023. The
maturity of the remaining facility of £67.1 million was extended by two years to March 2023.
In September 2018 the Group raised €160 million (£143.1 million) through an issue of unsecured senior notes in
the US Private Placement market with ten and twelve year maturities at an average annual coupon of 2.5 per cent
and used the proceeds received to refinance existing debt. The issue of these notes diversified the Group’s sources
of funding by re-entering the US Private Placement market, extended the maturity profile of debt and provided
greater certainty over the cost of debt for an extended period at attractive rates.
The average maturity of committed bank facilities and unsecured senior notes at 31 December 2018 was 5.7 years.
The Group’s key financing objective is to ensure that it has the necessary liquidity and resources to support the
short, medium and long term funding requirements of the business. At 31 December 2018 the Group had undrawn
bank facilities of £356.8 million (2017: £213.1 million) and cash balances and deposits of £223.0 million (2017:
£253.7 million) which together with strong cash flow from operations provides good liquidity and the capacity to
fund investment in working capital, replacement assets and development activity including acquisitions.
The Group’s gross debt is drawn in euros and provides a hedge against exchange rate risk on euro assets invested
in the Group’s businesses in Ireland, the Netherlands and Belgium.
IFRS 16 Leases
IFRS 16 Leases, which replaces IAS 17 Leases, brings most leases onto the balance sheet and eliminates the
distinction between operating and finance leases. This change will affect the presentation of many aspects of the
Group’s accounts including operating profit, earnings per share, net debt and return on capital employed.
All leases except for leases with a duration of less than one year will be recognised on the balance sheet as lease
liabilities, calculated as the present value of future lease payments, and will be included as part of net debt. The
corresponding right of use asset will be an amount equal to the lease liability, adjusted for any prepaid or accrued
lease payments and the onerous lease provision.
The Group will implement IFRS 16 from 1 January 2019 by applying the modified retrospective approach
meaning that the comparative figures in the financial statements for the year ended 31 December 2019 will not be
restated to show the impact of IFRS 16.
The operating leases that will be recorded on the balance sheet for the first time, following implementation of
IFRS 16, principally relate to merchanting and DIY branch properties, office buildings, cars and distribution
vehicles.
13
The Group has decided to reduce the complexity of implementation by availing of a number of practical
expedients on transition on 1 January 2019.
The Group is currently assessing the impact of IFRS 16 and estimates that the value of right-of-use assets and the
corresponding lease liability that will be brought onto the balance sheet at the transition date of 1 January 2019
will be in the region of £565 million to £585 million and comprises 2,400 individual lease agreements. This is
estimated to be equivalent to circa 7.5 times the Group’s 2018 operating lease charge of £77.0m.
The overall impact on the Income Statement of adopting IFRS 16 will be neutral over the life of a lease but will
result in a higher charge in the earlier years following implementation and a lower charge in the later years. As
an indication of the effect of the new leasing standard, based on the Group’s leases as at 1 January 2019, the Group
estimates that under IFRS 16 there will be a depreciation charge of c.£70 million and finance costs of c.£20 million
in 2019. This compares to the expected 2019 operating lease charge of c.£80 million under IAS 17. Assuming
no change in these leases, this finance cost will gradually decrease over the remaining lives. The overall effect
on profit before tax is expected to be neutral after approximately four to five years, then becoming positive moving
towards the end of the leases. It will not change overall cashflows or the economic effect of the leases to which
the Group is a party. There is no effect on Grafton’s existing banking covenants as a result of the implementation
of IFRS 16.
Shareholders’ Equity
The Group’s balance sheet strengthened further with shareholders’ equity increasing by £122.0 million (10.4%)
in the year to £1.3 billion driven by profit after tax of £150.4 million and other positive movements of £10.2
million. The payment of dividends has reduced shareholders equity by £38.6 million.
Return on Capital Employed and Asset Turn
Return on Capital Employed increased by 140bps to 15.0 per cent (2017: 13.6 per cent) which was in line with
the Group’s medium term target. The increased returns were achieved through driving profitable growth in
existing businesses and allocating development capital to projects that are expected to meet demanding hurdle
rates of return on capital employed.
Principal Risks and Uncertainties
The primary risks and uncertainties affecting the Group are set out on pages 50 to 53 of the 2017 Annual Report
and will be updated in the 2018 Annual Report.
The Group acknowledges the potential short-term disruption which could result from a “no-deal” Brexit at the
end of March 2019 and which could impact consumer confidence and sentiment. We have taken steps to identify
and mitigate against specific short term risk areas including the supply of certain products.
14
Grafton Group plc
Group Income Statement
For the year ended 31 December 2018
Continuing activities
Notes
Revenue
Operating costs
Property profits
Operating profit
Finance expense
Finance income
Profit before tax
Income tax expense
Profit after tax for the financial year
Profit attributable to:
Owners of the Company
Non-controlling interests
Profit after tax for the financial year
Earnings per ordinary share - basic
Earnings per ordinary share - diluted
2
3
4
4
17
8
5
5
2018
£’000
2017
£’000
2,952,743
2,715,830
(2,770,145)
(2,557,654)
4,854
187,452
(7,071)
944
181,325
(30,922)
150,403
2,722
160,898
(7,122)
675
154,451
(26,622)
127,829
150,403
127,719
-
110
150,403
127,829
63.29p
63.12p
53.95p
53.80p
15
Grafton Group plc
Group Statement of Comprehensive Income
For the year ended 31 December 2018
Profit after tax for the financial year
Other comprehensive income
Items that are or may be reclassified subsequently
to the income statement
Currency translation effects:
Notes
2018
£’000
150,403
2017
£’000
127,829
- on foreign currency net investments
1,775
4,146
Fair value movement on cash flow hedges:
- effective portion of changes in fair value of cash flow
hedges
- net change in fair value of cash flow hedges
transferred from equity
Deferred tax on cash flow hedges
Items that will not be reclassified to the income
statement
Remeasurement gain on Group defined benefit pension
schemes
Deferred tax on Group defined benefit pension
schemes
13
Total other comprehensive income
92
337
(45)
2,159
1,205
(386)
819
2,978
(202)
336
(30)
4,250
7,438
(1,069)
6,369
10,619
Total comprehensive income for the financial year
153,381
138,448
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
153,381
138,338
8
-
110
Total comprehensive income for the financial year
153,381
138,448
16
Grafton Group plc - Group Balance Sheet as at 31 December 2018
ASSETS
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investment properties
Deferred tax assets
Retirement benefit assets
Other financial assets
Total non-current assets
Current assets
Properties held for sale
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total current assets
Total assets
EQUITY
Equity share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Shares to be issued reserve
Cash flow hedge reserve
Foreign currency translation reserve
Retained earnings
Treasury shares held
Total equity attributable to owners of the Parent
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Retirement benefit obligations
Derivative financial instruments
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Interest-bearing loans and borrowings
Derivative financial instruments
Trade and other payables
Current income tax liabilities
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
31 Dec 2018
£’000
31 Dec 2017
£’000
15
16
9
9
13
9
10
10
11
11
11
13
11
17
11
11
10
17
646,198
79,809
521,631
15,048
9,395
1,469
123
1,273,673
11,595
350,061
451,245
222,984
49
1,035,934
591,746
54,340
504,412
22,056
11,867
1,527
126
1,186,074
5,055
328,525
413,095
253,659
-
1,000,334
2,309,607
2,186,408
8,514
213,430
621
13,146
11,220
(43)
79,280
974,271
(3,897)
1,296,542
275,250
21,651
21,632
-
42,444
360,977
767
103
608,659
33,036
9,523
652,088
8,494
212,167
621
13,327
8,744
(427)
77,505
858,053
(3,897)
1,174,587
315,165
21,888
25,006
484
37,986
400,529
916
-
572,130
27,613
10,633
611,292
1,013,065
1,011,821
2,309,607
2,186,408
17
Grafton Group plc - Group Cash Flow Statement
For the year ended 31 December 2018
Notes
Profit before taxation
Finance income
Finance expense
Operating profit
Depreciation
Amortisation of intangible assets
Share-based payments charge
Movement in provisions
Asset impairment and fair value gains/losses
Goodwill written off on disposal of Group businesses
Loss/(profit) on sale of property, plant and equipment
Property profit
(Profit)/loss on disposal of Group businesses
Contributions to pension schemes in excess of IAS 19 charge
(Increase)/decrease in working capital
Cash generated from operations
Interest paid
Income taxes paid
Cash flows from operating activities
Investing activities
Inflows
Proceeds from sale of property, plant and equipment
Proceeds from sales of properties held for sale
Proceeds from sales of investment properties
Proceeds from sale of Group businesses (net)
Interest received
Outflows
Acquisition of subsidiary undertakings (net of cash)
Investment in intangible asset – computer software
Purchase of property, plant and equipment
Cash flows from investing activities
Financing activities
Inflows
Proceeds from the issue of share capital
Proceeds from borrowings
Outflows
Repayment of borrowings
Dividends paid
Acquisition of non-controlling interest
Payment on finance lease liabilities
Cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
Cash and cash equivalents are broken down as follows:
Cash at bank and short-term deposits
9
16
9
14
9
9
14
10
9
9
9
14
14
16
9
6
31 Dec 2018
£’000
181,325
(944)
7,071
187,452
41,875
7,118
6,193
(1,525)
1,159
3,580
577
(4,854)
(1,649)
(2,565)
(28,153)
209,208
(6,628)
(24,299)
178,281
31 Dec 2017
£’000
154,451
(675)
7,122
160,898
39,455
4,032
4,908
(3,094)
329
-
(737)
(2,722)
3
(1,840)
9,506
210,738
(6,438)
(18,157)
186,143
7,350
2,614
934
12,951
944
24,793
(73,815)
(6,859)
(66,713)
(147,387)
(122,594)
1,283
244,910
246,193
(294,233)
(38,598)
-
(433)
(333,264)
(87,071)
(31,384)
253,659
709
222,984
3,100
5,708
-
512
675
9,995
(37,732)
(7,687)
(73,729)
(119,148)
(109,153)
1,941
34,355
36,296
(31,439)
(33,708)
(2,630)
(439)
(68,216)
(31,920)
45,070
205,857
2,732
253,659
222,984
253,659
18
Grafton Group plc - Group Statement of Changes in Equity
Year to 31 December 2018
At 1 January 2018
Profit after tax for the financial year
Total other comprehensive income
Remeasurement gain on pensions (net
of tax)
Movement in cash flow hedge reserve
(net of tax)
Currency translation effect on foreign
currency net investments
Total other comprehensive income
Total comprehensive income
Transactions with owners of the
Company recognised directly in
equity
Dividends paid
Issue of Grafton Units
Share based payments charge
Tax on share based payments
Transfer from shares to be issued
reserve
Transfer from revaluation reserve
Equity
share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Revaluation
reserve
£’000
Shares to
be issued
reserve
£’000
Cash
Flow
hedge
reserve
£’000
Foreign
currency
translation
reserve
£’000
Retained
earnings
£’000
Treasury
shares
£’000
Non-
Controlling
Interests
£’000
Total
£’000
Total
equity
£’000
8,494
212,167
621
13,327
8,744
(427)
77,505
858,053
(3,897) 1,174,587
- 1,174,587
-
-
-
-
-
-
-
20
-
-
-
-
-
-
-
-
-
-
-
1,263
-
-
-
-
20
1,263
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(181)
(181)
-
-
-
-
-
-
-
-
6,193
(304)
(3,413)
-
2,476
-
-
384
-
384
384
-
-
-
-
-
-
-
-
-
-
1,775
150,403
819
-
-
1,775
819
1,775
151,222
-
-
-
-
-
-
-
(38,598)
-
-
-
3,413
181
(35,004)
-
-
-
-
-
-
-
-
-
-
-
-
-
150,403
819
384
1,775
2,978
153,381
(38,598)
1,283
6,193
(304)
-
-
(31,426)
-
-
-
-
-
-
-
-
-
-
-
-
-
150,403
819
384
1,775
2,978
153,381
(38,598)
1,283
6,193
(304)
-
-
(31,426)
At 31 December 2018
8,514
213,430
621
13,146
11,220
(43)
79,280
974,271
(3,897) 1,296,542
- 1,296,542
Year to 31 December 2017
At 1 January 2017
Profit after tax for the financial year
Total other comprehensive income
Remeasurement gain on pensions (net
of tax)
Movement in cash flow hedge reserve
(net of tax)
Currency translation effect on foreign
currency net investments
Total other comprehensive income
Total comprehensive income
Transactions with owners of the
Company recognised directly in
equity
Dividends paid
Issue of Grafton Units
Share based payments charge
Tax on share based payments
Transfer from shares to be issued
reserve
Acquisition of non-controlling interest
Transfer from revaluation reserve
8,449
210,271
621
13,507
8,446
(531)
73,359
751,842
(3,897) 1,062,067
3,122 1,065,189
-
-
-
-
-
-
-
45
-
-
-
-
-
-
-
-
-
-
-
-
1,896
-
-
-
-
-
45
1,896
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(180)
(180)
-
-
-
-
-
-
-
-
4,908
439
(5,049)
-
-
298
-
-
104
-
104
104
-
-
-
-
-
-
-
-
-
-
-
4,146
4,146
4,146
-
-
-
-
-
-
-
-
127,719
6,369
-
-
6,369
134,088
(33,708)
-
-
-
5,049
602
180
(27,877)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
127,719
110
127,829
6,369
104
4,146
10,619
138,338
(33,708)
1,941
4,908
439
-
602
-
-
-
-
-
6,369
104
4,146
10,619
110
138,448
-
-
-
-
-
(33,708)
1,941
4,908
439
-
(3,232)
(2,630)
-
-
(25,818)
(3,232)
(29,050)
At 31 December 2017
8,494
212,167
621
13,327
8,744
(427)
77,505
858,053
(3,897) 1,174,587
- 1,174,587
19
Grafton Group plc
Notes to Final Results for the year ended 31 December 2018
1. General Information
Grafton Group plc (“Grafton” or “the Group”) is an international distributor of building materials to trade
customers who are primarily engaged in residential repair, maintenance and improvement projects and house
building.
The Group has leading regional or national market positions in the merchanting markets in the UK, Ireland, the
Netherlands and Belgium. Grafton is also the market leader in the DIY retailing market in Ireland and is the largest
manufacturer of dry mortar in Great Britain.
The Group’s origins are in Ireland where it is headquartered, managed and controlled. It has been a publicly
quoted company since 1965 and its Units (shares) are quoted on the London Stock Exchange where it is a
constituent of the FTSE 250 Index and the FTSE All-Share Index.
The financial information presented in this preliminary release does not constitute full statutory financial
statements. The preliminary release was approved by the Board of Directors. The annual report and financial
statements will be approved by the Board of Directors and reported on by the auditors in due course. Accordingly,
the financial information is unaudited. Full statutory financial statements for the year ended 31 December 2017
have been filed with the Irish Registrar of Companies. The audit report on those statutory financial statements
was unqualified.
Basis of Preparation, Accounting Policies and Estimates
(a) Basis of Preparation and Accounting Policies
The consolidated financial statements of the Group are prepared in accordance with International Financial
Reporting Standards (‘IFRS’) issued by the International Accounting Standards Board (‘IASB’) as adopted by the
European Union (‘EU’); and those parts of the Companies Act 2014 applicable to companies reporting under
IFRS.
The financial information in this report has been prepared in accordance with the Group’s accounting policies.
Full details of the accounting policies adopted by the Group are contained in the consolidated financial statements
included in the Group’s annual report for the year ended 31 December 2017 which is available on the Group’s
website; www.graftonplc.com.
The accounting policies and methods of computation and presentation adopted in the preparation of the Group
financial information are consistent with those described and applied in the annual report for the year ended 31
December 2017, except for those noted below.
The financial information includes all adjustments that management considers necessary for a fair presentation of
such financial information. All such adjustments are of a normal recurring nature. Certain tables in the financial
information may not add precisely due to rounding.
(b) Estimates
In preparing the Financial Statements, the significant judgements made by management in applying the Group’s
accounting policies and the key sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31 December 2017. Actual results may differ from
estimates calculated using these judgements and assumptions.
20
1. General Information (continued)
Basis of Preparation, Accounting Policies and Estimates (continued)
Impacts of standards and interpretations in issue but not yet effective
IFRS 16 – Leases (effective date: financial year beginning 1 January 2019)
This standard addresses the definition of a lease, recognition and measurement of leases and establishes principles
for reporting useful information to users of financial statements about the leasing activities of both lessees and
lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet
for lessees. The standard replaces IAS 17 ‘Leases’, and related interpretations.
The distinction between operating leases (off balance sheet) and finance leases (on balance sheet) is removed for
lease accounting. The principal difference to lease accounting at present under IAS 17 is the requirement to bring
almost all leases onto the balance sheet except for leases with a term of less than 12 months and leases of low
value assets. The Group expects to adopt IFRS 16 by applying the modified retrospective approach and to
recognise a lease liability and corresponding right of use asset. The right of use asset is initially measured at cost
and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease
payments that are not paid as of that date. Subsequently, the lease liability is adjusted for interest and lease
payments, as well as the impact of lease modifications, amongst others.
The standard is expected to have a material impact on the Group with the recognition of lease liabilities and right
of use assets. Group Management have reviewed contracts to identify lease arrangements that would need to be
recognised under IFRS 16. Based on the impact analysis performed, the Group expects to recognise a lease
liability and corresponding right of use asset of approximately £565 million to £585 million at transition.
There will be a higher income statement charge in the earlier years post-implementation which will unwind over
time such that the overall impact of IFRS 16 will be neutral on the income statement over the life of a lease.
Impacts of standards effective from 1 January 2018
IFRS 9 – Financial Instruments
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial
assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge
accounting.
The Group adopted IFRS 9 - Financial Instruments from 1 January 2018, with the practical expedient as stated
below. In accordance with the transitional provisions, comparative figures have not been restated. The impact of
adopting IFRS 9 was not material to the Group’s consolidated financial statements and there was no adjustment
to retained earnings on application at 1 January 2018.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial
liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held-to-maturity, loans
and receivables and available-for-sale. Under IFRS 9, on initial recognition, a financial asset is classified as
measured at amortised cost or fair value through other comprehensive income (FVOCI), or fair value through
profit or loss (FVPL). The classification is based on the business model for managing the financial assets and the
contractual terms of the cash flows.
21
1. General Information (continued)
Impacts of standards effective from 1 January 2018 (continued)
IFRS 9 – Financial Instruments (continued)
On 1 January 2018 (the date of initial application of IFRS 9), the group’s management has assessed which business
models apply to the financial assets held by the group and has classified its financial instruments into the
appropriate IFRS 9 categories as follows:
Trade and other receivables
Cash and cash equivalents
Interest rate swaps
*when hedge accounting is applied
Original Classification
Loans and receivables
Loans and receivables
Cashflow hedge
New
Classification
Amortised Cost
Amortised Cost
FVOCI*
Carrying
amount
1 January 2018
£m
413.1
253.7
(0.5)
Trade and other receivables and cash and cash equivalents that were classified as loans and receivables under IAS
39 - Financial Instruments: Recognition and Measurement are now classified at amortised cost as the Group’s
business model is to hold the financial asset to collect contractual cash flows. Interest rate swaps which were
classified as cashflow hedges are now classified as FVOCI.
Trade receivables are subject to the new expected credit loss model in IFRS 9 – Financial Instruments. The Group
has therefore revised its impairment methodology. The group applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk
characteristics and the days past due.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan
with the Group, and the commencement of legal proceedings.
The adoption of IFRS 9 – Financial Instruments has not had a significant impact on the Group’s accounting
policies related to financial liabilities and derivative financial instruments.
IFRS 9 - Financial Instruments requires that when a financial liability measured at amortised cost is modified
without being derecognised, a gain or loss should be recognised in the income statement. This change in
accounting policy did not have a material impact on the Group’s financial results.
The Group has elected to adopt the new general hedge accounting model in IFRS 9. The new hedge accounting
does not have an impact on the Group’s accounting for hedging instruments. The Group’s risk management
practices and documentation has been assessed in line with the new standard and all current hedge relationships
qualify as continuing hedges upon the adoption of IFRS 9.
22
1. General Information (continued)
Impacts of standards effective from 1 January 2018 (continued)
IFRS 15 – Revenue from Contracts with Customers
The Group has adopted IFRS 15 - Revenue from Contracts with Customers from 1 January 2018 which resulted
in changes to the Group’s accounting policies. This change in accounting policy did not have a material impact
on the Group’s financial results for 2018.
Accounting Policies
Revenue comprises the fair value of consideration receivable for goods and services supplied to external
customers in the ordinary course of the Group’s activities and excludes inter-company revenue and value added
tax.
In general, revenue is recognised to the extent that the Group has satisfied its performance obligations to the buyer
and the buyer has obtained control of the goods or services being transferred. In the case of sales of goods, this
generally arises when products have either been delivered to or collected by a customer and there is no unfulfilled
obligation that could affect the acceptance of the products.
Revenues are recorded based on the price specified in the sales invoices/contracts net of actual and estimated
returns, rebates and any discounts granted.
23
2. Segmental Analysis
The amount of revenue and operating profit under the Group’s reportable segments of Merchanting, Retailing and
Manufacturing is shown below. Segment profit measure is operating profit before exceptional items and
amortisation of intangible assets arising on acquisitions.
Revenue
Merchanting
Retailing
Manufacturing
Less: Inter-segment revenue - manufacturing
Segment operating profit before exceptional items and
intangible assets amortisation arising on acquisitions
Merchanting
Retailing
Manufacturing
Reconciliation to consolidated operating profit
Central activities
Property profits
Operating profit before exceptional items and intangible assets
amortisation arising on acquisitions
Profit on the disposal of Group businesses (note 14)
Goodwill written off on disposal of Group businesses (note 14)
Amortisation of intangible assets arising on acquisitions
Operating profit
Finance expense
Finance income
Profit before tax
Income tax expense
Profit after tax for the financial year
The amount of revenue by geographic area is as follows:
Revenue
United Kingdom
Ireland
Belgium
Netherlands
2018
£’000
2,675,756
198,174
91,992
(13,179)
2,952,743
168,179
16,785
19,248
204,212
(14,588)
189,624
4,854
194,478
1,649
(3,580)
(5,095)
187,452
(7,071)
944
181,325
(30,922)
150,403
2018
£’000
2,062,018
643,625
91,581
155,519
2,952,743
Revenue has been further disaggregated by segment with the Operating Review on pages 6 to 11.
2017
£’000
2,469,350
180,391
78,009
(11,920)
2,715,830
148,877
11,179
15,125
175,181
(14,249)
160,932
2,722
163,654
-
-
(2,756)
160,898
(7,122)
675
154,451
(26,622)
127,829
2017
£’000
1,907,159
588,030
89,613
131,028
2,715,830
24
2. Segmental Analysis (continued)
Operating segment assets are analysed below:
Segment assets
Merchanting
Retailing
Manufacturing
Unallocated assets
Deferred tax assets
Retirement benefit assets
Other financial assets
Derivative financial instruments (current and non-current)
Cash and cash equivalents
31 Dec 2018
£’000
31 Dec 2017
£’000
1,965,869
64,260
45,458
2,075,587
9,395
1,469
123
49
222,984
1,816,532
59,348
43,349
1,919,229
11,867
1,527
126
-
253,659
Total assets
2,309,607
2,186,408
Operating segment liabilities are analysed below:
Segment liabilities
Merchanting
Retailing
Manufacturing
Unallocated liabilities
Interest bearing loans and borrowings (current and non-current)
Retirement benefit obligations
Deferred tax liabilities
Current income tax liabilities
Derivative financial instruments (current and non-current)
31 Dec 2018
£’000
31 Dec 2017
£’000
574,209
48,344
17,280
639,833
276,017
21,632
42,444
33,036
103
545,941
43,657
15,053
604,651
316,081
25,006
37,986
27,613
484
Total liabilities
1,013,065
1,011,821
3. Operating Profit
The property profit of £4.9 million (2017: £2.7 million) relates to the disposal of seven properties in the UK and
two properties in Ireland (2017: 11 UK properties).
25
4. Finance Expense and Finance Income
Finance expense
Interest on bank loans, US senior notes and overdrafts
Net change in fair value of cash flow hedges transferred from
equity
Interest on finance leases
Net finance cost on pension scheme obligations
Foreign exchange loss
Finance income
Interest income on bank deposits
Net finance expense
* Net bank/loan note interest of £4.9 million (2017: £4.2 million).
2018
£’000
2017
£’000
5,865
*
4,902 *
337
165
503
201
7,071
336
188
721
975
7,122
*
(944)
(944)
(675) *
(675)
6,127
6,447
26
5. Earnings per Share
The computation of basic, diluted and underlying earnings per share is set out below.
Numerator for basic, adjusted and diluted earnings per share:
Profit after tax for the financial year
Non-controlling interest
Numerator for basic and diluted earnings per share
Amortisation of intangible assets arising on acquisitions
Tax relating to amortisation of intangible assets arising on
acquisitions
Goodwill written off on disposal of Group businesses
Profit on disposal of Group businesses
Tax relating to profit on disposal of Group businesses
Numerator for adjusted earnings per share
Year Ended 31
Dec 2018
£’000
Year Ended 31
Dec 2017
£’000
150,403
-
150,403
5,095
(1,025)
3,580
(1,649)
488
156,892
127,829
(110)
127,719
2,756
(618)
-
-
-
129,857
Number of
Grafton
Units
Number of
Grafton
Units
Denominator for basic and adjusted earnings per share:
Weighted average number of Grafton Units in issue
237,626,735
236,746,881
Dilutive effect of options and awards
664,353
662,760
Denominator for diluted earnings per share
238,291,088
237,409,641
Earnings per share (pence)
- Basic
- Diluted
Adjusted earnings per share (pence)
- Basic
- Diluted
6. Dividends
63.29
63.12
66.02
65.84
53.95
53.80
54.85
54.70
The payment in 2018 of a second interim dividend for 2017 of 10.25 pence on the ‘C’ Ordinary shares in Grafton
Group (UK) plc from UK-sourced income amounted to £24.3 million. A 2018 interim dividend of 6.00 pence per
share was paid on 28 September 2018 on the ‘C’ Ordinary shares in Grafton Group (UK) plc from UK-sourced
income and amounted to £14.3 million.
A second interim dividend for 2018 of 12.00 pence per share will be paid on the ‘C’ Ordinary Shares in Grafton
Group (UK) plc from UK-sourced income to all holders of Grafton Units on the Company’s Register of Members
at the close of business on 8 March 2019 (the ‘Record Date’). The dividend will be paid on 5 April 2019. A
liability in respect of this second interim dividend has not been recognised at 31 December 2018, as there was no
present obligation to pay the dividend at the year-end.
27
7. Exchange Rates
The results and cash flows of subsidiaries with euro functional currencies have been translated into sterling using
the average exchange rate for the year. The balance sheets of subsidiaries with euro functional currencies have
been translated into sterling at the rate of exchange ruling at the balance sheet date.
The average sterling/euro rate of exchange for the year ended 31 December 2018 was Stg88.47p (2017:
Stg87.67p). The sterling/euro exchange rate at 31 December 2018 was Stg89.45p (2017: Stg88.72p).
8. Non-Controlling Interests
In December 2017, the Group acquired the non-controlling interest of YouBuild NV (formerly BMC Groep NV).
This is now accounted for as a 100% subsidiary undertaking.
9. Property, Plant and Equipment, Properties Held for Sale and Investment Properties
Property, plant
and equipment
£’000
Properties
held for sale
£’000
Investment
properties
£’000
Net Book Value
As at 1 January 2018
Additions
Acquisitions (note 14)
Depreciation
Disposals
Disposal of Group businesses (note 14)
Impairments & property revaluations
Transfer to properties held for sale
Transfer to investment properties
Currency translation adjustment
As at 31 December 2018
10. Movement in Working Capital
At 1 January 2018
Currency translation adjustment
Disposal of Group businesses (note 14)
Acquisitions (note 14)
Movement in 2018
At 31 December 2018
504,412
66,713
1,490
(41,875)
(3,670)
(3,213)
(1,046)
(1,683)
(762)
1,265
521,631
5,055
-
-
-
(2,075)
-
(113)
8,708
-
20
11,595
Trade
and other
receivables
£’000
Trade and
other
payables
£’000
Inventories
£’000
328,525
1,069
(9,984)
6,692
23,759
350,061
413,095
977
(6,281)
3,083
40,371
451,245
(572,130)
(1,422)
7,820
(6,950)
(35,977)
(608,659)
22,056
-
-
-
(876)
-
-
(7,025)
762
131
15,048
Total
£’000
169,490
624
(8,445)
2,825
28,153
192,647
28
11. Interest-Bearing Loans, Borrowings and Net debt
Non-current liabilities
Bank loans
US senior notes
Finance leases
Total non-current interest-bearing loans and borrowings
Current liabilities
Bank loans
Finance leases
Total current interest-bearing loans and borrowings
Derivatives
Included in non-current assets
Included in non-current liabilities
Included in current liabilities
Total derivatives
Cash and cash equivalents
Net debt
31 Dec 2018
£’000
31 Dec 2017
£’000
131,138
142,338
1,774
275,250
312,980
-
2,185
315,165
332
435
767
(49)
-
103
54
478
438
916
-
484
-
484
(222,984)
(253,659)
53,087
62,906
The following table shows the fair value of financial assets and liabilities including their level in the fair value
hierarchy. It does not include fair value information for financial assets and liabilities not measured at fair value
if the carrying amount is a reasonable approximation of fair value.
31 Dec 2018
£’000
31 Dec 2017
£’000
Assets/liabilities measured at fair value
Designated as hedging instruments
Interest rate swaps and other derivatives (Level 2)
Liabilities not measured at fair value
Liabilities at amortised cost
Bank loans
US senior notes
Finance leases
54
484
131,470
142,338
2,209
276,017
313,458
-
2,623
316,081
Financial assets and liabilities recognised at amortised cost
Except as detailed above, it is considered that the carrying amounts of financial assets and liabilities including
trade payables, trade receivables, net debt and deferred consideration, which are recognised at amortised cost in
the year-end financial statements, approximate to their fair values.
Financial assets and liabilities carried at fair value
All of the Group’s financial assets and liabilities which are carried at fair value are classified as Level 2 in the fair
value hierarchy. There have been no transfers between levels in the current period. Fair value measurements are
categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The
fair values of interest rate swaps are calculated as the present value of the estimated future cash flows based on
the terms and maturity of each contract and using forward currency rates and market interest rates as applicable
for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include
adjustments to take account of the credit risk of the Group entity and counterparty where appropriate.
29
12. Reconciliation of Net Cash Flow to Movement in Net Debt
Net (decrease)/increase in cash and cash equivalents
Net movement in derivative financial instruments
Bank loans and loan notes acquired with subsidiaries (note 14)
Cash-flow from movement in debt and lease financing
Change in net debt resulting from cash flows
Currency translation adjustment
Movement in net debt in the year
Net debt at 1 January
Net debt at end of the year
Gearing
31 Dec 2018
£’000
31 Dec 2017
£’000
(31,384)
430
(7,386)
49,756
11,416
(1,597)
9,819
45,070
264
-
(2,477)
42,857
(9,468)
33,389
(62,906)
(96,295)
(53,087)
(62,906)
4%
5%
13. Retirement Benefits
The principal financial assumptions employed in the valuation of the Group’s defined benefit scheme liabilities
for the current and prior year were as follows:
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation
Irish Schemes
At 31 Dec
2018
%
At 31 Dec
2017
%
2.40% *
-
1.80%
1.20%
2.65% *
-
1.85%
1.45%
UK Schemes
At 31 Dec
2018
%
0.00% **
3.10%
2.90%
2.10% ***
At 31 Dec
2017
%
0.00% **
3.10%
2.60%
2.10% ***
*2.40% applies from 2 January 2019 (31 December 2017: 2.65% from 2 January 2019)
** Pensionable salaries are not adjusted for inflation
*** The inflation assumption shown for the UK is based on the Consumer Price Index (CPI)
30
13. Retirement Benefits (continued)
The following table provides a reconciliation of the scheme assets (at bid value) and the actuarial value of
scheme liabilities:
Assets
Liabilities
Net asset/(deficit)
Year to
31 Dec
2018
Year to
31 Dec
2017
Year to
31 Dec
2018
Year to
31 Dec
2017
Year to
31 Dec
2018
Year to
31 Dec
2017
£’000
£’000
£’000
£’000
£’000
£’000
239,363
221,966
(262,842)
(253,251)
(23,479)
(31,285)
-
5,328
5,499
651
-
5,296
4,193
688
(8,399)
(8,179)
-
-
-
(198)
-
-
(651)
8,399
(688)
8,179
-
5,328
5,499
-
-
(198)
5,296
4,193
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,764)
(2,677)
(2,764)
(2,677)
(33)
34
-
(56)
282
98
(33)
34
-
(56)
282
98
(5,831)
(6,017)
(5,831)
(6,017)
6,270
7,848
(244)
183
(6,216)
1,900
6,270
7,848
(244)
183
(6,216)
1,900
(12,669)
11,571
-
-
(12,669)
11,571
At 1 January
Acquired in year
Interest income on plan assets
Contributions by employer
Contributions by members
Benefit payments
Current service cost
Other long term benefit
(expense)/ gain
Past service credit
Settlement gain
Interest cost on scheme
liabilities
Remeasurements
Actuarial gains/(loss) from:
-experience variations
-financial assumptions
-demographic assumptions
Return on plan assets
excluding interest income
Translation adjustment
898
3,828
(1,020)
(4,381)
(122)
(553)
At 31 December
230,671
239,363
(250,834)
(262,842)
(20,163)
(23,479)
Related deferred tax asset (net)
Net pension liability
2,926
3,581
(17,237)
(19,898)
The net pension scheme deficit of £20.2 million is shown in the Group balance sheet as retirement benefit
obligations (non-current liabilities) of £21.6 million and retirement benefit assets (non-current assets) of £1.4
million. £14.9 million of the retirement benefit obligations relates to schemes in Ireland, Belgium and the
Netherlands and £6.7 million relates to one UK scheme. £1.0 million of the retirement benefit asset relates to a
second UK scheme and £0.4 million to one scheme in Ireland.
31
13. Retirement Benefits (continued)
The 2017 net pension scheme deficit of £23.5 million is shown in the Group balance sheet as retirement benefit
obligations (non-current liabilities) of £25.0 million and retirement benefit assets (non-current assets) of £1.5
million. £13.0 million of the retirement benefit obligations relates to schemes in Ireland, Belgium and the
Netherlands and £12.0 million relates to one UK scheme. £1.0 million of the retirement benefit asset relates to a
second UK scheme and £0.5 million to one scheme in Ireland.
14. Acquisitions & Disposals
Acquisitions
On 16 February 2018, the Group acquired the entire share capital (100%) of LSDM Limited (“Leyland SDM”).
Leyland SDM is a very recognisable and trusted decorating and DIY brand in Central London selling paint, tools,
ironmongery and accessories. The Leyland SDM "small box" convenience trading format is a proven business
model in Central London that complements the Group's larger Selco branches located in Greater London. Leyland
SDM trades from 21 branches. The transaction was funded from the Group’s cash and debt facilities. The business
is incorporated in the merchanting segment.
On 1 June 2018, the Group acquired 100% of Freke Inbraakbeveiliging (“Freke”), a single branch full service
security/access control specialist merchant in the Netherlands. The business is incorporated in the merchanting
segment.
In September 2018, the Group acquired 100% of Smits’ Ijzerhandel B.V., a single branch in the Netherlands
trading as Probin Kaatsheuvel which offers ironmongery, tools and workwear products. The business is
incorporated in the merchanting segment.
Details of the acquisitions made in 2017 are disclosed in the Group’s 2017 Annual Report.
The provisional fair value of assets and liabilities acquired in 2018 are set out below:
Property, plant and equipment
Intangible assets – customer relationships
Intangible assets – trade names
Intangible assets – computer software
Inventories
Trade and other receivables
Trade and other payables
Corporation tax (liability)
Deferred tax (liability)
Deferred tax asset
(Debt) acquired
Cash acquired
Net assets acquired
Goodwill
Consideration
Satisfied by:
Cash paid
Net cash outflow – arising on acquisitions
Cash consideration
Less: cash and cash equivalents acquired
Leyland
£’000
1,323
23,033
1,880
701
6,340
2,558
(6,234)
(703)
(4,309)
-
(7,386)
5,477
22,680
53,954
76,634
Other
£’000
167
-
-
-
352
525
(716)
(7)
-
73
-
440
834
2,264
3,098
Total
£’000
1,490
23,033
1,880
701
6,692
3,083
(6,950)
(710)
(4,309)
73
(7,386)
5,917
23,514
56,218
79,732
76,634
3,098
79,732
76,634
(5,477)
71,157
3,098
(440)
2,658
79,732
(5,917)
73,815
32
14. Acquisitions & Disposals (continued)
Acquisitions (continued)
The fair value of the net assets acquired have been determined on a provisional basis. Goodwill on these
acquisitions reflects the anticipated purchasing and operational synergies to be realised as part of the enlarged
Group.
The acquisition of Leyland SDM in February 2018 contributed revenue of £43.9 million and operating profit of
£6.5 million for the period from the date of acquisition to 31 December 2018. If the acquisition had occurred on
1 January 2018 it would have contributed revenue of £49.9 million and operating profit of £7.2 million in the
year. The Group incurred acquisition costs of £0.7 million in 2018 (2017: £0.7 million) which are included in
operating costs in the Group Income Statement.
Disposals
During the year the Group completed the disposal of a number of businesses which were no longer considered to
be a strategic fit within the portfolio of the Group’s businesses. These included Boole’s Tools & Piping Fittings
Limited and Online Home Retail Limited in the UK and Saint-Vith in Belgium.
Boole’s Tools was disposed on 31 August 2018. Saint-Vith was disposed in 31 October 2018 and the disposal of
Plumbworld was completed on 14 December 2018. As a result, the net assets of the Group decreased by £1.9
million representing an overall loss on disposal. The loss on disposal reflects the cash consideration of £13.5
million offset by the net book value of the assets disposed of £15.4 million. The net assets disposed include the
write off of the carrying value of the allocated goodwill of £3.6 million.
The carrying value of assets and liabilities disposed in 2018 are set out below:
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Corporation tax (liability)
Cash disposed
Goodwill written off
Net assets disposed
Cash consideration received
Net loss on disposal of Group businesses
Analysis of loss on disposal of Group businesses
Goodwill written off
Profit on disposal
Net loss on disposal
Cash flow from disposal of Group businesses
Cash consideration received
Cash disposed
Net cash inflow - arising on disposals
£’000
3,213
9,984
6,281
(7,820)
(356)
583
3,580
15,465
(13,534)
1,931
£’000
(3,580)
1,649
(1,931)
£’000
13,534
(583)
12,951
33
15. Goodwill
Goodwill is subject to impairment testing on an annual basis and more frequently if an indicator of impairment is
considered to exist. The Board is satisfied that the carrying value of goodwill has not been impaired.
Net Book Value
As at 1 January 2018
Arising on acquisitions (note 14)
Disposal of Group businesses (note 14)
Currency translation adjustment
As at 31 December 2018
16.
Intangible Assets
Net Book Value
As at 1 January 2018
Additions
Arising on acquisitions (note 14)
Amortisation
Currency translation adjustment
As at 31 December 2018
Computer
Software
£’000
Trade
Names
£’000
Customer
Relationships
£’000
31,233
6,859
701
(2,023)
(4)
36,766
2,743
-
1,880
(511)
17
4,129
20,364
-
23,033
(4,584)
101
38,914
Goodwill
£’000
591,746
56,218
(3,580)
1,814
646,198
Total
£’000
54,340
6,859
25,614
(7,118)
114
79,809
The computer software asset of £36.8 million at 31 December 2018 (2017: £31.2 million) reflects the cost of the
Group’s investment on upgrading the IT systems and infrastructure that supports a number of UK businesses as
part of a multi-year programme of investment. A number of these systems are not yet available for use in the
business and are therefore not amortised.
The amortisation expense of £7.1 million (2017: £4.0 million) has been charged in ‘operating costs’ in the Group
Income Statement. Amortisation on acquired intangibles amounted to £5.1 million (2017: £2.8 million).
17. Taxation
The income tax expense of £30.9 million (2017: £26.6 million) was equivalent to an effective tax rate of 17.1 per
cent (2017: 17.2 per cent) and compares to the underlying tax rate for the year of 18.5 per cent (2017: 18.5 per
cent). The effective tax rate benefitted from the utilisation of previously unrecognised losses forward to offset
gains on the disposal of properties and a credit for prior year adjustments. The underlying rate is based on the
prevailing rates of corporation tax and the mix of profits between the UK, Ireland, the Netherlands and
Belgium. The tax rate is impacted by the disallowance of a tax deduction for certain overheads including
depreciation on property. The tax rate for the Group is most sensitive to changes in the UK rate of corporation
tax where the highest proportion of Group profits are earned. The UK rate is currently 19 per cent and a two
percentage point reduction to 17 per cent will take effect on 1 April 2020.
The liability shown for current taxation includes a liability for tax uncertainties and is based on the Directors’
single best estimate of the probable outflow of economic resources that will be required. As with all estimates,
the actual outcome may be different to the current estimate.
34
17. Taxation (continued)
Accounting estimates and judgements
Management is required to make judgements and estimates in relation to taxation provisions and exposures. In
the ordinary course of business, the Group is party to transactions for which the ultimate tax determination may
be uncertain. As the Group is subject to taxation in a number of jurisdictions, an open dialogue is maintained with
Revenue Authorities with a view to the timely agreement of tax returns. The amounts provided/recognised for tax
are based on management’s estimate having taken appropriate professional advice. If the final determination of
these matters is different from the amounts that were initially recorded such differences could materially impact
the income tax and deferred tax provisions and assets in the period in which the determination was made.
Deferred tax
At 31 December 2018, there were unrecognised deferred tax assets in relation to capital losses of £1.9 million (31
December 2017: £0.6 million), trading losses of £3.3 million (31 December 2017: £3.4 million) and deductible
temporary differences of £2.6 million (31 December 2017: £nil).
Deferred tax assets were not recognised in respect of certain capital losses as they can only be recovered against
certain classes of taxable profits. The Directors believe that it is not probable that such profits will arise in the
foreseeable future. The trading losses arose in entities that have incurred losses in recent years and the Directors
believe that it is not probable there will be sufficient taxable profits in the relevant entities against which they can
be utilised. Separately, the Directors believe that it is not probable the deductible temporary differences will be
utilised.
18. Related Party Transactions
There have been no new related party transactions. There were no other changes in related parties from those
described in the 2017 Annual Report that materially affected the financial position or the performance of the
Group during the year to 31 December 2018.
19. Events after the Balance Sheet Date
There have been no other material events subsequent to 31 December 2018 that would require adjustment to or
disclosure in this report.
20. Board Approval
This announcement was approved by the Board of Grafton Group plc on 27 February 2019.
35
Supplementary Financial Information
Alternative Performance Measures
Certain financial information set out in this consolidated half year financial statements is not defined under
International Financial Reporting Standards (“IFRS”). These key Alternative Performance Measures (“APMs”)
represent additional measures in assessing performance and for reporting both internally and to shareholders and
other external users. The Group believes that the presentation of these APMs provides useful supplemental
information which, when viewed in conjunction with IFRS financial information, provides readers with a more
meaningful understanding of the underlying financial and operating performance of the Group.
None of these APMs should be considered as an alternative to financial measures drawn up in accordance with
IFRS. The key Alternative Performance Measures (“APMs”) of the Group are set out below. As amounts are
reflected in £’m some non-material rounding differences may arise. Numbers that refer to 2017 are available in
the 2017 Annual Report.
APM
Description
Adjusted operating
profit/EBITA
Profit before amortisation of intangible assets arising on acquisitions,
exceptional items, net finance expense and income tax expense.
Adjusted operating
profit/EBITA before property
profit
Profit before profit on the disposal of Group properties, amortisation of
intangible assets arising on acquisitions, exceptional items, net finance
expense and income tax expense.
Adjusted operating
profit/EBITA margin before
property profit
Adjusted profit before tax
Adjusted operating profit/EBITA before property profit as a percentage of
revenue.
Profit before amortisation of intangible assets arising on acquisitions,
exceptional items and income tax expense.
Adjusted profit after tax
Profit before amortisation of intangible assets arising on acquisitions and
exceptional items but after deducting the income tax expense.
Capital Turn
Constant Currency
Revenue for the previous 12 months divided by average capital employed
(where capital employed is the sum of total equity and net debt at each
period end).
Constant currency reporting is used by the Group to eliminate the
translational effect of foreign exchange on the Group's results. To arrive at
the constant currency change, the results for the prior period are retranslated
using the average exchange rates for the current period and compared to the
current period reported numbers.
Dividend Cover
Group earnings per share divided by the total dividend per share for the
Group.
EBITA
EBITDA
Earnings before exceptional items, net finance expense, income tax expense
and amortisation of intangible assets arising on acquisitions.
Earnings before exceptional items, net finance expense, income tax
expense, depreciation and amortisation of intangible assets arising on
acquisitions. EBITDA (rolling 12 months) is EBITDA for the previous 12
months.
36
EBITDA Interest Cover
EBITDA divided by net bank/loan note interest.
Gearing
The Group net debt divided by the total equity attributable to owners of the
Parent times 100.
Like-for-like revenue
Like-for-like revenue is a measure of underlying revenue performance for
a selected period. Branches contribute to like-for-like revenue once they
have been trading for more than twelve months. Acquisitions contribute to
like-for-like revenue once they have been part of the Group for more than
12 months. When branches close, or where a business is disposed of,
revenue from the date of closure, for a period of 12 months, is excluded
from the prior year result.
Operating profit/EBITA
margin
Profit before net finance expense and income tax expense as a percentage
of revenue.
Return on Capital Employed
Operating profit divided by average capital employed (where capital
employed is the sum of total equity and net debt at each period end) times
100.
Adjusted Operating Profit/EBITA before Property Profit
Revenue
Operating profit
Property profit
Goodwill written off / profit on disposal of Group businesses
Amortisation of intangible assets arising on acquisitions
Adjusted operating profit/EBITA before property profit
Adjusted operating profit/EBITA margin before property profit
Operating Profit/EBITA Margin
Revenue
Operating profit
Operating profit margin
Adjusted Operating Profit/EBITA & Margin
Operating profit
Goodwill written off / profit on disposal of Group businesses
Amortisation of intangible assets arising on acquisitions
Adjusted operating profit
Adjusted operating profit/EBITA margin
2018
£’m
2,952.7
187.5
(4.9)
1.9
5.1
189.6
6.4%
2018
£’m
2,952.7
187.5
6.4%
2018
£’m
187.5
1.9
5.1
194.5
6.6%
2017
£’m
2,715.8
160.9
(2.7)
-
2.8
160.9
5.9%
2017
£’m
2,715.8
160.9
5.9%
2017
£’m
160.9
-
2.8
163.7
6.0%
37
Adjusted Profit before Tax
Profit before tax
Goodwill written off / profit on disposal of Group businesses
Amortisation of intangible assets arising on acquisitions
Adjusted profit before tax
Adjusted Profit after Tax
Profit after tax for the financial year
Goodwill written off / profit on disposal of Group businesses
Related tax on disposal of Group businesses
Amortisation of intangible assets arising on acquisitions
Tax on amortisation of intangible assets arising on acquisitions
Adjusted profit after tax
Reconciliation of Profit to EBITDA
Profit after tax for the financial year
Net finance expense
Income tax expense
Depreciation
Intangible asset amortisation
EBITDA
Net debt to EBITDA
EBITDA
Net debt
Net debt to EBITDA - times
EBITDA Interest Cover
EBITDA
Net bank/loan note interest
EBITDA interest cover - times
2018
£’m
181.3
1.9
5.1
188.4
2018
£’m
150.4
1.9
0.5
5.1
(1.0)
156.9
2018
£’m
150.4
6.1
30.9
41.9
7.1
236.4
2018
£’m
236.4
53.1
0.22
2018
£’m
236.4
4.9
48.0
2017
£’m
154.5
-
2.8
157.2
2017
£’m
127.8
-
-
2.8
(0.6)
130.0
2017
£’m
127.8
6.4
26.6
39.5
4.0
204.4
2017
£’m
204.4
62.9
0.31
2017
£’m
204.4
4.2
48.4
38
Gearing
Total equity attributable to owners of the Parent
Group net debt
Gearing
Return on Capital Employed
Operating profit
Goodwill written off / profit on disposal of Group businesses
Amortisation of intangible assets arising on acquisitions
Adjusted operating profit
Total equity - current period end
Net debt - current period end
Capital employed - current period end
Total equity - prior period end
Net debt - prior period end
Capital employed - prior period end
Average capital employed
Return on capital employed
Capital Turn
Revenue
Average capital employed
Capital turn – times
Dividend Cover
Group adjusted EPS – basic (pence)
Group dividend (pence)
Group dividend cover - times
2018
£’m
1,296.5
53.1
4%
2018
£’m
187.5
1.9
5.1
194.5
1,296.5
53.1
1,349.6
1,174.6
62.9
1,237.5
1,293.6
15.0%
2018
£’m
2,952.7
1,293.6
2.3
2018
66.02
18.00
3.7
2017
£’m
1,174.6
62.9
5%
2017
£’m
160.9
-
2.8
163.7
1,174.6
62.9
1,237.5
1,065.2
96.3
1,161.5
1,199.5
13.6%
2017
£’m
2,715.8
1,199.5
2.3
2017
54.85
15.50
3.5
39