Earnings Release • Mar 8, 2016
Earnings Release
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Grafton Group PLC
08 March 2016
GRAFTON GROUP PLC
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
Grafton Group plc ("the Group"), the builders merchanting and DIY Group with operations in the UK, Ireland, Belgium and the Netherlands, announces its final results for the year ended 31 December 2015.
Financial Highlights
· Revenue up 6% to a record £2.21 billion (8.9% in constant currency)
· Adjusted Group operating profit* up 15% to £126.8 million from £110.1 million
· Adjusted Group operating profit margin* increased by 40 basis points to 5.7% from 5.3%
· Adjusted Group profit before taxation* up 17% to £118.9 million from £101.2 million
· Adjusted basic earnings per share up 19% to 41.0p
· 16% dividend increase reflects strong improvement in profitability
· Strong cash generation from operations of £139.3 million and year-end gearing of 12%
· Return on capital employed increased by 110 basis points to 12.2%
Operating Highlights
· UK merchanting business continued to generate good revenue and profit growth
· Selco performed particularly strongly and opened five new branches
· Significant improvement in Irish merchanting business supported by improving economic and
construction trends
· DIY business in Ireland back on a growth path
· Successful entry into the Netherlands merchanting market on completion of Isero acquisition
| 2015 | 2014 | |||
| £'m | £'m | % change | ||
| Revenue | 2,212 | 2,082 | +6% | |
| Adjusted* | ||||
| Operating profit | 126.8 | 110.1 | +15% | |
| Operating profit before property profit | 120.1 | 107.9 | +11% | |
| Profit before tax | 118.9 | 101.2 | +17% | |
| Profit after tax | 95.1 | 80.0 | +19% | |
| Adjusted earnings per share - basic | 41.0p | 34.4p | +19% | |
| Statutory | ||||
| Operating profit | 128.2 | 110.1 | +16% | |
| Profit before tax | 120.3 | 101.2 | +19% | |
| Profit after tax | 96.5 | 80.0 | +21% | |
| Earnings per share - basic | 41.6p | 34.4p | +21% | |
| Dividend | 12.50p | 10.75p | +16% | |
| Net debt | 113.6 | 75.3 | +51% | |
| Total equity Adjusted operating margin Return on capital employed |
989.0 5.7% 12.2% |
906.3 5.3% 11.1% |
+9% +40 bp +1.1% pts |
*Before defined benefit pension scheme past service credit of £2.95 million and an asset impairment charge of £1.52million in the Belgium business.
Gavin Slark, Chief Executive Officer commented:
"Grafton made continuing progress in 2015 producing record revenue and solid growth in operating profit. We continued to invest in organic growth initiatives and selective acquisitions, most notably Isero in the Netherlands. We are confident about the overall prospects for the Group and expect to deliver organic growth in the year ahead and to also benefit from recent development activity as well as exposure to the strengthening economies in Ireland and the Netherlands."
Webcast Details
A results presentation hosted by Gavin Slark and David Arnold for analysts and investors will be held today 8 March 2016 at 9.30am GMT.
The web address to access the live webcast is as follows;
Replay
The webcast will be available to watch later in the day.
The results presentation can be viewed/downloaded at http://www.graftonplc.com
For further information please contact:
Grafton Group plc + 353 1 216 0600
Gavin Slark, Chief Executive Officer
David Arnold, Chief Financial Officer
Murray + 353 1 498 0300
Pat Walsh
| MHP Communications + 44 20 3128 8100 |
| James White |
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.
Final Results
For the Year Ended 31 December 2015
Group Results
Grafton made continuing progress in 2015 producing record revenue and solid growth in operating profit that reflected both organic growth and contributions from acquisitions. It was a year of significant development activity with the acquisition of Isero which gave the Group a presence in the Netherlands for the first time, the completion of a number of bolt-on acquisitions in the UK merchanting market and the opening of five new Selco branches.
The UK merchanting business, which accounted for three quarters of Group revenue, reported record revenue and continued to grow operating profit albeit at a more moderate rate than in recent years. Overall trading conditions were broadly positive although the UK economy slowed and margin pressure was a feature of trading in the traditional merchanting business.
The merchanting business in Ireland reported a significant increase in revenue and operating profit for the second successive year against the backdrop of a strong recovery in the economy and generally good but competitive market conditions.
The Isero business, acquired as a growth platform in the Netherlands merchanting market, had only a minimal impact on the results for the year as it was acquired in late November.
The Irish retailing business benefitted from an acceleration in consumer spending which extended into the DIY sector in the second half of the year leading to increased revenue and operating profit in the Woodie's business.
The UK Mortar business reported a strong increase in operating profit despite weaker market conditions in the second half of the year.
Dividend
A second interim dividend of 8.0p (2014: 7.0p) was approved to give a total dividend for the year of 12.50p. This represents an increase of 16.3 per cent on total dividends of 10.75p paid for 2014. The increase is in line with the Board's policy of increasing dividends as earnings increase and reflects both the strong cashflow from operations and relatively low level of year-end net debt. The dividend cover increased to 3.3 times from 3.2 times.
Outlook
Growth in UK domestic demand was resilient in 2015 supported by rising employment, growth in real incomes, consumer confidence at near record highs and historically low interest rates. While these trends are expected to continue there are downside risks that the weaker outlook for the global economy, volatility in financial markets and a UK referendum on continued membership of the European Union could weigh on UK consumer confidence and demand. Activity in the housing RMI market is however expected to be sustained by strong market fundamentals, a resumption of growth in housing transactions in the second half of 2015 following a decline in the first half of the year and survey evidence that customers remain disposed to spending on big ticket items.
The overall outlook in Ireland is favourable as growth in employment and incomes in a low inflation and low interest rate environment should support the ongoing improvement in the economy. Both residential and non-residential construction should benefit from the improving economy. The gradual recovery in house building is expected to continue but at a much lower level than required to meet ongoing demand. A good pipeline of commercial projects at the planning stage or under construction should see a continuation of the growth in activity that started from a very low base during 2015. The recovery in retail sales which gathered momentum in 2015 should continue to be positive for the DIY market.
January and February average daily like-for-like revenue increased by 5.8 per cent in the UK merchanting business, 11.5 per cent in Irish merchanting business and 1.5 per cent in the Belgian merchanting business. Like-for-like revenue growth in the Netherlands business was 6.1 per cent compared to the pre-acquisition performance for January/February 2015. Revenue grew by 7.1 per cent in the retailing business in Ireland and by 13.0 per cent in the manufacturing segment.
The Group is confident about its overall prospects and expects to deliver organic growth in operating profit in the year ahead and to also benefit from the development initiatives undertaken during 2015 and earlier this year. This should enable further progress towards the delivery of the medium term growth targets of a 7 per cent operating profit margin and a return on capital employed of 15 per cent.
Operating Review
Merchanting Segment (91% of Group Revenue)
Group Merchanting revenue increased by 7.3 per cent to £2.01 billion (2014: £1.88 billion). Operating profit, before an exceptional pension scheme credit of £2.95 million and an asset impairment charge in the Belgian business of £1.52 million, was up by 12.9 per cent to £124.20 million (2014: £110.04 million). The operating profit margin was up by 30 basis points to 6.2 per cent.
UK Merchanting revenue increased by 8.9 per cent to £1.66 billion (2014: £1.53 billion) and operating profit, including property profit and excluding an exceptional pension credit, was up by 13.8 per cent to £105.58 million (2014: £92.78 million). The operating profit margin increased by 30 basis points to 6.4 per cent. Operating profit, before property profit and before an exceptional pension credit, grew by 8.5 per cent to £98.89 million (2014: £91.16 million). The UK Merchanting operating profit margin, before property profit and before an exceptional pension credit, was unchanged at 6.0 per cent.
Growth of 3.9 per cent in average daily like-for-like revenue was driven by increased activity in the residential RMI and new build markets. Price inflation was estimated at one per cent for the year and like-for-like merchanting volumes increased by circa 3.0 per cent. New branches, implants, acquisitions and branch consolidations contributed revenue growth of 5.0 per cent.
The overall gross margin increased by ten basis points due to favourable mix changes relating to Selco and acquisitions that more than offset competitive pricing pressure in the traditional merchanting business, principally in Plumbase.
It was a more difficult year for the traditional merchanting business as the benefit of like-for-like revenue growth was more than offset by a decline in the gross margin and increased costs incurred in the ordinary course of business, upgrading legacy IT systems and strategic development initiatives.
Selco Builders Warehouse had an excellent year achieving significant success in growing revenue and operating profit and delivering a further improvement in operating margin. Strong like-for-like revenue growth was largely influenced by demand from trade and business customers operating in the residential RMI market and by an increase in average transaction values and footfall. Expansion of the branch network in recent years improved operating leverage through economies of scale in procurement and marketing while enabling the business to provide a superior customer service that differentiates it in the market place.
2015 was a year of significant development activity for Selco with the opening of five new branches including three in the last quarter. Market coverage in the South East was enhanced with the opening of branches in Redhill, New Southgate and Weybridge. Selco continued to build on its organic growth strategy by expanding its regional market position with the successful opening of branches in Coventry and Southampton. The programme of branch openings increased the network to 40 including 24 in London and the South East. A similar number of branch openings are planned for 2016.
Selco's retail style trade format evolved during the year with the launch of a Click & Collect service in all branches. Customers who order on-line can collect products purchased within one trading hour of placing an order. Selco Direct, a service that enables customers in the UK to purchase 5,000 products on-line for next day delivery, was also launched during the year.
Buildbase delivered positive results increasing revenue, operating profit and operating margin supported by organic growth from solid demand in the residential RMI and new build markets and good contributions from the ten branches acquired in the second half of last year. The benefit of increased demand in the like-for-like business and an improvement in the gross margin was partially offset by increased costs related to strategic initiatives. The overall business showed a healthy increase in revenue and profit and Buildbase increased its share of a competitive market.
The Hirebase implants posted strong results and continued to develop its market position following the opening of 22 new implants in 2014 and 15 in 2015. The Electricbase strategic initiative made significant progress performing ahead of expectations and reporting an operating profit. A range of electrical products are now available through implants in 80 Buildbase branches including 23 that were opened in 2015.
In November, Buildbase acquired Wollens, a general merchanting business trading from two branches in Glastonbury and Cannington. Since the year-end, coverage of the merchanting market was enhanced with the purchase of T. Brewer, a specialist timber business trading from three branches in London and Allsands, a general builders merchanting business located in Larkfield, Kent.
Plumbase showed a modest decline in revenue against the background of a softer residential heating market. The gross margin was lower due to intense price competition for lower volumes in the domestic heating market. The deterioration in market conditions led to a significant decline in operating profit for the year. A range of measures were implemented including the closure of eleven branches and six further branches were consolidated into properties that are shared with other Group businesses in response to the weaker market over the past year. Management continued to focus on securing procurement gains, tight cost control, growing revenue and tightly controlling working capital. The specialist bathroom products distribution business had another good year.
The Contracts business comprises Buildbase Civils and a number of specialist distribution businesses where demand is mainly influenced by activity in the residential, infrastructure and commercial new build markets. Revenue increased but operating profit was reduced due to gross margin pressure in a competitive market.
Plumbase Industrial, a distributor of mechanical engineering products to the commercial, public sector, residential and industrial process markets was launched in late 2013. It continued to grow its market position organically and through the TG Lynes and Parkes Services acquisitions completed during the year. The acquisition of TG Lynes, with a strong position in the mechanical services market in London and the South East, was a significant step forward for the business. TG Lynes outperformed both pre-acquisition expectations and the prior year since the acquisition in late February 2015. The acquisition of Parkes Services in August 2015 expanded market coverage into the Bristol area.
Macnaughton Blair, the Northern Ireland Merchanting business, benefitted from a steady recovery in the local economy supported by private sector employment growth, an improvement in customer confidence and spending and increased business investment. The recovery in construction activity continued to be fragile. Housing transactions showed marginal growth and house prices returned to 2005 levels. There were signs of a tentative recovery in house building with housing starts up by 17 per cent to one-third of pre-recession volumes. Revenue growth combined with a successful focus on cost efficiency helped to drive a significant improvement in both operating profit and margin. A strong performance in the specialist ironmongery division contributed to the improved performance. The contract scaffolding business, a small non-core business, was sold in June 2015.
Irish Merchanting reported revenue was marginally lower at £257.32 million (2014: £257.55 million) although local currency revenue was up strongly by 10.9 per cent to €354.51 million (2014: €319.49 million). Operating profit increased by 13.2 per cent to £18.58 million (2014: £16.42 million) and by 25.7 per cent to €25.60 million (2014: €20.37 million) in local currency. The operating profit margin increased by 80 basis points to 7.2 per cent.
The business continued to benefit from its superior service quality, a key differentiator that saw it outperform a recovering market, increasing like-for-like revenue by 10.1 per cent. Despite competitive pricing pressure in the early months of the year, the gross margin recovered in the second half and was higher for the year with the benefit of procurement and other commercial initiatives. Revenue growth of almost a quarter over the past two years in a strengthening market together with the development of attractive market segments including heating products required additional manpower investment to maintain superior levels of customer service and provide capacity for further growth.
Residential property transactions, a key driver of demand in the residential RMI market, continued to trend upward in 2015 and were equivalent to 2.2 per cent of the housing stock. This was half the level of transactions anticipated in a normalised market. House price growth nationally eased in 2015 to 6.6 per cent following growth of 16.3 per cent in 2014 as the introduction of tighter rules on mortgage lending led to a cooling of the market.
There was a modest increase in house building as completions increased to an estimated 12,000 units from 11,000 units in 2014. This was less than half the level of estimated output required to meet demand on the basis of demographic trends. Forward looking indicators point to growth in house building but the level of supply is likely to continue to lag growth in household formation for some time.
The national network of merchanting branches used its instinctive knowledge of local markets and breadth of products distributed in Ireland to take advantage of improving economic and market conditions to increase profitability. The primary driver of growth was increased volumes in the residential RMI market. Infrastructure projects, refurbishment of commercial properties and the agricultural sector were other important end-use markets that showed the strongest gains in revenue. A subdued recovery in house building from a low base was focused on the construction of single dwellings in provincial locations and on small in-fill housing developments in Dublin.
Netherlands Merchanting reported revenue was £8.54 million for the period from completion of the acquisition of Isero BV on 18 November 2015 and operating profit was £0.32 million before charging acquisition costs and amortisation. Local currency revenue was €11.76 million and operating profit before acquisition costs and amortisation was €0.45 million. This was in line with pre-acquisition expectations and ahead of the prior year.
Isero is a leading specialist distributor of tools and fixings trading from 38 branches in the Netherlands under the Gerritse, Breur Ceintuurbaan and Van der Winkel brands. It operates a small store format model with a strong focus on customer service and stock availability. The business trades in a fragmented segment of the merchanting market where there are opportunities to grow the branch network organically and by acquisition under an established management team that has a good track record.
Belgium Merchanting reported revenue declined by 9.6 per cent to £82.76 million (2014: £91.56 million) and was up by 0.4 per cent in local currency to €114.09 million (2014: €113.67 million). An operating loss of £1.81 million was reported for the year (2014: profit of £0.85 million).
The business was adversely affected by very challenging economic and market conditions which saw overall like-for-like revenue decline by 0.3 per cent and competitive pressure on gross margins in the YouBuild business. In the first quarter, the Group completed the appointment of a new senior management team to run the Belgian business. This experienced team devoted significant time to improving the operating and control environment in YouBuild and their focus in 2016 will be on a margin improvement programme.
The MPRO business, which accounts for almost half of Belgian revenue and trades from two branches in Brussels and four in the Walloon region, was resilient despite facing difficult trading conditions in the residential new build and RMI markets. While like-for-like revenue was broadly unchanged, operating profit was ahead of the prior year due to the benefit of procurement gains.
The 65 per cent owned YouBuild business, which is fully accounted for as a subsidiary undertaking with a non-controlling interest, experienced a significant decline in performance. The 11 branches located in Flanders faced very difficult trading conditions. Trading was intensely competitive and a decline in gross margin led to an underlying trading loss in the period.
The YouBuild back office functions were integrated into the MPRO shared services centre in Brussels. There was a non-recurring inventory asset impairment charge of £1.52 million reflected in the result for the year. The readymix operation, a small non-core business and the Group's only involvement in this market, was sold in June 2015.
Retail Segment (7% of Group Revenue)
Revenue declined by 6.1 per cent to £148.56 million (2014: £158.24 million) and was up 4.4 per cent in local currency to €205.10 million (2014: €196.52 million). Like-for-like revenue increased by 4.4 per cent. Operating profit increased to £3.48 million from £2.38 million in 2014. Operating profit in local currency increased by 62.2 per cent to €4.80 million (2014: €2.96 million).
The marked improvement in consumer sentiment in Ireland evident in recent years continued at a steady rate through 2015. Employment growth, rising earnings and reduced taxes, during a period of very low inflation, translated into growth of 5 per cent in retail sales. The pace and stage of the recovery was more advanced in the Greater Dublin Area and provincial cities than elsewhere in the country. Despite the strong economic recovery consumers remained cautious and discounting was a feature of the retail sales environment during the year.
Like-for-like revenue growth of 1.8 per cent in the first half was influenced by lower demand for seasonal products over the key trading periods of Easter and the public holiday weekends. Second half like-for-like revenue growth of 7.0 per cent benefited from the recovery in retail sales extending into the DIY sector and promotional activity including discounting of seasonal products.
Improving the value proposition in certain product categories and promotional activity led to a marginal reduction in the gross margin. Overheads were tightly managed and were unchanged for the year. The refurbishment of three stores in the Dublin area and one in Cork city has been well received by customers and should accelerate revenue growth as the market recovers and improved returns are achieved.
The seven store In-House kitchens business benefitted from the recovery in the housing RMI market and from increased volumes supplied to Selco and Woodie's and returned to profitability. In view of the increasingly trade nature of the customer base and change in reporting lines this business was transferred to the merchanting segment with effect from 1 January 2016.
Manufacturing Segment (2% of Group Revenue)
Revenue increased by 8.5 per cent to £52.84 million (2014: £48.71 million) and by 9.2 per cent in local currency. Operating profit increased by 23.3 per cent to £9.75 million (2014: £7.91 million) and the operating profit margin increased by 2.3 percentage points to 18.5 per cent.
CPI EuroMix, the market leader in the supply of dry mortar from a network of eight manufacturing plants in England and one in Scotland, increased revenue by 9.8 per cent to £49.67 million (2014: £45.25 million). The business continued to benefit from growth in house building across the country.
Favourable market conditions were driven by strong consumer demand which saw the market for new homes strengthen. The availability of mortgages at low interest rates, as competition among lenders intensified, and the Help to Buy equity loan scheme enabled improved access to the housing market for first-time buyers and home movers.
A marginal decline in second half like-for-like revenue reflected a softening in the level of housing starts over the course of the year and a reduction in infrastructural concrete volumes supplied to Crossrail projects in London. Housing registrations, a lead indicator of activity in the new housing market, increased by 7 per cent in 2015, to a level last exceeded in 2007. Medium term demand for housing is also expected to be supported by UK Government policies to improve planning and the starter home scheme.
Volume growth, positive pricing trends, investment in plant operating efficiencies and cost control contributed increased profit and margin expansion.
Carlton, a leading manufacturer of concrete and mortar products produced in waterproof and recyclable packaging, was acquired in July. This acquisition expands the portfolio of packaged products, customer base and end-use markets and has a residential RMI focus. It also increased bagging capacity in the enlarged business from the Carlton plant in Rotherham.
MFP, a manufacturer of PVC drainage and roofline products based in Dublin, increased volumes supplied to the Group's merchanting businesses in Ireland in a strengthening market. Expansion of the Selco branch network in the UK contributed to an increase in the supply of roofline products.
Financial Review
Grafton used its strong cash flow from operations and its balance sheet capacity to fund a significant development and capital programme that curtailed incremental net debt to £38.24 million, despite a £150.22 investment on acquisitions and capital projects.
Property
A particular strength of the Group's balance sheet is the asset backing of its freehold property most of which is carried at fair value at the time of acquisition or at historic cost. The majority of the portfolio is used for trading purposes and provides a platform to expand and develop the branch network. The Group has historically earned a stream of profits and cash flows from the disposal of surplus property and this trend continued in 2015. A profit of £6.69 million was realised on the disposal of a number of UK properties for £9.49 million, including £6.24 million received following the disposal of a small branch property in Stoke Newington, London.
The year-end carrying value of properties held for resale and actively marketed and properties held with a view to enhancing their development potential or pending a recovery in values in Ireland was £28.60 million.
Pensions
Defined contribution style funding arrangements apply to over 90 per cent of the Group's employees. Defined benefit pensions schemes have 800 current employees and 1,700 deferred members and pensioners.
The IAS 19 pre-tax deficit on the defined benefit pension schemes declined by £16.34 million to £16.62 million (31 December 2014: £32.96 million). This was primarily due to a fall in the present value of scheme liabilities as the rates used to discount scheme liabilities increased in line with movements in corporate bond yields. UK Scheme liabilities were discounted at 3.95 per cent, an increase of 35 basis points and Irish scheme liabilities were discounted at 2.35 per cent, an increase of 25 basis points. Experience gains related to a lower rate of inflation than anticipated and changes to life expectancy also contributed to the deficit decline. The income statement includes a past service credit of £2.95 million arising from the change in the basis for increasing pensions to CPI from RPI.
Net Finance Income and Expense
The net finance charge for the year was £7.88 million (2014: £8.86 million). This incorporated a reduction in net bank and loan rate interest of £1.44 million to £5.91 million (2014: £7.35 million) due to the refinancing of bank debt completed in May 2014, lower average net debt for the year and a decline in money market interest rates. The net finance cost of defined benefit pension scheme obligations increased by £0.66 million to £0.90 million (2014: £0.24 million).
Taxation
The tax charge for the year of £23.83 million is equivalent to an effective rate of 19.8 per cent. This was lower than the underlying rate of 21 per cent due to the use of a previously unrecognised deferred tax asset to offset a taxable profit arising on the disposal of properties in the UK during the year. The underlying effective rate of 21 per cent reflected the blended rate of corporation tax on profits in the UK and Ireland and the disallowance of a tax deduction for certain overheads charged in arriving at profit before tax including depreciation on property. There was a reduction in the UK rate of corporation tax to 20 per cent with effect from 1 April 2015 and a further reduction in this rate takes effect in two stages, to 19 per cent from 1 April 2017 and 18 per cent from 1 April 2020. The forecast tax charge for 2016 is 20 per cent.
Capital Expenditure and Intangible Assets
Capital and development expenditure amounted to £51.58 million (2014: £46.86 million). The focus of development expenditure of £31.44 million (2014: £26.80 million) was on delivering organic performance improvements in existing businesses and on optimising benefits from growth opportunities in businesses that have a sustainable competitive advantage. Resources required to fund the long-term growth of the Selco business with the opening of five new branches, development of hire and the launch of Click & Collect and Selco Direct to support on-line as a growth channel, amounted to £11.54 million. An investment of £9.99 million was made as part of the multi-year programme to upgrade the Group's IT systems and infrastructure that supports a number of UK businesses including Buildbase. This expenditure recognises the role of information technology in trading efficiently and achieving commercial benefits.
Asset replacement expenditure of £20.14 million mainly related to the distribution fleet, refurbishment of branches and replacement of plant and equipment hired to customers.
Net Debt
Net debt at 31 December 2015 was £113.56 million, an increase of £38.24 million. The increase was attributable to a spend of £150.22 million on acquisitions and capital expenditure that was primarily funded from cashflow from operations.
Cash held on deposit and in current accounts was £211.57 million at the year-end (31 December 2014: £182.36 million). The year-end gearing ratio was 12% (31 December 2014: 8 per cent). EBITDA interest cover was 27.3 times (2014: 19.4 times) and year end debt was 0.70 times EBITDA (2014: 0.53 times).
In October DBRS, the international credit rating agency, restored the Group's investment grade credit rating. This development recognised the improvement in operating performance and credit metrics achieved over recent years.
Financing
The level of undrawn facilities at the year-end was £115.70 million (31 December 2014: £207.50 million) which, together with the Group's cash deposits and balances, provide appropriate funding headroom and financing flexibility. Earlier this month the Group completed an amendment and extension of its loan facilities to improve terms and refresh the maturity date. Bilateral loan facilities for £434 million with five existing relationship banks now have an extended five year maturity of March 2021 plus two one-year extension options. The new arrangements were timed to take advantage of more favourable market conditions for pricing on drawn and undrawn facilities and will reduce finance costs. The Group also entered into a revolving loan facility for £58 million on similar terms with a new relationship bank. These arrangements provide certainty of finance over a longer period on competitive terms.
Shareholders' Equity
Shareholders' equity increased by £83.42 million to £985.67 million at 31 December 2015 (31 December 2014: £902.25 million). Profit after tax increased equity by £96.50 million and dividend payments reduced equity by £26.80 million. The after tax decline in the defined benefit pensions scheme deficit increased shareholders equity by £11.15 million. There was a currency loss of £6.24 million on conversion of euro denominated assets, net of related euro debt, into sterling at the year-end Euro/Sterling exchange rate of 73.40p (31 December 2014: 77.89p). Proceeds received from the issue of shares under the UK SAYE scheme were £3.31 million.
Return on Capital Employed and Asset Turn
Return on Capital Employed (ROCE) increased 1.1 percentage points to 12.2% (2014: 11.1 %) and capital turn was 2.1 times (2014: 2.1 times). The Group is committed to achieving increased returns for shareholders as demonstrated by setting a new medium term target of 15 % for return on capital employed. This target is based on a combination of an improvement in operating performance and the more efficient deployment of capital including realising cash from surplus property that can be reinvested in the business to generate higher returns.
Grafton Group plc
Group Condensed Income Statement
For the year ended 31 December 2015
| Continuing activities | Notes | 2015 £'000 |
2014 £'000 |
||||
| Revenue | 2 | 2,211,990 | 2,081,686 | ||||
| Operating costs | 3 | (2,083,779) | (1,971,581) | ||||
| Operating profit | 128,211 | 110,105 | |||||
| Finance expense | 4 | (8,932) | (9,857) | ||||
| Finance income | 4 | 1,050 | 997 | ||||
| Profit before tax | 120,329 | 101,245 | |||||
| Income tax | 17 | (23,827) | (21,223) | ||||
| Profit after tax for the financial year | 96,502 | 80,022 | |||||
| Profit attributable to: | |||||||
| Owners of the Company | 97,179 | 80,046 | |||||
| Non-controlling interests | 8 | (677) | (24) | ||||
| Profit after tax for the financial year | 96,502 | 80,022 | |||||
| Earnings per ordinary share - basic | 5 | 41.62p | 34.42p | ||||
| Earnings per ordinary share - diluted | 5 | 41.30p | 33.99p | ||||
Grafton Group plc
Group Condensed Statement of Comprehensive Income
For the year ended 31 December 2015
| 2015 | 2014 | ||||||||||
| Notes | £'000 | £'000 | |||||||||
| Profit after tax for the financial year | 96,502 | 80,022 | |||||||||
| Other comprehensive income | |||||||||||
| Items that are or may be reclassified subsequently to the income statement | |||||||||||
| Currency translation effects: - on foreign currency net investments |
(5,362) | (6,707) | |||||||||
| - on foreign currency borrowings designated as net investment hedges | (879) | (1,634) | |||||||||
| Fair value movement on cash flow hedges: | |||||||||||
| - effective portion of changes in fair value of cash flow hedges | (442) | (241) | |||||||||
| - net change in fair value of cash flow hedges transferred from equity | 82 | 109 | |||||||||
| Deferred tax on cash flow hedges | 42 | (2) | |||||||||
| (6,559) | (8,475) | ||||||||||
| Items that will not be reclassified to the income statement | |||||||||||
| Remeasurement gain/(loss) on Group defined benefit pension schemes | 13 | 13,142 | (28,054) | ||||||||
| Deferred tax on Group defined benefit pension schemes | 13 (1,992) | 4,728 | |||||||||
| 11,150 | (23,326) | ||||||||||
| Total other comprehensive income | 4,591 | (31,801) | |||||||||
| Total comprehensive income for the financial year | 101,093 | 48,221 | |||||||||
| Total comprehensive income attributable to: | |||||||||||
| Owners of the Company | 101,770 | 48,245 | |||||||||
| Non-controlling interests | 8 | (677) | (24) | ||||||||
| Total comprehensive income for the financial year | 101,093 | 48,221 | |||||||||
Grafton Group plc
Group Condensed Balance Sheet as at 31 December 2015
| 31 Dec 2015 (Audited) £'000 |
31 Dec 2014 (Audited) £'000 |
||||||
| Notes | |||||||
| ASSETS | |||||||
| Non-current assets | |||||||
| Goodwill | 15 | 521,521 | 480,157 | ||||
| Intangible assets | 16 | 32,640 | 5,757 | ||||
| Property, plant and equipment | 9 | 430,116 | 423,411 | ||||
| Investment properties | 9 | 17,797 | 20,473 | ||||
| Deferred tax assets | 17,905 | 23,452 | |||||
| Retirement benefit assets | 13 | 744 | 125 | ||||
| Other financial assets | 122 | 123 | |||||
| Total non-current assets | 1,020,845 | 953,498 | |||||
| Current assets | |||||||
| Properties held for sale | 9 | 10,805 | 9,581 | ||||
| Inventories | 10 | 276,229 | 249,906 | ||||
| Trade and other receivables | 10 | 355,752 | 302,871 | ||||
| Derivative financial instruments | 11 | - | 1,095 | ||||
| Cash and cash equivalents | 11 | 211,565 | 182,360 | ||||
| Total current assets | 854,351 | 745,813 | |||||
| Total assets | 1,875,196 | 1,699,311 | |||||
| EQUITY | |||||||
| Equity share capital | 8,405 | 8,309 | |||||
| Share premium account | 209,810 | 206,597 | |||||
| Capital redemption reserve | 621 | 621 | |||||
| Revaluation reserve | 13,674 | 13,822 | |||||
| Shares to be issued reserve | 9,168 | 7,834 | |||||
| Cash flow hedge reserve | (354) | (36) | |||||
| Foreign currency translation reserve | 51,764 | 58,005 | |||||
| Retained earnings | 696,479 | 610,998 | |||||
| Treasury shares held | (3,897) | (3,897) | |||||
| Equity attributable to owners of the Company | 985,670 | 902,253 | |||||
| Non-controlling interests | 8 | 3,350 | 4,027 | ||||
| Total equity | 989,020 | 906,280 | |||||
| LIABILITIES | |||||||
| Non-current liabilities | |||||||
| Interest-bearing loans and borrowings | 11 | 323,393 | 244,305 | ||||
| Provisions | 17,875 | 20,855 | |||||
| Retirement benefit obligations | 13 | 17,367 | 33,085 | ||||
| Derivative financial instruments | 11 | 404 | 44 | ||||
| Deferred tax liabilities | 17 | 32,670 | 30,758 | ||||
| Total non-current liabilities | 391,709 | 329,047 | |||||
| Current liabilities | |||||||
| Interest-bearing loans and borrowings | 11 | 1,326 | 14,422 | ||||
| Trade and other payables | 10 | 465,914 | 425,696 | ||||
| Current income tax liabilities | 17 | 19,640 | 17,334 | ||||
| Provisions | 7,587 | 6,532 | |||||
| Total current liabilities | 494,467 | 463,984 | |||||
| Total liabilities | 886,176 | 793,031 | |||||
| Total equity and liabilities | 1,875,196 | 1,699,311 | |||||
Grafton Group plc
Group Condensed Cash Flow Statement
For the year ended 31 December 2015
| 31 Dec 2015 (Audited) |
31 Dec 2014 (Audited) |
||||
| Notes | £'000 | £'000 | |||
| Profit before taxation | 120,329 | 101,245 | |||
| Finance income | (1,050) | (997) | |||
| Finance expense | 8,932 | 9,857 | |||
| Operating profit | 128,211 | 110,105 | |||
| Depreciation | 9 | 32,211 | 32,392 | ||
| Amortisation of intangible assets | 16 | 911 | 124 | ||
| Share-based payments charge | 4,461 | 3,679 | |||
| Non-cash movement in operating provisions | 2,224 | 2,670 | |||
| Claims paid on insurance and other provisions | (3,772) | (6,774) | |||
| Non-cash movement on asset impairment/revaluation | - | 246 | |||
| Profit on sale of property, plant and equipment | (6,912) | (2,345) | |||
| Profit on sale of group businesses | (785) | - | |||
| Contributions to pension schemes in excess of IAS 19 charge | (3,408) | (1,862) | |||
| (Increase)/decrease in working capital | 10 | (13,828) | 21,804 | ||
| Cash generated from operations | 139,313 | 160,039 | |||
| Interest paid | (7,463) | (8,963) | |||
| Income taxes paid | (19,305) | (10,445) | |||
| Cash flows from operating activities | 112,545 | 140,631 | |||
| Investing activities | |||||
| Inflows | |||||
| Proceeds from sale of property, plant and equipment | 9 | 11,322 | 5,155 | ||
| Proceeds from sale of group businesses (net) | 2,617 | - | |||
| Interest received | 1,025 | 699 | |||
| 14,964 | 5,854 | ||||
| Outflows | |||||
| Acquisition of subsidiary undertakings and businesses | 14 | (85,139) | (34,835) | ||
| Net cash acquired with subsidiary undertakings | 14 | 7,619 | 1,728 | ||
| Net (debt) acquired with subsidiary undertakings | 14 | (21,121) | - | ||
| Investment in intangible asset - computer software | 16 | (9,988) | (5,881) | ||
| Purchase of property, plant and equipment | 9 | (41,592) | (40,974) | ||
| (150,221) | (79,962) | ||||
| Cash flows from investing activities | (135,257) | (74,108) | |||
| Financing activities | |||||
| Inflows | |||||
| Proceeds from the issue of share capital | 3,309 | 50 | |||
| Proceeds from borrowings | 95,097 | 56,454 | |||
| 98,406 | 56,504 | ||||
| Outflows | |||||
| Repayment of borrowings | (2,917) | (57,316) | |||
| Dividends paid | 6 | (26,797) | (21,501) | ||
| Movement on finance lease liabilities | (565) | (721) | |||
| Redemption of loan notes payable net of derivatives | (11,649) | (11,408) | |||
| (41,928) | (90,946) | ||||
| Cash flows from financing activities | 56,478 | (34,442) | |||
| Net increase in cash and cash equivalents | 33,766 | 32,081 | |||
| Cash and cash equivalents at 1 January | 182,360 | 151,099 | |||
| Effect of exchange rate fluctuations on cash held | (4,561) | (820) | |||
| Cash and cash equivalents at the end of the year | 211,565 | 182,360 |
Grafton Group plc
Group Condensed Statement of Changes in 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 | Total | Non-Controlling Interests | Total equity | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Year to 31 December 2015 (Audited) | |||||||||||||||||
| At 1 January 2015 | 8,309 | 206,597 | 621 | 13,822 | 7,834 | (36) | 58,005 | 610,998 | (3,897) | 902,253 | 4,027 | 906,280 | |||||
| Profit after tax for the financial year | - | - | - | - | - | - | - | 97,179 | - | 97,179 | (677) | 96,502 | |||||
| Total other comprehensive income | |||||||||||||||||
| Remeasurement gain on pensions (net of tax) | - | - | - | - | - | - | - | 11,150 | - | 11,150 | - | 11,150 | |||||
| Movement in cash flow hedge reserve (net of tax) | - | - | - | - | - | (318) | - | - | - | (318) | - | (318) | |||||
| Currency translation effect on foreign currency net investments | - | - | - | - | - | - | (5,362) | - | - | (5,362) | - | (5,362) | |||||
| Currency translation effect on foreign currency borrowings and derivatives designated as net investment hedges | - | - | - | - | - | - | (879) | - | - | (879) | - | (879) | |||||
| Total other comprehensive income | - | - | - | - | - | (318) | (6,241) | 11,150 | - | 4,591 | - | 4,591 | |||||
| Total comprehensive income | - | - | - | - | - | (318) | (6,241) | 108,329 | - | 101,770 | (677) | 101,093 | |||||
| Transactions with owners of the Company recognised directly in equity Dividends paid |
- | - | - | - | - | - | - | (26,797) | - | (26,797) | - | (26,797) | |||||
| Issue of Grafton Units (net of issue expenses) | 96 | 3,213 | - | - | - | - | - | - | - | 3,309 | - | 3,309 | |||||
| Share based payments charge | - | - | - | - | 4,461 | - | - | - | - | 4,461 | - | 4,461 | |||||
| Deferred tax asset on share based payments | - | - | - | - | 674 | - | - | - | - | 674 | - | 674 | |||||
| Transfer from shares to be issued reserve | - | - | - | - | (3,801) | - | - | 3,801 | - | - | - | - | |||||
| Transfer from revaluation reserve | - | - | - | (148) | - | - | - | 148 | - | - | - | - | |||||
| 96 | 3,213 | - | (148) | 1,334 | - | - | (22,848) | - | (18,353) | - | (18,353)) | ||||||
| At 31 December 2015 | 8,405 | 209,810 | 621 | 13,674 | 9,168 | (354) | 51,764 | 696,479 | (3,897) | 985,670 | 3,350 | 989,020 | |||||
| Year to 31 December 2014 (Audited) | |||||||||||||||||
| At 1 January 2014 | 8,302 | 206,554 | 621 | 13,978 | 2,875 | 98 | 66,346 | 575,419 | (3,897) | 870,296 | 4,051 | 874,347 | |||||
| Profit after tax for the financial year | - | - | - | - | - | - | - | 80,046 | - | 80,046 | (24) | 80,022 | |||||
| Total other comprehensive income | |||||||||||||||||
| Remeasurement (loss) on pensions (net of tax) | - | - | - | - | - | - | - | (23,326) | - | (23,326) | - | (23,326) | |||||
| Movement in cash flow hedge reserve (net of tax) | - | - | - | - | - | (134) | - | - | - | (134) | - | (134) | |||||
| Currency translation effect on foreign currency net investments | - | - | - | - | - | - | (6,707) | - | - | (6,707) | - | (6,707) | |||||
| Currency translation effect on foreign currency borrowings and derivatives designated as net investment hedges | - | - | - | - | - | - | (1,634) | - | - | (1,634) | - | (1,634) | |||||
| Total other comprehensive income | - | - | - | - | - | (134) | (8,341) | (23,326) | - | (31,801) | - | (31,801) | |||||
| Total comprehensive income | - | - | - | - | - | (134) | (8,341) | 56,720 | - | 48,245 | (24) | 48,221 | |||||
| Transactions with owners of the Company recognised directly in equity | |||||||||||||||||
| Dividends paid | - | - | - | - | - | - | - | (21,501) | - | (21,501) | - | (21,501) | |||||
| Issue of Grafton Units (net of issue expenses) | 7 | 43 | - | - | - | - | - | - | - | 50 | - | 50 | |||||
| Share based payments charge | - | - | - | - | 3,679 | - | - | - | - | 3,679 | - | 3,679 | |||||
| Deferred tax asset on share based payments | - | - | - | - | 1,484 | - | - | - | - | 1,484 | - | 1,484 | |||||
| Transfer from shares to be issued reserve | - | - | - | - | (204) | - | - | 204 | - | - | - | - | |||||
| Transfer from revaluation reserve | - | - | - | (156) | - | - | - | 156 | - | - | - | - | |||||
| 7 | 43 | - | (156) | 4,959 | - | - | (21,141) | - | (16,288) | - | (16,288) | ||||||
| At 31 December 2014 | 8,309 | 206,597 | 621 | 13,822 | 7,834 | (36) | 58,005 | 610,998 | (3,897) | 902,253 | 4,027 | 906,280 | |||||
Grafton Group plc
Notes to Final Results for the year ended 31 December 2015
1. General Information
The financial information presented in this report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the European Union and as set out in the Group's annual financial statements in respect of the year ended 31 December 2014 except as noted below. The financial information does not include all the information and disclosures required in the annual financial statements. The Annual Report will be distributed to shareholders and made available on the Company's website www.graftonplc.com in due course. It will also be filed with the Company's Annual Return in the Companies Registration Office. The auditors have reported on the financial statements for the year ended 31 December 2015 and their report was unqualified and did not contain any matters to which attention was drawn by way of emphasis. The comparative financial information for the year ended 31 December 2014 represents an abbreviated version of the Group's statutory financial statements on which an unqualified audit report was issued and which have been filed with the Companies Registration Office.
Basis of Preparation, Accounting Policies and Estimates
(a) Basis of Preparation and Accounting Policies
The accounting policies applied by the Group in these condensed financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2014 except for the policy noted below which applies in the current year:
Intangible Assets (Other than Goodwill and Computer Software)
Intangible assets are amortised on a straight-line basis. In general, definite-lived intangible assets are amortised over periods ranging from one to twenty years, depending on the nature of the intangible asset. Intangible assets with indefinite lives are not amortised but are reviewed annually for impairment.
The adoption of other new standards and interpretations (as set out in the 2014 Annual Report) that became effective for the Group's financial statements for the year ended 31 December 2015 did not have any significant impact on the results or financial position of the Group.
The following standards and interpretations are effective for the Group from 1 January 2015 but do not have a material effect on the results or financial position of the Group.
Annual Improvements to IFRS 2011-2013 Cycle:
The Annual Improvements to IFRSs include a number of minor changes to standards as noted below:
· IFRS 1 First-time adoption of IFRS: meaning of 'effective IFRSs'.
· IFRS 3 Business Combinations: scope exceptions for joint ventures.
This amendment to IFRS 3 excludes the formation of all types of joint arrangements from its scope and clarifies that the scope exclusion is the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. This standard has not had any significant impact on the Group's financial statements.
· IFRS 13 Fair Value Measurement: scope of paragraph 52 (portfolio exception).
This amendment to IFRS 13 confirms that the scope of the exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis (the 'portfolio exception') includes all contracts within the scope of, and accounted for, in accordance with IAS 39 or IFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32. This standard has not had any significant impact on the Group's financial statements.
Basis of Preparation, Accounting Policies and Estimates (Continued)
(a) Basis of Preparation and Accounting Policies (continued)
· IAS 40 Investment Property: clarifying the interrelationship between IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property.
The amendment to IAS 40 confirms that an entity that acquires investment property has to determine whether the acquisition meets both the definition of a business combination as well as investment property. This standard has not had any significant impact on the Group's financial statements.
The adoption of other new standards, interpretations and amendments that become effective for the year ended 31 December 2015 also did not have any significant impact on the results or financial position of the Group.
(b) Estimates
The preparation of the condensed Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these 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 2014.
2. Segmental Analysis
The amount of revenue and operating profit under the Group's operating segments of Merchanting, Retailing and Manufacturing is as follows:
| Twelve months to 31 Dec 2015 (Audited) £'000 |
Twelve months to 31 Dec 2014 (Audited) £'000 |
|||
| Revenue | ||||
| Merchanting | 2,010,598 | 1,874,739 | ||
| Retailing | 148,558 | 158,238 | ||
| Manufacturing | 63,059 | 58,119 | ||
| Less: Inter-segment revenue - manufacturing | (10,225) | (9,410) | ||
| 2,211,990 | 2,081,686 | |||
| Segment operating profit | ||||
| Merchanting | 125,621 | 110,041 | ||
| Retailing | 3,481 | 2,383 | ||
| Manufacturing | 9,749 | 7,906 | ||
| 138,851 | 120,330 | |||
| Reconciliation to consolidated operating profit | ||||
| Central activities | (10,640) | (10,225) | ||
| Operating profit | 128,211 | 110,105 | ||
| Finance expense | (8,932) | (9,857) | ||
| Finance income | 1,050 | 997 | ||
| Profit before tax | 120,329 | 101,245 | ||
| Income tax | (23,827) | (21,223) | ||
| Profit after tax for the financial year | 96,502 | 80,022 |
The amount of revenue by geographic area is as follows:
| Twelve months to 31 Dec 2015 (Audited) £'000 |
Twelve months to 31 Dec 2014 (Audited) £'000 |
||||
| Revenue | |||||
| United Kingdom | 1,711,650 | 1,570,875 | |||
| Ireland* | 409,040 | 419,247 | |||
| Belgium | 82,762 | 91,564 | |||
| Netherlands | 8,538 | - | |||
| 2,211,990 | 2,081,686 |
*Includes Poland which is immaterial
Operating segment assets are analysed below:
| 31 Dec 2015 (Audited) £'000 |
31 Dec 2014 (Audited) £'000 |
|||
| Segment assets | ||||
| Merchanting | 1,551,155 | 1,399,331 | ||
| Retailing | 57,045 | 52,882 | ||
| Manufacturing | 36,660 | 39,943 | ||
| 1,644,860 | 1,492,156 | |||
| Unallocated assets | ||||
| Deferred tax assets | 17,905 | 23,452 | ||
| Retirement benefit assets | 744 | 125 | ||
| Other financial assets | 122 | 123 | ||
| Derivative financial instruments | - | 1,095 | ||
| Cash and cash equivalents | 211,565 | 182,360 | ||
| Total assets | 1,875,196 | 1,699,311 |
2. Segmental Analysis (continued)
Operating segment liabilities are analysed below:
| 31 Dec 2015 (Audited) £'000 |
31 Dec 2014 (Audited) £'000 |
|||
| Segment liabilities | ||||
| Merchanting | 443,707 | 404,381 | ||
| Retailing | 36,425 | 38,854 | ||
| Manufacturing | 11,244 | 9,848 | ||
| 491,376 | 453,083 | |||
| Unallocated liabilities | ||||
| Interest bearing loans and borrowings (current and non-current) | 324,719 | 258,727 | ||
| Retirement benefit obligations | 17,367 | 33,085 | ||
| Deferred tax liabilities | 32,670 | 30,758 | ||
| Current income tax liabilities | 19,640 | 17,334 | ||
| Derivative financial instruments (current and non-current) | 404 | 44 | ||
| Total liabilities | 886,176 | 793,031 |
3. Operating Costs
Included within operating costs in 2015 was a property profit of £6.7m (2014: £2.2m) relating to the disposal of seven UK properties (2014: four UK properties). A defined benefit pension scheme past service credit of £2.95m and an asset impairment charge of £1.52m in the Belgium business is also included. In 2015, the Group incurred acquisition costs of £1.31m and recognised amortisation costs on intangibles of £0.9m.
4. Finance Expense and Finance Income
| Twelve months to 31 Dec 2015 (Audited) £'000 |
Twelve months to 31 Dec 2014 (Audited) £'000 |
|||||
| Finance expense | ||||||
| Interest on bank loans and overdrafts | (6,839) | * | (7,809) | * | ||
| Interest on loan notes | (95) | * | (239) | * | ||
| Net change in fair value of cash flow hedges transferred from equity | (82) | (109) | ||||
| Interest on finance leases | (207) | (246) | ||||
| Net finance cost on pension scheme obligations | (897) | (244) | ||||
| Foreign exchange loss | (812) | (1,210) | ||||
| (8,932) | (9,857) | |||||
| Finance income | ||||||
| Fair value movement on derivatives (Cross Currency Interest Rate Swaps (CCIRS) not in hedging relationships) | 25 | 298 | ||||
| Interest income on bank deposits | 1,025 | * | 699 | * | ||
| 1,050 | 997 | |||||
| Net finance expense | (7,882) | (8,860) | ||||
* Net bank/loan note interest of £5.9 million (2014: £7.3 million).
5. Earnings per Share
The computation of basic, diluted and underlying earnings per share is set out below.
| Year Ended 31 Dec 2015 |
Year Ended 31 Dec 2014 |
|||||
| (Audited) | (Audited) | |||||
| £'000 | £'000 | |||||
| Numerator for basic, adjusted and diluted earnings per share: | ||||||
| Profit after tax for the financial year | 96,502 | 80,022 | ||||
| Non-controlling interest | 677 | 24 | ||||
| Numerator for basic and diluted earnings per share | 97,179 | 80,046 | ||||
| Non-recurring defined benefit pension credit | (2,945) | - | ||||
| Tax relating to non-recurring defined benefit pension credit | 530 | - | ||||
| Non-recurring costs incurred in Belgium business | 1,520 | - | ||||
| Tax relating to non-recurring costs incurred in Belgium business | (532) | - | ||||
| Numerator for adjusted earnings per share | 95,752 | 80,046 | ||||
| Number of Grafton Units | Number of Grafton Units | |||||
| Denominator for basic and adjusted earnings per share: | ||||||
| Weighted average number of Grafton Units in issue | 233,477,908 | 232,522,970 | ||||
| Effect of potential dilutive Grafton Units | 1,824,338 | 2,973,005 | ||||
| Denominator for diluted earnings per share | 235,302,246 | 235,495,975 | ||||
| Earnings per share (pence) | ||||||
| - Basic | 41.62 | 34.42 | ||||
| - Diluted | 41.30 | 33.99 | ||||
| Adjusted earnings per share (pence) | ||||||
| - Basic | 41.01 | 34.42 | ||||
| - Diluted | 40.69 | 33.99 | ||||
6. Dividends
The payment in 2015 of a second interim dividend for 2014 of 7.0 pence on the 'C' Ordinary shares in Grafton Group (UK) plc from UK-sourced income amounted to £16.3 million. A 2015 interim dividend of 4.5 pence per share was paid on 9 October 2015 on the 'C' Ordinary shares in Grafton Group (UK) plc from UK-sourced income and amounted to £10.5 million.
A second interim dividend for 2015 of 8.0 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 18 March 2016 (the 'Record Date'). The dividend will be paid on 15 April 2016. A liability in respect of this second interim dividend has not been recognised at 31 December 2015, as there was no present obligation to pay the dividend at the year-end.
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 2015 was Stg72.59p (year to 31 December 2014: Stg80.61p). The sterling/euro exchange rate at 31 December 2015 was Stg73.40p (31 December 2014: Stg77.89p).
8. Non-Controlling Interests
The Group holds a controlling interest in YouBuild NV (formerly BMC Groep NV) that is accounted for as a subsidiary undertaking with a non-controlling interest.
9. Property, Plant and Equipment, Properties Held for Sale and Investment Properties
| Property, plant and equipment | Properties held for sale |
Investment properties | |||
| £'000 | £'000 | £'000 | |||
| Net Book Value | |||||
| As at 1 January 2015 | 423,411 | 9,581 | 20,473 | ||
| Additions | 41,592 | - | - | ||
| Acquisitions (note 14) | 8,487 | - | - | ||
| Depreciation | (32,211) | - | - | ||
| Disposals | (2,841) | (1,569) | - | ||
| Disposal of group businesses | (718) | - | - | ||
| Transfer to properties held for sale | (1,056) | 2,914 | (1,858) | ||
| Currency translation adjustment | (6,548) | (121) | (818) | ||
| As at 31 December 2015 | 430,116 | 10,805 | 17,797 | ||
There was no material change in the fair value of investment properties or properties held for sale following an internal review undertaken by the Group Property Director. The determination of fair value and the valuation techniques used, including significant unobservable inputs, at 31 December 2015, are similar to those disclosed in the 2014 Annual Report.
Two properties in the UK and one property in Ireland were transferred out of investment properties to properties held for sale during 2015. The total number of investment properties at 31 December 2015 is 19 (2014:22) of which 4 (2014: 6) are located in the United Kingdom and 15 in Ireland (2014: 16).
9. Property, Plant and Equipment, Properties Held for Sale and Investment Properties (continued)
There were four disposals of UK properties held for sale during 2015. There were 4 transfers in of properties from property, plant and equipment and also 3 properties were transferred in from investment properties during the year. This leaves 26 (2014: 23) held for sale properties of which 23 (2014: 22) are located in the United Kingdom, 2 (2014:1) in Ireland and 1 (2014: Nil) in Belgium.
10. Movement in Working Capital
| Inventories | Trade and other receivables | Trade and other payables |
Total | ||
| £'000 | £'000 | £'000 | £'000 | ||
| At 1 January 2015 | 249,906 | 302,871 | (425,696) | 127,081 | |
| Currency translation adjustment | (3,399) | (3,165) | 7,291 | 727 | |
| Interest accrual and other movements | - | 387 | (437) | (50) | |
| Disposal of group businesses | (240) | (2,287) | 1,527 | (1,000) | |
| Acquisitions through business combinations (note 14) | 16,742 | 24,986 | (16,247) | 25,481 | |
| Movement in 2015 | 13,220 | 32,960 | (32,352) | 13,828 | |
| At 31 December 2015 | 276,229 | 355,752 | (465,914) | 166,067 | |
11. Interest-Bearing Loans, Borrowings and Net debt
| 31 Dec 2015 £'000 |
31 Dec 2014 £'000 |
|||
| Non-current liabilities | ||||
| Bank loans | 320,814 | 241,208 | ||
| Loan notes | - | - | ||
| Finance leases | 2,579 | 3,097 | ||
| Total non-current interest-bearing loans and borrowings | 323,393 | 244,305 | ||
| Current liabilities | ||||
| Bank loans | 977 | 1,190 | ||
| Loan notes | - | 12,861 | ||
| Finance leases | 349 | 371 | ||
| Total current interest-bearing loans and borrowings | 1,326 | 14,422 | ||
| Derivatives-non current | ||||
| Included in non-current assets | - | - | ||
| Included in non-current liabilities | 404 | 44 | ||
| Derivatives-current | ||||
| Included in current assets | - | (1,095) | ||
| Included in current liabilities | - | - | ||
| Total derivatives | 404 | (1,051) | ||
| Cash and cash equivalents | (211,565) | (182,360) | ||
| Net debt | 113,558 | 75,316 |
11. Interest-Bearing Loans, Borrowings and Net debt (continued)
The fair value of financial assets and liabilities including their level in the fair value hierarchy is shown in the table below:
| 31 December 2015 |
31 December 2014 | |||
| Total Level 2 |
Total Level 2 |
|||
| £'000 | £'000 | |||
| Assets measured at fair value | ||||
| At fair value through profit or loss | ||||
| Cross currency interest rate swaps | - | (1,095) | ||
| Liabilities measured at fair value | ||||
| Designated as hedging instruments | ||||
| Interest rate swaps | 404 | 44 | ||
| Liabilities not measured at fair value | ||||
| Liabilities at amortised cost | ||||
| Bank loans | 321,791 | 242,398 | ||
| Finance leases | 2,928 | 3,468 | ||
| 2005 unsecured senior US dollar loan notes | - | 12,714 | ||
| 324,719 | 258,580 | |||
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 financial statements approximate to their fair values.
Financial assets and liabilities carried at fair value
Fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined in Note 20 to the Group's 2014 Annual Report together with the method for determining the fair value of financial assets and liabilities. 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 year.
Investment properties and properties held for sale
Investment properties of £17.8 million which are separately classified in non-current assets are carried at fair value in the financial statements. An internal review undertaken by the Group Property Director was used to determine fair values. The valuation techniques used were the market value of comparable transactions recently completed or similar properties currently listed on the market. In cases where there are no recent precedent transactions, valuations were based on estimated rental yields and consultations with external agents who have knowledge of local property markets.
The carrying value of properties held for sale of £10.8 million are shown in the balance sheet at the lower of their carrying amount and fair value less any disposal costs. Eight properties are included at a fair value of £4.9 million and have been valued on the basis set out in the foregoing paragraph.
12. Reconciliation of Net Cash Flow to Movement in Net Debt
| 31 Dec 2015 £'000 |
31 Dec 2014 £'000 |
||||
| Net increase in cash and cash equivalents | 33,766 | 32,081 | |||
| Net movement in derivative financial instruments | (245) | 309 | |||
| Loans disposed with group businesses | 130 | - | |||
| Cash-flow from movement in debt and lease financing | (79,966) | 12,991 | |||
| Change in net debt resulting from cash flows | (46,315) | 45,381 | |||
| Currency translation adjustment | 8,073 | 13,040 | |||
| Movement in net debt in the year | (38,242) | 58,421 | |||
| Net debt at 1 January | (75,316) | (133,737) | |||
| Net debt at end of the year | (113,558) | (75,316) | |||
| Gearing | 12% | 8% |
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:
| Irish Schemes | UK Schemes | |||
| At 31 Dec 2015 |
At 31 Dec 2014 |
At 31 Dec 2015 |
At 31 Dec 2014 |
|
| % | % | % | % | |
| Rate of increase in salaries | 2.60%* | 2.50%* | 0.00%** | 0.00%** |
| Rate of increase of pensions in payment | - | - | 3.35% | 3.30% |
| Discount rate | 2.35% | 2.10% | 3.95% | 3.60% |
| Inflation | 1.40% | 1.30% | 3.40%*** | 3.30%*** |
| *2.60% applies from 2 January 2019 (31 December 2014: 2.5% from 2 January 2019) ** Pensionable salaries are not adjusted for inflation |
||||
| *** The inflation assumption shown for the UK is based on the Retail Price Index (RPI) |
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 |
Year to 31 Dec | Year to 31 Dec |
Year to 31 Dec |
Year to 31 Dec |
Year to 31 Dec | |
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 January | 189,203 | 180,663 | (222,163) | (187,785) | (32,960) | (7,122) |
| Acquired in year | - | 223 | (397) | (490) | (397) | (267) |
| Interest income on plan assets | 5,394 | 7,503 | - | - | 5,394 | 7,503 |
| Contributions by employer | 2,787 | 3,023 | - | - | 2,787 | 3,023 |
| Contributions by members | 1,074 | 1,199 | (1,074) | (1,199) | - | - |
| Benefit payments | (6,603) | (5,549) | 6,603 | 5,549 | - | - |
| Current service cost | - | - | (2,488) | (1,703) | (2,488) | (1,703) |
| Past service credit - non-recurring | - | - | - | - | - | - |
| Past service credit | - | - | 3,073 | 542 | 3,073 | 542 |
| Settlement gain - non-recurring | - | - | - | - | - | - |
| Settlement gain - other | - | - | - | - | - | - |
| Curtailment loss | - | - | - | - | - | - |
| Interest cost on scheme liabilities | - | - | (6,291) | (7,747) | (6,291) | (7,747) |
| Remeasurements | ||||||
| Actuarial gains/(loss) from: | ||||||
| -experience variations | - | - | 2,491 | (86) | 2,491 | (86) |
| -financial assumptions | - | - | 10,041 | (38,859) | 10,041 | (38,859) |
| -demographic assumptions | - | - | 920 | 3,271 | 920 | 3,271 |
| Return on plan assets excluding interest income | (310) | 7,620 | - | - | (310) | 7,620 |
| Translation adjustment | (4,738) | (5,479) | 5,855 | 6,344 | 1,117 | 865 |
| At 31 Dec | 186,807 | 189,203 | (203,430) | (222,163) | (16,623) | (32,960) |
| Related deferred tax asset (net) | 2,599 | 5,345 | ||||
| Net pension liability | (14,024) | (27,615) |
The net pension scheme deficit of £16,623,000 is shown in the Group balance sheet as retirement benefit obligations (non-current liabilities) of £17,367,000 of which £10,125,000 relates to the Euro schemes and £7,242,000 relates to one UK scheme and retirement benefit assets (non-current assets) of £744,000 relating to a second UK scheme (£528,000) and one Euro scheme (£216,000).
14. Acquisitions
In 2015 the Group completed a number of strategic acquisitions. On 27 February 2015 the Group acquired TG Lynes Limited, a leading distributor of mechanical engineering products for use in commercial and public sector buildings, apartments and industrial processes. The business trades from a purpose built distribution facility in Enfield, North London. The Group acquired Carlton Manufacturing Limited on 17 July 2015, a Rotherham based manufacturer of a range of concrete and mortar products. The acquisition complements the Groups UK mortar manufacturing business. On 10 August 2015 the Group acquired Parkes Services Limited, a supplier of pipeline and mechanical engineering products to contractors operating in the heating and plumbing industries. The Group acquired Wollens Limited on 6 November 2015, a general merchanting business trading from two branches in Glastonbury and Cannington. On 18 November 2015 Grafton acquired Isero BV, the leading specialist distributor of tools and fixings in the Netherlands, which gives the Group its first presence in the Dutch market.
Details of the acquisitions made in 2014 are disclosed in the Group's 2014 Annual Report.
The provisional fair value of assets and liabilities acquired in 2015 are set out below:
| Other £'000 |
Isero BV £'000 |
Total £'000 |
|
| Property, plant and equipment | 6,415 | 2,072 | 8,487 |
| Inventories | 4,783 | 11,959 | 16,742 |
| Trade and other receivables | 11,769 | 13,217 | 24,986 |
| Trade and other payables | (7,924) | (8,323) | (16,247) |
| Provisions | - | (523) | (523) |
| Retirement benefit obligations | - | (397) | (397) |
| Corporation tax | (700) | (153) | (853) |
| Deferred tax (liability) | (1,203) | (2,831) | (4,034) |
| Deferred tax asset | - | 350 | 350 |
| Cash acquired | 5,629 | 1,990 | 7,619 |
| (Debt) acquired | - | (21,121) | (21,121) |
| Net assets/(liabilities) acquired | 18,769 | (3,760)* | 15,009 |
| Goodwill | 18,825 | 34,429 | 53,254 |
| Intangible assets - trade names | 814 | 1,460 | 2,274 |
| Intangible assets - customer relationships | 5,136 | 9,866 | 15,002 |
| Consideration | 43,544 | 41,995 | 85,539 |
| Satisfied by: | |||
| Cash paid | 43,144 | 41,995 | 85,139 |
| Net cash outflow | 43,144 | 41,995 | 85,139 |
| Deferred acquisition consideration | 400 | - | 400 |
| 43,544 | 41,995 | 85,539 |
* A deferred tax liability of £2.8m was recognised on the intangible assets which arose on the acquisition of Isero BV.
Goodwill on these acquisitions reflects the anticipated purchasing and operational synergies to be realised as part of the enlarged Group. Intangible assets capitalised as part of the acquisition consideration are shown above and relate to trade names £2.3m and customer relationships £15.0m.
Acquisitions completed in 2015 contributed revenue of £32.2 million and operating profit of £3.3 million for the periods between the dates of acquisition and 31 December 2015. If the acquisitions had occurred on 1 January 2015 they would have contributed revenue of £114.9 million and operating profit of £12.7 million in the year.
15. Goodwill
Goodwill is subject to impairment testing on an annual basis and more frequently if an indicator of impairment is considered to exist. There were no indicators of impairment during the year. The Board is satisfied that the carrying value of goodwill has not been impaired.
| Goodwill £'000 |
|
| Net Book Value | |
| As at 1 January 2015 | 480,157 |
| Arising on acquisitions (note 14) | 53,254 |
| Disposal of group businesses | (641) |
| Currency translation adjustment | (11,249) |
| As at 31 December 2015 | 521,521 |
16. Intangible Assets
| Computer Software £'000 |
Trade Names £'000 |
Customer Relationships £'000 |
Total £'000 |
|
| Net Book Value | ||||
| As at 1 January 2015 | 5,757 | - | - | 5,757 |
| Additions | 9,988 | - | - | 9,988 |
| Arising on acquisitions (note 14) | - | 2,274 | 15,002 | 17,276 |
| Amortisation | (446) | (66) | (399) | (911) |
| Currency translation adjustment | - | 69 | 461 | 530 |
| As at 31 December 2015 | 15,299 | 2,277 | 15,064 | 32,640 |
The computer software asset of £15.3 million at 31 December 2015 (2014: £5.8m) 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.
The amortisation expense of £0.9m (2014: £0.1m) has been charged in 'operating costs' in the income statement.
17. Taxation
The effective tax rate of 19.8 per cent is lower than the underlying tax rate of 21 per cent as a previously unrecognised deferred tax asset has been utilised against a UK taxable profit arising on the disposal of properties during the year ended 31 December 2015. This underlying tax rate reflects the cash tax payable and a non-cash charge due to the unwinding of deferred tax assets. The underlying tax rate of 21 per cent (2014: 21 per cent) reflects the mix of profits between the UK, Ireland, Belgium and the Netherlands and the disallowance of a tax deduction for certain overheads charged in arriving at profit including depreciation on buildings. The UK corporation tax rate reduced from 21 per cent to 20 per cent from 1 April 2015. The UK rate will be reduced further in two stages to 19 per cent from 1 April 2017 and 18 per cent from 1 April 2020 which has been substantially enacted at 31 December 2015.
The liability shown for current taxation includes a liability for tax uncertainties and is based on the Directors best probability weighted 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.
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 2015, there were unrecognised deferred tax assets in relation to capital losses of £1.6 million (31 December 2014: £3.4 million), trading losses of £0.9 million (31 December 2014: £1.1 million) and deductible temporary differences of £3.8 million (31 December 2014: £4.5 million). Deferred tax assets were not recognised in respect of certain capital losses as they can only be recovered against certain classes of taxable profits and the Directors cannot foresee such profits arising in the foreseeable future with reasonable certainty. The trading losses and deductible temporary differences arose in entities that have incurred losses in recent years and the Directors have no certainty as to when there will be sufficient taxable profits in the relevant entities against which they can be utilised.
18. Related Party Transactions
There have been no new related party transactions or changes in related parties from those described in the 2014 Annual Report that materially affected the financial position or the performance of the Group during the year to 31 December 2015.
19. Grafton Group plc Long Term Incentive Plan (LTIP)
LTIP awards were made over 707,588 Grafton Units on 17 April 2015. The fair value of the awards is £5.2 million and this will be charged to the income statement over the vesting period of three years. The 2014 Annual Report discloses details of the LTIP scheme.
20. Issue of Shares and SAYE Scheme
During the year 1,052,430 Grafton Units were issued under the Grafton Group plc 2011 Long Term Incentive Plan (LTIP) on the vesting of the 2012 grant. A further 1,578,367 Grafton Units were issued under the Group's Savings Related Share Option Scheme (SAYE) to eligible UK employees.
21. Events after the Balance Sheet Date
There have been no material events subsequent to 31 December 2015 that would require adjustment to or disclosure in this report except that on 5 January 2016, the Group acquired T Brewer & Co Limited ("T Brewer"), a London based specialist timber business that trades from 3 branches in Clapham, Enfield and Amersham. T Brewer, which generated revenue of approximately £14.0m in the year to 31 December 2015, extends coverage of the merchanting market in the London area.
The Group also acquired Allsand Supplies Limited ("Allsands") on 1 February 2016. Allsands is a single branch general builders merchanting business located in Larkfield, Kent. Allsands reported revenue of £6.0 million in the year to 31 March 2015. This bolt-on acquisition enhances market coverage and complements the existing branch network in the South East of England.
22. Board Approval
This announcement was approved by the Board of Grafton Group plc on 7 March 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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