Grafton Group PLC Final Results (5953R)

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RNS Number : 5953R

Grafton Group PLC

02 March 2023

Final Results

For the Year Ended 31 December 2022

Grafton Group plc

Final Results for Year Ended 31 December 2022

Strong Trading Performance from Diversified Earnings Base

Grafton Group plc ("Grafton"), the international building materials distributor and DIY retailer is pleased to announce its final results for the year ended 31 December 2022.

 
 Continuing Operations(1)                   2022       2021(2)         Change 
 Revenue                                  GBP2,301m   GBP2,110m         +9.1% 
                                         ----------  ----------  ------------ 
 Adjusted(3) operating profit             GBP285.9m   GBP288.0m        (0.7%) 
                                         ----------  ----------  ------------ 
 Adjusted operating profit before 
  property profit(3)                      GBP260.5m   GBP271.2m        (4.0%) 
                                         ----------  ----------  ------------ 
 Adjusted operating profit margin 
  before property profit                      11.3%       12.9%      (160bps) 
                                         ----------  ----------  ------------ 
 Adjusted profit before tax(3)            GBP273.3m   GBP268.6m         +1.7% 
                                         ----------  ----------  ------------ 
 Adjusted earnings per share(3)               96.6p       93.0p         +3.9% 
                                         ----------  ----------  ------------ 
 Dividend                                     33.0p       30.5p         +8.2% 
                                         ----------  ----------  ------------ 
 Adjusted return on capital employed 
  (ROCE) (3)                                  17.2%       19.4%      (220bps) 
                                         ----------  ----------  ------------ 
 Net cash (before IFRS 16 leases)         GBP458.2m   GBP588.0m   (GBP129.8m) 
                                         ----------  ----------  ------------ 
 Net cash - (including IFRS 16 leases)      GBP8.9m   GBP139.0m   (GBP130.1m) 
                                         ----------  ----------  ------------ 
 
 Statutory Results - Continuing             2022        2021           Change 
  Operations 
                                         ----------  ----------  ------------ 
 Operating profit                         GBP264.3m   GBP269.2m        (1.8%) 
                                         ----------  ----------  ------------ 
 Profit before tax                        GBP251.7m   GBP249.8m         +0.8% 
                                         ----------  ----------  ------------ 
 Basic earnings per share                     89.3p       86.4p         +3.4% 
                                         ----------  ----------  ------------ 
 

(1) Supplementary financial information in relation to Alternative Performance Measures (APMs) is set out on pages 42 to 47.

(2) The 2021 results do not include the traditional merchanting business in Great Britain that was divested in 2021 and classified as discontinued operations.

(3) The term "Adjusted" means before exceptional items, amortisation of intangible assets arising on acquisitions and acquisition related items in both years.

Operational Highlights

   --      Excellent performance in distribution businesses in Ireland and the Netherlands 

-- Volumes and profitability lower in Selco against a strong comparative period and softer backdrop

   --      Good profit contribution from IKH in Finland 
   --      Revenue and profitability normalised in Woodie's DIY, Home and Garden retail business 
   --      UK Manufacturing businesses performed well 
   --      Further progress made against sustainability targets 
   --      Diversified revenue base with over half generated in Ireland, the Netherlands and Finland 

Financial Highlights

   --      11.3% operating profit margin before property profit 
   --      Adjusted return on capital employed of 17.2% 

-- Slight decline in adjusted operating profit (before property profit) to GBP260.5 million as expected

-- Double digit/high single digit operating profit margin in all businesses (before property profit)

   --      High cash conversion with cashflow of GBP278.8 million from operations 
   --      GBP208.9 million returned to shareholders during year through share buybacks and dividends 
   --      Net cash at 31 December 2022 of GBP458.2 million (before IFRS 16 lease liabilities) 
   --      Annual dividend per share growth of 8.2% 

Eric Born, Chief Executive Officer Commented :

" In my first set of results as Chief Executive, I am pleased to report a strong performance by the Group which is ahead of market expectations. This is a great achievement by my new colleagues across the business and is testament to their dedication and professionalism. It has also confirmed the qualities of the business which attracted me to join Grafton.

"We still face many of the external challenges that we faced in 2022, but I am encouraged by the quality of the Group's portfolio of higher margin businesses that are sensibly positioned with both market leading brands and geographic diversity. We now have more than half of our revenues coming from outside the UK in Ireland, Finland and the Netherlands.

"Importantly, with a very strong balance sheet, Grafton is well positioned to invest in future growth opportunities and we look forward with confidence."

Presentation and Webcast Details

A highlights video and a copy of the results presentation document are available at 7:00am today via the home page of the Company's website www.graftonplc.com .

A presentation for analysts and investors will be hosted by Eric Born and David Arnold at 10:15am tod ay. A live webcast of the presentation including Q&A will be available via the Company's website at www.graftonplc.com or by clicking on the following link: https://brrmedia.news/Grafton_fy_results .

Analysts will be invited to raise questions during the presentation. Should investors wish to submit a question in advance, they can do so before 9.00am today by sending an email to [e-mail] . A recording of the webcast will be available on the Company's website later today.

Enquiries:

Grafton Group plc + 353 1 216 0600

Eric Born, Chief Executive Officer

David Arnold, Chief Financial Officer

Murray + 353 1 498 0300 / [phone]

Pat Walsh

MHP Communications + 44 20 3128 8100

Tim Rowntree/ Eleni Menikou

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 because of new information, future developments or otherwise.

Final Results for the Year Ended 31 December 2022

Group Results - Trading Summary, Cashflow, Dividend and Outlook

Grafton had a successful year and is reporting a strong financial result ahead of market expectations. Despite macro-economic challenges in its markets, the Group continued to perform well with operating profit close to last year's record result against a less favourable market backdrop.

Trading returned to more normal levels following the exceptional rise in spending on the home during the pandemic and supply chain pressures eased considerably. Building materials prices rose sharply for the second successive year as the market absorbed increases in the cost of producing energy intensive products. Certain product categories including timber and steel experienced price deflation following a period of soaring prices caused by a spike in global demand.

Across all geographies, volumes were generally down in residential repair, maintenance and improvement ("RMI") markets as households reduced discretionary spending on the home under pressure from declines in real disposable incomes and rising interest rates. Activity in RMI markets was also affected by the increased cost of building materials and rising labour costs which reduced affordability.

We remained focused on delivering a strong performance and these results show the strength of our businesses, brands and market positions. In particular, they demonstrate the benefits of the Group's spread of operations across multiple geographic markets and sectors that has helped to create a more diversified and resilient earnings base.

Distribution

Ireland

Chadwicks, the market leader in the distribution of building materials in Ireland and the Group's most profitable business, delivered a very strong performance. Revenue growth reflects both building materials price inflation and the impact of acquisitions. Operating profit grew strongly supported by an operating profit margin of 11.4 per cent.

Demand was underpinned by residential RMI spending, the construction of scheme and one-off houses and non-residential construction projects.

The specialist Sitetech business acquired in February 2022, a leader in the adjacent construction accessories new build market, made an excellent contribution to profit.

UK

Volumes in the UK RMI market were down compared to the prior year when there was a record level of spending on the home during the pandemic and lower spending in other areas of the economy. During 2022 households under pressure from increased energy and food prices quickly reduced discretionary spending on smaller value home improvements as the economy weakened and consumer sentiment declined. Revenue in the like-for-like business ended the year only marginally lower as a decline in volumes was largely offset by double digit materials price inflation.

Operating profit was down when benchmarked against a strong prior year result and the operating margin of 9.8 per cent reflected gross margin pressure in a competitive market and the operational gearing impact of lower volumes. Selco, which accounted for almost three quarters of UK distribution revenue, continued to invest in its business and branch network increasing it to 74.

The Netherlands

Isero, the market leading specialist ironmongery, tools and fixings business, achieved excellent results for the year, in broadly favourable markets. A strong underlying performance was complemented by a good contribution from acquisitions and benefits realised from implementing performance improvement measures. The operating profit margin increased by 70 basis points to 11.2 per cent. Market coverage expanded into the Northeast of the Netherlands with the acquisition in January of the five branch Regts business in Friesland which made a very good contribution to profit and increased the overall branch network to 123.

Finland

IKH, the workwear, personal protective equipment, tools and spare parts wholesaler acquired in July 2021, had a good first full year under Grafton ownership delivering an operating profit contribution that was in line with pre-acquisition expectations despite more challenging market conditions. Revenue in the early months of the year was down, on the pre-acquisition comparative period, due to lower demand for a number of weather sensitive product categories and weaker consumer sentiment following the invasion of Ukraine but recovered in the second

half and ended the year strongly.   The operating profit margin for the year was 14.2 per cent. 

Retailing

Woodie's, the market leading DIY, Home and Garden business in Ireland successfully navigated a unique set of trading conditions in 2022 as exceptional pandemic related spending in the prior year unwound and there was also pressure on volumes from the decline in real disposable incomes and a sharp drop in consumer confidence. Operating profit normalised to a level that was 43.9 per cent higher than the pre-pandemic result for 2019. The operating profit margin for 2022 was 13.3 per cent.

Manufacturing

CPI EuroMix, the market leader in the manufacture of mortar in Great Britain, reported growth in revenue and a good increase in operating profit. Volumes were softer in the final months of the year as activity in the new housing market moderated and were marginally down for the year.

StairBox, the market leading manufacturer of bespoke staircases primarily for the secondary housing market, experienced record demand from trade customers across Great Britain and increased revenue and profitability.

The operating profit margin in the manufacturing segment was 22.7 per cent.

Cash Flow

The Group's cashflow from operations was GBP278.8 million of which GBP208.9 million was returned to shareholders in dividend payments and share buybacks (excluding the buyback on LTIP awards).

Investment in capital expenditure and acquisitions amounted to GBP103.8 million.

The Group had net cash (before IFRS 16 lease liabilities) of GBP458.2 million at the year end, a decline of GBP129.8 million from GBP588.0 million at 31 December 2021. Net cash including IFRS 16 lease liabilities was GBP8.9 million (31 December 2021: GBP139.0 million).

Property

The Group recognised property profits of GBP25.4 million (2021: GBP16.7 million) in the year. A significant proportion of this profit arose from a small number of freehold properties that were retained following the sale in 2021 of the traditional merchanting business in Great Britain. Disposal of three of these properties generated cash proceeds of GBP26.2 million and realised a profit of GBP19.9 million. In addition, a fair value gain of GBP5.0 million was recognised on the remeasurement of a number of investment properties to fair value under International Financial Reporting Standards as adopted by the European Union ("IFRS").

Dividend

The Board is recommending a final dividend for 2022 of 23.75p per ordinary share in line with its progressive dividend policy. An interim dividend of 9.25p per share was paid on 7 October 2022. The total dividend for the year is 33.0p per share, an increase of 8.2 per cent on dividends of 30.5p paid for 2021.

The total dividend for 2022 of 33.0p is 2.9 times (2021: 3.0 times) covered by adjusted earnings per share of 96.6p and is in line with guidance for cover of between two and three times. This reflects the Group's very strong balance sheet, profitability and cashflow from operations for the year.

The Group's cash outflow on dividends paid during the year was GBP73.9 million. A liability has not been recognised at 31 December 2022 for the final dividend as there was no payment obligation at the year end.

The final dividend will be paid on 11 May 2023 to shareholders on the Register of Members at the close of business on 14 April 2023, the record date. The ex-dividend date is 13 April 2023. The final dividend is subject to approval by shareholders at the Annual General Meeting to be held on 4 May 2023.

Share Buyback

In line with the Group's disciplined approach to capital allocation and supported by its strong financial position , 12.28 million ordinary shares in the Company were repurchased on the London Stock Exchange for cancellation between 9 May 2022 and 12 September 2022 at a total cost of GBP100 million, excluding transaction costs, and an average price of GBP8.14 per share. This represented 5.1 per cent of the issued share capital of the Company (excluding treasury shares) when the programme commenced. A second share buyback programme for a maximum consideration of up to GBP100 million, subject to the limitations of the shareholders authority granted at the AGM of the Company in April 2022, was launched on 10 November 2022. Between 10 November 2022 and 31 December 2022, 4.4 million shares were repurchased for cancellation at a total cost of GBP35.0 million , excluding transaction costs . Since the year end and up to and including 28 February 2023, the number of shares repurchased in the second buyback programme increased by 3.0 million shares at a total cost of GBP27.5 million.

Allocation of Capital

Acquisitions have been an important part of the Grafton growth story supporting entry into new markets and diversifying its earnings base as well as increasing its presence in existing markets. The Group has a long history of identifying, acquiring and integrating businesses and a skilled and experienced acquisition team to complete transactions.

Following receipt of the proceeds from the disposal of our traditional merchanting business in Great Britain in December 2021, we recognise that our balance sheet is very strongly positioned with pre IFRS 16 net cash of GBP458.2 million at the year end. In the medium term we are targeting to return to a more appropriate level of financial leverage rather than holding net cash. We have demonstrated over many years a disciplined approach to capital allocation and our priority remains on deploying surplus capital into generating acquisitive growth providing it makes good strategic and financial sense. In 2022, the decline in valuations in the public equity markets was not matched by a similar decline in vendor expectations for businesses in private ownership and, as a consequence, our acquisition activity was limited to three bolt-on transactions costing GBP46.0m. We continue to actively evaluate acquisition opportunities in our preferred geographies and market segments that meet the Group's target rates of return over the medium term.

With the decline in public equity valuations seen in 2022, the Board felt that relative to other opportunities our own equity represented an attractive investment rather than simply a return of capital and, as noted above, it initiated a share buyback programme. The size and timing of the programme was appropriate for the delivery of value for shareholders whilst at the same time leaving plenty of scope for acquisition opportunities. This buyback programme, together with our progressive dividend policy, saw GBP208.9 million returned to shareholders during the year. The Board will continue to keep the allocation of capital under review including share buybacks.

Implementing Our Sustainability Strategy

Sustainability remained a key priority on the Grafton Board Agenda during the year. Rosie Howells joined the business in September as the new Group Head of Sustainability to support implementation of the sustainability strategy and to work with the Group's businesses to drive continuing progress against key sustainability objectives. We have today published our second Sustainability Report which sets out in more detail our strategy and achievements in 2022.

The strategy, Building a More Sustainable Future, is structured on five priority areas: Planet, Customer & Product, People, Community and Ethics. While there is still much to do, the businesses demonstrated strong progress during 2022.

Planet

-- Achieved an 11 per cent reduction in Scope 1 and 2 CO2e per GBP million of revenue. This was equivalent to a 3 per cent reduction in absolute emissions.

-- Achieved 17 per cent reduction in operational waste relative to revenue vs 2021 with 97 per cent diversion from landfill.

   --      Progressed Scope 3 carbon assessment which will also be a priority in 2023. 

Customer & Product

   --      Rental, refurbishment and recycling offerings are available in a number of businesses. 

-- Responsible timber sourcing is an important area of focus for our distributor businesses and over 98 per cent of Selco's building timber was FSC or PEFC certified.

People

-- Our Diversity and inclusion working group continued to support our businesses to encourage an inclusive culture that promotes diversity. Over 90 per cent of our colleagues in the UK and Ireland completed the voluntary diversity information questionnaire and 77 per cent answered all questions.

-- Woodie's is the first retailer to be accredited as a gold investor in Diversity by the Irish Centre for Diversity following a three year partnership. It recently achieved gender balance and is now also reflective of national demographics on ethnicity, age and LGBTQI+ status.

-- Our belief that 'there is nothing we do that is so urgent we cannot do it safely' drove our health and safety programme across our business and resulted in a reduction in the lost time incident frequency rate by 8 per cent and a reduction in the severity rate by 21 per cent.

Community

-- Grafton invested over GBP1.0 million in communities through cash, volunteering and in-kind products and services including a donation of over GBP250,000 to the Red Cross to support the Ukraine appeal.

Ethics

-- A strong focus was placed on ethical business training programmes and there was 92 per cent compliance with the business conduct and ethics programme.

-- The Group's businesses continued to embed a supply chain management system in partnership with an expert risk management company.

Grafton's sustainability agenda is based on focusing on those areas that are most material to the business and deliver tangible results and outcomes that will make a real difference to its stakeholders. The Group's sustainability programme informs both longer term strategic investment decisions and day to day operational decisions and recognises the positive connection between sustainability and financial performance.

Colleagues

The Board would like to express its appreciation to colleagues across the Group for their exceptional support and commitment to customers and to each other. Their hard work, skill, and dedication were essential to achieving a strong outturn in challenging markets.

Outlook

The Group's portfolio of higher margin businesses is well positioned to withstand short-term market conditions that may impact demand in the year ahead. Grafton has an excellent position with both market leading brands and geographic diversity as more than half of revenues are now coming from outside the UK in Ireland, Finland and the Netherlands.

Importantly, with a very strong balance sheet and net cash before IFRS 16 leases, the Group is extremely well placed to invest in future growth opportunities.

The fall in real disposable incomes will continue to weigh on activity in the RMI market and project affordability will be impacted by higher materials and labour costs. Interest rate increases are expected to lead to a cooling of demand in new housing markets as affordability reduces. These common themes are likely to impact demand to varying degrees in individual markets.

Despite these headwinds, we expect some important factors to help mitigate some of the adverse effects on household spending and the current economic outlook appears brighter than many feared in the second half of last year. Strong labour markets with low levels of unemployment and declining energy prices and inflation should have a positive impact on consumer spending.

In the UK, housing RMI activity is expected to remain weak as discretionary spending remains under pressure. House building is also likely to slow as house builders respond to the cooling market by reducing starts in response to lower demand.

In Ireland, the economy has proven resilient and is forecast to grow at a more moderate pace which should support a good level of consumer spending in the RMI and DIY markets. House completions are expected to be held back by the decline in commencements and concerns about the viability of new developments.

In the Netherlands, growth and volumes are expected to be subdued with the housing market likely to remain softer due to higher mortgage rates.

In Finland, IKH's exposure to a range of end use markets is expected to help shield it from some of the effects of a mild economic downturn and anticipated fall in house building, following a period of strong growth.

2023 has commenced in line with our expectations. In general, volumes are slightly lower than the same period last year and price inflation is moderating.

Average daily like-for-like Group revenue increased by 0.7 per cent in the period from 1 January 2023 to 19 February 2023. Average daily like-for-like revenue declined by 1.6 per cent in the UK Distribution business and by 0.1 per cent in the Ireland distribution business. There was growth of 0.4 per cent in the Netherlands and 6.3 per cent in Finland. Retailing grew average daily like-for-like revenue by 2.4 per cent and Manufacturing by 12.6 per cent.

Notwithstanding the current economic conditions, the strength of Grafton's businesses, its geographic diversity and balance sheet leaves it well placed to continue to execute its strategy and to respond to opportunities that emerge. The Group's objective is to outperform in its chosen markets through the cycle. We will allocate organic development capital appropriately to ensure that the Group's brands can continue to support their customers and strengthen their existing market positions . In addition, we aim to further enhance our business portfolio in selective geographies to support earnings progress and deliver sustainable returns for our shareholders.

Operating Review - Continuing Operations

The Distribution businesses in the UK, Ireland, the Netherlands and Finland contributed 84.2 per cent of Group revenue (2021: 81.9 per cent), Retailing 10.6 per cent (2021: 13.4 cent) and Manufacturing 5.2 per cent (2021: 4.7 per cent).

The UK businesses contributed 41.4 per cent (2021: 43.4 per cent) of Group revenue, Ireland 37.8 per cent (2021: 39.5 per cent), the Netherlands 14.6 per cent (2021: 13.8 per cent) and Finland 6.2 per cent (2021: 3.3%).

Distribution Segment

(84.2% of Group Revenue, 2021: 81.9%)

 
                                                 2022    2021** 
                                                GBP'm     GBP'm    Change* 
 Revenue                                      1,936.8   1,727.6      12.1% 
 Adjusted operating profit before property 
  profit                                        210.3     209.8       0.2% 
 Adjusted operating profit margin before 
  property profit                               10.9%     12.1%   (120bps) 
 Adjusted operating profit                      235.6     221.8       6.3% 
 Adjusted operating profit margin               12.2%     12.8%    (60bps) 
-------------------------------------------  --------  --------  --------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers

** The 2021 results for the distribution segment do not include the traditional merchanting business in Great Britain that was divested in 2021 and classified as discontinued operations.

UK Distribution generated 36.5 per cent (2021: 39.0 per cent) of Group revenue, Irish Distribution 26.9 per cent (2021: 25.8 per cent), Netherlands Distribution 14.6 per cent (2021: 13.8 per cent) and Finnish Distribution 6.2 per cent (2021: 3.3 per cent).

UK Distribution

(36.5% of Group Revenue, 2021: 39.0%)

 
                                               2022   2021** 
                                              GBP'm    GBP'm    Change* 
 Revenue                                      838.6    821.9       2.0% 
 Adjusted operating profit before property 
  profit                                       81.8    102.5    (20.2%) 
 Adjusted operating profit margin before 
  property profit                              9.8%    12.5%   (270bps) 
 Adjusted operating profit                    106.2    113.0     (6.0%) 
 Adjusted operating profit margin             12.7%    13.7%   (100bps) 
-------------------------------------------  ------  -------  --------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers

** The 2021 results for the UK distribution business do not include the traditional merchanting business in Great Britain that was divested in 2021 and classified as discontinued operations.

Revenue growth of 2.0 per cent comprises a decline of 2.0 per cent in the like-for-like business and growth of 4.0 per cent from acquisitions and new branch openings. Average daily like-for-like revenue declined by 1.2 per cent.

New Selco and Leyland SDM branches contributed revenue of GBP15.9 million and the acquisitions in Northern Ireland of the P. McDermott & Sons branch in Omagh, acquired in 2021, and Woodfloor Warehouse, acquired in 2022, contributed incremental revenue in the year of GBP17.4 million.

Gross margin was down by 200 basis points reflecting a normalisation of trading as the businesses reverted to a more traditional trade and retail mix as well as the impact of non-recurring inflation related stock gains realised in the prior year, a more competitive trading environment with greater product availability (compared to supply chain pressures in 2021 that resulted in a shortage of core building materials) and investment by Selco in pricing in a competitive market.

Adjusted operating profit before property profit declined to GBP81.8 million (2021: GBP102.5 million) and the adjusted operating profit margin, before property profit of 9.8 per cent, was 270 basis points lower than in 2021 due to the small decline in like-for-like revenue, normalisation of the gross margin and increased operating costs.

Selco Builders Warehouse ("Selco")

Revenue declined by a net 1.7 per cent comprising growth of 2.2 per cent from new branches (which are treated as part of like-for-like operations on the first anniversary of opening) and a decline of 3.9 per cent in the like-for-like branch network.

Revenue trends in 2022 developed against the backdrop of a pandemic related surge in activity and record trading levels in the first half of the prior year. Trading normalised in the second half of 2021 as the high level of demand for building materials and supply chain pressures gradually eased.

Significant price increases continued to come through from suppliers as they passed on higher energy, commodity and raw materials prices.

Average daily like-for-like revenue declined by 1.4 per cent in the first half following the exceptional growth in the first half of the prior year. Building materials' cost price inflation averaged circa 17.0 per cent year-on-year in the first half. The decline in first half volumes was circa 18.4 per cent. Average daily like-for-like revenue declined by 4.9 per cent in the second half. Building materials price inflation eased to 7.0 per cent and the decline in volumes moderated to 11.9 per cent in the second half. Average daily like-for-like revenue for the year was down by 3.1 per cent and volumes fell by 15.1 per cent.

Housing RMI volumes fell sharply as the economy weakened, inflation climbed to the highest rate for 40 years, consumer confidence remained weak and interest rates rose. Households were also forced to change their spending patterns as they struggled to adapt to soaring energy costs in the face of reduced real disposable incomes and they cut back on discretionary spending. Selco's trade customers are primarily engaged on small residential RMI projects and volumes were also affected by the very sharp increase in the cost of building materials for the second successive year that reduced affordability and discretionary spending on the home.

Demand was also affected by a post-pandemic shift away from spending on improving indoor and outdoor living space, that drove the rise in RMI activity in 2021, to spending on recreational, travel and leisure activities. Households were less inclined to spend on their homes with house price growth significantly moderating and interest rates rising. Non-essential RMI spending on the home was the part of the Selco market that was most exposed to cutbacks on spending as homeowners opted to defer expenditure until visibility on the prospects for the economy and for their personal finances improved. Branches in London and the South East performed more strongly than those in the regions.

Gross margin was down by 200 basis points on the prior year, which had benefitted from a more favourable customer and product mix and inventory gains during a period of rising prices and supply chain pressures. Selco invested in price on core products in a more competitive market that struggled to immediately absorb the combined effect of high building materials price inflation being passed on to customers and falling volumes.

Overall costs were very tightly controlled notwithstanding inflationary pressure on payroll costs in a very tight labour market and increased rents on a number of branch properties that were subject to five yearly reviews.

Operating profit was down on the record result achieved in the prior year due to the sharp decline in volumes, that were partly offset by inflation, and contraction in the gross margin in a very competitive market.

The branches that were opened in 2021 in Canning Town and Rochester substantially outperformed plan. Selco's long-established presence in the South West, where it trades from two branches in Bristol, was extended with the opening of a branch in Exeter in April and one in Cheltenham in December that increased the estate to 74 branches. A new branch in Peterborough will open in April 2023. Given the weaker growth outlook for the UK economy and the difficulties experienced by developers in funding new projects we have reassessed Selco's plans for the rollout of its new stores which had targeted an increase in the estate to 100 by 2026. Our current plans envisage a store estate of approximately 80-90 stores over the medium term.

Selco provides a flexible omni-channel offering to trade customers who can enjoy the benefits of a wide range of products in stock, excellent customer service and competitive trade pricing. Stores are at the heart of the omni-channel experience and serve as a competitive advantage for how the majority of our customers want to shop today. Selco is engaged in an ongoing store upgrade programme that delivers a better experience for customers and colleagues and ensures that the overall estate is maintained to a good standard. During the year it completed major upgrades to the Kingsbury, Cardiff and Baguley stores and mini upgrades to nine other stores.

Selco made a significant investment in recent years upgrading its online platform and website and continued its digital journey with the recent launch of a new App that provides further flexibility, improved functionality and new features that enable customers to more easily purchase building materials. Digital sales accounted for 5.1 per cent of revenue and approximately 80 per cent of on-line orders were fulfilled through deliveries from branches and delivery hubs.

Preparatory work was completed on upgrading the Microsoft Dynamics 365 finance and operations ERP system to a version that incorporates the latest technology. The upgrade was successfully tested and trialled in three branches before the year end and deployment in the Corporate Office and remainder of the branch network has commenced.

Selco implemented a range of initiatives in recent years to enhance the colleague experience and work environment for its 3,000 colleagues and was recognised as one of the best places to work in the UK and ranked in 17(th) position in the large company category by colleagues who participated in the Best Companies engagement survey.

An initiative to offset Selco's carbon footprint was launched with the planting of more than 100,000 trees near Jedburgh in the Scottish Borders in 2021 and as part of Selco's ongoing commitment to create a sustainable business it joined with the landowner and a key timber supplier in the planting of 160,000 trees on 60 hectares of land located near Llandrindod Wells in Wales. In another move to reduce carbon emissions, the process to transition the entire fleet of over 300 forklift trucks (as they come up for replacement over the coming years) commenced with the purchase of 28 electrically powered forklift trucks.

A new gas management system to optimise energy usage and reduce carbon emissions was implemented across the branch estate. Selco is also exploring energy generation opportunities across the estate and completed a successful trial of solar panels on the roof of the Barking branch. In addition, seven Compressed Natural Gas (CNG) vehicles are currently in operation with plans to introduce a further three in the new delivery hub in Birmingham. All delivery vehicles in the two delivery hubs are now fuelled by lower carbon emission HVO rather than diesel.

Leyland SDM

Footfall in Leyland SDM, London's largest specialist decorators' and DIY business, started to gradually recover in the early months of the year as visitors and workers began to return to the city. These groups are key drivers of RMI activity in the leisure and office sectors. Average daily like-for-like revenue grew by 2.0 per cent in the first half and picked up as the year developed exceeding 10.0 per cent in the fourth quarter driven by inflation and a return to volume growth.

Revenue in the Clapham Junction, Dulwich and Bayswater stores that were opened last year was in line with plan.

A decline in the gross margin and increased costs contributed to a decline in operating profit.

MacBlair

The MacBlair distribution business in Northern Ireland operated at a more normalised level of activity following a record result in the prior year that benefitted from exceptional pandemic related spending on housing RMI.

Building materials' price inflation offset a decline in volumes and average daily like-for-like revenue was flat for the year. Transactions with retail customers declined from the exceptional level in the prior year which saw record spending by households on home and garden improvement and maintenance projects. The decline in RMI revenue was offset by an increase in house building, a market that was subdued in the early months of the prior year before gradually recovering. Self-build customers, developers of small housing schemes and timber frame house manufacturers generated good growth in revenue.

There was a decline in the gross margin in the like-for-like business because of the fall in higher margin collected transactions with retail customers and an increase in the volume of core building materials delivered to house builders' sites.

The branch in Omagh acquired in December 2021 was integrated into the MacBlair branch network and procurement arrangements were aligned. In February 2022, MacBlair acquired Woodfloor Warehouse, a leading on-line distributor of timber flooring in Great Britain, Northern Ireland and the Republic of Ireland. It also operates branches in Bangor, Belfast and Warrington. Revenue was down on the pre-acquisition level because of a decline in on-line revenue transactions with retail customers in Great Britain, in a weaker RMI market, that accounts for a significant proportion of activity.

Operating profit was down on the prior year including contributions from the two acquisitions and a high single digit operating profit margin was reported for the enlarged business.

TG Lynes

TG Lynes, a leading distributor of commercial pipes and fittings principally in London, performed very strongly in what was a record year for the business with excellent growth in revenue and operating profit. Operating profit saw a continuation of a trend of strong growth since the business was acquired by Grafton in 2015.

TG Lynes continued to improve its market position, increasing volumes with subcontractors to the national housebuilders. Volumes were also higher from the post pandemic recovery in the upgrading of schools and hospitals. Investment also increased in the hotel, leisure, retail and office sub-sectors of the market. New build projects with long lead times account for two-thirds of revenue and were not immediately impacted by the downturn in the economy.

Voice picking technology was successfully trialled in the warehouse in Enfield and will go live in the first quarter of this year. It will provide an optimal path for picking orders, reducing errors and increasing warehouse efficiency.

The installation of solar panels in the prior year reduced the carbon footprint by generating the equivalent of two thirds of the electricity required to operate the business and lowered demand for energy from the national grid.

Irish Distribution

(26.9% of Group Revenue, 2021: 25.8%)

 
                                                                           Constant 
                                               2022    2021                Currency 
                                              GBP'm   GBP'm     Change*     Change* 
 Revenue                                      618.3   544.3       13.6%       14.4% 
 Adjusted operating profit before property 
  profit                                       70.5    66.8        5.5%        5.7% 
 Adjusted operating profit margin before 
  property profit                             11.4%   12.3%     (90bps)           - 
 Adjusted operating profit                     71.5    68.2        4.7%        0.6% 
 Adjusted operating profit margin             11.6%   12.5%     (90bps)           - 
-------------------------------------------  ------  ------  ----------  ---------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers

Chadwicks' distribution business in Ireland produced a very strong performance for the year as trading returned to more normal levels following the pandemic. Revenue growth was driven by building materials' price inflation and a significant contribution from acquisitions. Volumes declined in the second half as increased costs of materials and labour alongside subdued demand led construction businesses to scale back activity.

Supply chain pressures eased in line with activity levels, but the rate of inflation remained elevated for core building materials including insulation, plasterboard, cement and plastic products driven by higher raw materials and energy prices. A fall in steel and timber prices, partly reversed prior year increases due to the post pandemic spike in demand internationally. Building materials cost price inflation averaged 14.7 per cent for the year.

Average daily like-for-like revenue growth of 41.9 per cent in the first quarter was very strong even adjusting for weaker trading in the first quarter of the prior year when branches remained open albeit at a time when much of the construction sector was not operating due to pandemic related restrictions. The rate of average daily like-for-like growth eased in the second quarter to 4.3 per cent against a very strong prior year performance that benefitted from the rapid recovery in activity and pent-up demand following the lifting of restrictions. Overall growth in average daily like-for-like revenue was 19.5 per cent in the first half. Very strong activity in the first half gave way to a slowdown in second half trading with average daily like-for-like growth easing to 2.1 per cent and averaging 10.3 per cent for the year.

Volumes of core building materials recovered from reduced levels caused by the closure of house building sites in the first quarter of the prior year. Demand for hardware products, landscaping materials and paint were lower following exceptional demand from retail customers undertaking housing RMI projects during the pandemic.

The gross margin was down on the prior year due to changes in the mix of revenue including a lower proportion of revenue from RMI transactions with retail customers and an increase in the proportion of revenue delivered to trade customers. There was also a time lag in the recovery of materials price increases due to competitive pressure in the market. The sharp fall in steel and timber prices reduced margins on inventory, partly reversing the gains made in the prior year when prices were rising sharply.

Housing transaction volumes are estimated to have increased by circa six per cent in 2022 to 63,000 representing almost three per cent of the housing stock in a market that was very illiquid by international standards. New house completions contributed to growth in transactions increasing to an estimated 29,900 units, up from 20,400 in 2021 when output was reduced by Covid 19 restrictions. There was a major increase in apartment completions which rose by 79 per cent to account for half of total completions. Growth in housing scheme units was 42 per cent and the number of one-off house completions increased by 17 per cent, both of which are significant markets for Chadwicks.

The number of housing units on which construction commenced slowed during the year with the decline in apartment construction impacted by the increase in construction costs, planning constraints and securing project finance. The availability of land and construction capacity contributed to a fall in the commencement of housing schemes and increased costs also weighed on the construction of one-off houses that are typically constructed in non-urban areas.

The Proline Architectural Hardware ("Proline") business acquired in February 2021 outperformed plan and produced an excellent result for its first full year under Chadwicks ownership that was complemented by introducing a range of Proline products in 28 Chadwicks branches.

The Sitetech construction accessories business acquired at the end of February 2022, traded well ahead of expectations, and made an excellent profit contribution in the ten months post acquisition, in addition to providing Chadwicks with a strong presence in a complementary segment of a market where Sitetech is the market leader. Sitetech collaborated with Chadwicks and provided access to complementary products and the expertise and colleague training required to generate incremental revenue.

Chadwicks completed major upgrades to its Bray, Coolock and Kilkenny branches that facilitated the introduction of a number of new product ranges. ECO Centres were opened in 10 branches that supply a range of energy efficient products including insulation, airtightness, ventilation systems, heat pumps and controls, solar energy and water-saving products. This initiative takes a sustainability first approach to creating better buildings and helps support the grant-aided retrofit programme in Ireland that targets energy upgrades to a quarter of the national housing stock.

Chadwicks new transactional website offers over 10,000 products to trade and retail customers with delivery and collection options from 37 locations nationwide. The new website has increased customer engagement and provided the flexibility and convenience to trade on-line combined with the knowledge and expertise they receive dealing with their local Chadwicks branch.

Chadwicks digital strategy has created greater mobility for colleagues so they can operate digitally throughout branches while delivering greater flexibility in how they engage with customers. The rollout of a delivery transport system has created efficiencies from improving transport planning, route optimisation, customer service and communications.

Netherlands Distribution

(14.6% of Group Revenue, 2021: 13.8%)

 
                                                                Constant 
                                                                Currency 
                                      2022    2021               Change* 
                                     GBP'm   GBP'm   Change* 
 Revenue                             336.7   290.5     15.9%       16.8% 
 Adjusted operating profit            37.6    30.5     23.2%       24.3% 
 Adjusted operating profit margin    11.2%   10.5%    +70bps           - 
----------------------------------  ------  ------  --------  ---------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers

Isero produced excellent results for the year, in broadly favourable markets, that included a good contribution from acquisitions and benefits realised from implementing performance improvement measures.

The business has steadily grown in recent years to become the clear market leader in the ironmongery, tools and fixings distribution market in the Netherlands. It has acquired 82 branches and opened seven in the period since Grafton acquired Isero in late 2015 and now trades from 123 branches.

Year-on-year revenue trends were not impacted by the pandemic as the business was treated as an essential distributor and remained open throughout 2021. First half volumes were flat and with inflation contributing growth of 7.5 per cent in average daily like-for-like revenue. Second half average daily like-for-like revenue growth of 10.4 per cent included a small increase in volumes.

Revenue increased from key account customers engaged on large commercial construction projects, including apartment building and the maintenance of public sector housing. Isero also improved its market position in the supply of hinges and locks to timber factories where its end-to-end service proposition is a differentiator. Transaction numbers with smaller customers engaged in housing RMI projects were lower. This segment of the market performed strongly last year as households increased spending on home improvement projects during the pandemic. Revenue also increased from value added solutions that use technology to efficiently replenish inventory levels in containers located on the sites of customers engaged on large construction projects and in the vans used by Housing Corporations for maintenance services.

There was a strong advance in operating profit from growth in like-for-like revenue and a higher gross margin that reflected inflation related inventory gains and improved procurement arrangements. These growth components helped deliver an improvement in the operating profit margin of 70 basis points. Payroll costs also increased in a tight labour market.

The number of transactions in existing homes dropped for the second successive year as affordability, that was already stretched by average house prices increasing by almost a third since early 2020, deteriorated further. The new housing market was also under pressure as forward sales declined and the number of building permits issued continued to fall.

Organic revenue growth was complemented by a significant contribution from acquisitions that increased overall constant currency revenue by 16.8 per cent. The five branch Regts B.V. ("Regts") business in Friesland acquired in January 2022 extended Isero's coverage into the Northeast region of the Netherlands and outperformed plan. Good progress was made harmonising its portfolio of products and aligning procurement arrangements.

The two branches in Rotterdam that we relocated last year to higher profile locations and the new branch in Lelystad, a growth city in the centre of the Netherlands, performed well. The new branch that was opened in Zaandam, just north of Amsterdam, also got off to a strong start. The branch in Gouda was relocated and five branches were upgraded including three of the four Govers branches acquired in April 2021. Further automation measures were implemented in the Waddinxveen distribution centre to improve handling efficiency.

Isero continued to implement solutions to reduce carbon emissions focusing on the installation of LED light fittings in several branches as part of an ongoing upgrade programme and, with the cooperation of landlords, solar panels and heat pumps were installed in six branches. A new circular model was trialled to extend the lifetime of colleague and customer PPE and certain other products through repair and reuse.

Finland Distribution

(6.2% of Group Revenue, 2021: 3.3%)

 
                                                       Constant 
                                                       Currency 
                             2022    2021               Change* 
                            GBP'm   GBP'm   Change* 
 Revenue                    143.2    70.8    102.2%      101.7% 
 Operating profit            20.3    10.0    104.2%      103.7% 
 Operating profit margin    14.2%   14.1%    +10bps           - 
-------------------------  ------  ------  --------  ---------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers.

IKH, one of Finland's largest workwear and personal protective equipment ("PPE"), tools and spare parts wholesalers, operates in an attractive segment of the technical trades' distribution market in Finland. It was acquired by Grafton on 1 July 2021 and performed in line with expectations in its first full year as part of the Group.

First half revenue was down on the pre-acquisition level in the prior year as milder than normal weather conditions in the early months of the year reduced demand for a number of seasonally sensitive product categories and trading was also affected by the sharp drop in consumer confidence following the invasion of Ukraine by Russia which shares a long land border with Finland. Trading improved in May and June following the slow start to the year.

Average daily like-for-like revenue increased by 5.4 per cent in the second half as a recovery in demand that developed in the third quarter gained further impetus in the final months of the year supported by generally resilient activity.

IKH products are distributed through a network of independently operated IKH partner stores, the strategic cornerstone of the model, third party distributors and owned stores operated from complementary locations. These three routes to market provide a balanced channel exposure and are good touchpoints to support customers operating in the construction, renovation, industrial, agricultural and spares end markets. These channels were strengthened with the appointment of new partners in Joensuu, Finland's 12(th) largest city, and in the towns of Raahe and Jamsa. The three new partners will enable IKH to increase geographic coverage of the market in the central region of Finland. Exports to Estonia increased and IKH's partner in the country will open a new store in Tallinn in March 2023.

The new IKH store in Hämeenlinna, a city located 100 kilometres north of Helsinki, that opened at the end of 2021 started to build market share. In November, IKH opened its 12(th) own store in Rovaniemi, the capital city of Lapland in Northern Finland.

The new housing market has been strong in recent years in response to good demand from consumers and investors. There was a record number of housing starts in 2021 and construction work continued on these projects and house building had a good year with a significant increase in investment. The number of building permits issued for new homes dropped considerably as mortgage rates and construction costs increased and the housing market started to return to more normal levels of activity. Residential RMI activity was underpinned by good demand for building services renovations and increased energy related projects in apartment buildings and single housing units. The weakening economy, higher costs, lower yields and uncertainty slowed new non-residential construction projects.

IKH participated in the Great Place to Work colleague engagement survey for the first time and exceeded the threshold for recognition as a Great Place to Work in Finland.

Retail Segment

(10.6% of Group Revenue, 2021: 13.4%)

 
                                                        Constant 
                                                        Currency 
                             2022    2021                Change* 
                            GBP'm   GBP'm    Change* 
 Revenue                    244.0   282.8    (13.7%)     (13.0%) 
 Operating profit            32.6    50.9    (35.9%)     (35.5%) 
 Operating profit margin    13.3%   18.0%   (470bps)           - 
-------------------------  ------  ------  ---------  ---------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers

Revenue in Woodie's DIY, Home and Garden business in Ireland normalised, as expected, following exceptional pandemic related constant currency growth of 19.4 per cent in 2021 when Woodie's was treated as an essential retailer and continued to trade during the early months of the year while the country was in lockdown. The normalisation of trading was concentrated over the first half which saw revenue decline by 22.8 per cent.

Revenue trends were broadly stable in the second half despite weak consumer sentiment as cost-of-living pressures caused households to increase spending on essentials including energy and to cut back on discretionary spending. Consumers also continued to spend more on leisure activities and experiences and less on other areas, including DIY, home and garden, that boomed during the pandemic.

Woodie's had to navigate a unique set of trading conditions in 2022 as exceptional spending in the prior year unwound and real disposable incomes declined as inflation reached its highest level in almost four decades. The business was resilient and as market leader Woodie's was well placed to leverage its competitive advantage to support customers engaged in a broad range of DIY, home and garden projects.

A significant proportion of the revenue gains made in the prior year were maintained and there has been a step change in the performance of Woodie's since 2019. Revenue increased by 18.7 per cent from GBP205.5 million in 2019 and operating profit by 43.9 per cent from GBP22.6 million. This is a better gauge of Woodie's performance and of the progress made from a clear and consistent focus on colleagues, customers and products.

Woodie's provides on-line and in-store channels for its customers while differentiating the service and experience of shopping in its stores. On-line was 3.4 per cent of revenue (2021: 2.9 per cent). The Woodie's website is also used as a powerful opportunity to engage with customers and enable them to locate and research products that they purchase in-store. Woodie's has a strong presence on several social media platforms that are becoming the primary channels to communicate with customers and increase brand visibility.

Woodie's was recognised as A Great Place to Work for the seventh consecutive year. It was ranked 11th in Ireland's and 41st in Europe's Best Workplaces benchmarked against the largest international and domestic employers. Putting people first has been central to Woodie's success in recent years and it continued to measure and improve colleague engagement against a range of metrics. Woodie's became the first retailer and the eighth organisation to ever achieve a Gold Investors in Diversity accreditation from the Irish Centre for Diversity

The number of transactions declined by 12.2 per cent and the combined net effect of investment in pricing in certain categories, changes in the average basket value from customers purchasing fewer higher value seasonal products and inflation reduced revenue by 0.8 per cent. Revenue declined across all categories except gardening which performed very strongly.

Gross margin trends that developed in the first half of the year continued through the second half with changes in product mix, increased promotional activity, particularly for seasonal ranges, and higher shipping and freight costs contributing to a decline.

There was upward pressure on energy and property costs, but the overall cost base was tightly controlled and was down on the prior year as some of the additional capacity put in place to support exceptional customer demand in 2021 was withdrawn.

Energy usage declined by 14 per cent following the upgrade of store lighting, the implementation of new digital controls and a colleague education programme on energy efficiency .

Woodie's continued its engagement with communities in Ireland raising over EUR400,000 for four charities through its annual Heroes campaign that has raised almost EUR3.0 million over the past eight years.

Manufacturing Segment

(5.2% of Group Revenue, 2021: 4.7%)

 
                                                        Constant 
                                                        Currency 
                             2022    2021                Change* 
                            GBP'm   GBP'm    Change* 
 Revenue                    120.6    99.6      21.1%       21.2% 
 Operating profit            27.4    24.0      13.9%       13.9% 
 Operating profit margin    22.7%   24.1%   (140bps)           - 
-------------------------  ------  ------  ---------  ---------- 
 

*Change represents the movement between 2022 v 2021 and is based on unrounded numbers

The CPI EuroMix business that mainly supplies mortars to national, regional and local house builders and plastering contractors from ten plants in Great Britain performed strongly with revenue growth of 22.3 per cent driven by a surge in the price of raw materials and other input costs. Volumes for the year were very marginally down as low single digit growth in silo mortar, that accounted for 90 per cent of output, was offset by a decline in the sale of bagged mortar products supplied to the residential RMI market.

Silo mortar volumes recovered strongly in the first quarter with double digit growth on the prior year when house building was disrupted by the pandemic. Second quarter silo mortar volumes were marginally lower against a very strong comparator that benefitted from an increase in house building as restrictions were lifted. First half volumes in a few plants were also impacted by supply chain disruption from shortages of cement, sand and limestone and scheduled works to replace or upgrade production equipment.

Overall, second half silo mortar volumes were flat as third quarter growth was offset by a decline in the fourth quarter. House building slowed in the final months of the year as house builders began to scale back activity in response to a drop in weekly sales rates, a rise in cancellations and lower forward sales. Demand for new houses was affected by interest rate rises.

Demand was well down for ready-to-use bagged mortars and concrete supplied to the housing RMI market compared to the exceptional pandemic related demand in the prior year. Destocking by customers and increased pressure on discretionary spending on the home by end customers as the year progressed also weighed on volumes.

There was a good advance in operating profit on the prior year following the recovery of materials price inflation in the second half and the operating margin was maintained at 20.0 per cent.

CPI EuroMix is at an advanced stage in planning for the implementation later this year of a new ERP system that will support all areas of the business, increase visibility of its daily operations and provide real-time information and increased functionality that should allow it to better support the needs of all of its stakeholders.

The number of locations using lower carbon cement was increased to seven plants from three in 2021 and we continued to engage with a partner on even lower carbon cement alternatives that are in the very early stages of research and development. Solar panels were installed at four locations to reduce energy demand from the national grid. A trial was conducted at one plant on fuelling vehicles with HVO (Hydrotreated Vegetable Oils) instead of fossil fuels. The business is also engaged on an ongoing research project with its vehicle manufacturer concerning electric powered tractor units used to refill silos on customers sites with dry mortar materials. Carbon emissions from mortar delivery vehicles were offset through the planting and maintenance of 30 hectares of woodland with 80,000 trees in Dumfries, Scotland which is accredited and registered under the Carbon Code.

StairBox, the market leading manufacturer of bespoke staircases primarily for the secondary housing market, reported revenue growth of 18.9 per cent to GBP31.3 million (2021: GBP26.3 million). The increase in revenue was sustained by volume growth of 7.4 per cent and raw materials price increases. Despite the decline in activity in the residential RMI market, StairBox experienced record demand from trade customers across Great Britain. Operating profit increased by 9.2 per cent to GBP9.8 million (2021: GBP9.0 million), an operating margin of 31.3 per cent (2021: 34.2 per cent).

StairBox continued to develop its state-of-the-art staircase manufacturing technology including a major update to its factory management software that improved the efficiency of the manufacturing and assembly processes. The StairBuilder on-line stairs designer software was updated to include further design features that were well received by customers. These developments helped StairBox to continue to win a very high level of customer trust and confidence in the quality of its bespoke staircases and service.

StairBox successfully relocated its assembly operations to a nearby leased property that provides additional capacity for the overall operation following exceptional growth in volumes in recent years and secures the future of its manufacturing capability in Stoke-on-Trent.

Financial Review

Revenue

Group revenue from continuing operations increased by 9.1 per cent to GBP2.30 billion from GBP2.11 billion in 2021.

Revenue in the like-for-like business increased by 2.4 per cent (GBP48.3 million) on the prior year.

The acquisition of IKH in Finland in July 2021 and a number of bolt-on transactions in Ireland, the UK and the Netherlands, contributed revenue of GBP134.4 million. New Selco and Leyland SDM branches in the UK, one new branch in the Netherlands and two new branches in Finland contributed an additional GBP17.8 million of revenue in the year.

Currency translation reduced revenue by GBP7.9 million and the closure of a single branch in Ireland on expiry of a lease reduced revenue by GBP1.1 million.

Adjusted Operating Profit

Adjusted operating profit from continuing operations of GBP285.9 million was down marginally from GBP288.0 million last year. This included a non-recurring pension scheme curtailment gain of GBP3.7 million.

Adjusted operating profit before property profit and before the pension scheme curtailment gains was GBP256.8 million, down by 5.3 per cent from last year's record result of GBP271.2 million. The adjusted operating profit margin before property profit and the pension scheme gain declined by 170 basis points to 11.2 per cent.

Net Finance Income and Expense

The net finance expense declined to GBP12.6 million (2021: GBP19.4 million). This charge includes an interest charge of GBP14.9 million (2021: GBP14.6 million) on lease liabilities recognised under IFRS 16.

Interest income on cash deposits amounted to GBP8.7 million (2021: GBP0.2 million). The Group had cash deposits of GBP467.0 million at the year-end that were denominated in sterling. Returns on these deposits increased as the year developed to reflect the eight occasions that the Bank of England raised rates from 0.25 per cent at the start of the year to 3.5 per cent at the year end.

Interest payable on bank borrowings denominated in euros and US Private Placement Senior Unsecured Notes fell to GBP5.6 million (2021: GBP6.2 million). The decline was due to lower average debt and a lower interest rate payable on part of the bank debt borrowed under the ECB's Targeted Longer-Term Refinancing Operations. This was partly offset by a higher interest rate payable on the remainder of the bank debt following four increases by the European Central Bank in its key interest rate from zero per cent to 2.5 per cent in the second half of the year.

The net finance expense included a foreign exchange translation loss of GBP0.7 million which compares to a gain of GBP1.7 million in the prior year.

Taxation

The income tax expense of GBP43.1 million (2021: GBP43.0 million) is equivalent to an effective tax rate of 17.1 per cent of profit before tax (2021: 17.2 per cent). This is a blended rate of corporation tax on profits in the four countries where the Group operates.

Certain items of expenditure charged in arriving at profit before tax, including depreciation on buildings, are not eligible for a tax deduction. This factor increased the rate of tax payable on profits above the headline rates.

The tax rate is expected to increase to 20.1 per cent in 2023 and in the medium term, based on expectations of the balance of profitability across the Group and tax rates, is anticipated to increase to a little over 22 per cent.

Cashflow

Cash generated from operations for the year was GBP278.8 million (2021: GBP303.2 million). There was an investment of GBP71.3 million into working capital. The increase in stock was a reflection of both inflation and our trading strategy to increase product availability for customers during the year at a time of rising prices. Similarly, the increase in trade debtors reflects inflation as well as an increasing proportion of trade customers relative to cash customers as activity normalised during 2022.

Interest paid amounted to GBP21.9 million (2021: GBP20.5 million) which included IFRS 16 lease interest of GBP14.9 million (2021: GBP14.6 million). Taxation paid was GBP39.5 million (2021: GBP43.7 million). Cashflow from operations after interest and taxation payments was GBP217.3 million (2021: GBP239.0 million).

There was a cash outflow of GBP46.0 million on completion of the Sitetech acquisition in Ireland, the Woodfloor Warehouse acquisition in Northern Ireland and the Regts acquisition in the Netherlands. The outlay on capital expenditure and computer software was GBP57.8 million (2021: GBP44.4 million).

The cash outflow on the dividend payment (GBP73.9 million) and buyback of shares (GBP135.0 million) amounted to GBP208.9 million (2021: GBP84.9 million).

Capital Expenditure and Investment in Intangible Assets

Grafton continued to maintain tight control over capital expenditure which amounted to GBP55.3 million (2021: GBP43.6 million). Expenditure of GBP2.5 million (2021: GBP0.8 million) was incurred on computer software that is classified as intangible assets.

Asset replacement capital expenditure of GBP33.2 million (2021: GBP24.6 million) compares to the depreciation charge on property, plant and equipment of GBP34.2 million (2021: GBP38.3 million). This related principally to the replacement of fixtures and fittings, plant and machinery, forklifts, plant and tools for hire by customers and other assets required to operate the Group's branch network.

Development capital expenditure of GBP22.1 million (2021: GBP19.0 million) was incurred on a range of initiatives that provide a platform for future growth including new branches in Selco, Isero and IKH; upgrades to Chadwicks and Isero branches; as well as investment in IT hardware.

The proceeds from the disposal of property, plant and equipment increased to GBP28.5 million (2021: GBP22.2 million). The disposal of three freehold properties retained following the sale of the traditional merchanting business in Great Britain generated cash proceeds of GBP26.2 million and realised a profit of GBP19.9 million.

Pensions

The IAS 19 defined benefit pension schemes had a net deficit of GBP10.5 million at the year end, down by GBP1.0 million on the net deficit of GBP11.5 million on 31 December 2021.

Changes to financial assumptions reduced scheme liabilities by GBP98.1 million reflecting the net impact of a gain from the increase in discount rates and a loss from the increase in inflation expectations. Changes in demographic assumptions increased scheme liabilities by GBP2.9 million and experience variations increased liabilities by GBP2.4 million. The net impact was a reduction in the liabilities of the schemes by GBP92.8 million.

The increase in discount rates used to discount scheme liabilities moved in line with increases in corporate bond rates. The rate used to discount UK liabilities increased by 290 basis points to 4.8 per cent and the rate used to discount Irish liabilities increased by 255 basis points to 3.7 per cent. These movements reduced scheme liabilities by GBP108.0 million.

Inflation rates increased, particularly in relation to the Irish schemes, over the past year and this impacted the value of liabilities as future benefit payments from the pension plans are directly or indirectly linked to future inflation. This was particularly relevant to the UK scheme where inflation both in the period up to and after retirement increases the projected growth in benefits. In Ireland, pensions are fixed at the date members retire with inflation increasing liabilities only up to that date.

There was a loss on plan assets of GBP97.8 million due to the fall in the values of liability driven investments, bonds and equities that was almost matched by the reduction in liabilities.

Asset experience losses in the UK scheme were greater than the reduction in liabilities and this was the main contributor to the scheme deficit increasing from GBP0.7 million to GBP14.2 million. In Ireland, asset experience losses were materially less than gains from the reduction in liabilities resulting in a significant improvement in the financial position of the schemes. There was also a once-off gain of GBP3.7 million (before costs) from closing one of the schemes to future accrual. These factors mainly contributed to the schemes in Ireland moving from a deficit of GBP9.9 million to a surplus of GBP4.6 million.

There was a scheme deficit of GBP0.8 million (31 December 2021: GBP0.8 million) related to the Netherlands business.

Following divestment of the traditional distribution business in Great Britain, Grafton retained responsibility for the UK defined benefit pension scheme which was closed to future accrual at the end of 2020 when alternative arrangements were put in place.

Net Cash/Debt

Net cash (including IFRS 16 lease obligations) at 31 December 2022 was GBP8.9 million which compares to GBP139.0 million at 31 December 2021. The proceeds on the sale of the Traditional Merchanting Business in Great Britain for an enterprise value of GBP520.0 million were received on 31 December 2021.

The Group's net cash position, before recognising IFRS 16 lease liabilities, was GBP458.2 million, down from GBP588.0 million at 31 December 2021.

The Group's policy is to maintain its investment grade credit rating while investing in organic developments and acquisition opportunities. The Group has a progressive dividend policy with an objective of maintaining dividend cover at between two and three times earnings.

Liquidity

Grafton ended the year in a very strong financial position with excellent liquidity, net cash before IFRS 16 lease liabilities and a robust balance sheet.

The Group had liquidity of GBP934.6 million at 31 December 2022 (31 December 2021: GBP1,235.4 million). As shown in the analysis of liquidity on page 46, accessible cash amounted to GBP707.7 million (31 December 2021: GBP840.7 million) and there were undrawn revolving bank facilities of GBP226.9 million (31 December 2021: GBP394.7 million).

The Group had bilateral loan facilities of GBP340.7 million at the year end (31 December 2021: GBP433.7 million) with four relationship banks and debt obligations of GBP141.9 million (31 December 2021: GBP134.4 million) from the issue of unsecured senior notes in the US Private Placement market.

In August 2022, the Group completed a refinancing of its bilateral loan facilities that were due to expire in March 2023. These revolving loan facilities for GBP340.7 million were agreed with four established relationship banks for a term of five years to August 2027. The arrangements include two one-year extension options exercisable at the discretion of Grafton and the four banks. These new facilities provide certainty of finance over a longer period on improved terms and replaced facilities of GBP380.7 million. This is sustainability linked debt funding and includes an incentive connected to the achievement of carbon emissions, workforce diversity and community support targets that are fully aligned to the Group's sustainability strategy.

A one-year facility for GBP86.0 million put in place in December 2021 and facilitated by one of the Group's relationship banks under the ECB's Targeted Longer-Term Refinancing Operations was repaid in December 2022. This facility was used to temporarily replace drawings on existing facilities on more attractive terms.

The average maturity of the committed bank facilities and unsecured senior notes at 31 December 2022 was 5.2 years.

The Group's key financing objective continues to be to ensure that it has the necessary liquidity and resources to support the short, medium and long-term funding requirements of the business. These resources, together with strong cash flow from operations, provide good liquidity and the capacity to fund investment in working capital, routine capital expenditure 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 in the businesses in Ireland, the Netherlands and Finland.

IFRS 16 Leases

Leases that are recorded on the balance sheet principally relate to properties, cars and distribution vehicles.

IFRS 16 increased operating profit by GBP13.2 million (2021: GBP13.0 million) and the finance (interest) expense by GBP14.9 million (2021: GBP14.6 million) in the period. Profit before tax was reduced by GBP1.7 million (2021: reduced by GBP1.6 million) and profit after tax reduced by GBP1.3 million (2021: reduced by GBP1.4 million) because of IFRS 16.

The right-of-use asset in the balance sheet at 31 December 2022 was GBP420.1 million (31 December 2021: GBP421.3 million) and lease liabilities were GBP449.3 million (31 December 2021: GBP449.0 million).

IFRS 16 does not alter the overall cashflows or the economic effect of the leases to which the Group is a party. Similarly, there is no effect on Grafton's banking covenants.

Shareholders' Equity

The Group's balance sheet strengthened further in the year with shareholders' equity up by GBP26.0 million to GBP1.75 billion. Profit after tax increased shareholders' equity by GBP208.6 million and there was a gain of GBP30.7 million on translation of euro denominated net assets to sterling. Shareholders' equity was reduced for a remeasurement loss (net of tax) of GBP2.5 million on pension schemes, for dividends paid of GBP73.9 million and by GBP143.0 million for the buyback of shares. Other changes increased equity by GBP6.0 million.

Return on Capital Employed

Return on Capital Employed in continuing operations declined by 220 basis points to 17.2 per cent (2021: 19.4 per cent) including leased assets.

Principal Risks and Uncertainties

The primary risks and uncertainties affecting the Group are set out on pages 70 to 75 of the 2022 Annual Report and Accounts. These risks refer to Macro Economic Conditions in the UK, Ireland, the Netherlands and Finland; Cyber Security and Data Protection; Acquisition and Integration of New Businesses; Supply Chain; Colleagues; Competition in Distribution, Retailing and Manufacturing Markets; Information Technology Systems and Infrastructure; Health and Safety; Sustainability and Climate Change; Internal Controls and Fraud and Pandemic Risk.

Grafton Group plc

Group Income Statement

For the year ended 31 December 2022

 
                                              Notes 
                                                             2022          2021 
                                                          GBP'000       GBP'000 
 Revenue                                        2       2,301,482     2,109,909 
 Operating costs                                      (2,062,597)   (1,857,487) 
 Property profits                               3          25,381        16,740 
                                                     ------------  ------------ 
 Operating profit                                         264,266       269,162 
 Finance expense                                4        (21,273)      (21,269) 
 Finance income                                 4           8,690         1,904 
                                                     ------------  ------------ 
 Profit before tax                                        251,683       249,797 
 Income tax expense                            17        (43,065)      (42,952) 
                                                     ------------  ------------ 
 Profit after tax for the financial 
  year from continuing operations                         208,618       206,845 
 Profit after tax from discontinued 
  operations                                   14               -       134,422 
 Profit after tax for the financial 
  year                                                    208,618       341,267 
 
 Profit attributable to: 
 Owners of the Company                                    208,618       341,267 
 Profit attributable to: 
 Continuing operations                                    208,618       206,845 
 Discontinued operations                                        -       134,422 
 
 Earnings per ordinary share (continuing 
  operations) - basic                           5           89.3p         86.4p 
 Earnings per ordinary share (continuing 
  operations) - diluted                         5           89.2p         86.3p 
 Earnings per ordinary share (discontinued 
  operations) - basic                           5               -         56.2p 
 Earnings per ordinary share (discontinued 
  operations) - diluted                         5               -         56.1p 
 Earnings per ordinary share (total) 
  - basic                                       5           89.3p        142.6p 
 Earnings per ordinary share (total) 
  - diluted                                     5           89.2p        142.3p 
 

Grafton Group plc

Group Statement of Comprehensive Income

For the year ended 31 December 2022

 
                                               Notes       2022       2021 
                                                        GBP'000    GBP'000 
 Profit after tax for the financial 
  year                                                  208,618    341,267 
                                                      ---------  --------- 
 Other comprehensive income 
 Items that are or may be reclassified 
  subsequently to the income statement 
 Currency translation effects: 
 - on foreign currency net investments                   30,741   (25,168) 
 Fair value movement on cash flow 
  hedges: 
 - effective portion of changes in 
  fair value of cash flow hedges                           (29)         57 
                                                         30,712   (25,111) 
                                                      ---------  --------- 
 Items that will not be reclassified 
  to the income statement 
 Remeasurement (loss)/gain on Group 
  defined benefit pension schemes               13      (5,040)     14,886 
 Deferred tax on Group defined benefit 
  pension schemes                                         2,558    (3,212) 
                                                      ---------  --------- 
                                                        (2,482)     11,674 
                                                      ---------  --------- 
 Total other comprehensive income/(expense)              28,230   (13,437) 
                                                      ---------  --------- 
 Total comprehensive income for 
  the financial year                                    236,848    327,830 
                                                      ---------  --------- 
 
 
   Total comprehensive income attributable 
   to: 
 Owners of the Company                                  236,848    327,830 
 Total comprehensive income for 
  the financial year                                    236,848    327,830 
                                                      =========  ========= 
 

Grafton Group plc - Group Balance Sheet as at 31 December 2022

 
                                          Notes   31 Dec 2022   31 Dec 2021 
 ASSETS                                               GBP'000       GBP'000 
 Non-current assets 
 Goodwill                                  15         635,751       599,810 
 Intangible assets                         16         153,712       144,327 
 Property, plant and equipment              9         354,402       319,295 
 Right-of-use asset                         8         420,115       421,254 
 Investment properties                      9          26,084        26,527 
 Deferred tax assets                       17           8,063         8,793 
 Lease receivable                                         453           881 
 Retirement benefit assets                 13           4,584         3,596 
 Other financial assets                                   129           126 
                                                 ------------  ------------ 
 Total non-current assets                           1,603,293     1,524,609 
                                                 ------------  ------------ 
 
 Current assets 
 Properties held for sale                   9           4,364         6,125 
 Inventories                               10         399,565       344,172 
 Trade and other receivables               10         267,694       233,486 
 Lease receivable                                         196           212 
 Cash and cash equivalents                 11         711,721       844,663 
 Total current assets                               1,383,540     1,428,658 
                                                 ------------  ------------ 
 Total assets                                       2,986,833     2,953,267 
                                                 ============  ============ 
 
 EQUITY 
 Equity share capital                                   7,870         8,570 
 Share premium account                                221,975       219,447 
 Capital redemption reserve                             1,389           643 
 Revaluation reserve                                   12,375        12,519 
 Shares to be issued reserve                            8,647        11,837 
 Cash flow hedge reserve                                 (37)           (8) 
 Foreign currency translation reserve                  87,492        56,751 
 Retained earnings                                  1,411,053     1,413,737 
 Treasury shares held                                 (5,185)       (3,897) 
                                                 ------------  ------------ 
 Equity attributable to owners of 
  the Parent                                        1,745,579     1,719,599 
 Total equity                                       1,745,579     1,719,599 
                                                 ------------  ------------ 
 
 LIABILITIES 
 Non-current liabilities 
 Interest-bearing loans and borrowings     11         253,502       172,601 
 Lease liabilities                         11         389,198       396,070 
 Provisions                                            15,189        14,862 
 Retirement benefit obligations            13          15,068        15,067 
 Deferred tax liabilities                  17          61,011        56,402 
                                                 ------------  ------------ 
 Total non-current liabilities                        733,968       655,002 
                                                 ------------  ------------ 
 
 Current liabilities 
 Interest-bearing loans and borrowings     11               -        84,030 
 Lease liabilities                         11          60,105        52,924 
 Trade and other payables                  10         420,653       419,111 
 Current income tax liabilities                        20,595        15,956 
 Derivative financial instruments          11              29             8 
 Provisions                                             5,904         6,637 
                                                 ------------  ------------ 
 Total current liabilities                            507,286       578,666 
                                                 ------------  ------------ 
 Total liabilities                                  1,241,254     1,233,668 
                                                 ------------  ------------ 
 
 Total equity and liabilities                       2,986,833     2,953,267 
                                                 ============  ============ 
 

Grafton Group plc - Group Cash Flow Statement

 
          For the year ended 31 December 2022   Notes 
                                                          31 Dec 2022     31 Dec 2021 
                                                              GBP'000         GBP'000 
 Profit before taxation from continuing 
  operations                                                  251,683         249,797 
 Profit before taxation from discontinued 
  operations                                     14                 -         143,846 
                                                       --------------  -------------- 
 Profit before taxation                                       251,683         393,643 
 Finance income                                               (8,690)         (1,904) 
 Finance expense                                4,14           21,273          22,512 
                                                       --------------  -------------- 
 Operating profit                                             264,266         414,251 
 Depreciation                                    8,9           94,313          97,894 
 Amortisation of intangible assets               16            20,295          17,184 
 Share-based payments charge                                    4,719           5,601 
 Movement in provisions                                       (1,316)         (1,950) 
 (Profit)/loss on sale of property, plant 
  and equipment                                   9             (248)             522 
 Property profits - continuing operations         9          (20,383)         (6,890) 
 Property profits - discontinued operations       9                 -           (396) 
 Fair value gains recognised as property 
  profits                                         9           (4,998)         (9,850) 
 Asset impairment and fair value losses           9                 -             248 
 Profit on disposal of Group businesses          14                 -       (125,116) 
 Gain on derecognition of leases                                (475)           (500) 
 Contributions to pension schemes in excess 
  of IAS 19 charge                                            (6,150)        (23,650) 
 Increase in working capital                     10          (71,273)        (64,129) 
 Cash generated from operations                               278,750         303,219 
 Interest paid                                               (21,879)        (20,464) 
 Income taxes paid                                           (39,529)        (43,722) 
                                                       --------------  -------------- 
 Cash flows from operating activities                         217,342         239,033 
                                                       --------------  -------------- 
 
   Investing activities 
 Inflows 
 Proceeds from sale of property, plant 
  and equipment                                   9               845           2,611 
 Proceeds from sale of properties held 
  for sale                                        9             4,238          18,881 
 Proceeds from sale of investment properties      9            23,463             756 
 Proceeds from sale of Group businesses 
  (net of cash disposed)                         14                 -         498,530 
 Interest received                                              8,690             193 
                                                               37,236         520,971 
                                                       --------------  -------------- 
 Outflows 
 Acquisition of subsidiary undertakings 
  (net of cash acquired)                         14          (45,978)       (123,309) 
 Deferred acquisition consideration paid         10           (4,000)               - 
 Investment in intangible asset - computer 
  software                                       16           (2,522)           (827) 
 Purchase of property, plant and equipment        9          (55,318)        (43,616) 
                                                            (107,818)       (167,752) 
                                                       --------------  -------------- 
 Cash flows from investing activities                        (70,582)         353,219 
                                                       --------------  -------------- 
 
   Financing activities 
 Inflows 
 Proceeds from the issue of share capital                       2,574           2,974 
 Proceeds from borrowings                                     141,722          96,897 
                                                       --------------  -------------- 
                                                              144,296          99,871 
                                                       --------------  -------------- 
 Outflows 
 Repayment of borrowings                                    (158,909)       (152,004) 
 Dividends paid                                   6          (73,868)        (84,921) 
 Treasury shares purchased                       20         (142,981)               - 
 Payment of lease liabilities                                (58,078)        (56,043) 
                                                            (433,836)       (292,968) 
                                                       --------------  -------------- 
 Cash flows from financing activities                       (289,540)       (193,097) 
                                                       --------------  -------------- 
 
 Net (decrease)/increase in cash and 
  cash equivalents                                          (142,780)         399,155 
 Cash and cash equivalents at 1 January                       844,663         456,028 
 Effect of exchange rate fluctuations 
  on cash held                                                  9,838        (10,520) 
                                                       --------------  -------------- 
 Cash and cash equivalents at the end 
  of the year                                                 711,721         844,663 
                                                       ==============  ============== 
 Cash and cash equivalents are broken 
  down as follows: 
                                                       --------------  -------------- 
 Cash at bank and short-term deposits                         711,721         844,663 
                                                       ==============  ============== 
 

Grafton Group plc

Group Statement of Changes in Equity

 
                                                            Shares     Cash      Foreign 
                 Equity    Share     Capital                 to be     flow     currency 
                  share  premium  redemption  Revaluation   issued    hedge  translation   Retained   Treasury      Total 
                capital  account     reserve      reserve  reserve  reserve      reserve   earnings     shares     equity 
                GBP'000  GBP'000     GBP'000      GBP'000  GBP'000  GBP'000      GBP'000    GBP'000    GBP'000    GBP'000 
Year to 31 
December 
2022 
At 1 January 
 2022             8,570  219,447         643       12,519   11,837      (8)       56,751  1,413,737    (3,897)  1,719,599 
Profit after 
 tax 
 for the 
 financial 
 year                 -        -           -            -        -        -            -    208,618          -    208,618 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  ---------  --------- 
Total other 
comprehensive 
income 
Remeasurement 
 (loss) 
 on pensions 
 (net 
 of tax)              -        -           -            -        -        -            -    (2,482)          -    (2,482) 
Movement in 
 cash 
 flow hedge 
 reserve 
 (net of tax)         -        -           -            -        -     (29)            -          -          -       (29) 
Currency 
 translation 
 effect on 
 foreign 
 currency net 
 investments          -        -           -            -        -        -       30,741          -          -     30,741 
Total other 
 comprehensive 
 expense              -        -           -            -        -     (29)       30,741    (2,482)          -     28,230 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  ---------  --------- 
Total 
 comprehensive 
 income               -        -           -            -        -     (29)       30,741    206,136          -    236,848 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  ---------  --------- 
Transactions 
with 
owners of the 
Company 
recognised 
directly 
in equity 
Dividends paid        -        -           -            -        -        -            -   (73,868)          -   (73,868) 
Issue of 
 Grafton 
 Units               46    2,528           -            -        -        -            -          -          -      2,574 
Purchase of 
 treasury 
 shares (Note 
 20)                  -        -           -            -        -        -            -          -  (142,981)  (142,981) 
Cancellation 
 of treasury 
 shares           (746)        -         746            -        -        -            -  (141,693)    141,693          - 
Share based 
 payments 
 charge               -        -           -            -    4,719        -            -          -          -      4,719 
Tax on share 
 based 
 payments             -        -           -            -  (1,312)        -            -          -          -    (1,312) 
Transfer from 
 shares 
 to be issued 
 reserve              -        -           -            -  (6,597)        -            -      6,597          -          - 
Transfer from 
 revaluation 
 reserve              -        -           -        (144)        -        -            -        144          -          - 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  ---------  --------- 

                  (700)    2,528         746        (144)  (3,190)        -            -  (208,820)    (1,288)  (210,868) 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  ---------  --------- 
At 31 December 
 2022             7,870  221,975       1,389       12,375    8,647     (37)       87,492  1,411,053    (5,185)  1,745,579 
                =======  =======  ==========  ===========  =======  =======  ===========  =========  =========  ========= 
 
 
 
                                                            Shares     Cash      Foreign 
                 Equity    Share     Capital                 to be     flow     currency 
                  share  premium  redemption  Revaluation   issued    hedge  translation   Retained  Treasury      Total 
                capital  account     reserve      reserve  reserve  reserve      reserve   earnings    shares     equity 
                GBP'000  GBP'000     GBP'000      GBP'000  GBP'000  GBP'000      GBP'000    GBP'000   GBP'000    GBP'000 
Year to 31 
December 
2021 
At 1 January 
 2021             8,569  216,496         621       12,733    6,714     (65)       81,919  1,143,933   (3,897)  1,467,023 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  --------  --------- 
Profit after 
 tax 
 for the 
 financial 
 year                 -        -           -            -        -        -            -    341,267         -    341,267 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  --------  --------- 
Total other 
comprehensive 
income 
Remeasurement 
 gain 
 on pensions 
 (net 
 of tax)              -        -           -            -        -        -            -     11,674         -     11,674 
Movement in 
 cash 
 flow hedge 
 reserve 
 (net of tax)         -        -           -            -        -       57            -          -         -         57 
Currency 
 translation 
 effect on 
 foreign 
 currency net 
 investments          -        -           -            -        -        -     (25,168)          -         -   (25,168) 
Total other 
 comprehensive 
 expense              -        -           -            -        -       57     (25,168)     11,674         -   (13,437) 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  --------  --------- 
Total 
 comprehensive 
 income               -        -           -            -        -       57     (25,168)    352,941         -    327,830 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  --------  --------- 
Transactions 
with 
owners of the 
Company 
recognised 
directly 
in equity 
Dividends paid        -        -           -            -        -        -            -   (84,921)         -   (84,921) 
Issue of 
 Grafton 
 Units               23    2,951           -            -        -        -            -          -         -      2,974 
Cancellation 
 of A 
 Shares            (22)        -          22            -        -        -            -          -         -          - 
Share based 
 payments 
 charge               -        -           -            -    5,601        -            -          -         -      5,601 
Tax on share 
 based 
 payments             -        -           -            -    1,092        -            -          -         -      1,092 
Transfer from 
 shares 
 to be issued 
 reserve              -        -           -            -  (1,570)        -            -      1,570         -          - 
Transfer from 
 revaluation 
 reserve              -        -           -        (214)        -        -            -        214         -          - 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  --------  --------- 
                      1    2,951          22        (214)    5,123        -            -   (83,137)         -   (75,254) 
                -------  -------  ----------  -----------  -------  -------  -----------  ---------  --------  --------- 
At 31 December 
 2021             8,570  219,447         643       12,519   11,837      (8)       56,751  1,413,737   (3,897)  1,719,599 
                =======  =======  ==========  ===========  =======  =======  ===========  =========  ========  ========= 
 
 

Grafton Group plc

Notes to Final Results for the year ended 31 December 2022

   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 distribution markets in the UK, Ireland, the Netherlands and Finland. Grafton is also the market leader in the DIY retailing market in Ireland and is the largest manufacturer of dry mortar in Great Britain where it also operates a staircase manufacturing business.

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.

Basis of Preparation, Accounting Policies and Estimates

(a) Basis of Preparation and Accounting Policies

The financial information presented in this Final Results Announcement has been extracted from the audited Annual Report and Accounts of Grafton Group plc for the financial year ended 31 December 2022. The financial information set out in this document does not constitute full statutory financial statements for the financial years ended 31 December 2022 or 2021 but it is derived from same. The Final Results Announcement was approved by the Board of Directors. The Annual Report and Accounts has been approved by the Board of Directors and reported on by the auditors. The auditors' report was unqualified. The Annual Report and Accounts for the year ended 31 December 2022 is available on the Group's website and will be filed with the Irish Registrar of Companies in due course.

The consolidated financial information of the Group has been prepared in accordance with the Transparency Rules of the Financial Conduct Authority ('FCA') and 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. They do not include all the information and disclosures necessary for a complete set of financial statements prepared in accordance with 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 and Accounts for the year ended 31 December 2022 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 and Accounts for the year ended 31 December 2022. 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.

Going Concern

The Group's net cash position, before recognising lease liabilities, was GBP458.2 million at 31 December 2022 (31 December 2021: GBP588.0 million). The Group had liquidity of GBP934.6 million at 31 December 2022 (GBP1,235.4 million at 31 December 2021) of which GBP707.7 million (2021: GBP840.7 million) was held in accessible cash and GBP226.9 million (2021: GBP394.7 million) in undrawn revolving bank facilities. No refinancing of debt is due until August 2027, the Group does not have a leverage (net debt/EBITDA) covenant in its financing arrangements and its assets are unsecured.

   1.   General Information (continued) 

Basis of Preparation, Accounting Policies and Estimates (continued)

Going Concern (continued)

Having made appropriate enquiries and regard to the above information, the Directors have a reasonable expectation that Grafton Group plc, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future, being 12 months from the date of approval of the Annual Report. Having reassessed the principal risks, as detailed on page 19, and based on expected cashflows, the strong liquidity position of the Group, the directors considered it appropriate to adopt the going concern basis of accounting in preparing its financial information.

The consolidated financial information is presented in sterling. Items included in the financial information of each of the Group's entities are measured using its functional currency, being the currency of the primary economic environment in which the entity operates, which is primarily euro and sterling.

Climate Change

In preparing the financial information, the Directors have considered the impact of climate change. These considerations did not have a material impact on the financial reporting judgements and estimates in the current year, specifically in the impairment and going concern analysis. The Group's analysis of the impact of climate change continues to evolve with Grafton committed to reducing its carbon impact.

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.

(b) Critical accounting estimate and judgements

The preparation of the Group consolidated financial statements requires management to make certain estimations, assumptions and judgements that affect the reported profits, assets and liabilities. Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based or as a result of new information or more experience. Such changes are recognised in the period in which the estimate is revised. In particular, information about significant areas of estimation and judgement that have the most significant effect on the amounts recognised in the consolidated financial statements are described in the respective notes to the consolidated financial statements.

New Standards and Interpretations

Certain new and revised accounting standards and interpretations have been issued. The Group intends to adopt the relevant new and revised standards when they become effective and the Group's assessment of the impact of these standards and interpretations is set out below:

The following Standards and Interpretations are effective for the Group in 2022 but do not have a material effect on the results or financial position of the Group:

   --    IAS 16 (Amendments)  Property, Plant & Equipment (Effective 1 January 2022) 

-- IAS 37 (Amendments) Provisions, Contingent Liabilities & Contingent Assets (Effective 1 January 2022)

   --    IFRS 9 (Amendments)  Financial Instruments (Effective 1 January 2022) 
   --    IFRS 3 (Amendments)  Business Combinations (Effective 1 January 2022) 

The following Standards and Interpretations are not yet effective for the Group and are not expected to have a material effect on the results or financial position of the Group:

-- IAS 1 (Amendments) Presentation of Financial Statements (Effective 1 January 2023)

-- IAS 8 (Amendments) Accounting Policies, Changes in Accounting Estimates & Errors (Effective 1 January 2023)

   --    IAS 12 (Amendments) Income Taxes (Effective 1 January 2023) 
   --    IFRS 16 (Amendments)                Leases (Effective 1 January 2023) 

-- IFRS 17 Insurance Contracts (Effective 1 January 2023)

   2.   Segmental Analysis 

The amount of revenue and operating profit under the Group's reportable segments of Distribution, Retailing and Manufacturing is shown below. Segment profit measure is operating profit before exceptional items, amortisation of intangible assets arising on acquisitions and other acquisition related items.

 
 
                                                      2022        2021 
                                                   GBP'000     GBP'000 
 Revenue 
 UK distribution                                   838,644     821,923 
 Ireland distribution                              618,297     544,289 
 Netherlands distribution                          336,703     290,540 
 Finland distribution                              143,197      70,810 
                                                            ---------- 
 Total distribution - continuing                 1,936,841   1,727,562 
 Retailing                                         244,021     282,756 
 Manufacturing                                     133,805     112,436 
 Less: inter-segment revenue - manufacturing      (13,185)    (12,845) 
                                                            ---------- 
 Total revenue from continuing operations        2,301,482   2,109,909 
                                                            ---------- 
 
 Segmental operating profit before 
  exceptional items, intangible amortisation 
  arising on acquisitions and other 
  acquisition related items 
 UK distribution                                    81,826     102,523 
 Ireland distribution                               70,474      66,792 
 Netherlands distribution                           37,641      30,544 
 Finland distribution                               20,321       9,952 
                                                            ---------- 
 Total distribution - continuing                   210,262     209,811 
 Retailing                                          32,575      50,858 
 Manufacturing                                      27,403      24,049 
                                                ----------  ---------- 
                                                   270,240     284,718 
 Reconciliation to consolidated operating 
  profit 
 Central activities                               (13,453)    (13,479) 
                                                ----------  ---------- 
                                                   256,787     271,239 
 Property profits                                   25,381      16,740 
                                                ----------  ---------- 
 Operating profit before non-recurring 
  items, intangible amortisation arising 
  on acquisitions and other acquisition 
  related items                                    282,168     287,979 
 Non-recurring items*                                3,690           - 
                                                ----------  ---------- 
 Operating profit before intangible 
  amortisation arising on acquisitions 
  and other acquisition related items              285,858     287,979 
 Acquisition related items                         (2,306)     (4,129) 
 Amortisation of intangible assets 
  arising on acquisitions                         (19,286)    (14,688) 
                                                ----------  ---------- 
 Operating profit                                  264,266     269,162 
 Finance expense                                  (21,273)    (21,269) 
 Finance income                                      8,690       1,904 
                                                ----------  ---------- 
 Profit before tax                                 251,683     249,797 
 Income tax expense                               (43,065)    (42,952) 
                                                ----------  ---------- 
 Profit after tax for the financial 
  year from continuing operations                  208,618     206,845 
 Profit after tax from discontinued 
  operations                                             -     134,422 
                                                ----------  ---------- 
 Profit after tax for the financial 
  year                                             208,618     341,267 
                                                ----------  ---------- 
 

* A non-recurring curtailment gain of GBP3.7 million arose on closure to future accrual of a defined benefit pension scheme in Ireland (Note 13).

   2.   Segmental Analysis (continued) 

The amount of revenue by geographic area is as follows:

 
 
                                                2022        2021 
                                             GBP'000     GBP'000 
 Revenue* 
 United Kingdom                              951,557     914,971 
 Ireland                                     870,025     833,588 
 Netherlands                                 336,703     290,540 
 Finland                                     143,197      70,810 
                                          ----------  ---------- 
 Total revenue - continuing operations     2,301,482   2,109,909 
                                          ==========  ========== 
 

*Service revenue, which is recognised over time, amounted to GBP9.4 million for the year (2021: GBP8.7 million)

 
                               31 Dec 2022   31 Dec 2021 
                                   GBP'000       GBP'000 
 Segment assets 
 Distribution                    1,952,691     1,782,973 
 Retailing                         198,295       210,400 
 Manufacturing                     111,350       102,716 
                              ------------  ------------ 
                                 2,262,336     2,096,089 
 Unallocated assets 
 Deferred tax assets                 8,063         8,793 
 Retirement benefit assets           4,584         3,596 
 Other financial assets                129           126 
 Cash and cash equivalents         711,721       844,663 
 Total assets                    2,986,833     2,953,267 
                              ============  ============ 
 
 
                                                    31 Dec 2022   31 Dec 2021 
                                                        GBP'000       GBP'000 
 Segment liabilities 
 Distribution                                           667,579       658,122 
 Retailing                                              189,925       201,147 
 Manufacturing                                           33,545        30,335 
                                                   ------------  ------------ 
                                                        891,049       889,604 
 Unallocated liabilities 
 Interest bearing loans and borrowings (current 
  and non-current)                                      253,502       256,631 
 Retirement benefit obligations                          15,068        15,067 
 Deferred tax liabilities                                61,011        56,402 
 Current income tax liabilities                          20,595        15,956 
 Derivative financial instruments (current)                  29             8 
 Total liabilities                                    1,241,254     1,233,668 
                                                   ============  ============ 
 
   3.   Operating Profit & Non-Recurring Items 

The property profit of GBP25.4 million (2021: GBP16.7 million) relates to profit on property disposals of GBP20.4 million (2021: GBP6.8 million) and fair value gains of GBP5.0 million (2021: GBP9.9 million).

In 2022, the Group disposed of six UK properties and one Irish property (2021: one UK property, one Irish property and six properties in Belgium).

The fair value gain of GBP5.0 million in 2022 relates to three investment properties in the UK and three investment properties in Ireland.

The fair value gain of GBP9.9 million recognised in 2021 related to four properties which were transferred to investment properties during the year. These were properties which were retained by the Group following the disposal of the Traditional Merchanting business in Great Britain.

Non-Recurring Items

A non-recurring curtailment gain of GBP3.7 million arose on closure to future accrual of a defined benefit pension scheme in Ireland (Note 13).

   4.   Finance Expense and Finance Income 
 
 
                                                         2022          2021 
                                                      GBP'000       GBP'000 
 Finance expense 
 Interest on bank loans, US senior notes 
  and overdrafts                                        5,591   *     6,249   * 
 Interest on lease liabilities                         14,919   *    14,637   * 
 Net finance cost on pension scheme obligations           108           383 
 Foreign exchange loss                                    655             - 
                                                       21,273        21,269 
                                                   ==========      ======== 
 
 Finance income 
 Interest income on bank deposits                     (8,690)   *     (193)   * 
 Foreign exchange gain                                      -       (1,711) 
                                                      (8,690)       (1,904) 
                                                   ==========      ======== 
 
 Net finance expense                                   12,583        19,365 
                                                   ----------      -------- 
 

* Net bank and US senior note interest income of GBP3.1 million (2021: GBP6.1 million expense). Including interest on lease liabilities, this amounts to GBP11.8 million expense (2021: GBP20.7 million expense)

   5.   Earnings per Share 

The computation of basic, diluted and underlying earnings per share is set out below:

 
                                                      Year ended    Year Ended 
                                                     31 Dec 2022            31 
                                                         GBP'000      Dec 2021 
                                                                       GBP'000 
 Numerator for basic, adjusted and diluted 
  earnings per share: 
 
 Profit after tax for the financial year 
  from continuing operations                             208,618       206,845 
 Profit after tax for the financial year 
  from discontinued operations                                 -       134,422 
 
 Numerator for basic and diluted earnings 
  per share                                              208,618       341,267 
                                                   -------------  ------------ 
 
 
 Profit after tax for the financial year 
  from continuing operations                             208,618       206,845 
 Amortisation of intangible assets arising 
  on acquisitions                                         19,286        14,688 
 Tax relating to amortisation of intangible 
  assets arising on acquisitions                         (4,329)       (3,151) 
 Acquisition related items                                 2,306         4,129 
 Tax on acquisition related items                          (235)          (74) 
 Numerator for adjusted earnings per share               225,646       222,437 
                                                   -------------  ------------ 
 
                                                          Number     Number of 
                                                      of Grafton       Grafton 
                                                           Units         Units 
 Denominator for basic and adjusted earnings 
  per share: 
 
 Weighted average number of Grafton Units 
  in issue                                           233,517,016   239,294,286 
 
 Dilutive effect of options and awards                   423,503       478,708 
 
 Denominator for diluted earnings per share          233,940,519   239,772,994 
                                                   -------------  ------------ 
 
 Earnings per share (pence) - from total 
  operations 
 - Basic                                                    89.3         142.6 
 - Diluted                                                  89.2         142.3 
 
 Earnings per share (pence) - from continuing 
  operations 
 - Basic                                                    89.3          86.4 
 - Diluted                                                  89.2          86.3 
 
 Earnings per share (pence) - from discontinued 
  operations 
 - Basic                                                       -          56.2 
 - Diluted                                                     -          56.1 
 
 Adjusted earnings per share (pence) - from 
  continuing operations 
 - Basic                                                    96.6          93.0 
 - Diluted                                                  96.5          92.8 
 
 
   6.   Dividends 

The payment in 2022 of a second interim dividend for 2021 of 22.00 pence amounted to GBP52.7 million (2021: second interim dividend for 2019 of GBP29.9 million and final dividend for 2020 of GBP34.7 million).

An interim dividend for 2022 of 9.25p per share was paid on 7 October 2022 in the amount of GBP21.1 million.

A final dividend for 2022 of 23.75p per share will be paid to all holders of Grafton Units on the Company's Register of Members at the close of business on 14 April 2023 (the 'Record Date'). The Ex-dividend date is 13 April 2023. The dividend will be paid on 11 May 2023. A liability in respect of the final dividend has not been recognised at 31 December 2022, as there was no obligation to pay any dividends at the end of the year.

   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 was Stg85.28p (2021: Stg85.96p). The sterling/euro exchange rate at 31 December 2022 was Stg88.69p (2021: Stg84.03p).

   8.   Right-Of-Use Asset 
 
                                     Right-of-use 
                                            asset 
                                          GBP'000 
 Recognised at 1 January 2022             421,254 
 Additions*                                31,971 
 Disposals                                (2,309) 
 Depreciation                            (60,142) 
 Remeasurements*                           15,678 
 Arising on acquisition (Note 14)           2,745 
 Currency translation adjustment           10,918 
                                    ------------- 
 As at 31 December 2022                   420,115 
                                    ------------- 
 

*Right-of-use asset additions relate to new lease contracts entered into during the year and mainly arise due to leases entered into for new store locations, a new warehouse and new lease contracts agreed for existing stores. Right-of-use asset remeasurements have mainly arisen due to the finalisation of rent reviews and the reassessment of extension options available to the Group on a number of property leases that will not be exercised.

   9.   Property, Plant and Equipment, Properties Held for Sale and Investment Properties 
 
                                               Property,   Properties    Investment 
                                               plant and     held for    properties 
                                               equipment         sale 
 Net Book Value                                  GBP'000      GBP'000       GBP'000 
 As at 1 January 2022                            319,295        6,125        26,527 
 Additions                                        55,318            -             - 
 Depreciation                                   (34,171)            -             - 
 Disposals                                         (597)      (1,549)       (5,769) 
 Fair value gains                                      -            -         4,998 
 Transfer to property, plant and equipment           423        (423)             - 
 Arising on acquisition (Note 14)                  4,659            -             - 
 Currency translation adjustment                   9,475          211           328 
                                             -----------  -----------  ------------ 
 As at 31 December 2022                          354,402        4,364        26,084 
                                             -----------  -----------  ------------ 
 

10. Movement in Working Capital

 
                                                              Trade        Trade 
                                                          and other    and other 
                                         Inventories    receivables     payables     Total 
 Current                                     GBP'000        GBP'000      GBP'000   GBP'000 
 At 1 January 2022                           344,172        233,486    (419,111)   158,547 
 Currency translation adjustment              13,168          8,709     (14,548)     7,329 
 Deferred acquisition consideration 
  (Note 14)                                        -              -      (5,197)   (5,197) 
 Deferred acquisition consideration 
  paid                                             -              -        4,000     4,000 
 Arising on acquisition (Note 14)              7,561          8,788      (5,695)    10,654 
 Working capital movement in 2022             34,664         16,711       19,898    71,273 
 At 31 December 2022                         399,565        267,694    (420,653)   246,606 
                                      ==============  =============  ===========  ======== 
 

11. Interest-Bearing Loans, Borrowings and Net (Cash)/Debt

 
                                                      31 Dec        31 Dec 
                                                        2022          2021 
                                                     GBP'000       GBP'000 
 Interest-bearing loans and borrowings 
 Bank loans (current)                                      -        84,030 
 Bank loans (non-current)                            112,108        38,699 
 US senior notes                                     141,394       133,902 
 Total interest-bearing loans and borrowings         253,502       256,631 
                                                ------------  ------------ 
 
 Leases 
 Included in non-current liabilities                 389,198       396,070 
 Included in current liabilities                      60,105        52,924 
                                                ------------  ------------ 
 Total leases                                        449,303       448,994 
                                                ------------  ------------ 
 
 Derivatives 
 Included in current liabilities                          29             8 
 Total derivatives                                        29             8 
                                                ------------  ------------ 
 
 Cash and cash equivalents                         (711,721)     (844,663) 
 
 Net (cash)                                          (8,887)     (139,030) 
                                                ------------  ------------ 
 
 
   Net (cash) before leases                        (458,190)     (588,024) 
                                                ============  ============ 
 

In August 2022, the Group completed a refinancing of its loan facilities that were due to expire in March 2023. Bilateral revolving loan facilities for GBP340.7 million were agreed with four established relationship banks for a term of five years to August 2027. The arrangements include two one-year extension options exercisable at the discretion of Grafton and the banks. These new facilities replace existing facilities of GBP380.7 million. This is sustainability linked debt funding and includes an incentive connected to the achievement of carbon emissions, workforce diversity and community support targets that are fully aligned to the Group's sustainability strategy.

11. Interest-Bearing Loans, Borrowings and Net Debt (continued)

The following table shows the fair value of financial assets and liabilities, all of which are within level 2 of 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         31 Dec 2021 
                                                2022 
                                             GBP'000             GBP'000 
  Liabilities measured and recognised at fair value 
  Designated as hedging instruments 
  Other derivatives                               29                   8 
                                    ----------------  ------------------ 
 
    Fair value measurement of liabilities carried at amortised cost 
  US senior notes                            126,605             134,448 
                                    ----------------  ------------------ 
 

The fair value of financial assets and liabilities recognised at amortised cost

It is considered that the carrying amounts of other financial assets and liabilities including trade payables, trade receivables and bank loans, which are recognised at amortised cost in the financial information approximate to fair value. The fixed rate US senior notes denominated in euro are disclosed above at fair value and reflect the differential between the fixed interest rates on these notes and market rates at 31 December 2022.

Financial assets and liabilities carried at fair value

All the Group's financial assets and liabilities which are carried at fair value are classified as Level 2 in the fair value hierarchy and deferred consideration is classified as Level 3. 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 other derivatives 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. The fair value of deferred consideration is calculated assuming a probability of payout, which will be based on achievement of EBITDA targets, and discounted to present value using market derived discount rates. The fair value assumes achievement of targets but is sensitive to change in the assessed probability of achieving targets.

12. Reconciliation of Net Cash Flow to Movement in Net Cash

 
                                                         31 Dec   31 Dec 2021 
                                                           2022       GBP'000 
                                                        GBP'000 
 Net (decrease)/increase in cash and cash 
  equivalents                                         (142,780)       399,155 
 Net movement in derivative financial instruments          (21)            57 
 Bank loans and loan notes acquired with 
  subsidiaries                                                -      (55,647) 
 Lease liabilities acquired (Note 14)                   (2,745)      (24,192) 
 Lease liabilities disposed (Note 14)                         -        67,100 
 Movement in debt and lease financing                    30,981        84,863 
 Change in net (debt)/cash resulting from 
  cash flows                                          (114,565)       471,336 
 Currency translation adjustment                       (15,578)        22,695 
 Movement in net (debt)/cash in the year              (130,143)       494,031 
 Net cash/(debt) at 1 January                           139,030     (355,001) 
                                                     ----------  ------------ 
 Net cash at end of the year                              8,887       139,030 
                                                     ==========  ============ 
 

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  At 31 Dec        At 31        At 31 Dec 
                                 Dec 2022       2021     Dec 2022             2021 
Rate of increase in salaries*       3.80%      3.30%          N/A              N/A 
Rate of increase of pensions 
 in payment                             -          -        3.10%            3.10% 
Discount rate                       3.70%      1.15%        4.80%            1.90% 
Inflation                           2.60%      2.10%  2.60%/3.20%  **  2.70%/3.30%  ** 
 

* Following the closure to accrual of the UK scheme and one of the Irish schemes, benefits in those schemes are no longer linked to final salary. Instead, accrued benefits up to the date of closure revalue in line with inflation, subject to certain caps. The assumption for the rate of increase in salaries shown at 31 December 2022 for the Irish Schemes only applies to the schemes that were still open to accrual at that date.

** The inflation assumption shown for the UK is based on both the Consumer Price Index (CPI) and the Retail Price Index (RPI)

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        Year        Year        Year     Year to        Year 
                                     31       to 31       to 31       to 31          31       to 31 
                               Dec 2022    Dec 2021    Dec 2022    Dec 2021    Dec 2022    Dec 2021 
                                GBP'000     GBP'000     GBP'000     GBP'000     GBP'000     GBP'000 
 At 1 January                   283,705     263,604   (295,176)   (314,188)    (11,471)    (50,584) 
 Interest income on 
  plan assets                     4,519       2,836           -           -       4,519       2,836 
 Contributions by employer        4,413      24,082           -           -       4,413      24,082 
 Contributions by members           458         469       (458)       (469)           -           - 
 Benefit payments               (8,812)     (9,128)       8,812       9,128           -           - 
 Current service cost                 -           -     (1,962)     (2,359)     (1,962)     (2,359) 
 Past service credit 
  - discontinued                      -           -           -       2,500           -       2,500 
 Curtailment gain - 
  non-recurring                       -           -       3,690           -       3,690           - 
 Other long-term benefit 
  credit/(expense)                    -           -           9       (191)           9       (191) 
 Interest cost on scheme 
  liabilities                         -           -     (4,627)     (3,219)     (4,627)     (3,219) 
 Administration costs                 -       (382)           -           -           -       (382) 
 Remeasurements 
 Actuarial (loss)/gains 
  from: 
 -experience variations               -           -     (2,369)       1,131     (2,369)       1,131 
 -financial assumptions               -           -      98,087       1,992      98,087       1,992 

 -demographic assumptions             -           -     (2,910)         846     (2,910)         846 
 Return on plan assets 
  excluding interest 
  income                       (97,848)      10,917           -           -    (97,848)      10,917 
 Translation adjustment           5,863     (8,693)     (5,878)       9,653        (15)         960 
 At 31 December                 192,298     283,705   (202,782)   (295,176)    (10,484)    (11,471) 
                             ==========  ==========  ==========  ========== 
 Related deferred tax 
  asset (net)                                                                     3,201       1,636 
                                                                             ----------  ---------- 
 Net pension liability                                                          (7,283)     (9,835) 
                                                                             ==========  ========== 
 

At 31 December 2022, a non-recurring curtailment gain of GBP3.7 million arose on closure to future accrual of a defined benefit pension scheme in Ireland.

The net pension scheme deficit of GBP10.5 million (31 December 2021: deficit of GBP11.5 million) is shown in the Group balance sheet as (i) retirement benefit obligations (non-current liabilities) of GBP15.1 million (31 December 2021: GBP15.1 million) and (ii) retirement benefit assets (non-current assets) of GBP4.6 million (31 December 2021: GBP3.6 million.

13. Retirement Benefits (continued)

At 31 December 2022, the retirement benefit asset of GBP4.6 million relates to three schemes in Ireland. The surplus has been recognised in accordance with IFRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' as it has been determined that the Group has an unconditional right to a refund of the surplus assets if the schemes are run off until the last member has left the scheme. The retirement benefit obligation of GBP15.1 million relates to one scheme in the UK (GBP14.3 million) and one scheme in the Netherlands (GBP0.8 million).

At 31 December 2021, GBP3.6 million of the retirement benefit asset relates to one scheme in Ireland. The GBP15.1m retirement benefit obligation relates to one scheme in the UK (GBP0.7 million) and schemes in Ireland and the Netherlands (GBP14.4 million).

14. Acquisitions and Discontinued Operations

Acquisitions

On 11 January 2022, the Group acquired the entire share capital of Regts B.V. ("Regts"). Regts is a distributor of tools, ironmongery and fixings in the Netherlands with a strong market position in the province of Friesland where it trades from five branches. The acquisition is incorporated in the Netherlands Distribution segment.

On 14 February 2022, Woodfloor Warehouse Limited ("Woodfloor") was acquired. Woodfloor is a leading in-store and online timber flooring distributor trading from two branches in Northern Ireland and from one branch in the UK. The acquisition is incorporated in the UK Distribution segment.

On 28 February 2022, the Group completed the acquisition of Sitetech Building Products Limited ("Sitetech"), a distributor of specialist construction accessories in Ireland where the business trades from two locations in Dublin and Cork. The acquisition is incorporated in the Irish Distribution segment.

None of these acquisitions were individually material for separate disclosure under IFRS3.

The fair value of assets and liabilities acquired in 2022 are set out below:

 
                                                  Total 
                                                GBP'000 
 Property, plant and equipment                    4,659 
 Right-of-use asset                               2,745 
 Intangible assets - trade names                  2,889 
 Intangible assets - customer relationships      17,705 
 Inventories                                      7,561 
 Trade and other receivables                      8,788 
 Trade and other payables                       (5,695) 
 Lease liability                                (2,745) 
 Corporation tax liability                        (105) 
 Deferred tax liability                         (3,592) 
 Cash acquired                                    5,879 
 Net assets acquired                             38,089 
 Goodwill                                        18,965 
 Consideration                                   57,054 
                                              ========= 
 
 Satisfied by: 
 Cash paid                                       51,857 
 Deferred consideration (Note 10)                 5,197 
                                              --------- 
                                                 57,054 
                                              --------- 
 Net cash outflow - arising on acquisitions 
 
   Cash consideration                            51,857 
 Less: cash and cash equivalents acquired       (5,879) 
                                                 45,978 
                                              --------- 
 

Goodwill on these acquisitions reflects the anticipated cashflows to be realised as part of the enlarged Group. There were no adjustments made to provisional fair values in the year relating to the IKH and Proline acquisitions completed in the prior year.

14. Acquisitions and Discontinued Operations (continued)

Acquisitions contributed revenue of GBP53.6 million and operating profit of GBP8.4 million for the period from the date of acquisition to 31 December 2022. If all three acquisitions had occurred on 1 January 2022, they would have contributed revenue of GBP59.4 million (unaudited) and operating profit of GBP9.5 million (unaudited) in the year. The Group incurred acquisition related costs of GBP2.3 million in 2022 (2021: GBP4.1 million) which are included in operating costs in the Group Income Statement.

Deferred consideration is payable within 3 years from the date of acquisition and is not contingent. In addition to this deferred consideration, the Group has an agreement for two of the acquisitions to make further payments to certain selling shareholders who, as part of the agreement, are required to remain in employment with the Group for the deferred period.

Discontinued Operations - Traditional Merchanting Business in the UK - 31 December 2021

On 30 June 2021, the Group entered into an agreement to divest its Traditional Merchanting Business in Great Britain ("the Business") for an enterprise value of GBP520.0 million to Huws Gray, one of the UK's largest independent builders' merchants, that is controlled by equity funds managed by Blackstone. The Group retained freehold properties with development potential that had a market value of circa GBP25 million.

The Share Purchase Agreement was signed on 30 June 2021 and from that date Grafton ceased to have rights to variable returns from its shareholdings in the entities being divested and instead received an agreed daily amount up to the date of completion. IFRS required that the business being divested be treated as discontinued operations and as a deemed disposal at 30 June 2021.

The enterprise value agreed with the purchaser was based on the balance sheet as at 30 April 2021 and all cashflow generated after that date was for the benefit of the purchaser. Grafton received a daily ticker rate for the period from 1 May 2021 to 31 December 2021 that compensated the Group for the loss of profits over this period.

The transaction completed on 31 December 2021 and the proceeds, which amounted to GBP602.3 million, were received on that date. These included GBP116.0 million in respect of intercompany balances which were due to Grafton Group at 30 June 2021.

The carrying value of assets and liabilities disposed at 31 December 2021 were as follows:

 
                                                                    Total 
                                                                  GBP'000 
 Goodwill                                                         126,291 
 Intangible assets                                                 29,827 
 Property, plant and equipment                                    177,515 
 Right-of-use assets                                               60,613 
 Finance lease receivable                                           1,931 
 Deferred tax asset                                                 1,729 
 Inventory                                                         99,253 
 Trade and other receivables                                      216,013 
 Cash                                                             103,778 
 Trade and other payables                                       (242,467) 
 Provisions                                                       (5,339) 
 Lease liabilities (current and non-current)                     (67,100) 
 Deferred tax liability                                          (18,691) 
 Income tax liability                                             (6,161) 
 Net assets of disposed business                                  477,192 
 Cash consideration received and settlement of intercompany 
  balances                                                      (602,308) 
 Net profit on disposal of Group businesses, before disposal 
  costs                                                         (125,116) 
                                                               ========== 
 

Net cash inflow on disposals

 
                                                    GBP'000 
 Cash consideration received                        602,308 
 Cash disposed with Group businesses              (103,778) 
 Proceeds from disposal - net of cash disposed      498,530 
                                                 ---------- 
 

14. Acquisitions and Discontinued Operations (continued)

Amounts recognised in the year to 31 December 2021 within discontinued operations

 
                                                        GBP'000 
 Gross profit on disposal                               125,116 
 Disposal costs*                                       (11,945) 
                                                      --------- 
 Profit on disposal, net of disposal costs              113,171 
 Result for the period from discontinued operations      21,251 
 Total amount recognised in discontinued operations     134,422 
                                                      --------- 
 

* Disposal costs include professional fees of GBP4.9 million, legal fees of GBP1.0 million, vendor financial, tax & IT due diligence fees of GBP0.9 million, property related costs of GBP0.3 million and GBP4.8 million of other costs related to the divestment of the business.

Profit before taxation from discontinued operations

 
                                                            GBP'000 
 Results from discontinued operations                        30,675 
 Profit on disposal of Group businesses, net of disposal 
  costs                                                     113,171 
 Profit before taxation from discontinued operations        143,846 
                                                           -------- 
 

Cash flows from discontinued operations

 
                                                  31 December 
                                                         2021 
                                                      GBP'000 
 Net cash flow from operating activities               36,592 
 Net cash flow from investing activities              (3,346) 
 Net cash flow from financing activities              (4,794) 
                                                 ------------ 
 Net cash flow from discontinued operations            28,452 
                                                 ------------ 
 
 

Results from discontinued operations

 
                                               31 December 
                                                      2021 
                                                   GBP'000 
 Revenue                                           522,895 
 Operating costs                                 (493,873) 
                                              ------------ 
 Operating profit before property profits           29,022 
 Property profits                                      396 
 Operating profit pre-exceptional items             29,418 
 Exceptional items*                                  2,500 
                                              ------------ 
 Operating profit                                   31,918 
 Net finance costs                                 (1,243) 
                                              ------------ 
 Profit before tax                                  30,675 
 Income tax                                        (9,424) 
                                              ------------ 
 Profit after tax for the financial year            21,251 
                                              ------------ 
 

* Exceptional items for 31 December 2021 relates to an IAS 19 past service credit against other costs originally booked in 2020.

14. Acquisitions and Discontinued Operations (continued)

The trading results for the year ended December 2021 is set out below.

Trading results for the year ended 31 December 2021

 
 
                                                 2021             2021          2021 
                                           Continuing     Discontinued         Total 
                                              GBP'000          GBP'000       GBP'000 
 Revenue                                    2,109,909          522,895     2,632,804 
 Operating costs                          (1,857,487)        (493,873)   (2,351,360) 
                                        -------------  ---------------  ------------ 
 Operating profit before property 
  profits                                     252,422           29,022       281,444 
 Property profits                              16,740              396        17,136 
                                        -------------  ---------------  ------------ 
 Operating profit before exceptional 
  items                                       269,162           29,418       298,580 
 Exceptional items                                  -            2,500         2,500 
                                        -------------  ---------------  ------------ 
 Operating profit                             269,162           31,918       301,080 
 Finance expense                             (21,269)          (1,243)      (22,512) 
 Finance income                                 1,904                -         1,904 
                                        -------------  ---------------  ------------ 
 Profit before tax                            249,797           30,675       280,472 
 Income tax expense                          (42,952)          (9,424)      (52,376) 
                                        -------------  ---------------  ------------ 
 Profit after tax for the financial 
  year                                        206,845           21,251       228,096 
                                        -------------  ---------------  ------------ 
 

15. Goodwill

Goodwill is subject to impairment testing on an annual basis at 31 December and additionally during the year if an indicator of impairment is considered to exist. The impairment review conducted by the Group, as required by IFRS, concluded that the carrying amount of all Cash Generating Units ("CGU's) exceeded their recoverable amount and that there was no impairment (2021: GBPNil).

 
                                     Goodwill 
                                      GBP'000 
 Net Book Value 
 As at 1 January 2022                 599,810 
 Arising on acquisition (Note 14)      18,965 
 Currency translation adjustment       16,976 
 As at 31 December 2022               635,751 
                                    --------- 
 

16. Intangible Assets

 
                                                                    Customer 
                                     Computer                  Relationships 
                                     Software   Trade Names     & Technology      Total 
                                      GBP'000       GBP'000          GBP'000    GBP'000 
 Net Book Value 
 As at 1 January 2022                   4,001        30,415          109,911    144,327 
 Additions                              2,522             -                -      2,522 
 Amortisation                         (1,009)       (3,562)         (15,724)   (20,295) 
 Arising on acquisition (Note 
  14)                                       -         2,889           17,705     20,594 
 Currency translation adjustment          151         1,286            5,127      6,564 
 As at 31 December 2022                 5,665        31,028          117,019    153,712 
                                   ----------  ------------  ---------------  --------- 
 

The amortisation expense of GBP20.3 million (2021: GBP17.2 million) has been charged in 'operating costs' in the income statement. Amortisation of intangible assets arising on acquisitions amounted to GBP19.3 million (2021: GBP14.7 million).

17. Taxation

The income tax expense of GBP43.1 million (2021: GBP43.0 million) is equivalent to an effective tax rate of 17.1 per cent on profit from continuing operations (2021: 17.2 per cent). This is a blended rate of corporation tax on profits in the four jurisdictions where the Group operates.

Certain items of expenditure charged in arriving at profit before tax, including depreciation on buildings, are not eligible for a tax deduction. This factor increased the rate of tax payable on profits above the headline rates that apply in the UK, Ireland, the Netherlands and Finland.

The liability shown for current taxation includes a liability for tax uncertainties and is based on the Directors' estimate of (i) the most likely amount; or (ii) the expected value 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.

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 liabilities and assets in the period in which the determination was made.

Deferred tax

At 31 December 2022, the deferred tax asset was GBP8.1 million (2021: GBP8.8 million) and the deferred tax liability was GBP61.0 million (2021: GBP56.4 million). There were unrecognised deferred tax assets in relation to capital losses of GBP0.7 million (2021: GBP3.1 million), trading losses of GBP1.1 million (2021: GBP1.1 million) and deductible temporary differences of GBP6.9 million (2021: GBP8.5 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. 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 historic losses and the Directors believe that it is not probable there will be sufficient taxable profits in the 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 were no changes in related parties from those described in the 2021 Annual Report, other than those arising through acquisitions and the appointment and resignation of directors. There has been no change in transactions with related parties that materially affect the financial position or the performance of the Group during the year to 31 December 2022.

19. Grafton Group plc Long Term Incentive Plan (LTIP)

LTIP awards were made over 706,305 Grafton Units on 1 April 2022. The fair value of the awards of GBP6.0 million, which are subject to vesting conditions, will be charged to the income statement over the vesting period of three years. On 29 November 2022, LTIP awards were made over 37,251 Grafton Units to Eric Born on his appointment as CEO. The fair value of the awards of GBP0.2 million, which are subject to vesting conditions, will be charged to the income statement over the vesting period of three years. The 2022 Annual Report and Accounts discloses details of the LTIP scheme.

20. Share Buyback and Treasury Shares

On 28 April 2022, the Group announced its intention to introduce a share buyback programme. On 9 May 2022, the Group entered into non-discretionary arrangements with Goodbody Stockbrokers UC (acting as agent) and Numis Securities Limited (acting as principal) to conduct the programme and to buy back ordinary shares (the "Shares") on the Group's behalf for a maximum aggregate consideration of up to GBP100 million and to make trading decisions under the programme independently of the Group in accordance with certain pre-set parameters (the "Buyback"). The Buyback commenced on 9 May 2022 and ended on 12 September 2022. At 31 December 2022, the Group had purchased 12,282,711 shares in aggregate for cancellation at a total cost of GBP100.3 million, including transaction costs. All shares were cancelled by 31 December 2022.

Following completion of the first share buyback programme the Group announced on 10 November 2022 its intention to commence a second share buyback programme and to buy back ordinary shares (the "Shares") on the Group's behalf for a maximum aggregate consideration of up to GBP100 million and to make trading decisions under the programme independently of the Group in accordance with certain pre-set parameters (the "Buyback"). The Buyback commenced on 10 November 2022 and will end no later than 30 April 2023. At 31 December 2022, the Group had purchased 4,417,706 shares in aggregate for cancellation at a total cost of GBP35.1 million through the second buyback programme, including transaction costs. However, due to timing, only 4,302,597 were cancelled at 31 December 2022 and the remaining 115,109 shares purchased for GBP0.9 million were cancelled in early January 2023. Details of shares bought back since 31 December 2022 are included in Note 22 below.

In addition to the above, on 3 May 2022 and 4 May 2022, the Group purchased and cancelled 796,902 Grafton Units to offset the dilutive effect of issuing new shares to satisfy share award obligations under the Company's Long Term Incentive Plan. The total consideration was GBP7.6 million, including transaction costs.

 
                                                            Purchase 
                               Purchase                  of Treasury   Cancellation 
                            of Treasury   Transaction         Shares    of Treasury       Total 
                                 Shares         Costs              *         Shares    Movement 
                                GBP'000       GBP'000        GBP'000        GBP'000     GBP'000 
 Buyback Programme 1            100,000           284        100,284      (100,000)         284 
 Buyback Programme 2             35,046            72         35,118       (34,130)         988 
                          -------------  ------------  -------------  -------------  ---------- 
 Total                          135,046           356        135,402      (134,130)       1,272 
 LTIP Awards                      7,563            16          7,579        (7,563)          16 
 As at 31 December 2022         142,609           372        142,981      (141,693)       1,288 
                          -------------  ------------  -------------  -------------  ---------- 
 

* Including transaction costs.

21. Issue of Shares

During the year 796,902 Grafton Units were issued under the 2011 Grafton Group Long Term Incentive Plan (LTIP) on the vesting of the 2019 grants (2021: 82,675 Grafton Units). A further 414,711 Grafton Units were issued under the Group's Savings Related Share Option Scheme (SAYE) to eligible UK employees (2021: 453,388 Grafton Units).

22. Events after the Balance Sheet Date

The Company bought back, for cancellation, 2,966,284 shares at a cost of GBP27.5 million between 1 January 2023 and 28 February 2023.

There have been no other material events subsequent to 31 December 2022 that would require adjustment to or disclosure in this report.

23. Board Approval

This announcement was approved by the Board of Grafton Group plc on 1 March 2023.

Supplementary Financial Information

Alternative Performance Measures

Certain financial information set out in this consolidated financial information is not defined under 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 GBP'm some non-material rounding differences may arise. Numbers that refer to 2021 are available in the 2021 Annual Report, subject to restatement for discontinued operations and acquisition related items.

The term "Adjusted" means before exceptional items and acquisition related items. These items do not relate to the underlying operating performance of the business and therefore to enhance comparability between reporting periods and businesses, management do not take these items into account when assessing the underlying profitability of the Group.

Acquisition related items comprise deferred consideration payments relating to the retention of former owners of businesses acquired, transaction costs and expenses, professional fees, adjustments to previously estimated earn outs and customer relationships asset impairment charges. Customer relationships, technology and brands amortisation, acquisition related items and any associated tax are considered by management to form part of the total spend on acquisitions or are non-cash items resulting from acquisitions and therefore are also included as adjusting items.

Note: The Traditional Merchanting Business in Great Britain is classified as discontinued operations for the year ended 31 December 2021. In the computation of APMs below for 2021, the revenue and operating profit of the disposed business are excluded from the Group. Revenue and the operating result are reflected in the profit/(loss) after tax from discontinued operations.

 
 APM                       Description 
 Adjusted operating        Profit before acquisition related items, exceptional 
  profit/EBITA              items, net finance expense and income tax expense. 
 Operating profit margin   Profit before net finance expense and income 
                            tax expense as a percentage of revenue. 
 Adjusted operating        Profit before profit on the disposal of Group 
  profit/EBITA before       properties, acquisition related items, exceptional 
  property profit           items, net finance expense and income tax expense. 
 Adjusted operating        Adjusted operating profit/EBITA before property 
  profit/EBITA margin       profit as a percentage of revenue. 
  before property profit 
 Adjusted profit before    Profit before acquisition related items, exceptional 
  tax                       items and income tax expense. 
 Adjusted profit after     Profit before acquisition related items and 
  tax                       exceptional items but after deducting the income 
                            tax expense. 
 Capital Turn              Revenue for the previous 12 months divided 
                            by average capital employed (where capital 
                            employed is the sum of total equity and net 
                            debt/(cash) at each period end). 
 Constant Currency         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. 
 EBITDA                    Profit before exceptional items, net finance 

                            expense, income tax expense, depreciation and 
                            acquisition related items. 
 EBITDA Interest Cover     EBITDA divided by net bank/loan note interest. 
 Gearing                   The Group net (cash)/debt divided by the total 
                            equity attributable to owners of the Parent 
                            times 100, expressed as a percentage. 
 Like-for-like revenue     Changes in 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. 
 Return on Capital         Operating profit divided by average capital 
  Employed                  employed (where capital employed is the sum 
                            of total equity and net debt/(cash) at each 
                            period end) times 100, expressed as a percentage. 
 Adjusted Earnings         A measure of underlying profitability of the 
  Per Share                 Group. Adjusted profit after tax is divided 
                            by the weighted average number of Grafton Units 
                            in issue, excluding treasury shares. 
 
 
 Adjusted Operating Profit/EBITA before 
  Property Profit and Margin 
 
                                                        2022      2021 
                                                       GBP'm     GBP'm 
 Revenue - continuing                                2,301.5   2,109.9 
 
 Operating profit                                      264.3     269.2 
 Property profit/loss                                 (25.4)    (16.7) 
 Amortisation of intangible assets arising 
  on acquisitions                                       19.3      14.7 
 Other acquisition related items                         2.3       4.1 
                                                    --------  -------- 
 Adjusted operating profit/EBITA before property 
  profit                                               260.5     271.2 
                                                    --------  -------- 
 
   Adjusted operating profit/EBITA margin before 
   property profit                                     11.3%     12.9% 
                                                    --------  -------- 
 
 
 Operating Profit Margin 
 
 
                                        2022      2021 
                                       GBP'm     GBP'm 
 Revenue - continuing                2,301.5   2,109.9 
 
 Operating profit                      264.3     269.2 
 
   Operating profit/EBITA margin       11.5%     12.8% 
                                    --------  -------- 
 
 
 Adjusted Operating Profit/EBITA and Margin 
 
 
                                                   2022       2021 
                                                  GBP'm      GBP'm 
 Revenue - continuing                           2,301.5    2,109.9 
 
 Operating profit                                 264.3      269.2 
 Amortisation of intangible assets arising 
  on acquisitions                                  19.3       14.7 
 Other acquisition related items                    2.3        4.1 
                                               --------  --------- 
 Adjusted operating profit/EBITA                  285.9      288.0 
                                               --------  --------- 
 
   Adjusted operating profit/EBITA margin         12.4%      13.6% 
                                               --------  --------- 
 
 
   Adjusted Profit before Tax 
                                                   2022       2021 
                                                  GBP'm      GBP'm 
 Profit before tax                                251.7      249.8 
 Amortisation of intangible assets arising 
  on acquisitions                                  19.3       14.7 
 Other acquisition related items                    2.3        4.1 
                                                          -------- 
 Adjusted profit before tax                       273.3      268.6 
                                               --------   -------- 
 
 
 
   Adjusted Profit after Tax 
                                                   2022          2021 
                                                  GBP'm         GBP'm 
 Profit after tax                                 208.6         206.8 
 Amortisation of intangible assets arising 
  on acquisitions                                  19.3          14.7 
 Related tax on amortisation of intangible 
  assets arising on acquisitions                  (4.3)         (3.2) 
 Other acquisition related items                    2.3           4.1 
 Tax on other acquisition related items           (0.2)         (0.1) 
                                               --------   ----------- 
 Adjusted profit after tax                        225.6         222.4 
                                               --------   ----------- 
 
 
 
 Reconciliation of Profit to EBITDA - Continuing 
  Operations 
                                                             2022          2021 
                                                            GBP'm         GBP'm 
 Profit after tax                                           208.6         206.8 
 Other acquisition related items                              2.3           4.1 
 Net finance expense                                         12.6          19.4 
 Income tax expense                                          43.1          43.0 
 Depreciation                                                94.3          84.8 
 Intangible asset amortisation                               20.3          15.3 
                                                     ------------   ----------- 
 EBITDA - continuing operations                             381.2         373.4 
                                                     ------------   ----------- 
 
 
   EBITDA Interest Cover (including interest 
   on lease liabilities) 
                                                             2022       2021 
                                                            GBP'm      GBP'm 
 EBITDA                                                     381.2      373.4 
 Net bank/loan note interest including interest 
  on lease liabilities                                       11.8       20.7 
                                                         --------   -------- 
 EBITDA interest cover - times                               32.2       18.0 
                                                         --------   -------- 
 
 EBITDA Interest Cover (excluding interest 
  on lease liabilities) 
                                                             2022       2021 
                                                            GBP'm      GBP'm 
 EBITDA                                                     381.2      373.4 
 Net bank/loan note interest excluding interest 
  on lease liabilities                                      (3.1)        6.1 
                                                         --------   -------- 
 EBITDA interest cover - times                            (123.0)       61.7 
                                                         --------   -------- 
 
 
 
 
 
   Dividend Cover                                            2022          2021 
 Group adjusted EPS - basic (pence)                          96.6       93.0 
 Group dividend (pence)                                      33.0       30.5 
                                                        ---------   -------- 
 Dividend cover - times                                       2.9        3.0 
                                                        ---------   -------- 
 
 
   Return on Capital Employed - Continuing 
   Operations                                                2022       2021 
                                                            GBP'm      GBP'm 
 Operating profit                                           264.3      269.2 
 Other acquisition related items                              2.3        4.1 
 Amortisation of intangible assets arising 
  on acquisitions - continuing                               19.3       14.4 
 Adjusted operating profit                                  285.9      287.7 
                                                         --------   -------- 
 
 Total equity - current period end                        1,745.6    1,719.6 
 Net (cash) current period end                              (8.9)    (139.0) 
 Capital employed - current period end                    1,736.7    1,580.6 
                                                         --------   -------- 
 
 Total equity - prior period end                          1,719.6    1,467.0 
 Disposal of Group businesses adjustment                        -      115.4 
 Net (cash)/debt - prior period end                       (139.0)      355.0 
 Disposal of Group businesses adjustment                        -    (545.0) 
                                                         --------   -------- 
 Capital employed - prior period end                      1,580.6    1,392.4 
                                                         --------   -------- 
 
 Average capital employed                                 1,658.6    1,486.5 
 
 Return on capital employed                                 17.2%      19.4% 
                                                         --------   -------- 
 
 
 
   Capital Turn 
 
                                                             2022       2021 

                                                            GBP'm      GBP'm 
 Revenue                                                  2,301.5    2,109.9 
 
 Average capital employed                                 1,658.6    1,486.5 
                                                        ---------   -------- 
 
 Capital turn - times                                         1.4        1.4 
                                                        ---------   -------- 
 
 
 
 
 
 
 
 
   Liquidity 
                                                2022      2021 
                                               GBP'm     GBP'm 
 Cash and cash equivalents                     711.7     844.7 
 Less: cash held against letter of 
  credit*                                      (4.0)     (4.0) 
 Accessible cash                               707.7     840.7 
 Undrawn revolving bank facilities             226.9     394.7 
                                            --------  -------- 
 Liquidity                                     934.6   1,235.4 
                                            --------  -------- 
 

* At 31 December 2022, cash of GBP4.0 million (2021: GBP4.0 million) was reserved to cover the risk of an event of default by the Group on a letter of credit. This arrangement can be replaced at any time.

 
 Net Cash - before IFRS 16 Leases 
 
                                                      2022      2021 
                                                     GBP'm     GBP'm 
 Net cash - after IFRS 16 Leases                       8.9     139.0 
 IFRS 16 Lease Liability                             449.3     449.0 
 
 Net cash - before IFRS 16 Leases                    458.2     588.0 
                                                  --------  -------- 
 Like-for-Like Revenue 
 
                                                      2022      2021 
                                                     GBP'm     GBP'm 
 2021/2020 revenue (restated)                      2,109.9   1,679.2 
 
 Organic growth                                       47.2     337.8 
 Organic growth - new branches                        17.8       9.0 
                                                  --------  -------- 
 Total organic growth                                 65.0     346.8 
 Acquisitions                                        134.4     120.9 
 Foreign exchange                                    (7.8)    (37.0) 
 
 2022/2021 revenue                                 2,301.5   2,109.9 
                                                  --------  -------- 
 
 Like-for-like movement (organic growth, 
  excluding new branches, as % of prior 
  year revenue)                                       2.2%     20.1% 
                                                  --------  -------- 
 

The Impact of IFRS 16 "Leases" on APM's

 
 Reconciliation of Profit to EBITDA - pre-IFRS 
  16 (Continuing) 
                                                      2022      2021 
                                                     GBP'm     GBP'm 
 Profit after tax                                    208.6     206.8 
 Loss after tax (IFRS 16)                              1.3       1.4 
                                                  --------  -------- 
 Profit after tax (pre-IFRS 16)                      209.9     208.2 
 Acquisition related items                             2.3       4.1 
 Net finance (credit)/expense                        (2.3)       4.7 
 Income tax expense                                   43.4      43.2 
 Depreciation                                         34.2      30.3 
 Intangible asset amortisation                        20.3      15.3 
                                                  --------  -------- 
 EBITDA                                              307.8     305.8 
                                                  --------  -------- 
 
 
 EBITDA Interest Cover - pre-IFRS 16 (excluding 
  interest on lease liabilities) 
                                                       2022      2021 
                                                      GBP'm     GBP'm 
 EBITDA                                               307.8       305.8 
 Net bank/loan note interest excluding interest 
  on lease liabilities                                (3.1)         6.1 
                                                   --------  ---------- 
 EBITDA interest cover - times                       (99.3)        50.5 
                                                   --------  ---------- 
 
 

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March 02, 2023 02:00 ET (07:00 GMT)