Grafton Group Regulatory News (GFTU)

Half Year Report

For the Six Months Ended 30 June 2023

Grafton Group plc

Half Year Report for the Six Months Ended 30 June 2023

Resilient Performance in Challenging Markets; Full Year Expectations Reaffirmed

Grafton Group plc ("Grafton"), the international building materials distributor and DIY retailer is pleased to announce its half year results for the period ended 30 June 2023.

Financial Highlights

· Full year adjusted operating profit expected to be in line with Analysts' expectations1

· Decline in first half adjusted operating profit (before property profit) as anticipated

· Strong operating profit margin and return on capital employed

· Excellent cashflow of £191.3 million from operations

· £132.7 million returned to shareholders in dividend payments and share buybacks

· Interim dividend growth of 8.1% on lower number of shares in issue following buybacks

· Net cash at 30 June 2023 of £438.4 million (before IFRS 16 lease liabilities) was almost unchanged from the year end position after returning cash to shareholders

· New share buyback programme for up to £50.0 million announced

Operational Highlights

· Underlying market fundamentals remain strong despite current challenges

· Resilient first half performance despite challenging Distribution markets

· Volumes lower across the Group's distribution businesses

· Woodie's DIY, Home and Garden retail business performed strongly

· Notably strong performance by UK Manufacturing businesses

· Further progress made on sustainability agenda

1 Grafton compiled consensus Analysts' forecasts for 2023 show adjusted operating profit of circa £202.6 million and a range of £194.6 million to £209.4 million.

2 Supplementary financial information in relation to Alternative Performance Measures (APMs) is set out on pages 43 to 47.

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

Eric Born, Chief Executive Officer Commented:  

"The strength of the Group's market positions and our experienced management teams have underpinned a resilient performance in the face of challenging conditions during the first half. Grafton's robust cash generation has enabled us to return £132.7 million to shareholders in the half year by way of share buybacks and dividends whilst leaving our net cash position broadly unchanged. This strong balance sheet, together with our nimble operating structure, will allow us to take advantage of organic and acquisitive growth opportunities. Whilst uncertainties remain in the short term, we are confident that Grafton is exceptionally well positioned to benefit as the cycle turns, markets normalise and consumer confidence gains momentum."

Webcast and Conference Call Details

A highlights video and a copy of the results presentation document are available at 7:00am on 31 August 2023 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 9:00am on 31 August 2023.  A live webcast of the presentation including Q&A will be available to view via the Company's website at www.graftonplc.com or by clicking here.

Analysts will be invited to raise questions during the presentation. Should investors wish to submit a question in advance, they can do so before 8.15am today by sending an email to ir@graftonplc.com. A recording of the webcast will be made available on the Company's website.

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.

Half Year Report for the Six Months to 30 June 2023

Group Results - Trading Summary, Cashflow, Dividend and Outlook

Grafton achieved a resilient set of results in the first half in challenging markets and measured against a strong performance outcome in the comparative period. The half year results were in line with the Board's expectations and reflect the successful response by management in mitigating the decline in profitability from the combined impacts of weaker markets and cost pressures.

The quality of the Group's portfolio of high returning and differentiated businesses was a significant factor in delivering this resilient performance in a more challenging macro-economic and construction environment.

Adjusted earnings per share, a key driver of shareholder returns and a primary indicator of corporate performance, was 38.1 pence per share for the half year. This reflects solid returns from operations as well as interest income on cash deposits and a taxation rate of 20.1 per cent that benefits from the lower rate of corporation tax of 12.5 per cent payable on profits generated in Ireland.

Residential repair, maintenance and improvement ("RMI") and house building activity across the four geographies where the Group operates was adversely affected by cost-of-living pressures caused by the current environment of high inflation and successive interest rate increases. 

Volumes were lower in the Distribution segment where inflationary pressures in building materials and construction supplies moderated significantly with sharp and sustained falls in steel and timber prices from record highs. These were among the commodities that were most affected by the pandemic related rebound in activity and the spike in the price of building materials. Distribution product price inflation elsewhere moderated significantly but remained positive.

Lower volumes and steel and timber price deflation contributed to gross margin pressure in competitive markets and reduced profitability in the Distribution businesses in Ireland and the UK. 

Inflation increased payroll costs across the Group at the fastest rate in decades in tight labour markets. We responded to the weaker market conditions and cost pressures by implementing targeted reductions in payroll costs, mainly through normal attrition rates, and discretionary overheads.

The medium and long-term underlying fundamentals of the markets that Grafton operates in remain strong and its businesses are well positioned to benefit from structural growth drivers as markets recover. An ageing housing stock and the drive to improve energy efficiency and reduce carbon emissions, that is vital to creating a more sustainable future, support a positive outlook for housing RMI activity over the medium and longer term. House building volumes are underpinned by demographic trends and a prolonged period of under supply.

These results demonstrate the benefit of the spread of the Group's operations across geographic markets and sectors that has created a more diversified earnings base with 60 per cent of revenue generated in Ireland, the Netherlands and Finland.

Based on current trading conditions, we continue to anticipate delivering full year operating profit in line with Analysts' expectations while acknowledging that ongoing risks remain from cost-of-living pressures and interest rate increases.

Distribution

Ireland

Chadwicks operated at high levels of activity in a market that is supported by sound demand fundamentals. New build construction activity was resilient, but demand was lower for materials supplied for housing RMI projects in a tight market for skilled labour where affordability pressures also weighed on activity. 

UK

Selco experienced challenging trading conditions in the residential RMI market as households reduced investment on home improvements and discretionary spending on repairs and maintenance in response to the cost-of-living increases, the decline in real disposable incomes and interest rate rises. Selco solely supplies the RMI market which has been hit hard in the current downturn although the pace of the decline in volumes moderated towards the end of the half year. We responded to market conditions and invested in price on core products, balancing volume and margin to optimise profitability. We also implemented measures to realign volumes and operating costs that will create material savings in the second half of this year and next year. A new Selco branch was opened in Peterborough in April increasing the estate to 75 branches. 

Revenue and profitability recovered through the half year in Leyland SDM and a new store was opened in Hammersmith in February 2023. The London based TG Lynes commercial pipes and fittings distribution business delivered a good result maintaining operating profit in line with the record performance in the prior year.

Subdued demand and weak sentiment resulted in lower activity in the new housing market in Northern Ireland and contributed to a decline in revenue and profitability in the MacBlair distribution business.  MacBlair extended market coverage in the province with the acquisition in June 2023 of a single branch in Portglenone, County Antrim. Post the half year, in July 2023, it acquired a further branch in Strabane, County Tyrone. 

The Netherlands

Revenue growth in Isero was supported by major new build projects being undertaken by national construction companies and by RMI activity on social housing. Activity levels with smaller customers, typically sole trader businesses operating in construction and other industries, were softer in the period. 

Finland

IKH average daily like-for-like revenue was marginally down due to a softening in demand across the Partner network in Finland driven by a decline in residential and non-residential construction that was partly offset by stronger demand from Partners in Estonia and Sweden.

Retailing

Trading in the Woodie's DIY, Home and Garden business in Ireland performed strongly driven by good levels of demand for seasonal products in the second quarter. 

Manufacturing

CPI Mortars continued to demonstrate resilience as dry mortar volumes held up well despite a softening of activity in the new housing market. Demand was weaker for packaged ready-to-use products supplied to the residential RMI market. 

StairBox continued to strengthen its market position increasing the volume of bespoke staircases supplied to the secondary housing market.

Property

The Group realised a property profit of £1.1 million (2022: £18.5 million) in the half year.  This related to the disposal of one property that generated cash proceeds of £1.3 million (2022: £24.0 million for two properties).

Cashflow

The Group's cashflow from operations was exceptionally strong at £160.7 million (2022: £105.9 million) including £36.0 million generated from reducing investment in working capital. There was a normal seasonal increase in trade payables in the period while more resilient supply chains enabled inventory to be turned over more quickly. This release of working capital largely reversed an increase in working capital of £39.7 million in the first half of last year. 

Cash returned to shareholders in dividend payments and share buybacks amounted to £132.7 million (2022: £104.0 million) in the half year, excluding transaction costs.

The Group had net cash (before IFRS 16 lease liabilities) of £438.4 million at 30 June 2023, a decline of £19.8 million from £458.2 million at 31 December 2022. Net cash including IFRS 16 lease liabilities was £3.7 million at 30 June 2023 (31 December 2022: £8.9 million).

Returns to Shareholders

Dividends

The Board has declared an interim dividend of 10.0 pence per share, an increase of 8.1 per cent on last year's interim dividend of 9.25 pence.

The cash outflow on this year's interim dividend is expected to be circa £21.2 million which is in line with the cash outflow on last year's interim dividend. Notwithstanding the reduction in first half profitability, the Board has decided to maintain the same level of cash payment for the 2023 interim dividend and to allow shareholders to benefit from the lower number of shares in issue following the buyback of shares. The actual amount of the cash outflow on the 2023 interim dividend is dependent on the number of shares in issue on the dividend record date.

The interim dividend is in line with the Board's guidance for full year dividend cover of between two- and three-times adjusted earnings. This reflects the Group's very strong balance sheet, profitability and cashflow from operations.

The interim dividend will be paid on 20 October 2023 by Grafton Group plc to shareholders on the Register of Members at the close of business on 22 September 2023, the record date. The ex-dividend date is 21 September 2023.

In the half year, the Group had a cash outflow of £51.6 million on payment of the final dividend for 2022. Only dividends paid in the half year have been charged to equity and no liability for the interim dividend has been recognised at 30 June 2023 as there was no payment obligation at that date.

Share Buybacks

Grafton has completed three share buyback programmes since May 2022 in line with its disciplined approach to capital allocation and supported by its strong financial position. During the first programme 12.28 million ordinary shares (5.1 per cent of the share capital) were repurchased at a total cost of £100 million and an average price of £8.14 per share. In the second programme 10.89 million ordinary shares (4.8 per cent of the share capital) were repurchased at an average price of £8.57 per share and a total cost of £93.3 million.

During the third share buyback programme that was launched on 12 May 2023 and completed on 30 August 2023, 6.0 million ordinary shares were repurchased at a total cost of £50 million and an average price of £8.33 per share.  As at 30 June 2023, the Group had purchased 2.77 million ordinary shares for £22.8 million under this programme.

A total of £216.1 million was returned to shareholders through share buybacks between 9 May 2022 and 30 June 2023.

The Board today announces that it intends to introduce a fourth programme to buy back ordinary shares in the Company for an aggregate consideration of up to £50 million, reflecting its confidence in the prospects for the Group, its strong balance sheet and cash generation from operations, while at the same time retaining significant capacity to invest in strategic growth opportunities. The fourth share buyback programme will commence today and end no later than 31 January 2024 subject to market conditions.

Allocation of Capital

The cornerstone of our approach to the allocation of capital is the creation of sustainable shareholder value through sound strategic, commercial and financial business decisions. 

We have an established federated structure at Grafton that devolves operational decision making and accountability to local management teams who have a deep knowledge of our customers and markets across the Distribution, Retailing and Manufacturing segments in the four geographies where we operate. Through regular formal reviews and day-to-day contact, the Group leadership and local management teams remain closely aligned and have an intimate knowledge of the opportunities and risks in each of our markets. These short lines of communication and collaboration enable a sharing of ideas and best practice across the Group and facilitate prompt decisions on the allocation of capital and other material matters.

Grafton has developed historically through both organic growth and acquisitions, and we will continue to allocate capital to our existing portfolio of businesses and brands that have headroom for growth and operate in markets that are structurally attractive through the cycle. Acquisitions are focused on enhancing the market positions of existing businesses, exploiting appropriate opportunities in adjacent markets and developing new growth platforms in new geographies. Our central strategic development team is focused on potential platform acquisition opportunities in fragmented segments of the building materials distribution market in Europe, where we continue to evaluate opportunities and engage with vendors.

Following a strategic and market assessment during the half year by the Group's new CEO and management, the acquisition search in the European distribution market for building materials and construction related products was widened both geographically and by product segment from a narrow base to include a larger set of potential value creation opportunities. The rate at which capital will ultimately be allocated for platform acquisitions is dependent on timing decisions by business owners and agreeing terms that are mutually acceptable. 

The Group returned £132.7 million to shareholders in dividends and share buybacks in the half year and £208.9 million for the full year in 2022. Net cash before IFRS 16 leases was £438.4 million at 30 June 2023 and as previously reported we are targeting to return to a more appropriate level of financial leverage in the medium- term rather than continuing to hold net cash while remaining committed to retaining our investment grade credit rating. Recognising the cyclical markets in which we operate, our objective is to allocate capital to opportunities that meet or exceed our defined hurdle rates of return and to manage the balance sheet and liquidity of the Group to ensure stability over the long term regardless of economic or financial market conditions.

The Board is committed to growing Grafton over the medium to long-term through value adding organic and acquisitive growth opportunities. It may also decide from time-to-time to return surplus cash to shareholders where it forms the view that this represents an attractive financial investment relative to other opportunities and is appropriate for the delivery of value for shareholders while at same time retaining the financial capacity to invest in strategic growth opportunities.

Implementing Our Sustainability Strategy

The Group continued to make significant and wide-ranging progress implementing its sustainability strategy.

Grafton is committed to delivering net zero carbon emissions no later than the end of 2050. A project to measure the Group's Scope 3 carbon emissions is ongoing. As most of the Group's revenues are derived from distribution and retail activities, Scope 3 carbon emissions are estimated to account for 98 per cent of the Group's total carbon emissions. Grafton has committed to setting science-based targets (SBTi) by the end of 2024 and, as part of the target setting process, it is developing a transition plan that shows how these targets will be achieved, how progress will be monitored and the estimated financial impact of implementation.

Grafton takes its climate change responsibilities very seriously and will only set targets that it has a high level of confidence can be achieved. Setting science-based targets requires accurate Scope 3 data and this data is currently being compiled under a detailed and complex process. The approach being adopted is to follow the Science Based Targets Methodology which is grounded in an objective scientific evaluation of what can be achieved. 

Stakeholder engagement is a central part of our preparation for the implementation of the EU Corporate Sustainability Reporting Directive (CSRD) and we have reached out to major shareholders as part of the consultation process. CSRD is being phased in from 2024 and will impact all businesses over time. This engagement will contribute to our 'double materiality' assessment which requires companies to report not only on the financial impact of their operations on themselves but also on the impact of their activities on society and the environment. This consultation will also help to inform the future development of our ESG strategy and reporting plans.

Outlook

Our resilient first half performance was underpinned by the strength of our businesses and their proximity to customers through the Group's federated structure. Our branches are well invested and our customers are supported with good levels of inventories and competitively priced products. Whilst market conditions are expected to remain challenging over the remainder of the year amid a backdrop of high inflation, high interest rates and cost of living pressures, our management teams lead our businesses with a through-the-cycle mindset and we are confident in the medium to long term strength of the Group's brands and market positions to deliver superior returns. 

Grafton has a portfolio of market leading brands and good geographic diversity with 60 per cent of revenues now coming from Ireland, the Netherlands and Finland and 40 per cent from the UK. The Group also benefits from considerable financial strength attributable to the cash generating capacity of its businesses and strong balance sheet.

The focus of our management teams over the remainder of the second half will continue to be on supporting customers, tightly managing the cost base and responding to evolving trading conditions.

Whilst activity in RMI markets will continue to be affected in the near term by the decline in real disposable incomes and project affordability following the sharp increase in materials and labour costs over the past two years, reducing inflation levels and greater price stability should start to have a positive bearing on our markets and underlying demand. Successive Sterling and Euro interest rate increases are expected to impact buyer sentiment and demand for new homes as affordability reduces. These common themes will impact demand to varying degrees in the Group's markets. 

The adverse effects on activity of these headwinds in our markets may be mitigated to some extent by strong labour markets and growth in incomes that is supporting household income and demand. Moreover, in the UK and Ireland there has been a prolonged period of housing supply falling short of demand.

In Ireland, the outlook for the economy has improved somewhat due to stronger growth in employment and incomes which is supportive of consumer spending in the RMI and DIY markets. House completions have held up better than expected with the number of units to be completed this year expected to be similar to last year.

In the UK, activity in the housing RMI market is expected to be challenging over the remainder of the year and discretionary spending by households to remain weak. In view of the reduction in order books and reservation rates together with interest rates likely to remain higher for longer, we expect continuing caution by house builders about starting new developments in response to lower demand.

In the Netherlands, the outlook for the housing market remains subdued as house prices decline and transactions for existing and new homes weaken in response to interest rate increases.

In Finland, IKH's exposure to a range of end-use markets is expected to help protect it from some of the effects of a modest contraction in the economy and fall in residential and non-residential construction.

Group average daily like-for-like revenue in the period from 1 July 2023 to 20 August 2023 was 0.4% ahead of the same period last year. Average daily like-for-like revenue in the UK Distribution business declined by 0.3 per cent. There was growth of 3.2 per cent in the Distribution business in Ireland and 2.5 per cent in the Netherlands and a decline of 5.9 per cent in Finland. Retailing average daily like-for-like revenue fell by 1.6 per cent and Manufacturing by 3.1 per cent.

Grafton aims to outperform its markets through the cycle and it has the financial resources to invest in organic and acquisitive growth opportunities that will increase shareholder value over the medium-term.  We will allocate organic development capital as required to ensure that the Group's brands continue to support their customers and strengthen their market positions. We continue to execute our strategy and are maintaining momentum in evaluating possible acquisition opportunities and engaging with potential vendors. As already noted, we are focused on potential platform acquisition opportunities in fragmented segments of the European distribution market for building materials and construction related products.

Operating Review

The Distribution businesses in the UK, Ireland, the Netherlands and Finland contributed 83.5 per cent of Group revenue (2022: 84.5 per cent), Retailing 11.0 per cent (2022: 10.3 per cent) and Manufacturing 5.5 per cent (2022: 5.2 per cent). 

UK businesses contributed 40.4 per cent (2022: 42.0 per cent) of Group revenue, Ireland 38.2 per cent (2022: 37.5 per cent), the Netherlands 15.5 per cent (2022: 14.6 per cent) and Finland 5.9 per cent (2022: 5.9 per cent).

Distribution Segment (83.5% of Group Revenue, 2022: 84.5%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers

UK Distribution generated 35.3 per cent (2022: 37.2 per cent) of Group revenue, Irish Distribution 26.8 per cent (2022: 26.8 per cent), Netherlands Distribution 15.5 per cent (2022: 14.6 per cent) and Finnish Distribution 5.9 per cent (2022: 5.9 per cent).

Irish Distribution

(26.8% of Group Revenue, 2022: 26.8%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers

Chadwicks operated at high levels of activity in a market that is supported by sound demand fundamentals. New build construction activity was resilient, but demand was lower for materials supplied for housing RMI projects in a tight market for skilled labour where affordability pressures also weighed on activity. 

There was a partial reversal of the significant price increases in prior years for steel and timber that contributed to a decline in average daily like-for-like revenue by 2.6 per cent. The downward trend in steel prices, which accounted for one tenth of revenue, that started in the second half of last year continued through the half year. This reflected weak demand conditions in construction and other steel-using sectors in Europe, overcapacity in international mills and a decline in inventory levels in anticipation of further price declines. The price of timber and engineered wood products commonly used in construction and RMI projects fell on the back of weaker demand in Europe relative to record highs caused by the pandemic related surge in demand and supply chain disruption.

A decline in the gross margin was principally related to the fall in steel prices that reduced profitability on inventories and to changes in the mix of revenue from end-use markets. The proportion of revenue transacted with trade customers increased and there was a decline in RMI transactions with retail customers from above trend levels in recent years. Competitive pressure in a market that experienced a decline in volumes also delayed the recovery of price increases in certain product categories.

An increase in overheads was concentrated on investment in payroll to support colleagues and ease pressure on their finances from cost-of-living increases. Chadwicks provides colleagues with a quality work experience and the best opportunities in the industry to develop their careers. The strength of engagement with colleagues was recognised by Great Place to Work survey with a ranking for Chadwicks of 23rd in the large organisations category of Ireland's Best Workplaces.

The strong housing market in Ireland showed no signs of abating and will require sustained house building to address a significant supply side shortfall and meet demand. New home completions increased by 6.1 per cent to 14,069 units in the half year although the rate of completions was down by 3.5 per cent in the second quarter due to a sharp decline in apartment construction following a strong outturn in the first quarter. Housing scheme developments and single dwelling completions, the primary segments of the new housing market supplied by Chadwicks, increased by 6.0 per cent and accounted for 70 per cent of units completed in the half year. 

Housing starts increased by 10.0 per cent in the half year to 15,561 units driven by growth of 39.0 per cent in Dublin led by new apartment developments. Outside of Dublin, new starts declined by 3.7 per cent reflecting affordability pressures in the housing scheme and single dwelling markets. The construction of new homes accelerated towards the end of the half year as viability concerns related to increased materials and labour costs and interest rate rises lessened.

In an initiative designed to reduce energy costs and make homes more energy efficient, Chadwicks has partnered with YourRetrofit.ie, a platform that allows households to identify energy efficient opportunities in their homes, based on Building Energy Rating (BER) assessment data. The recently launched platform provides households with tailored advice on home upgrade options that match their budgets including detailed project cost estimates, grants available under the National Retrofit Plan, that targets 500,000 home energy upgrades, and energy and mortgage savings. The platform provides homeowners with details of project materials supplied by Chadwicks and connects them to local approved contractors as part of a complete home energy upgrade solution. 

Sitetech, the market leader in the distribution of construction accessories acquired at the end of February 2022, traded materially ahead of pre-acquisition expectations and made a strong operating profit contribution.

Chadwicks continued to deliver strategic progress and further strengthened its national distribution network and market leading position with the reopening of a larger branch at East Wall Road to support existing and planned housing, commercial and civils projects in Dublin city centre and the Docklands area. This development is part of a wider response planned to support customers in areas where major construction projects are planned. Major upgrades were completed to the Kilkenny, Clonmel, Dundalk, Waterford and Robinhood Road branches that also facilitated the introduction of new product ranges.

Chadwicks is committed to be an industry leading distributor of sustainable building materials and to working with partners across the supply chain in supporting its customers to reduce carbon emissions by using the most environmentally efficient materials and products on the market. The new and upgraded branches incorporate ECO Centres that promote sustainable building products including external wall and internal insulation, airtightness, ventilation systems, heat pumps and controls, solar energy and water-saving products.

UK Distribution

(35.3% of Group Revenue, 2022: 37.2%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers

Average daily like-for-like revenue in the UK Distribution business was down by 2.3 per cent in the first half. The rate of decline eased from 3.8 per cent in the first quarter to 0.9 per cent in the second quarter. Acquisitions and new branches contributed revenue of £4.1 million.

The gross margin was down by 250 basis points following a significant investment in pricing to deliver better value for customers on core ranges, maintain competitiveness and drive volume in a weak market. 

Adjusted operating profit before property profit declined to £23.9 million (2022: £47.2 million) and the adjusted operating profit margin, before property profit, was 530 basis points lower than last year reflecting the decline in like-for-like revenue, investment in pricing and an increase in operating costs in a high inflation environment. 

Selco Builders Warehouse

While longer term demand fundamentals for the UK residential RMI market to which Selco is predominantly exposed remain positive, there has been a significant fall in volumes since March 2022. The rate of decline in volumes eased to 6.0 per cent in the half year following a drop of 15.1 per cent reported for last year. The drop in first half volumes was reflected in a decline in daily like-for-like revenue of 3.9 per cent and price inflation of 2.1 per cent.

Households faced significant financial pressures from cost-of-living increases, falling real disposable incomes and interest rate rises that weakened sentiment and made them cut back on discretionary spending on home improvements. The housing RMI market was also exposed to increased costs for materials and labour which has pushed up project costs and reduced affordability. The number of housing transactions declined by 21.0 per cent in the year to June 2023 which alongside a reduction in the level of RMI activity that traditionally follows house moves and last year's decline in planning applications for larger residential improvements weighed on activity in the RMI market. In response to sharply higher prices of building materials and an uncertain outlook, some home improvement projects that were planned were put on hold and in other cases households opted to complete projects in stages. The return of greater certainty on project affordability and pent-up demand should help to underpin confidence to start RMI projects. 

The RMI market has now gone through a period of significant volume declines following a period of unprecedented demand during the pandemic. Average transaction values which incorporate significant cumulative inflation over the past two years started to deflate and were down in the half year driven by the fall in timber prices and changes in mix. Price deflation on timber and sheet materials which accounted for 30 per cent of revenue and softness in demand for products and materials used in landscaping and home extension projects accounted for a significant proportion of the decline in revenue. A further indication of customers moving away from larger to smaller projects was firmer demand for bathroom, kitchen and decorating materials.

The gross margin was down on the first half of last year, a period that benefitted from building materials cost price inflation of circa 19 per cent comprising growth of 27 per cent for timber and 16.0 per cent for other products. There was timber price deflation in the first half of this year and the rate of inflation in other products turned negative towards the end of the period. Selco responded with agility to the changing customer dynamics in a challenging marketplace by investing in price on core products in a more competitive market that has struggled to absorb the scale of the price rises over the past two years. 

Selco operates from a network of well invested and well-located network branches that offer customers an attractive value and service proposition. Supported by knowledgeable colleagues, Selco is a strong advocate for customer value and of providing a broad range of best-in-class products that are in-stock and available when customers need them. The medium to longer-term fundamentals of the residential RMI market are attractive and Selco has the spare capacity to benefit and deliver value for stakeholders when the near-term impacts of high inflation and high interest rates subside and the recovery takes hold.

Overall costs were very tightly controlled notwithstanding inflationary pressures and investment in payroll required to support colleagues through the cost-of-living crises in a very tight labour market. There were also cost pressures from increased rents on several branch properties that were subject to five yearly reviews. Selco's operating model is supported by a mainly fixed cost base with a minimum number of branch and head office colleagues required to support customers. Measures were implemented in the half year to realign volumes and overall operating costs that will contribute material savings in the second half of this year and next year.

Operating profit and the operating profit margin were materially lower due to the decline in volumes, that were partly offset by inflation, a decline in the gross margin from timber price deflation, investment in pricing in a competitive market and higher operating costs in an inflationary environment.

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 half year it completed mini upgrades to two stores.

Branches that were opened in 2021 in Liverpool, Orpington, Canning Town and Rochester and last year in Exeter and Cheltenham continued to build market share in a more challenging RMI market than originally envisioned. A new branch in Peterborough opened in April 2023 increased the estate to 75 branches. 

In the first half we prioritised supporting customers with better value and implemented initiatives to realign the cost base. As we look forward, we will continue to prudently invest in the Selco model to strengthen its market position. As indicated earlier this year, in view of the weaker near-term growth outlook for the UK economy and the impact of interest rate increases on developers funding new development projects, we reassessed Selco's plans for the rollout of new stores and concluded that, subject to finding suitable properties in priority locations, an estate of approximately 90 stores is a realistic medium-term target.

Preparatory work was completed last year on upgrading Selco's Microsoft Dynamics 365 finance and operations ERP system and having tested and trialled the new system, this significant IT upgrade was successfully deployed in the Corporate Office and the majority of branches. The full roll out across the network of 75 branches is expected to be completed in September 2023. This is a modern software package with a high degree of "out of the box" functionality that allows for continual version upgrades, greater operational flexibility and improved performance and efficiency.

Selco has taken significant strides over recent years to reduce carbon emissions across the branch estate ranging from the introduction of LED light fittings to a new gas management system that has reduced gas consumption by using sensors to control heating. Over 300,000 trees have been planted in Scotland and Wales including 45,000 this year under the "Selco Forest" initiative that was designed to accelerate the process of offsetting its carbon footprint. The trees planted will offset 15,000 tonnes of carbon during their life cycle which is equivalent to the amount of carbon used on customer deliveries over four years. 

Selco is exploring energy generation opportunities across the estate and following a successful trial of solar panels on the roof of the Barking branch, it will extend the initiative to two further branches. The process to transition the entire fleet of over 300 forklift trucks to electric, as they come up for replacement, continued in the half year. In addition, ten Compressed Natural Gas (CNG) vehicles are now in operation in the delivery hubs in London and Birmingham. Selco has also extended its use of alternative fuels by using HVO (Hydrotreated Vegetable Oil) which reduces carbon emissions by up to 90 per cent. All delivery vehicles in the two delivery hubs in London and Birmingham are fuelled by either HVO or natural gas. An electric dropside van with a range of 230km is being trialled at the delivery hub in Birmingham.

Leyland SDM

The recovery in footfall in Leyland SDM, London's largest specialist decorators' and DIY business, that started last year gained good momentum in the half year. Average daily like-for-like revenue growth accelerated to 15.5 per cent in the first half from 2.0 per cent in the first half of last year driven by inflation and a return to volume growth at an enhanced gross margin. The business performed well against a challenging RMI backdrop under a management team whose priority has been to deliver for customers and colleagues. The Leyland SDM store network is well located in Central London to support trade and retail customers who increasingly prioritise convenience and service. We have invested in service by increasing pay for frontline hourly paid colleagues and improved our category management, availability, ranging and merchandising as well as simplifying some of our operating procedures and enhancing others. The financial performance was improved in the period and good foundations laid to build on this progress.

MacBlair

The MacBlair distribution business in Northern Ireland encountered difficult trading conditions and pressure on gross margins leading to a significant decline in operating profit.

A decline in average daily like-for-like revenue of 5.8 per cent was concentrated on the house building segment of the market which declined sharply as the increase in interest rates caused builders of scheme houses to act more cautiously and slow their pipeline of work. Revenue from the housing RMI, commercial and civils segments continued to grow helping to partially offset lower house building activity. Housing transactions in Northern Ireland declined by 20 per cent in the six months to the end of June 2023 and were down by 16 per cent in the year to June 2023. Competition was intense in quieter markets and there was downward pressure on gross margins in all end-markets.

MacBlair extended market coverage in the province with the acquisition in June 2023 of Clady Timber, a distributor of timber and building materials from a single branch in Portglenone, County Antrim. In July 2023, B. MacNamee, a distributor of building materials, timber, hardware, power tools, plumbing and electrical products from a single branch in Strabane, County Tyrone, was acquired increasing the number of MacBlair branches in the province to 21. 

TG Lynes

The London based TG Lynes commercial pipes and fittings distribution business delivered a good result maintaining operating profit in line with the record performance in the prior year. Revenue growth was attributed to product price inflation and activity levels and volumes were flat.

Demand from subcontractors to national housebuilders was softer as anticipated but non-residential new build projects with long lead times that account for a high proportion of revenue in the hotel, leisure, data centre, retail and office sectors held up. Public sector funded upgrades to schools, hospitals and universities were also resilient.

Netherlands Distribution

(15.5% of Group Revenue, 2022: 14.6%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers

The Isero specialist ironmongery, tools and fixings distribution business in the Netherlands performed strongly and produced a good result reporting an operating profit margin of 11.1 per cent against the backdrop of more challenging market conditions.

Year-on-year daily like-for-like revenue growth was slightly weaker in the second quarter and averaged 3.7 per cent in the half year. Overall volumes were marginally down with revenue growth driven by product price inflation.

The Netherlands' economy slowed in the period but domestic demand remained fairly resilient despite the rise in inflation and lower consumer confidence. Real disposable incomes rose as pay increases outpaced inflation in a very tight labour market. The housing market was under pressure and prices fell from the peak level recorded in July of last year. Higher interest rates reduced the amounts that buyers could borrow based on their incomes and demand for housing cooled. Buyers were also reluctant to step into the market until prices stabilise. The number of transactions in existing houses has fallen considerably in recent years and this trend continued although the rate of decline slowed since mid-2022. Increased construction costs and higher interest rates coupled with the decline in house prices has led to a sharp fall in the number of newly constructed houses offered for sale and the number of building permits granted for new houses also declined despite strong underlying demand and a shortage of homes.

Branch revenue increased with activity levels supported by larger national customers, customers who conduct RMI work on social housing and customers that transferred from new build to renovation and maintenance projects.  Transactions were down with smaller customers who are typically sole trader businesses, operating in construction and other industries, that buy a range of products and with retail customers who purchase products for their personal use.

Revenue grew with national construction companies engaged on large new build projects and with construction purchasing organisations. Isero's physical and digital logistics capability, established supply chain relationships, valued added services, technical knowledge and branch network make it uniquely positioned to meet the needs and aspirations of customers in this segment of the market. Revenue from the supply of hinges and locks to timber factories, where Isero's end-to-end service proposition is also a differentiator, was down as a result of the fall in house building. 

The gross margin was maintained at the same level as the prior year despite pressure on volumes in competitive markets. The adverse effect on margin of a change in the mix of end-markets supplied was offset by improved procurement arrangements. The drop-through effect of the increase in like-for-like revenue and an unchanged gross margin was more than offset by increased operating costs that reduced operating profit and the operating margin. This was principally salary increases negotiated between employers' representatives and unions under collective labour agreements (CLA's) for technical specialist distributors in a very tight labour market with more vacancies than unemployed people to fill them and long lead times to fill roles. Energy costs also increased. 

Isero supported the five branch Regts B.V. business acquired in January 2022 to accelerate revenue growth in the Northeast region and increase profitability ahead of plan. The branch in Zaandam, North Holland, that opened in the first half of last year performed well building its market position in the city at an encouraging rate and a second branch in the province was opened in the city of Alkmaar in May. Isero operated from 124 branches at 30 June 2023.

Isero's sustainability journey focused on its commitment to a more circular economy that involves keeping products that it sells in use for as long as possible, minimising waste and promoting resource efficiency. Boxes were placed at branches to collect workwear and Personal Protective Equipment ("PPE") that is returned by customers and then reused in the manufacture of new products. Customers can monitor the impact of their returns on the circular economy through a dashboard that provides information on the reduction in Co2 emissions and other sustainability measures. A pilot scheme was launched in five branches in cooperation with two Housing Associations to return old sanitaryware that is then refurbished by suppliers and returned to the branches for resale.

Finland Distribution

(5.9% of Group Revenue, 2022: 5.9%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers.

IKH, is among Finland's largest workwear and PPE, tools and spare parts wholesalers. While its primary end market is the construction sector, it has a balanced exposure across other complementary and adjacent end customer segments including repair shops, industrial and farming.

IKH products are distributed through a network of independently operated IKH partner stores, third party distributors and 14 owned stores operated from complementary locations. These three routes to market provide a balanced channel exposure to support customers operating in the construction, renovation, industrial, agricultural and spares end markets.  Revenue was down in the Partner network and third-party distributors in Finland driven by a decline in residential and non-residential construction. This decline was mainly offset by stronger demand from Partners in Estonia and Sweden. The partner in Estonia opened a new store in Tallinn in March 2023.  Like-for-like revenue in owned stores was flat.  The owned store that was opened in Rovaniemi, the capital city of Lapland in Northern Finland, started to establish a presence and grow its market share in the city and IKH's 14th store was opened in Lielahti, a suburb of the city of Tampere, Southern Finland, in May 2023. In July 2023, IKH acquired its partner store in Kouvolan, a city in southeastern Finland.

The Finish economy is forecast to marginally contract this year and return to growth next year.  There was a sharp decline in the number of building permits issued for new homes over the last twelve months as mortgage rates and construction costs increased. House building started to return to more normal levels of activity this year following a period of strong growth. Non-residential investment also slowed.

Retail Segment

(11.0% of Group Revenue, 2022: 10.3%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers

The overall strong performance in Woodie's DIY, Home and Garden business in Ireland incorporated a decline in revenue of 4.0 per cent in the first quarter because of poor weather leading to weak demand for seasonal products and growth of 14.1 per cent in the second quarter as the weather improved. The business generated a particularly strong performance in May and June with growth led by demand for seasonal ranges. 

Half year revenue growth of 6.3 per cent was supported by an increase in the number of transactions by 2.0 per cent and growth of 4.3 per cent in average transaction values driven mainly by inflation. The strongest performing categories were decorative products, gardening and DIY.

Sentiment in Ireland gradually improved over the half year with confidence building slowly as concerns about the economic outlook and cost of living eased. Confidence remained well below the long-term trend rate however and households were cautious about spending as finances continued to be under pressure.

A recovery in the gross margin was helped by changes in product mix, a fall in shipping and freight costs and a lower level of promotional activity while continuing to prioritise value for money for our customers.

Overheads although tightly controlled were higher as the business invested in supporting colleagues through cost-of-living challenges. 

Woodie's click-and-collect service is growing in popularity as customers increasingly look for flexibility, speed and convenience. In June, a new Click & Collect In-Store App for colleagues was launched to create a more seamless picking and packing process and the in-store customer collection experience was enhanced by dedicating more space across the store network to click-and-collect orders.

In May 2023, Woodie's launched its new TV and social media ad campaign that inspires people to extend acts of homemaking friendship to their neighbours. The "Larry the Ladder" marketing campaign ad tells the story of how borrowing a simple everyday household object when needed can bring a neighbourhood together in a demonstration of community spirit.

Woodie's was recognised as A Great Place to Work for the eighth successive year and ranked 16th in Ireland's Best Workplaces for large companies. Woodie's is proud to be acknowledged as a great place to work and to highlight the priority it puts on maintaining a positive work experience for colleagues and for promoting a culture that is based on teamwork, diversity and inclusion.

The phased rollout of a Building Management System across the store network continued and contributed to a significant reduction in energy costs and more sustainable energy management. The computer-based system is used to control and monitor energy consumption and to collect data that can provide insights into optimising the energy performance of stores.

Following the successful trial of roof mounted solar panels at the Sallynoggin branch, Woodie's has signed an agreement to rollout solar panels at four more stores in a project that demonstrates its ongoing commitment to reducing carbon emissions by investing in lower cost renewable electricity.

Manufacturing Segment (5.5% of Group Revenue, 2022: 5.2%)

*Change represents the movement between 2023 v 2022 and is based on unrounded numbers

CPI Mortars delivered a strong performance in a challenging market for house building. Revenue growth of 10.0 per cent in the ten CPI EuroMix manufacturing plants, that supply dry mortar to national, regional and local house builders and plastering contractors in Great Britain, was driven by input price inflation. The sharp rise in raw materials prices and higher labour, energy and fuel cost prices in the first half of the prior year was partly absorbed by the business leading to margin erosion and a decline in profitability. This decline was reversed in the current year as cost increases were recovered and margins restored to trend levels.

Quarter one mortar volumes were flat and showed a low single digit decline in the second quarter as builders planned for a reduction in the number of house completions over the coming months in response to lower reservation rates and a reduction in the value of forward orders. While underlying demand for housing remained strong, the re-pricing of mortgage products in response to successive interest rate rises reduced affordability. Closure of the help-to-buy scheme in England also reduced demand from first time buyers for new homes while demand from existing homeowners was more resilient.

The number of silos on customers' sites declined in line with volumes from a record level in the prior year as housing starts slowed and the number of outlets operated by house builders reduced. The volume of packaged ready-to-use products utilised for outdoor RMI applications, a segment of the market that generates circa 10 per cent of revenue, was down by one third. 

SAP Business One, an integrated ERP solution that controls the entire business is being successfully rolled out and is functioning smoothly in the finance function and in four plants. Deployment in the remaining plants is scheduled to be completed by the year end.

StairBox, the on-line market leading manufacturer of bespoke staircases, continued to make gains further strengthening its market position. Revenue growth was driven by a low single digit increase in volumes and recovery of raw materials price increases. The business experienced good demand from trade customers across Great Britain in a more challenging housing RMI market.

A number of innovations launched in the period reduced the manufacturing cycle time and increased materials efficiency by generating less waste. The relocation of the assembly operation last year to a nearby property provided additional capacity to more efficiently re-configure certain elements of the manufacturing process that were space constrained.

Financial Review

Revenue

Group revenue increased by 3.2 per cent to £1.19 billion from £1.15 billion in the first half of 2022.

Group revenue in the like-for-like business declined by 0.1 per cent (£1.6 million) on the prior year. 

Incremental revenue from the Sitetech, Woodfloor Warehouse and Regts acquisitions that were completed in January and February 2022 and the Clady Timber acquisition in Northern Ireland that was completed in June 2023 increased revenue by £6.1 million. New Selco and Leyland SDM branches in the UK and one new branch in each of the Distribution businesses in the Netherlands, Finland and Ireland contributed revenue of £5.6 million.

Currency translation of revenue in the euro denominated businesses to sterling increased revenue by £26.4 million.  The average Sterling/Euro rate of exchange for the six months ended 30 June 2023 was Stg87.64p compared to Stg84.24p for the six months to 30 June 2022.

Adjusted Operating Profit

Adjusted operating profit of £105.1 million was down from £151.1 million last year. This result for the half year included property profit of £1.1million (2022: £18.5 million).

Adjusted operating profit, before property profit, of £103.9 million was down from £132.6 million last year, a decline of 21.6 per cent. The adjusted operating profit margin, before property profit, declined by 280 basis points to 8.7 per cent. 

Net Finance Income and Expense

The net finance expense declined to £0.8 million (2022: £7.7 million). This charge incorporates an interest charge of £8.0 million (2022: £7.2 million) on lease liabilities recognised under IFRS 16.

Interest income on cash deposits amounted to £10.9 million (2022: £2.2 million). The Group had cash resources of £640.1 million at the end of the half year. Returns on deposits and account balances increased as the period developed to reflect the 13 occasions that the Bank of England raised rates from 0.25 per cent at the start of 2022 to 5.0 per cent at the end of June 2023. The rate was 3.5 per cent on 1 January 2023. 

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. Interest payable on bank borrowings denominated in euros and US Private Placement Senior Unsecured Notes increased to £4.2 million (2022: £2.3 million). The increase was due to a lower interest rate payable in the prior year period on part of the bank debt borrowed under the ECB's Targeted Longer-Term Refinancing Operations. The interest rate payable on bank debt also increased following eight rate increases by the European Central Bank to its refinancing rate from zero per cent in January 2022 to 4.0 per cent on 30 June 2023. 

The net finance expense included a foreign exchange translation gain of £0.8 million which compares to a loss of £0.3 million in the prior year.

Taxation

The income tax expense of £18.8 million (2022: £23.0 million) is equivalent to an effective tax rate of 20.1 per cent of profit before tax (2022: 17.3 per cent). This is a blended rate of corporation tax on profits in the four countries where the Group operates and is based on the forecast rate for the full year as previously guided.

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.

Cashflow

Cash generated from operations for the half year of £191.3 million (2022: £137.9 million) was very strong and benefitted from a reduction in working capital by £36.0 million that reversed the majority of the increase in working capital of £39.7 million in the same period last year.

Interest paid amounted to £11.0 million (2022: £10.2 million) which included interest of £8.0 million on IFRS 16 lease liabilities (2022: £7.2 million). Taxation paid was £19.6 million (2022: £21.9 million). Cashflow from operations after the payment of interest and taxation was £160.7 million (2022: £105.9 million).

The cash outflow on the dividend payment was £51.6 million (2022: £52.7 million) and £81.2 million (2022: £51.5 million was spent on the buyback of shares. The total cash outflow on the dividend payment and buyback of shares was £132.7 million (2022: £104.0 million), excluding transaction costs.

Capital Expenditure and Investment in Intangible Assets

We continued to maintain appropriate control over capital expenditure which amounted to £23.9 million (2022: £21.1 million). There was also expenditure of £1.9 million (2022: £1.2 million) on software that is classified as intangible assets. 

Asset replacement capital expenditure of £14.4 million (2022: £10.4 million) compares to the depreciation charge (before IFRS 16) on property, plant and equipment ("PPE") of £19.2 million (2022: £16.5 million) and related principally to the replacement of plant and machinery, plant and tools for hire by customers, rebranding, IT hardware and other assets required to operate the Group's branch network.

The Group incurred development capital expenditure of £9.5 million (2022: £10.7 million) on a range of development including new branches in Chadwicks, Selco, Leyland, Isero and IKH, branch upgrades in Chadwicks, Selco, Woodie's and Isero and investment in IT hardware.

The proceeds received from the disposal of PPE was £2.1 million (2022: £24.1 million). The amount spent on capital expenditure and software development net of the proceeds received on asset disposals was £23.7 million (2022: excess proceeds of £1.7 million over expenditure on PPE and software).

Pensions

The Group operates four legacy defined benefit schemes (one in the UK and three in Ireland), all of which are now closed to future accrual. The defined benefit pension schemes had an accounting deficit of £2.2 million at the year end, down by £8.3 million from a deficit of £10.5 million on 31 December 2022. 

The deficit on the UK scheme reduced by £2.4 million to £11.9 million and the surplus on the schemes in Ireland increased by £5.9 million to £10.5 million. 

There was a scheme deficit of £0.8 million (31 December 2022: £0.8 million) related to the Netherlands business. 

Net Cash/Debt

Net cash (including lease obligations) at 30 June 2023 was £3.7 million which compares to £8.9 million at 31 December 2022. 

The Group's net cash position, before recognising lease liabilities, was £438.4 million, down from £458.2 million at 31 December 2022.

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 was in a very strong financial position at the end of the half year with excellent liquidity, net cash before IFRS 16 lease liabilities and a robust balance sheet.

The Group had liquidity of £904.3 million at 30 June 2023 (31 December 2022: £934.6 million). As shown in the analysis of liquidity on page 47, accessible cash amounted to £636.1 million (31 December 2022: £707.7 million) and there were undrawn revolving bank facilities of £268.2 million (31 December 2022: £226.9 million).

The Group had bilateral loan facilities of £334.5 million at the 30 June 2023 (31 December 2022: £340.7 million) with four relationship banks and debt obligations of £137.3 million (31 December 2022: £141.9 million) from the issue of unsecured senior notes in the US Private Placement market.

The revolving loan facilities for £334.5 million with four established relationship banks were put in place for a term of five years to August 2027. The arrangements included two one-year extension options exercisable at the discretion of Grafton and the four banks. The first one-year extension has been agreed and these facilities are now repayable in August 2028. 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.

The average maturity of the committed bank facilities and unsecured senior notes was 4.7 years at 30 June 2023. This increases to 5.4 years following agreement earlier this month of the one-year extension option on the revolving loan facilities.

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.

Shareholders' Equity

Shareholders' equity declined by £70.2 million to £1.67 billion at 30 June 2023 from £1.75 billion at 31 December 2022. Profit after tax increased shareholders' equity by £74.8 million. There was a loss of £20.7 million on retranslation of euro denominated net assets to sterling at the period end rate of exchange. Shareholders' equity was increased for a remeasurement gain (net of tax) of £5.4 million on the pension schemes and was reduced for dividends paid of £51.6 million and by £81.2 million for the buyback of shares. Other changes increased equity by £3.1 million.

Return on Capital Employed

Return on Capital Employed in continuing operations declined by 450 basis points to 14.3 per cent (2022: 18.8 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.

Period End Financial Information

The consolidated period-end financial statements presented on pages 22 to 42 comprise:

· the Group condensed income statement and Group condensed statement of comprehensive income for the six months to 30 June 2023;

· the Group condensed balance sheet as at 30 June 2023;

· the Group condensed cash flow statement for the six months to 30 June 2023;

· the Group condensed statement of changes in equity; and

· the explanatory notes to the condensed consolidated half year financial statements on pages 28 to 42.

Grafton Group plc

Group Condensed Income Statement

For the six months ended 30 June 2023

Grafton Group plc

Group Condensed Statement of Comprehensive Income

For the six months ended 30 June 2023

Grafton Group plc - Group Condensed Balance Sheet as at 30 June 2023

Grafton Group plc - Group Condensed Cash Flow Statement

Grafton Group plc

Group Condensed Statement of Changes in Equity

Grafton Group plc

Group Condensed Statement of Changes in Equity (continued)