Grafton : Reporting Document

Half Year Report

For the Six Months Ended 30 June 2022

Grafton Group plc

Half Year Report for the Six Months Ended 30 June 2022 Good Trading Performance from Diversified Earnings Base

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 2022.

1. Supplementary financial information in relation to Alternative Performance Measures (APMs) is set out on pages 43 to 47.
2. The adjustment of acquisition related items to the adjusted operating results was a change on previous years and thus the June 2021 comparatives have been restated to conform to current year presentation.
3. The term "Adjusted" means before exceptional items, amortisation of intangible assets arising on acquisitions and acquisition related items in both periods.

Operational Highlights

• Excellent performance in distribution businesses in Ireland and the Netherlands
• Volumes and profitability lower in Selco relative to last year's exceptional performance
• Normalisation of revenue and profitability in Woodie's DIY, Home and Garden retail business
• Good profit contribution from IKH in Finland at 13.2% operating margin
• Further progress made on sustainability agenda

Financial Highlights

• Full year adjusted profit expected to be in line with current consensus analysts' forecasts
• Small decline in first half adjusted operating profit (before property profit) as expected
• Double digit operating profit margin in all segments (before property profit)
• Strong adjusted return on capital employed of 18.8%
• Cashflow of £137.9 million from operations supports strong balance sheet
• Net cash at 30 June 2022 of £520.5 million (before IFRS 16 lease liabilities) providing significant optionality
• Sustainability linked refinancing of revolving loan facilities for £334.5 million completed in August
• Dividend growth of 8.8% in line with guidance for dividend cover

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Gavin Slark, Chief Executive Officer Commented:

"Our first half performance saw a significant normalisation of activity levels following exceptional pandemic related spikes in trading in the first half of 2021. While inflation remains a continuing feature in our markets, we saw improved supply chain consistency as trading patterns normalised and building materials shortages eased.

Though potential macro-economic headwinds remain, Grafton is uniquely placed to outperform given its leading market positions, geographic diversity and the relative resilience of its core repair, maintenance and improvement market. Given the strength of our brands and their market positions together with an exceptionally strong financial position, our focus remains on delivering a strong financial outcome for the year despite the uncertainties in our markets."

Webcast and Conference Call Details

A pre-recorded results presentation 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.

The presentation will be played at 9:00am today via webcast followed immediately by a live audio conference call for analysts and investors at 9:30am hosted by Gavin Slark and David Arnold. If investors would like to listen to the conference call, they can do so by clicking "Register for the Presentation and Q&A" on the home page of the Company's website or by clicking on the following link: https://brrmedia.news/GFTU_HY22

Analysts will be invited to raise questions on the call. 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 call will be available on the Company's website later today.

Enquiries:

Grafton Group plc + 353 1 216 0600

Gavin Slark, Chief Executive Officer

David Arnold, Chief Financial Officer

Murray + 353 1 498 0300

Pat Walsh

MHP Communications + 44 20 3128 8147

Tim Rowntree

Cautionary Statement

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of Directors and senior management concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies and the businesses operated by the Group. The Directors do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

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Half Year Report for the Six Months to 30 June 2022

Group Results - Trading Summary, Cashflow, Dividend and Outlook

The Group delivered a good overall performance in the half year relative to the significant advance in profit and record results in the same period last year which had seen a notable rise in spending on the home prompted by a focus on increasing indoor and outdoor living space, home working and less spending in other sectors during the pandemic.

Trading patterns normalised in all of our markets in the first half of 2022 as building materials shortages and supply chain pressures eased considerably. Building materials prices continued to rise sharply, including the carryover effects of price increases implemented in the second half of last year, softening volumes in more competitive markets.

The Group continued to deliver strong underlying profitability and is well positioned in its markets.

These results demonstrate the benefit of the balanced spread of the Group's operations across geographic markets and sectors which has created a more diversified earnings base.

Distribution

UK

Trading in the UK residential repair, maintenance and improvement ("RMI") market was relatively subdued against a strong performance in the comparative period last year. Acquisitions and new branches contributed to overall revenue growth for the period. Revenue in the like-for-like business was marginally lower as a decline in volumes was offset by high double digit price inflation. While operating profit was lower, a strong operating margin of 11.0 per cent was achieved. Selco, which accounted for almost three quarters of UK distribution revenue, continued to innovate, improve its customer proposition and invest in its branch network.

Ireland

Chadwicks, the market leader in the distribution of building materials in Ireland, produced an exceptionally strong performance in a market that returned to more normalised trading conditions in the half year. Revenue and operating profit grew strongly and the operating profit margin advanced by 80 basis points to 12.4 per cent.

Strong demand was driven by increased spending on housing RMI, an acceleration in the construction of housing scheme developments and one-off houses and an increase in non-residential private and public sector construction.

The Sitetech business acquired at the end of February 2022 made an excellent contribution to profit, adding expertise to Chadwicks in the specialist construction accessories market where it has a leadership position.

The Netherlands

The Isero ironmongery, tools and fixings business reported excellent growth in revenue and profitability and increased its operating profit margin by 170 basis points to 12.5 per cent. Isero expanded market coverage 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. The branch estate increased to 123 in the half year.

Finland

IKH, the workwear, personal protective equipment, tools and spare parts wholesaler acquired in July 2021, made a good contribution to operating profit in the half year and reported an operating profit margin of 13.2 per cent. 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 confidence that was affected by the war in Ukraine. The business has integrated well in its first year under Grafton ownership and is a good strategic fit.

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Retailing

Trading in the Woodie's market leading DIY, Home and Garden business in Ireland normalised and revenue and operating profit were lower as anticipated, compared to the exceptional Covid related gains made in the first half of last year when the business continued to trade as an essential retailer while Ireland was in lockdown. Revenue and profitability were materially ahead of the pre-pandemic level and the operating profit margin was 11.7%.

Manufacturing

CPI EuroMix, the market leading mortars manufacturing business in Great Britain, reported good growth in revenue that was mainly driven by higher selling prices as a consequence of increased input costs.

StairBox, our on-line market leading staircase manufacturer, performed strongly and achieved a good increase in volumes and revenue.

The operating profit margin in the overall manufacturing segment was 20.4 per cent.

Property

The Group recognised property profits of £18.5 million (2021: £15.4 million) in the half year. As part of the sale of the traditional merchanting business in Great Britain, Grafton retained the freeholds of a small number of properties. The disposal of two of these properties in the first half generated cash proceeds of £24.0 million and realised a profit of £18.2 million. In addition, a fair value gain of £0.3 million was recognised on two investment properties in Ireland.

Cash Flow

The Group's cashflow from operations was £137.9 million, down from £255.3 million in the first half of 2021 which included discontinued operations. The strong underlying cash generation from operations included an investment of £39.7 million in working capital which compares to a release of working capital of £37.7 million in the same period last year.

The Group had net cash (before IFRS 16 lease liabilities) of £520.5 million at 30 June 2022, a decline of £67.5 million from £588.0 million at 31 December 2021. Net cash including IFRS 16 lease liabilities was £73.5 million (31 December 2022: £139.0 million).

Financial Highlights Compared to 2019

In view of the previous two financial years being heavily affected by the pandemic and the repositioning of the Group following the disposal of the traditional merchanting business in Great Britain, it is worthwhile considering how the business performed in the first half of 2022 compared with the first half of 2019. Grafton is today a structurally better business that has delivered improved returns since the first half of 2019. This is reflected in adjusted operating profit, before property profit, growing by 33.7 per cent to £132.6 million from £99.2 million reported for the first half of 2019 and the operating profit margin before property profit increasing by 460 basis points to 11.5 per cent from 6.9 per cent.

Over the same period, adjusted earnings per share increased by 57.6 per cent and the interim dividend by 42.3 per cent. Return on capital employed advanced by 590 basis points to 18.8 per cent from 12.9 per cent and the further strengthening of the balance sheet is demonstrated with the Group moving from a net debt position of £540.5 million, including IFRS 16 leases, at 30 June 2019 to a net cash position of £73.5 million at 30 June 2022, an improvement of £614.0 million.

Financing

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 £334.5 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

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