Grafton Group (GFTU) Trading Update & Acquisition summary

Strategic rationale and acquisition overview

• Acquisition of Salvador Escoda in Spain marks entry into the Iberian Peninsula, targeting a fragmented and growing mechanical distribution market, especially HVAC, electricals, and plumbing.

• Completed the acquisition of Salvador Escoda, S.A. in Spain for up to €132.0 million, expanding into a high-growth, fragmented market.

• Salvador Escoda reported €231.8 million revenue and €16.5 million adjusted operating profit in 2023, with a 9% CAGR since 2019; it is the second largest player in the HVAC segment with 93 branches.

• About 50% of Salvador Escoda's revenue comes from own brands, offering competitive pricing and higher margins; the business is well-positioned for organic growth and further consolidation.

• Existing management, including the founder's daughter as CEO, will remain, with plans to review product ranges, enhance online presence, and expand store footprint, supported by Grafton's resources.

Market and competitive landscape

• The Spanish HVAC distribution market is valued at €2.3 billion, with Salvador Escoda holding a 7-8% share; Saltoki is the largest competitor.

• The market is highly fragmented, with seven main players sharing about 60% of sales and the remainder split among buying groups and smaller firms.

• Private equity has some presence, but not as dominant as in the UK; opportunities exist for consolidation both within and beyond HVAC.

• Store network can potentially expand by at least 50 outlets organically, with further M&A opportunities identified.

• Salvador Escoda operates 93 branches in Spain, with over 100,000 products and a strong private label presence.

Trading and financial performance

• Group revenue for 2024 YTD was £1.82 billion, down 3.7% year-on-year and 2.3% lower in constant currency, impacted by a weaker euro.

• Adjusted operating profit for 2024 is expected to be broadly in line with market expectations, with consensus forecasts around £170.4 million.

• Ireland showed growth with average daily like-for-like revenue up 1.4% in the last four months, while the UK and Finland saw declines of 4.4% and 2.4% respectively.

• Retailing in Ireland performed strongly, with Woodie's average daily like-for-like revenue up 5.8% in the four-month period.

• Manufacturing segment continued to decline, with average daily like-for-like revenue down 13.4% in the last four months.