Selco Sales Declined In 2022

Grafton Group plc, the international building materials distributor and DIY retailer, has published final results for the year ended 31st December 2022, advising of a strong trading performance from a diversified earnings base.

Click here to see full Grafton Group results.

Selco Builders Warehouse 

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 omnichannel 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 11  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 17th 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. 

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.”

Source : Grafton Group PLC

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