The Grafton Group Project

Student Names Stephen Bray B00037534 Johnny GeraghtyB00020240 Alan LennonB00020051 ant Toft B00015911 pic Module NameSt localisegic management 2 LecturerMr Liam Bolger Submission Date29th April, 2010 leger Count10,413 Table of Contents Background of the friendship2 History of the company3 The milieu7 PESTEL stunnedline7 Political7 Economic7 Sociocultural8 Ireland community by Age 20069 Technology10 Environment10 Legal10 Key drivers for compound10 The Indus fiercenesse11 Porters Five Forces analysis11 Substitute fruits/ go12 Bargaining military force of buyers12 Bargaining power of suppliers12 take exceptionr/Competition13Opportunities and Threats14 Opportunities identified15 Threats identified16 fiscal Information Analysis17 Analysis of Financial Reports18 Liquidity Ratios18 lucrativeness Ratios20 Net Profit border per Segment20 pay per sh atomic event 18 (EPS)21 Analysis23 Liquidity23 Profitability24 Debt24 Return on thr onenessment24 Borrowings25 problems with a ccessing credit. 25 Sh ar Price26 Source httpinvestor/grafton assemblyplc. com27 Liquidity keen27 Financial StrengthExcellent27 Profitability Fair27 Growth 027 Source www. incorporatedinformation. com27 Outlook for the Future28 Rationalisation measures29Plans for 201029 Opportunities 201029 gathering Strengths30 Weaknesses31 Strategic Capability31 vital Success factors for customers (a prove of exactly not limited to)33 embodied Governance35 Grafton gatherings contour with the Combined Code36 The table who reports to whom? 37 Directors Independence and bestride match38 Performance of the mount39 corporate affectionate Responsibility CSR and Ethics39 sh arh dodderinger and S get toholder Expectations and Influences41 Culture of Organisations and Grafton sort43 Strategic Direction and integrated level strategy44 Corporate Pargonnt44 The corporate p argonnt as a Synergy manager45Strategic Drift46 International Strategy48 Table Pre-Merger48 Table Post-Merger50 Traditi onal reasons for Merger stroke51 with a manageable jointure Grafton may52 Strategic Directions53 grocery Consolidation54 Market Diversity (Related)55 International strategy Travis Perkins and Grafton merger? 56 Bibliography59 Plagiarism Disclaimer60 Background of the company Grafton conference plc is an self-employed person, mesh produceth chief company with ope rations primarily in the UK and also in Ireland. The meetinging has steady national and regional positions in the merchanting, DIY retail and mortar securities industrys.The gathering aims to pass above average returns for handleholders. Graftons strategy is to mannikin on strong positions in coursees serving the UK and Irish construction spheres, to conk out in think markets, and to grow in taskes with which it is familiar. In Great Britain, Grafton is the fourth largest merchanting business vocation from 430 locations comprising 219 Builders Merchanting branches avocation principally at a minor er place the Buildbase and seat of government of Mississippi brands and 211 Plumbers Merchanting branches trading mainly under the Plumbase brand.EuroMix is the market leader in the UK dry mortar market where it trades from a ne 2rk of nine manufacturing plants in England and Scotland. In Northern Ireland, MacNaughton Blair is one of the tether builders merchants in the province where it trades from 20 locations. In the Republic of Ireland, the mathematical group is the largest builders and plumbers merchanting business trading across the country from 62 branches under the Chadwicks and Heiton Buckley brands. The Group is the market leader in DIY retailing in the Republic of Ireland, trading nationally from 41 stores and is also engaged in the manufacture of mortar, plastics and windows in theRepublic of Ireland. Today, in Ireland, Grafton is the largest builders and plumbers merchants and the benefit market leader in DIY retailing. In the UK the Groups merchanting operation is the 4th largest in the market. 2005 disorder was 2. 6 billion and Profit after Tax amounted to 166 one thousand thousand. History of the company Graftons origins date corroborate to 1902 and since then the Chadwick family see played a central role in the training of the business. 1909William Thomas Chadwick establishes his startle business callight-emitting diode Chadwicks (Dublin) Limited to supply builders merchants and major building contractors with Irish and imported cement and plaster. Today Chadwicks is the second largest builders and plumbers merchanting brand in Ireland, trading from 31 branches nationally. 1930 William Chadwick acquires tone down of a clear firm engaged in the manufacture of concrete blocks and roof tiles, which his company was supplying with cement. In 1931 Concrete Products of Ireland was registered as a private limited company.Today it is called consumer price index Limited and is a jumper lead manufacturer of dry mortar in the Irish market. William Chadwick, the Groups founder, dies at the end of the Second World War, sledding the business to his 2 sons Terence and Finton Chadwick. 1965 Concrete Products of Ireland start outs a public company and purchases Chadwicks (Dublin) Limited from the Chadwick family. At the identical time Marley Limited increases its retention to 51%. Marleys family with Concrete Products of Ireland dates post to the end of the Second World War when Marley acquired a minority shareholding. 985 Mr. Michael Chadwick is ap stained Executive Chairman. 1987 Marley plc decides to concentrate on the manufacture of building materials and as a bailiwick sold its controlling shareholding in the Group. The Marley shareholding was hardened with institutional investors and the Groups management. The Group opens its archetypal DIY retailing store in the Irish market. 1988 The Group changes its name to Grafton Group plc and makes its first UK encyclopedism, a small thawing and plumbing business which gives the Group familiarity with the large UK merchanting market. 990 The Group acquires MacNaughton Blair a long-established and well-k instantaneouslyn Belfast- found builders merchants. Also during the course of instruction Grafton acquires Joseph Kelly & son (1994) Limited in Dublin, a builders merchanting business which was to become very well placed to serve the necessarily of the building trade in the centre of Dublin. 1994 The Groups expands pregnantly in the UK with the acquisition of Bradleys and Lumley & Hunt plumbing and heating trading operations. Total sales in Britain and Northern Ireland increase by 53%, representing 21% of Group turnover. 995 Grafton acquires P. P. S. Mortars a silo mortar plant based in Glasgow. This business adopts the EuroMix silo mortar business model and technology, which has been victorfully developed by CPI, the Groups Irish concrete products business. Today EuroMix is the star UK mortar manufacturer with ogdoad plants. 1996 Th e Group broods its strategicalal development in the UK with its first acquisition of a builders merchanting business R. J. Johnson, based in Oxford. 1997The Group continues to acquire in the UK adding a march on 14 locations with six small but significant acquisitions and achieves critical mass in its UK operations. This is the Groups tenth year as an fencesitter public company a decade of substantial achievement in which sales increased 18% annually and earnings per share grew at an annualised rate of 29%. 1998 UK builders merchanting operations expand substantially with the acquisition of British Dredging plc, the first time an Irish company acquires a describeed UK plc.This business ope range a total of 23 locations incorporating 17 builders merchants and six plumbers merchants. The builders merchanting operation is integrated under the Buildbase brand, which was established in 1997 as the trading name for the Groups UK builders merchanting operation. During that year t he Group makes an separate six acquisitions adding a further 19 locations, including the London based Deben Builders Merchants business with 10 branches and A R Hendricks Limited, a heavy positioning builders merchant trading from five branches. 1999The Group continues its bolt-on acquisition programme adding a 16 much locations, through eight acquisitions in the UK. Through bulge out the nineties the Group continues with the expansion of its Irish merchanting and DIY retailing operations and consolidates its position as market leader in both(prenominal) arenas. 2000/2001 During these long time, the Group continues apace with its bolt-on acquisition strategy. A total of 24 acquisitions were make during the period, legion(predicate) single branch operations that add value through infilling the Groups general network of locations in the UK. 002 This is a record year with a total of 15 acquisitions adding a further 39 branches to the UK merchanting network. These acquisitions inc luded five small chains Lakes in Derby, BMB in Barnsley, and PDM in Edinburgh, Aizlewoods in Rotherham and JKS Heating and Plumbing Supplies in Manchester. 2003 The Group undertakes its largest ever acquisition thus far Jackson build Centres in England adding 18 branches and makes another significant acquisition with Plumbline, Scotlands largest independent plumbers merchants with 17 locations.Overall it was a busy year with a further seven bolt-on acquisitions completed, giving a total of nine acquisitions for 2003. Grafton promptly has 137 plumbers merchanting branches trading under the Plumbase brand and 139 builders merchanting branches trading principally under the Buildbase and Jackson brands. 2004 The Group completes its 100th acquisition since 1998, averaging more than one per month. A total of 19 acquisitions are completed during the year, another record year for development. Grafton reaches agreement to acquire Heiton Group plc, subject to regulatory approval. 005 In J anuary Grafton completes the acquisition of Heiton Group plc. This business includes, mask alia, the No. 1 builders merchanting operation and the No. 2 DIY retailing brand in Ireland and is a good strategic fit with Graftons existing operations and consolidates its position as the leading player in the Irish market. Overall Heiton has over 50 trading locations (six in the UK), an average of 1,900 employees and a turnover in excess of 500 one thousand million. We can see from this chronological list of their history that Grafton Group expanded greatly from the mid 90s to 2005.Their growth in the UK market was surged on the back of an economic building boom in Ireland. They right off check a much greater market and consumer base to compete in but also face a vastly changed environment. The Environment PESTEL analysis Political Taxation policy corporation impose the Great Compromiser at 12. 5% in Ireland. Grafton Group is resident in the state and is liable to Corporation Tax on its worldwide amplifications. The corporation tax rate in the UK is 21% which is a huge source of warring advantage for Grafton versus its UK competitors. Government perceptual constancy the menstruum Irish government is in place till 2012. The UK is in the build up to a general resource which could see a change in the on-line(prenominal) government and policies. Government policies towards parking battleground initiatives grant towards homeowners to mend insulation, grants for solar panels and etc. Economic The UK and Irish economies are in recession leading to a sharp gleam in demand. Consumer confidence has fallen and admit related spending has veerd. The bit of ho be intimatement completions in Ireland is 17,000 units in 2009 which is a fifth of the output during its peak in 2006. Irelands buy in of empty homes surged 30pc to 345,000 houses in the trinity years through 2009 as the decade-long property boom collapsed. Sterling transfer rate weaknesses co uld lead to abase reported Group earnings on translation of the results of the UK business into euro at the average rate of exchange for the year. Low Interest rates the cost of loan repayments is low and for the predictable future they should remain constant. The availability of credit and money is very strict and very few banks are entrusting to give loans to gold strapped businesses. Unemployment rate in Ireland has increased dramatically, Jan 2008 4. 8% versus Jan 2010 13. 4%. Unemployment rate in the UK has increased but not as dramatic, Jan 2008 5% versus Jan 2010 8%. Sociocultural Declining employment and incomes for souls. racyer individualized taxes introduction of income levy, the doubling of health and PRSI levies. A nation of savers, People are now saving more than before and consumer spending has decreased as a result. An increasing age demographic in Ireland who allow for dominate a home in the future. Ireland population by Age 2006 Age Group Males Females Persons 0-14 443,044 421,405 864,449 15-24 321,007 311,725 632,732 25-44 681,988 663,885 1,345,873 45-64 468,037 460,831 928,868 65 years and over 207,095 260,831 467,926 Total 2,121,171 2,118,677 4,239,848 UK population grows to 61. million pic Technology Improvements in technology gestate led to better supply chain and logistics management. Bar-coding of products has improved inventory management. Environment Organisations need to be socially trusty with their business activities negative publicity can obligate a detrimental effect on consumers perception. A growing consumer awareness of greener behaviour and products associated with having a better impact on the environment. Legal health and safety regulations flip increased the demand for health and safety products and packaging. Key drivers for change These are environmental factors that are likely to make water a uplifted i mpact on the success or failure of an administration. on that point is a huge level of un legitimatety in the reliable environment but an area we piss identified as identify is the energy efficient sector. The government have introduced policies and measures to address humour change. This initiative has hoistn from a UN conference on energy for development, which is demanding countries to change their ways for the improvement towards a greener orbiculate environment. There pull up stakes be a greater demand from consumers to meet those measures and at that placefore Grafton must sate this growing demand with energy saving products. The Industry Porters Five Forces analysis Potential competitors There is the probable for sensitive entrants in the form of small independent hardware suppliers which are strategically located to cajole consumers, ex. A small hardware shop beside the local shopping centre. As we can see from the down the stairs graphic some (prenominal) of their outlets are strategically located in and around the big cities as in that location is a much greater consumer base, ex.Dublin, London, Birmingham. pic There is a huge capital carryment postulate to compete with the Grafton host brands at heart Ireland and their closest competitors are B&Q (20% market share) and Hombase (17% market share). The location of DIY retailing outlets is provoke as during the boom many of our local towns have seen the emergence of industrial retail parks. In Navan 4 years ago Woodies located in a newly developed retail park effective off the N3, before that there was Chadwicks and a number of small independent outlets in the town. Grafton group have 63% of market share in Ireland, as a result the power of warlike response is very strong in Ireland.However in the UK they are fourth with 10% of market share with Travis Perkins (15%), Jewson (18%) and Wolseley (19%) and as a result their competitive position is much more demanding as they have 3 competitors who are in stronger market position. Substitute products/ go We consider the only substitute scourge is aim companies, they purport equipment and tools to consumers on a rental basis i. e. per hr, day, week and etc. In the current climate price is a rudimentary factor in peoples decisions, therefore consumers may opt to hire equipment for tasks rather than spending vast amounts on equipment that might only be used infrequently. Bargaining power of buyers Graftons consumers are powerful because, Buyers can switch suppliers at no cost. Buyers purchase from fivefold sellers at once, they opt for suppliers conveniently located to the project. Buyers are shopping round for the best value. Bargaining power of suppliers The Grafton procurement process has improved further with new internal appointments to lead heavy side and light side purchasing. There was an increased focus on reducing the supplier base and developing closer alliances with key suppliers . This has resulted in greater leverage being achieved from the Groups purchasing scale and improved purchasing ground. The volume of products sourced presently through the warehouse facility in Shanghai proceed to increase providing a new sourcing cream for the Groups businesses to procure quality products at competitive prices.We can see from the above that the power rests with Grafton suppliers are cunning to meet the demands of their customer as they have a strong foothold in both the UK and Irish marketplace. Rivalry/Competition In Ireland their competitive position is very strong and through consolidation and contemplate cuts they will be better placed than most building supply firms peculiarly the many small independents that are under serious monetary pass as the economic property boom which they depended on is long gone. Many independents face closure and Grafton group and its brands will be best placed to take advantage when the economy recovers over the coming ye ars. Competitive rivals are organisations with similar products and services aimed at the same customer groups.When we look at one of Graftons brands Woodies DIY and their spinings, we see that they are competing with many contrary retailers. They offer a product range which caters for all your interior and exterior requirements, ex. Bag of cement, paint, timber, kettles, toasters, lighting, TVs, etc. They compete in a very fragmented industry but what many people dont go through is Grafton is the boot company and all these separate brands from the consumers perspective competing with one another doesnt case as all profits go into the one organisation. Grafton is competing with any organisation who offers interior and exterior household products, ex. B&Q, Homebase (part of Home retail group), Argos (part of Home retail group), index City, Harvey Norman, etc.From our experiences with Woodies they differentiate themselves from the ambition as they offer a complete range of prod ucts from their store which representation you can get all your needs in the one store. However if you look at the UK operational margin history it was roughly 6/7% over the past ten years versus Irish operating margin history of 11-13%. This means that arguing is much stronger in the UK and they must price more competitively in the UK. Opportunities and Threats We can see from the beneath graphic that their decision to expand its operations in the mid 90s to the UK has been extremely successful with 68% of their turnover coming from the UK. Grafton must now look to the UK with a population of 61 million versus Ireland 4. 2 million as their primary source for turnover and opportunity. pic Turnover breakdown Ireland Merchanting 370,167 19% DIY sell 247,784 12% Manufacturing 19,891 1% Total 637,842 32% In the UK their operation consists mainly of builders and plumbers merchanting. THE MARKET attracter BUSINESS POSITION intercellular substance (GE and McKinsey Company Model ) HIGH MARKET ATTRACTIVENESS MEDIUM MARKET ATTRACTIVENESS LOW MARKET ATTRACTIVENESS HIGH BUSINESS POSITION MEDIUM BUSINESS POSITION LOW BUSINESS POSITION Invest Grow = Green Selective Investment = Yellow Harvest/Divest = Red The G. E.Matrix is an extremely useful tool to assist an organisation in exploring its Business Position based on its competitive position and the attractiveness of the markets under the organisations consideration Opportunities identified Demographics In Ireland 1. 5 million are under the age of 24 and in the UK roughly 15 million are under the age of 30. These people will require a home over the next 5 10 yrs and therefore there will be a demand for living accommodations and renovations to suit individual tastes. cosmopolitan government energy initiatives consumers are encouraged to buy more energy efficient products. Cost decline with demand in decline it important that Grafton mange their costs, ex. Supplier costs, staffing, acq uisitions etc. Competitors independents are finding the financial strain to difficult and are been forced to close their operations. Economic recovery will see Grafton best placed in the market. Markets economists both here and abroad are saying there is a bottoming out of the recession. This should bring down approximately a stable market place. Debtors if debtors are managed tightly it can have a significant effect on cash flow and unhealthful debts can be lessen to a minimum. attribute if debtors arent paying on time then Grafton need to look at extending credit terms with their suppliers. We think this very manageable as the power is very much with Grafton and not the suppliers. Threats identified We believe the biggest threat to Grafton Group is the level of spending available for construction related projects. The demand for building materials continues to fall in Ireland and signs of improvement are slowly beginning to show in the UK. The construction industry ha s now declined for the 34th month in a row, but the rate of contraction is slowing, according to the latest Ulster jargon Purchasing Managers Index. Though its great to see the UK construction sector turn the corner after two years of relentless contraction, its still very early days, said David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply.There is now a reliance on the public sector for new work and if they dont fork up the funding for new projects then construction suppliers could be in for a difficult few years. Private investment is very unlikely in the current environment with consumer confidence very low and economic conditions unstable. Financial Information Analysis 2009 2008 Revenue1. 98bn 2. 67bn change operating profit26. 2m 118. 6m Operating profit per income statement 4. 9m 99. 2m Profit before tax 13. 6m 64. 1m Free cash flow 171m 212m EBITDA 74. 1m 172. 9m Adjusted earnings per share5. 4c 32. 2c Basic earnings per share 5. 8c 25. 1c Dividend/share purchase 5. 0c 15. 0c Net debt 322m 435m cogwheel 35% 50% Analysis of Financial Reports The following is an analysis of the financial reports of Grafton Group plc.We will try to illustrate the current financial situation the group is in compared to previous years and also blast to analysis the outlook for the future. Graftons presence in the construction and raw materials market means they have been very much affected by the economic downturn, in particular the significant slowdown in the construction market and the housing market in both the UK and Ireland. I will use liquidity, profitability, debt and other ratios deemed appropriate as tools to help analyse and diagnose the financial health of the group. I will use a year on year comparison in order to determine the direction in which the group is going and identify any trends. Liquidity Ratios Current Ratio (current assets current liabilities) 20082009 920,482 601,987891,364 550,793 1. 53 11. 621 Acid Te st Ratio (Current assets less stock current liabilities) 20082009 920482 -331124 601987891364-265748 550793 1 0. 981. 14 1 Cash at Bank and Short term fixates (at end of year) 20082009 301,984224,834 Profitability Ratios Net Profit Margin (000s) 20082009 64116 / 267298413580 / 1979766 2. 4%0. 68% Net Profit Margin per Segment Merchanting 20082009 2284,484 / 121,9211686,933 / 39305 5. 33 %2. 33 % Retailing 20082009 303,071 / 11,790247,784 / 3274 3. 89 %1. 3 % Manufacturing 20082009 95621 / (3159)50985 / (5060) -3. 3%-9. 9% Earnings per share (EPS) 20082009 32. 2c5. 4cGearing 20082009 50%35% New borrowings v old borrowings 20082009 91. 944 579,33373679 536789 1 6. 31 7. 29 Short term v Long Term pay 20082009 119,874 579,332 103174 536,789 1 4. 831 5. 2 Analysis Liquidity The group has improved its current ratio year on year from 2008 to 2009, this is mainly due to a decrease in current liabilities. This is an encouraging trend for the group. The paneling test ratio als o shows improvement from 2008 to 2009, this is both a reflection of the improved current ratio and also the work done to try and reduce inventory holding, and reduce cash flow secure up therein and other associated costs.Cash flow was rised greatly by tighter management of inventory, debtors, establishment of assets (sale of freehold land, exhibiting the importance of having a strong portfolio of assets) The cash at bank and on short term deposit has been increased year on year from 2008 to 2009 by approximately 34% this is quite encouraging especially in the current environment (and not due to borrowings), as the adage goes profit is food, cash is type O. It is fair to say the group has slightly improved its liquidity situation and is more able to meet its outgoings as they fall due. Against the economic backdrop it is quite a good performance and evidence the group are handling the downturn well in a strategic sense. ProfitabilityProfitability is the biggest challenge facing Gr afton due to the economic downturn and slowdown in the construction and housing markets. Net profit fell dramatically from 2008 to 2009 from 64 million to 13. 5 million, this was quite dramatic. Despite being worrying it was not un anticipate, with the focus for the year on debt and cost reduction (and reducing capital expenditure and working capital). Merchanting, Retailing and Manufacturing all dropped easily in profit terms. Margins were also decreased across all operations. Merchanting still remains the highest source of revenue for Grafton (%85 of group turnover in 2008 and 2009, suggesting strong competencies here).The loss in manufacturing outweighs the profit do in retailing, it is the profit made in the merchanting division that the real profit pool for Grafton. (divesting in manufacturing division may need to be considered, bar where synergies exist with other divisions, i. e. mortar manufacturing) As a result earnings per share have fallen dramatically from 32. 2c to 5. 4c, Debt Through measures taken during the year to reduce gearing, Grafton were able to reduce an already modest gearing of 41 % in 2008 to 35 % in 2009. This is an exquisite achievement in the circumstances (and exhibits a strong leadership in Strategic choices, direction, and fit). The net debt was reduced by 113. 1 from 435. 6 million in 2008 to 322. 5million in 2009.The groups current bank facilities are subject to a minimum net assets requirement (301,984 cash at bank end2009, up from 224,834 end 2008, leaving the Group in a strong cash position). Return on Investment Return on investment is down considerably from 2008 to 2009 10. 12% to 2. 19%, as profits dipped quite considerably resulting in the dramatic slump. Again this is worrying but not unexpected as the Group were attempting rationalisation and consolidation (strong market share results exhibit some success in this regard) Borrowings The ratio of new to old finance borrowings and ratio of short term to long term fin ance borrowing both improve year on year (16. 3 to 17. 29 and 14. 83 to 15. 2 separately). Again this shows strong evidence of reducing debt and decreased borrowing.It is fair to say that Grafton is currently In a very challenging operating environment with the downturn In markets seriously affecting their profitability, dividends, and returns. But the Group finds themselves in an improved liquidity position, as well as considerably reducing their gearing, they also greatly increased their cash at bank negating greatly problems with accessing credit. Share Price Irish parenthood turn Date 29/04/2010 Currency EUR Code GRF_u. I Current Price 3. 52 Day High 3. 55 Bid 3. 50 Last Closing Price 3. 50 Day Low 3. 47 Ask 3. 4 Change 0. 02 Day Open 3. 47 Year High 3. 59 quite a little 28,045 Year Low 2. 30 Source httpinvestor/graftongroupplc. com The latest share price info as at 29/4/10 is encouraging as it shows strong recovery from a year low of 2. 30 to 3. 52 (a year high of 3 . 59 has been achieved. The highest share price achieved was nearly 23 in early 2007 which illustrates the decline in the industry, and puts the companys current performance into context. The Corporate information. om Wright quality ratings rates Graftons investment quality as BBD0 which translates as LiquidityExcellent Financial StrengthExcellent ProfitabilityFair Growth0 Source www. corporateinformation. com Outlook for the Future The UK economy has moved out of recession in late 2009 which is encouraging news for Grafton as 68% of its turnover comes from this source. The amount of new house sales and builds are on the increase from a very low level first which is very encouraging as the merchanting division is Graftons real profit pool. The Merchanting market has remained structurally unspoiled despite the downturn and can expect a growth rate above normal trends that Grafton are well positioned to take advantage of.The Irish economy remains in recession but is expected to retu rn to growth by the middle of the year boosted by global growth and improved export conditions. A weak employment situation, low consumer confidence and tight credit conditions make the market conditions in Ireland even more challenging, coupled with the massive drop in new house builds as housing over supply is still a problem. Further rationalisation measures and/or closures in the Irish operations should be considered. Group turnover stabilised from H1 2009 to H2 2009 which is encouraging. The cost reductions and desegregation benefits in the Merchanting divisions improved profitability in H2 2009.The rationalisation achieved and the increased activity expected form the UK new caparison market means that Grafton are well placed to take advantage of the recovering markets this year. Rationalisation measures Employee base reduced in both Ireland and UK Cost reduction initiatives progressed with significant results 18 locations consolidated or shut and 10 new locations added mention terms from suppliers renegotiated Improved inventory management Debtors managed tightly with significant cash generation Costs rationalized by 80 million in 2009 Plans for 2010 Further rationalisation costs will be incurred in 2010 Wider product range yielding margin growth Emphasis on overhead control and working capital management Attempt to obtain full benefits of integration Opportunities 2010 Reduced cost base Market share gains Competitors failing Irish Construction close to bottoming out Signs of recovery in markets Positive Demographics Government renewable energy initiatives Group Strengths Highly cash generative streamlined businesses Significant cash deposits ensures liquidity No P Banking Covenants -protection from exchange fluctuations now in banking agreements Strong balance sheet modest gearing 35% No material refinancing required before 2011 68% of turnover in UK (increased mortgage lending, & housing sector activity in UK) Prominent marke t positions in the UK and Ireland market share circa 10% and 20% respectively (satisfactory market share performance) Motivated management teams Proven strategic record, past experience of managing down cycles beam risk Economies of scope amongst SBUs Synergies across SBUs Vertical integration achieving efficiencies in merchanting division Benefits derived from lower cost base, integration, scale related and Procurement efficiencies merchandise stabilised in second half of 2009 Trading outlook beginning to improve following period of significant uncertainty Tight financial control across groupWeaknesses Poor performance in Ireland operations General economic downturn Housing market collapse Sharp Industry downturn Slowdown in Irish construction & housing industry (brought group turnover down 26% to 1. 98bn Very slow new housing Market in Ireland Consumer confidence in Ireland hitting retail sales Continued contraction expected in Irish economy Manufacturing opera tions making a loss Over reliance on Merchanting operations Strategic Capability The ability to perform at the level required to survive and prosper. It is underpinned by the resources and competences of the organisation Johnson, Scholes & WhittingtonIt is clear that Grafton have the threshold competences to meet customers minimum requirements, and also the threshold competences to take into account the same as they continue to exist (and are in a decent position to go forward). But what are Graftons core competencies, (activities and processes that are difficult for competition to imitate), what are their unique resources (difficult for competition to imitate or obtain). And what are the critical success factors for Graftons customers (the product features especially valued by customers and therefore the company must excel at). As 85% of Graftons turnover comes from their merchanting division this is where we will focus.Some of Graftons Brands, Sbus and subsidiaries in Merchantin g include Ireland Heiton Buckley Chadwicks Cork Builders providers Telfords Heiton steel UK Buildbase Jackson Building Centres Macnaughton Blair Selco Builders Warehouses Plumbase (plumbing) CPI Euromix (mortar) Critical Success factors for customers (a sample of but not limited to) Quality service and products Reliable products services Speed of service National Distribution Online ordering / catalogue. Product knowledge and advice available Simple set Self service capabilities One stop shop capabilities Wide selection / availability of products hire services Prompt & accurate delivery of products/servicesStrong partnership team working capabilities Trade deals/initiatives (bulk buying, kin development) Unique resources (a sample of but not limited to) Wide network of branches Vertically integrated operations Very experienced management team Backed by strong corporate parent Financial resources (over 300 million in cash) Experience of managing previous downturns Strong Brand equi ty, profile and Goodwill baron to leverage position as largest mortar manufacturer National Distribution Network (Civil & Lintels) Core Competences (a sample of but not limited to) Corporate parenting Synergy managing Proven vertical integration abilities Cross SBU linkagesCo-ordination of multiple and diverse activities Excellent Financial management First class customer service Mortar manufacturing (no 1 in market) Strong Management at SBU level Strong encourage chain Strong Value network Strategic Marketing Autonomy at SBU level Market Development Product development and category management National and local distribution competences The above are some subjects of the critical success factors Grafton Group need to excel at for customers, and some of the unique resources and core competences that help them to meet those CSFs. By building those resources and capabilities that help Grafton deliver value for its customers and help obtain competitive advantage.Corporate Governance What is Corporate Governance? Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and ordering. (Sir Adrian Cadbury, UK, Commission Report Corporate Governance 1992) Irelands recent history of corporate governance has been highlighted with the governments bank NAMA, National Asset Management Agency. Builders, bankers and the senior public servants who failed to regulate these sectors are perceived to be getting off scot-free from the crisis they caused. Sean Barrett Irish propagation 2nd September 2009 / Page 14 Brian Lenihan has taken action that is costing taxpayers billions of euro that would have not have been required if Corporate Governance and greennes s sense regulation was adhered to. The bank regulators, a supposed independent body, did not adhere to procedures and turned a blind eye to what was practiced over the last 20 years. The state ownership policy should fully recognise the state-owned enterprises responsibilities towards stakeholders and request that they report on their relations with stakeholders. Guidelines on Corporate Governance of State-Owned Enterprises, Page 37 (2005) Making the right decisions with all the information without compromising the integrity of the organisation. pic Corporate Cartoons, Grinning Plannet Grafton Groups Compliance with the Combined Code The Board is committed to maintaining high standards of Corporate Governance. The Board is accountable to the Companys shareholders and this statement describes how it applies the principles of good governance set out in the 2006 FRC Combined Code on Corporate Governance which is appended to the Listing Rules of the Irish and London Stock Exchanges. The Board who reports to whom?The Board of Directors is made up of nine members at 31 December 2008 comprising the Executive Chairman, three other executive Directors and five non-executive Directors. Mr. Anthony Collins, Deputy Chairman, is Senior Independent Director. The Board believes that it has the skills, knowledge and experience required by the scale, geographic spread and complexity of the Groups operations. The Board routinely meets seven clock a year and additionally as required by time critical business needs. There is also contact with the Board between meetings as required in order to progress the Groups business. The Board takes the major decisions while allowing management sufficient scope to run the business within a centralised reporting framework.The Board has a formal schedule of matters specifically speechless for its decision. This covers the key areas of the Groups business including financial statements, budgets, acquisitions, major items of capital expenditu re and the strategic development of the Group. The Boards responsibilities also include ensuring that appropriate management, development and succession plans are in place reviewing the environmental and health and safety performance of the Group approving the appointment of Directors and the Company Secretary approving policies relating to Directors allowance and severance and ensuring that satisfactory dialogue takes place with shareholders.The Directors have access to the advice and services of the Company Secretary who is responsible for(p) for advising the Board through the Chairman on governance matters. The Companys Articles of Association and Schedule of Matters reserved for the Board for decision provide that the appointment or removal of the Company Secretary is a matter for the full Board. Directors have full and timely access to all relevant information in a form appropriate to alter them to discharge their duties. Reports and papers are circulated to Directors in pre paration for Board and committee meetings. The non-executive Directors, together with the executive Directors, also receive monthly management accounts, various reports and other information to enable them to review the performance of the Group on an ongoing basis.The Board continues to hold the view that there are compelling commercial benefits to the Group and its shareholders in combining the roles of Chairman and nous Executive and the holding of the feature roles by Mr. Michael Chadwick. The combination of the roles is balanced from a governance point of view by the strong arousal of the five independent non-executive Directors on the Board and the Boards committee structure. Directors Independence and Board Balance It is Board policy that the Board should include a balance of executive and non-executive Directors such that no individual or small group of individuals can dominate the Boards decision making. Five non-executive Directors, Mr. Anthony E. Collins, Ms. Gillian B owler, Mr. Richard W. Jewson, Mr. Roderick Ryan and Mr. dickhead S.Wood are considered by the Board to be independent of management and free from any relationship which could materially interfere with the exercise of their independent judgement. The Board has therefore determined all five Directors to be independent. Mr. Collins was appointed to the Board in 1988 and both Ms. Bowler and Mr. Jewson were appointed to the Board in 1995. The aloofness of their service on the Board exceeds nine years and the 2006 FRC Combined Code provides that an explanation be made to shareholders concerning their continued independence. The Board considers that the integrity and independence of these Directors is beyond doubt. All three Directors are financially independent of the Company and have other significant commercial and overlord commitments.The Companys Articles of Association provide that one third of the Directors retire by rotation each year and that each Director explore re-election at the Annual General Meeting every three years. New Directors are subject to election by shareholders at the next Annual General Meeting following their appointment. It is Board Policy that non-executive Directors are normally appointed for an initial period of three years, which is then reviewed. It is also Board Policy that a non-executive Director who has served on the Board for more than nine years will retire annually and will offer him/ her for re-election in any case where it is proposed to exceed nine years. The overall composition and balance of the Board is kept under review. To allow corporate governance to drop in standards allows too many possible problems arise.Directors making short term decisions for their own benefit cannot be tolerated and without strong non-Executive Directors organisations have suffered. E. g. Enron, Independent tidings and Media. Performance of the Board Grafton Groups long standing non Executive Directors have been re-elected at many AGMs wh ich proves the confidence of their value to shareholders. At the beginning of the year their share price of building up to their financial report for 2010. When we were given Grafton Group as our project the share price was 2. 70, week of April 12 it is trading at 3. 40/share, an increase of 25%. Their board are doing a good job and have processes in place that do not allow any maverick activities. They tick all the concussiones of operating independently of management.Insider dealing is not evident, interlocking does not exist similar to Jim Flavin, member of both Fyffes and DCC. The chief operating officer of Woodies and Atlantic Homecare is Ray Coleman. Some would argue the same CEO of both could lead to conflict but as both have different strategies it make business sense for this to be the case. Corporate Social Responsibility CSR and Ethics The Grafton Group recognises the importance of conducting its business in a socially responsible manner. This is demonstrate in the way we deal with our employees, customers, suppliers and the communities in which we do business. The Group considers that corporate social responsibility is an entire element of good business management. Grafton Group Website Business only contributes fully to a society if it is efficient, juicy and socially responsible Cannon (1992, p. 33) Few trends would so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as they possibly can- Milton Friedman (1962) Grafton Groups CSR is centred on the following areas. ? The Environment Reduction of waste that impacts on environment, affiliation to Irish and UK environmental specialists. e. g. Biffpack in UK ? Health and Safety affixation to best practice for employees, customers and visitors to their stores Human Resources Acknowledge the importance of employees to achieve success, reward them accordingly a nd become number one choice of employment in their field ? Community Recognise the responsibility to the communities in which they are located, support local charities e. g. donated tools and equipment to Goal following Haiti earthquake in 2009 Grafton Group, we feel, is what all corporations do tick the box of CSR Very few Financial Reports had any reference to CSR until last 10-20 years. To make them stand out on CSR issues as Ben and Jerrys Ice Cream or The Body Shop do, they would have to incorporate it into their overall business strategy. Would this give them a competitive advantage over their business rival? Would CSR promotion become part of their strategy?Our view is that a company in the industry it serves will be visit by their consumers as to how important CSR really is. In Grafton Groups case this will not happen. Their stance on CSR is Laissez Faire to Enlightened Self-Interest. The emphasis is mainly on their shareholder short term preference i. e. highest profit as possible and adhere to the law at all time. They may worry about how they are perceived such as pension fund investors. They are definitely not a Shaper of Society where they influence society in a better light and not continuously driven by super profit making e. g. Paul Newman food investment and Niall Mellon Trust. Shareholder and Stakeholder Expectations and InfluencesThe residual in both shareholder and stakeholder expectations is determined largely on the performance of The Grafton Group, history of performance, market in which it trades, promises made and promises previously delivered on. Since they began trading Grafton Group has consistently made profit and grown which has given shareholders a return on their investment. The collapse of the building trade in Ireland and UK has meant a large fall in share price but due to the markets performance no shareholder could have expected anything else. Bob de Wit and Ron Meyer, 1998 describes the value perspective of shareholde rs and stakeholders and how, if any, interlink. In summary the difference is that shareholders perspectives have an ends, i. e. make a profit and value of company increases.Stakeholders perspectives have and ends and a means where profit is a want but not at the cost of something that would be considered unethical. The power that a board such as Grafton Group must withstand can determine whether shareholders or stakeholders have more of an influence on decisions than is healthy. Power is the ability of individuals or groups to persuade, induce, or coerce others into following certain course of action. Johnson, Scholes and Whittington, P160 If an organisation succumbs to the power of an outside influence their control is diluted. Some people within organisations, by right, have more power than other, e. g. the formal power a CEO enjoys. ? Legitimate Power Power of the position, CEO ? Reward Power e. g. Manager deciding who gets overtime Coercive Power who decides on who gets the bad jobs to perform e. g. if you do not do this you will not get the other, bullying bolt ? Expert Power This is more a personal power that a knowledge based professional may exercise ? Referent Power This explains the influential power someone can exhort through charisma or personality traits e. g. Richard Branson of Virgin Group Johnson, Scholes and Whittington, P161 It is kindle that the brand power Woodies and Atlantic Homecare enjoy in the home DIY market sector is a symbol of power for both shareholders and stakeholders. Stakeholder mapping is an interesting way to determine the power and level of interest certain groups have in organisations. LEVEL of disport LOW HIGH A B LOW Minimal Effort Keep Informed bureau HIGH C D Keep Satisfied Key Players The level of interest within Grafton group lies mainly with employees, shareholders and Board of Directors. The Key Players are the Board of Directors and Shareholders as they have a vote as to who by and how the c ompany is run. Stakeholders such as government are low in power and would have a low level of interest. Some of the manufacturing Grafton Group are involved in may require them to be socially responsible to the community in which they are located and must keep them intercommunicate of any changes that may affect them. They would have a high level of interest but a low form of power. Culture of Organisations and Grafton Group The culture of organisations is largely shaped by the founding fathers. For example open Bros.Ltd has a long tradition with social responsibility before it was known as CSR. William Heskeath Lever first established Port sun village to improve the living conditions and well-being of employees of the Port Sunlight Soap factory. This created a culture of CSR which is maintained today. Similarly with the Grafton Group, CEO Michael Chadwick, has been with Grafton Group since he was 23 years of age. The culture of the company is largely a result of his business phil osophies and strategies. We asked for an interview but we were declined, we asked for a list of questions to be answered if we sent them to his secretary and this too was declined so it is difficult to get an insight into his business philosophy.The Grafton Group do not apologise for being shareholder oriented in terms of profits in the form of dividends or company value increase. They have not allowed themselves be affected by the current economic climate and do not show any forms of strategic drift. Strategic drift is where organisational strategies develop incrementally on the basis of cultural influences and do not keep up pace with the changing environment in which they trade. Grafton have reacted to the downturn of their business and do not wait for changes to be made as reactionary. Henry Mintzberg has noted that strategy is a pattern in a stream of decisions. If decisions are made as a reaction to their environment it can be too late.Grafton Groups Board of Directors is long serving and successful, due to this fact they have created a culture of expectancy for shareholders and for themselves to delivery. This behaviour filters through to line managers and front of customer staff (boundary spanners) to achieve success. The success of the past and alignment to environmental change has created a winning culture. They have created a theme around their strategy and have not deviated from it. They die in Ireland and the UK in markets they understand and do not expand outside these industries. This helps succession planning for managers paltry from business units to gain more experience keeping within the core competencies of the Grafton Group. Strategic Direction and Corporate level strategyStrategic Vision is a detailed future oriented vision of the strategic direction that a company is planning to take going forward, that takes into account the competences and capabilities that it both has and needs to achieve to achieve its vision. A strategic vision i s a road-map of a companys future, providing specifics about technology and customer focus, the geographic and product markets to be pursued, the capabilities it plans to develop, and the kind of company that management is trying to create (Thompson & Strickland 2001, P6). fit in to Johnson, Scholes and Whittington 2008, the Exploring Corporate strategy model is made up of the corporate culture, business ethics, CSR, the strategic position, the strategy in action and strategic choices.Strategic choices encompasses some of the following areas of an organisation Business Level Choices International Choices rating Innovation Corporate Level Choices Corporate Parent As we know the Grafton group encompasses many different brands, which is their cash generating and highly profitable business units. Throughout Graftons history they have managed to acquire many related business all in an bm to strengthen the group as a whole. Through this vertical integration Grafton have offered th emselves many advantages and increased their competitive strength. Graftons strategic development has continued to grow with major acquisitions made both in Ireland and the UK such as 1990 Macnaughton Blair, a Belfast based builders merchant 1994 Bradleys and Lumley & Hunt plumbing and heating 1995 P. P. S Mortars, silo plant based in Glasgow 1998 British Dredging. Grafton were the first ever Irish company to acquire a British plc 2000-2002 A total of 39 acquisitions were made, building the groups strength further in Ireland and the UK 2003 Jackson Building Centres in England adding 18 branches and plumbline, Scotlands largest independent plumber merchants. 2004 The Grafton group officially makes its 100th acquisition 2005 Grafton acquires Heiton Buckley. (www. graftonplc. com)As we can see here, Grafton has had a very strong acquisition based strategy to vertically integrate with all the suppliers and related business in an effort to grow in strength and position and to make themselves a real presence in the Irish and UK markets. However its all well and good to acquire all these other business, but what is the point in having them unless you can use them to your advantage. This is Graftons role and responsibility as the now corporate parent to all these acquisitions, to turn them from simply business units into strategic business units that will benefit the group as a whole and strategically fit. The corporate parent as a Synergy managerA corporate Parent identifying factors are a large corporate office with a main emphasis on facilitating cooperation across its SBUs with a continued focus on cost reduction, scale related benefits, closer integration, branch consolidation and brand synergies. As a corporate parent to its SBUs, Grafton group seeks to enhance value across its business units by managing and instilling synergies across its business units. The backward, forward and horizontal integration of its suppliers of raw materials and compet itors has afforded Grafton a strategic advantage. In order to promote synergy management across its strategic business units, Grafton group tries to create the synergies by thinking holistically and viewing the SBUs as interlinked with a common purpose between such as ? DIY retailing Woodies and Atlantic Homecare ? Manufacturing CPI Euromix, MFP and Wright windows Merchanting Heiton Buckley, Chadwicks, Cork builders providers and Telford The main point to remember is that the business units should benefit from the corporate parent by the co-operation between them thats afforded by the corporate centre Grafton Group. A more streamlined UK merchanting business incorporating the Buildbase, Plumbase and Jacksons brands and specialist merchanting businesses is enabling a deeper integration of the overall business. The new structure will result in significant synergies beyond the rationalisation measures already implemented. These arise particularly in procurement, accounting and other central services.A single management team is now in place for all brands operating from a single head office location. Costs continue to be more aligned with sales and the management team works closely with the Group Chief Operating Officer in driving cost reduction, branch consolidation and brand synergies while supplement scale-related benefits. With regard to synergy management the following questions should be answered ? Is there common purpose between business units YES ? Does parent try to achieve co-operation between business units YES ? Provide central services and resources YES In 2009 one of Graftons management priorities was To unlock latent synergies in downturn. (Grafton Financial results 2009 PP) Strategic DriftThis is the disposal for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment. (Liam Bolger, lecture notes 2009). Strategic drift is certainly not something that Grafton ca n be accused of as they react quickly to the economical downturn to keep themselves competitive, especially within the domestic market of Ireland where there core strength lies. Grafton Group has reduced their overall debt from 584 million (2005) down to 322 million (2009). The majority of this occurred in the last 2 years with a reduction of 228 million or 41% (Grafton Group plc lowest results 2009) Employee base reduced in both Ireland and UK Cost reduction initiatives progressed with significant results 18 locations consolidated /closed and 10 new locations added Credit terms from suppliers renegotiated Debtors managed tightly with significant cash generation Costs rationalised in 2009 by 80 million Further plans to manage through 2010 Further rationalisation costs to be incur