LONDON (ShareCast) - (Sharecast News) - Building materials distributor Grafton Group updated the market on its trading on Thursday, reporting that group revenue in continuing operations was down 26% to £810.9m in the five months to 31 May, from £1.09bn at the same time last year, due to the impact of the Covid-19 pandemic.

The FTSE 250 company said it had a "solid start" to the year, before experiencing a decline in activity in the second half of March, resulting in an overall decline in group revenue of 2% in the first quarter.

It said the national shutdown measures remained in place throughout April in the UK and Ireland, and had a material impact on trading, leading to a decline in group revenue of 80% in the month compared to April 2019.

The easing of trading restrictions during May permitted the majority of group locations that were closed in March to either fully or partially reopen through the month.

Although group revenue in May was down 38% on the prior year, that marked a "significant recovery" in activity, and also reflected the high proportion of branches in the UK and Ireland that traded for only the latter part of the month.

Grafton said the overall level of trading during the short period since reopening, while "encouraging", was influenced by a range of factors including pent-up demand, and might not be indicative of ongoing activity levels.

It said it remained focused on appropriately managing its cost base as restrictions eased, and trading returned to a more sustainable level.

Grafton said its UK distribution business traded at about half the prior year level in May, on an improving trend as the month progressed.

Selco reopened 42 branches initially on 6 May for collection and delivery trading only, with the remaining 26 open on 18 May.

The traditional UK merchanting businesses supported customers with branch collections and on-site deliveries of materials used primarily for outdoor residential RMI projects.

Grafton said the return of house builders to construction sites, and the restart of commercial projects, had been slower, and as a result, that segment of the market had seen a more gradual increase in activity.

Both Leyland SDM and TG Lynes remained open, and traded "well" during the lockdown.

In Ireland, half of the Chadwicks distribution branch network in Ireland remained open during the lockdown for essential deliveries only, typically to support health and public sector projects and to provide emergency supplies to businesses and homes.

The business fully reopened on 18 May in the first phase of the Irish government's roadmap for reopening the country, and operated at two thirds of prior year revenue for the month.

Grafton said demand there had been largely driven by residential RMI projects, with new home build activity expected to remain subdued.

In the Netherlands, the distribution business was not impacted by the Covid-19 restrictions imposed by the Dutch government, as the construction sector was deemed an essential activity and permitted to continue operating subject to implementing health and safety and social distancing measures.

Both Isero and Polvo - the business acquired by the Group in July - proved "very resilient", delivering operating profit during the year to May that was in line with its original expectations going into 2020.

In its retail operation, Grafton said the Woodie's DIY, home and garden business in Ireland reopened on 18 May to a surge in demand that saw revenue for the two-week period to the month end comfortably exceed the level achieved for the full month of May 2019.

Looking at its UK mortar manufacturing business, the firm said it traded at one-third of the prior year level in May, with all plants reopening except for one in Scotland where the lockdown was ongoing.

Capacity was reintroduced on a phased basis during the month, in response to customer demand as existing house building sites reopened and construction work resumed.

Grafton said its portfolio of cash-generative businesses, combined with prudent financial management and a strong balance sheet, left it "well-positioned" to respond to the adverse impact on trading of Covid-19.

Pre-IFRS 16, net debt was estimated at £38m at the end of May, with liquidity of £578m was almost entirely held in accessible cash deposits and bank balances.

Looking ahead, the board said the businesses in the UK and Ireland were successfully reopened following the lifting of restrictions during May and, in the absence of a reintroduction of measures to control the spread of the virus, it said it expected to build on that progress in the coming months as trading returned.

In view of the continued uncertainty over the impact of Covid-19 on economic and construction activity generally, financial guidance for the year ending 31 December would remain suspended.

"I would like to thank our colleagues for their outstanding effort, commitment and success in seamlessly restarting our businesses with exceptional Covid-19 protocols in place to safeguard our customers and colleagues," said chief executive officer Gavin Slark.

"The restrictions introduced to contain the spread of Covid-19 had a significant effect on trading since the second half of March and while there are many challenges to be overcome in the months ahead, we are encouraged by the early trading indications following the reopening of our businesses in the UK and Ireland.

"Grafton is in a strong financial position and, with a resilient portfolio of businesses, will emerge from this crisis well positioned for future growth."

At 1006 BST, shares in Grafton Group were down 2.52% at 639p.

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