Grafton warns on profit as UK construction market stumbles

(Reuters) - Building materials firm Grafton Group Plc warned on Thursday that its annual profit would miss expectations, as the UK construction sector grappled with uncertainties linked to Britain's looming exit from the European Union.

The news follows a similar warning last week from smaller peer SIG Plc, which is battling weak demand and a dim economic outlook in the UK and Germany.

Shares in Grafton lost as much as 12%, with peers SIG, Travis Perkins Plc, Howden Joinery Group Plc and B&Q-owner Kingfisher Plc all lower.

The Ireland-based company, in an unscheduled update, said that trading towards the end of the September quarter had been more difficult despite a good performance in its home market.

With Britain facing a multitude of uncertainties surrounding Brexit and slower global growth, the company said volumes had been hurt by weak underlying demand as Britons deferred spending on home refurbishment.

Britain's construction slump deepened in September, with the commercial and civil engineering sectors contracting at the fastest in around 10 years ahead of the country's exit from the bloc, according to a survey.

Grafton also said demand for its materials has been hit by a court ruling on nitrogen emissions in the Netherlands, which has delayed the granting of permits for new construction projects.

Around 18,000 building projects in the Netherlands, worth billions of euros, risked being shelved after its highest court ruled in May that the way Dutch builders and farmers dealt with nitrogen emissions breached European law.

Last month, a slew of weak manufacturing and service sector data across the globe shook markets, denting the outlook for the world economy already battered by ongoing Sino-U.S. trade tensions and Brexit uncertainties.

Grafton, which operates across the merchanting, retailing and manufacturing sectors, said it expects full-year operating profit for continuing operations to be 4% to 8% below current consensus of about 193.5 million pounds ($246.81 million).

The company, which also makes dry mortar in the UK, said like-for-like revenue for the three months ended Sept. 30 grew less than 1% due to weaker sales in its merchanting and manufacturing markets.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Rashmi Aich, Bernard Orr and Jan Harvey)

By Yadarisa Shabong