Irish builders merchant, the Grafton Group is experiencing the most challenging trading conditions in decades, the group has said.

However, according to the firm's latest financial figures, it predicts fortunes for the construction industry will turnaround soon.

In its report, Grafton said the ongoing lack of available credit and depressed markets have resulted in sharp falls in investment and spending on housing and residential repair, maintenance and improvement.

"UK operations traded at a profit while Irish operations were loss-making," said a spokesman.

"While trading conditions continue to be difficult, turnover has stabilised across the group's activities since April this year."

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Group turnover for the six months to 30 June was around €990m.

During the second quarter €520m was generated, in comparison to €470m in the first three months of 2009.

The group's retailing activities located exclusively in Ireland continued to perform better than merchanting, the group said, experiencing an 18% decline in the six month period.

Manufacturing activities suffered most with turnover continuing to be down 49%.

"Throughout the period management has continued to rationalise the business, cutting costs aggressively," said the firm.

No acquisitions were completed in the first half of this year, and capital expenditure is now running at less than 50% of group depreciation, the report said.

The recent recovery in the exchange rate between sterling and the euro to 85.21 pence/euro from the year end closing rate of 95.25 pence has significantly improved the strength of the group's balance sheet at the period end, according to the report.

"The group has now entered the seasonally stronger trading period of the second half of the year during which it expects to return to modest levels of profitable trading across the group while the rationalisation and cost cutting measures taken to date continue to ensure that the group is best placed to benefit from any recovery in the market," the report concluded.

(PR/JM)