Breedon : announces results for first half of 2022

27 July 2022

BREEDON GROUP PLC

Interim results 2022

Strong first half supported by resilient end-markets

Expect full-year earnings at top end of current market expectations

Breedon Group plc ("Breedon" or the "Group"), a leading vertically-integrated construction materials group in Great Britain and Ireland, announces unaudited interim results for the six months ended 30 June 2022.

£m except where stated

Revenue

EBIT

EBIT margin Profit Before Tax Basic EPS2 Dividend per share Covenant Leverage3 ROIC4

Statutory highlights

H1 2022	H1 2021	% change
671.1	600.9	12%
65.5	53.7	22%
9.8%	8.9%	90bps
59.5	46.2	29%
2.91p	1.41p	106%

Underlying1 highlights

	H1 2022			H1 2021			% change
	671.1			600.9			12%
	66.9			56.4			19%
	10.0%			9.4%			60bps
	60.9			48.9			25%
	3.01p			2.39p			26%
	0.70p			0.50p			40%
	1.0x			1.2x			(17)%
	10.0%			9.2%			80bps

HIGHLIGHTS

• Focused execution of strategy delivering higher revenue, earnings and returns

1. Volume normalising as expected, compared with Covid-recovery inflated H1 2021

• 1. Serving resilient structurally attractive markets; infrastructure, industrial, house building
  1. Well-underpinnedby central Government policies and sustainability agenda
• Rational pricing environment and hedging policy enabled full cost recovery
• 1. Underlying EBIT margin recovering to 10.0% (H1 2021: 9.4%)

• 1. ROIC increased to 10.0% (H1 2021: 9.2%), achieving our medium term target, reflecting improving profitability and disciplined capital allocation
• Strong financial position maintained; Covenant Leverage 1.0x (H1 2021: 1.2x) reflects increased capital investment, seasonal working capital outflow and payment of final dividend
• Interim dividend increased 40% to 0.70p
• Sustainability agenda progressed; committed to the Science Based Targets initiative

OUTLOOK

During the first half, the economic and political backdrop has grown increasingly uncertain, impacting visibility beyond 2022. While we recognise the potential for these developments to affect confidence, we are optimistic for the remainder of 2022. Our customers' order books are healthy, the mechanism for passing through cost increases has traction and enquiry levels are encouraging. We therefore expect to deliver Underlying EBIT at the top end of the range of consensus expectations5.

Our longer-term prospects are underpinned by the resilience of the end-markets we serve; infrastructure demand is well supported by large long-term projects and centrally funded schemes, material industrial projects are coming to market driven by the environmental agenda, and house building order books remain robust.

ROB WOOD, CHIEF EXECUTIVE OFFICER, COMMENTED:

"We enjoyed a strong start to 2022. Our teams are focused on getting pricing right, our end market exposure is supportive and that has produced excellent results, advancing our margins and returns towards our medium term targets. We completed two in-fill transactions during July, with further M&A activity in the pipeline, and we have continued to progress a broad range of sustainability initiatives, including a commitment to the Science Based Targets initiative.

"Crucially, we achieved this strong outturn while keeping our people safe and well. We have continued to invest in our team as we prepare for our next chapter of growth and that was reflected in our recent engagement survey where response and engagement rates were the highest ever. Our colleagues are embracing the challenges presented by the uncertain backdrop, remaining focused on responding nimbly to local market requirements, winning new business, driving efficiencies and delivering first-class service to our customers. Now more than ever, our agile and entrepreneurial DNA will set us apart."

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.

RESULTS PRESENTATION

Breedon will host a results presentation for analysts and investors at 08:30am today at the London Stock Exchange, 10 Paternoster Square, EC4M 7LS, or online via www.breedongroup.com/investors. The presentation will be followed by Q&A, where it will be possible to participate through the following dial-in details:

Event Title:	Breedon Group - Interim Results 2022
Start Time/Date:	08:30 Wednesday, 27 July 2022 - please join the event 5-10
	minutes prior to scheduled start time. When prompted, provide
	the confirmation code or event title
Confirmation Code:	2366298
United Kingdom, Tollfree:	0800 279 6877
United Kingdom, Local:	[phone]

Notes:

1. Underlying results are stated before acquisition-related expenses, redundancy and reorganisation costs, property gains and losses, amortisation of acquisition intangibles and related tax items. References to an underlying profit measure throughout this announcement are defined on this basis.
2. EPS in the Underlying Highlights is Adjusted Underlying Basic EPS, which is Underlying Basic EPS adjusted to exclude the impact of changes in the deferred tax rate of £0.6m (30 June 2021: £14.4m).
3. Covenant Leverage is defined as the ratio of Underlying EBITDA to Net Debt, with both Underlying EBITDA and Net Debt amended to reflect the material items which are adjusted by the Group and its lenders in determining leverage for the purpose of assessing covenant compliance. In both the current and prior periods, the only material adjusting item was the impact of IFRS 16.
4. ROIC: post-tax return on average invested capital.
5. Company compiled consensus mean estimates for FY22 as at 19 July 2022: Revenue £1,338m (range £1,265m - £1,384m), Underlying EBIT £143m (range £140m - £149m), EPS 6.4p (range 6.1p - 6.8p).

ENQUIRIES
Breedon Group plc	[phone]
Rob Wood, Chief Executive Officer
James Brotherton, Chief Financial Officer
Louise Turner-Smith, Head of Investor Relations	[phone]

Numis (NOMAD and joint broker)	[phone]
Ben Stoop
Oliver Hardy (NOMAD)
HSBC (Joint broker)	[phone]
Sam McLennan
Joe Weaving
Teneo (Public relations adviser)	[phone]
Nick de Bunsen
Elizabeth Mobed

About Breedon Group plc

Breedon Group plc, a leading vertically-integrated construction materials group in Great Britain and Ireland, delivers essential products to the construction sector. Breedon holds around 1bn tonnes of mineral reserves and resources with long reserve life, supplying value-added products and services, including specialty materials, surfacing and highway maintenance operations, to a broad range of customers through its extensive local network of quarries, ready-mixed concrete and asphalt plants.

The Group's two well-invested cement plants are actively engaged in a number of carbon reduction practices, which include utilising alternative raw materials and lower carbon fuels. Breedon's c.3,500 colleagues embody our commitment to 'Make a Material Difference' as the Group continues to execute its strategy to create sustainable value for all stakeholders, delivering growth through organic improvement and acquisition in the heavyside construction materials market.

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BREEDON GROUP PLC

INTERIM RESULTS (UNAUDITED) FOR THE SIX MONTHS ENDED 30 JUNE 2022

DELIVERING TO LONG-TERM GROWTH MARKETS

Our teams successfully navigated numerous challenges in the first half of 2022 to deliver a strong start to the year. Revenue increased 12% to £671.1m (H1 2021: £600.9m) driven by dynamic price increases applied throughout the period.

As expected, volumes moderated after the post-lockdown upturn seen during the first half of 2021. Our disciplined pricing strategy and strategic hedging programme combined to ensure full cost recovery, advancing Underlying EBIT margins to 10.0% (H1 2021: 9.4%).

We supply structurally attractive end-markets, generating approximately 50% of our revenue from infrastructure spending where fundamental underinvestment is being addressed by long-term, central Government spending commitments.

Approximately 20% of our revenue originates from residential construction where housing markets in both GB and Ireland are structurally under-invested and have robust order books. The industrial sector also offers opportunities for growth, driven by the sustainability agenda. As a consequence, our customers' primary focus has been on securing supply of key construction materials, enabling us to recover rapidly rising input costs in full.

Return on invested capital (ROIC) increased to 10.0% (H1 2021: 9.2%); achieving our medium term target, reflecting our improving profitability and demonstrating the effectiveness of our strategy to grow the business sustainably, within a disciplined financial framework. Following increased capital investment, the usual seasonal working capital outflow and the purchase of UK ETS carbon allowances, the Group's free cash flow was an outflow of £22.0m (H1 2021: inflow of £34.3m) which translated to closing Covenant Leverage of 1.0x at 30 June 2022 (H1 2021: 1.2x).

The Board regularly reviews capital allocation scenarios, balancing capital investment and M&A with reducing debt and returning cash to shareholders while prioritising profitable growth and ROIC. As a consequence of these strong results, the Board has approved an interim dividend payment of 0.70p (H1 2021: 0.50p), an increase of 40%.

STRATEGY REVIEW

Sustain

Sustainability is the lens through which all our strategic decisions pass. Having established a sustainability framework in 2021 addressing the three key themes of Planet, People and Places, and committed to credible targets for 2030, we are now focused on implementing a number of initiatives. During the first half we embedded working groups across the business to progress our plans. We have taken steps to enhance transparency and disclosure and have committed to the Science Based Targets Initiative.

We operate with a purposeful focus on the Health, Safety and Wellbeing of all our people. The 'Home Safe and Well' programme aligns to our broader sustainability agenda, by bringing together best practice from across the sector and embracing new and innovative technologies with the ambition to become a 'Reference Company' in our fields of operation. Performance in the first half delivered further progress from a solid foundation, with improvements in both lagging and leading indicators as the Group's safety culture continues to mature.

During the first half we reinvigorated our colleague engagement activities, hosting our first leadership conference in over two years, as we set out to embed our values and culture across a growing portfolio. Our colleagues had an opportunity to have their say, with 75% participating in our annual engagement survey, the highest response and engagement rates ever.

Optimise

Through close collaboration, our commercial and operational teams understand and meet local market requirements, accruing customer loyalty through consistent quality and service. By configuring sites to optimise geology and maximise plant utilisation, we delivered tailored product to local markets and, at a number of acquired sites, reduced crushing and screening activities to drive productivity benefits.

BREEDON GROUP PLC

INTERIM RESULTS (UNAUDITED) FOR THE SIX MONTHS ENDED 30 JUNE 2022

Expand

During the first half we secured additional materials at a number of quarries, fully replenishing production, and progressed our extensive pipeline of planning applications in GB and Ireland.

In July, we acquired concrete supplier RT Mycock and Sons, giving us effective entry into volumetric concrete supply, extending our product and service to rural markets in Derbyshire and Cheshire. In addition, we enhanced our surfacing platform in the East Midlands with the acquisition of Thomas Bow, securing a route to market for upstream materials and building out our regional surfacing footprint in England. These two transactions, with a combined enterprise value of c.£7m, will be immediately accretive to earnings. The M&A pipeline in GB and Ireland remains active and we will continue to pursue bolt-on transactions to in-fill our regional footprint and selectively add capability.

As announced during our full year results in March, we have started to explore options for the establishment of a third platform in the US. Our activity at this stage remains exploratory as we patiently seek an appropriate vehicle to enter the US market. In the near term, the M&A pipeline favours bolt-on transactions in GB and Ireland.

OPERATIONAL REVIEW

Product volumes

million tonnes except where stated	H1 2022	H1 2021	H1 2020	H1 2019
Aggregates	13.6	15.0	8.0	9.9
Asphalt	1.9	2.0	1.0	1.4
Cement	1.2	1.2	0.8	1.0
Ready-mixed concrete (m3)	1.5m	1.7m	1.0m	1.5m

Cement market conditions remained favourable and volumes were sustained. By contrast, aggregates volumes reduced 9% when compared to the first half of 2021 which benefitted from a post-lockdown upturn. Downstream, asphalt volumes were relatively stable while ready-mixed concrete volumes reflected the effect of plant closures carried out in the second half of 2021 to drive efficiencies.

Compared with H1 2019, like-for-like volumes (excluding Cemex) have increased by 7% in aggregates, 15% in asphalt and 7% in cement with only ready-mixed concrete showing a small like-for-like decline of -6%, reflecting the plant closures described above.

Great Britain

£m except where stated	H1 2022	H1 2021	Change %
Revenue	473.1	420.2	+13%
Underlying EBIT	41.5	36.8	+13%
Underlying EBIT margin	8.8%	8.8%	0bps

Our GB business performed strongly during the period as the market operated rationally and customers accepted the well-publicised need for price increases. GB focused on delivering a consistently high service to our customers and tailoring material production to local market requirements through close internal collaboration.

Construction commenced at the new Mansfield asphalt plant and the business made further investments for growth, adding recycled asphalt planings capability at a number of other plants. Further plans to upgrade asphalt plants in the second half, will continue to drive higher capacity while reducing energy consumption.

Our rail capability was extended with a new railhead at Llandudno Junction. The recommissioned Shap quarry secured the contract to supply the Britishvolt gigaplant in Blyth with rail-fed hardstone. Our Shap rail