TIDMBREE
RNS Number : 0625Z
Breedon Group PLC
08 January 2020
8 January 2020
Breedon Group plc ("Breedon" or "the Group")
Acquisition of certain assets and operations of CEMEX in the
UK
Breedon is pleased to announce that it has entered into a
conditional agreement with CEMEX UK Operations Limited ("CEMEX") to
acquire certain assets and operations in the United Kingdom
("CEMEX's UK Assets") for a total consideration of GBP178 million
on a cash and debt free basis (the "Acquisition"). The combination
of Breedon's and CEMEX's UK Assets will further enhance Breedon's
position as a leading construction materials group in Great Britain
and Ireland. The Acquisition is consistent with Breedon's strategy
of acquiring earnings-enhancing aggregates-related businesses with
strong potential for performance improvements and synergy
benefits.
Highlights:
-- Breedon has agreed to acquire CEMEX's UK Assets for GBP155
million in cash together with the assumption of GBP23 million of
lease liabilities. The cash consideration will be payable to the
seller on completion(1)
-- CEMEX's UK Assets encompass approximately 100 active
operations across six divisions located in Scotland, Wales,
North-East England, Norfolk, the East Midlands, and Yorkshire
-- In the year ended 31 December 2018, CEMEX's UK Assets
generated revenue of GBP178 million and EBITDA of GBP23 million
-- The cash consideration will be financed by existing GBP350
million revolving credit facility and drawdown of GBP80 million
through exercise of accordion option
-- Group mineral reserves and resources will increase by
approximately 170 million tonnes, enough to last over 27 years at
current extraction rates
-- Breedon expects to achieve annual net pre-tax cost synergies
of approximately GBP2 million by the third full year following
completion
-- The Acquisition is expected to be accretive to Underlying EPS
and FCF per share(2,3) in the first full year following
completion
-- Return on invested capital is forecast to cover the Group's
weighted average cost of capital by the end of 2022
-- Breedon's pro forma net debt is expected to be approximately
2.4x Underlying EBITDA (2.2x on a covenant basis) at completion and
to reduce below 1.0x during 2022
-- Completion is expected in the second quarter of 2020, subject
to completion of a TUPE consultation process
Note: Financial information presented throughout this
announcement has been prepared on a post-IFRS 16 basis.
(1) Subject to completion adjustments.
2 This should not be construed as a profit forecast and should
therefore not be interpreted to mean that the future earnings per
share or cash flows of the enlarged Group will necessarily be
greater than the historical published earnings per share or cash
flows of the Breedon Group.
3 Free cash flow (FCF) per share is defined as cash from
operations less dividends from associates, net capex, interest and
tax, divided by the undiluted weighted average number of shares in
issue.
Pat Ward, Breedon's Group Chief Executive, commented:
"This is a unique opportunity to extend our national network
through a single value-enhancing transaction, substantially
increasing our footprint in several regions of Great Britain where
we are currently underrepresented and adding approximately 170
million tonnes of mineral reserves and resources. It also delivers
a step-change in the development of our national asphalt
strategy.
"There is potential to drive significant performance
improvements across these new assets and they will also strengthen
our platform for further organic growth and bolt-on
acquisitions.
"In addition to the cost synergies we anticipate, we also expect
the deal to be accretive to both earnings and free cash flow in the
first full year, with a positive ongoing impact on the cash
generation of the enlarged Group."
- ends -
Information on Breedon Group
Breedon Group plc is a leading construction materials group in
Great Britain and Ireland. It operates two cement plants and an
extensive network of quarries, asphalt plants and ready-mixed
concrete plants, together with slate production, concrete and clay
products manufacturing, contract surfacing and highway maintenance
operations. Following the acquisition of CEMEX's UK Assets the
Group will employ over 3,600 people and will have more than 1
billion tonnes of mineral reserves and resources. The Group's
strategy is to continue growing through organic improvement and the
acquisition of businesses in the heavyside construction materials
market.
The information contained within this announcement is deemed by
the Group to constitute inside information under the Market Abuse
Regulations (EU) No. 596/2014.
Enquiries:
Breedon Group plc
Pat Ward, Group Chief Executive
Rob Wood, Group Finance Director
Stephen Jacobs, Group Head of Communications 01332 694010
Moelis & Company (Financial Adviser to Breedon)
Mark Aedy 07831 764592
Liam Beere
Rich Newman 020 7634 3500
Cenkos Securities (NOMAD and Joint Broker to
Breedon)
Max Hartley
Harry Hargreaves 020 7397 8900
Numis Securities (Joint Broker to Breedon)
Ben Stoop
Heraclis Economides 020 7260 1000
Teneo (Public Relations Adviser to Breedon)
Matt Denham
Rachel Miller 020 7420 3180
1. Introduction
Breedon announces that it has entered into a conditional
agreement with CEMEX to acquire certain assets and operations in
the United Kingdom for GBP155 million in cash together with the
assumption of GBP23 million of lease liabilities. The combination
of Breedon's and CEMEX's UK Assets will further enhance Breedon's
position as a leading construction materials group in Great Britain
and Ireland. The Acquisition is consistent with Breedon's strategy
of acquiring earnings-enhancing aggregates-related businesses with
strong potential for performance improvements and synergy
benefits.
2. Information on CEMEX's UK Assets
CEMEX's UK Assets encompass approximately 100 active operations
across six divisions located in Scotland, Wales, North-East
England, Norfolk, the East Midlands, and Yorkshire. CEMEX's UK
Assets employ over 650 people and have approximately 170 million
tonnes of mineral reserves and resources.
In the year ended 31 December 2018, CEMEX's UK Assets sold 6.5
million tonnes of aggregates, 0.7 million tonnes of asphalt and 0.6
million cubic metres of ready-mixed concrete. In the same period,
CEMEX's UK Assets generated revenue of GBP178 million, EBITDA of
GBP23 million and EBIT of GBP11 million. As at 31 December 2018,
the value of the assets being acquired was GBP182 million.
3. Strategic rationale for the Acquisition
Quality portfolio of assets
The acquisition of a collection of best-in-class assets
significantly extends the Group's national network via a single
transaction, strengthening Breedon's footprint in six key regions
and adding approximately 170 million tonnes of mineral reserves and
resources, bringing the enlarged Group's total mineral reserves and
resources to more than 1 billion tonnes. A number of greenfield
sites are included as part of the acquisition and offer further
expansion potential.
Significant value creation potential
The Acquisition offers significant potential for value creation,
given the high-quality assets being acquired at an attractive
valuation and the significant EBITDA upside potential.
Breedon's management will also be able to leverage Breedon's
existing network and expects to achieve annual net pre-tax cost
synergies of approximately GBP2 million by the third full year
following completion. One-off integration costs to achieve these
savings are expected to be approximately GBP1 million.
Increased scale and enhanced market position
The Acquisition further enhances Breedon's position as a leading
independent construction materials group in Great Britain and
Ireland and substantially expands the Group's asphalt network,
whilst increasing its complementary building products and
contracting services businesses.
Further consolidation of Great Britain's heavyside construction
materials sector
Breedon's acquisition of CEMEX's UK Assets enables the Group to
bolt on assets in six regions of Great Britain and, in line with
Breedon's strategy, further consolidates the heavyside construction
materials industry. With the smaller end of the sector remaining
highly fragmented, there remain further consolidation opportunities
for the enlarged Group in the future.
4. Key terms of the Acquisition
Under the terms of the Business Purchase Agreement ("the BPA")
relating to the Acquisition, Breedon Southern Limited, a
wholly-owned subsidiary of Breedon, will acquire CEMEX's UK Assets
for a total consideration of GBP178 million, including the
assumption of GBP23 million of lease liabilities. The cash
consideration of GBP155 million will be payable to the seller on
completion.(1) Completion is conditional on completion of a TUPE
consultation process and is expected to take place in the second
quarter of 2020.
As would be expected for a transaction of this nature, Breedon
will be notifying the transaction to the UK Competition and Markets
Authority ("CMA") for clearance. However, Breedon notes that
completion is not conditional on conclusion of the CMA process.
The BPA also contains the customary warranties, covenants,
undertakings and conditions attached to a transaction of this
nature.
5. Financing for the Acquisition
The cash consideration will be financed by existing GBP350
million revolving credit facility and drawdown of GBP80 million
through exercise of the accordion option agreed at the time of the
Group's most recent refinancing.
6. Financial effects of the Acquisition
The Acquisition is expected to be accretive to Breedon's
Underlying EPS and FCF per share(2,3) in the first full year
following completion. The Acquisition is also forecast to deliver a
return on invested capital which covers the Group's cost of capital
by the end of 2022.
Breedon's pro forma net debt is expected to be approximately
2.4x Underlying EBITDA (2.2x on a covenant basis) at completion. It
is anticipated that leverage will reduce below 1.0x during
2022.
The enlarged Group's strong balance sheet and expected increased
future cash flow will provide it with the financial flexibility to
pursue further bolt-on acquisitions and growth opportunities.
7. Employees
Breedon recognises the significant talent and experience to be
found among CEMEX's employees, who are expected to transfer to
Breedon to support the ongoing growth and development of the
business under Breedon's ownership.
8. Strategy of the enlarged Group
The strategy of the enlarged Group will remain consistent with
Breedon's current strategy of pursuing a well-planned combination
of organic growth and continuing consolidation of the heavyside
construction materials industry in Great Britain and Ireland.
(1) Subject to completion adjustments.
2 This should not be construed as a profit forecast and should
therefore not be interpreted to mean that the future earnings per
share or cash flows of the enlarged Group will necessarily be
greater than the historical published earnings per share or cash
flows of the Breedon Group.
3 Free cash flow (FCF) per share is defined as cash from
operations less dividends from associates, net capex, interest and
tax, divided by the undiluted weighted average number of shares in
issue.
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END
ACQGZGGMLNZGGZM
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