BREE Breedon Group Plc

6 March 2024

BREEDON GROUP PLC

Annual results 2023

 

Record Revenue and Underlying EBIT; ahead of upgraded expectations

Dividend payout significantly increased

 

Breedon Group plc (Breedon or the Group), a leading vertically-integrated construction materials group in Great Britain and Ireland, announces audited annual results for the year ended 31 December 2023.

	Statutory highlights					Underlying1 highlights
£m except where stated	2023	2022	% change				2023	2022	% change	% LFL2
Revenue	1,487.5	1,396.3	7%				1,487.5	1,396.3	7%	4%
EBIT3	145.7	148.0	(2)%				156.2	155.0	1%	(1)%
EBIT3 margin	9.8%	10.6%	(80)bps				10.5%	11.1%	(60)bps
Profit Before Tax	134.4	135.8	(1)%				144.9	142.8	1%
Basic EPS4	31.1p	33.2p	(6)%				34.0p	35.4p	(4)%
Dividend per share							13.5p	10.5p	29%
Net Debt5							169.9	197.7	(14)%
Covenant Leverage6							0.5x	0.7x	(0.2)x
FCF conversion7							39%	29%	10ppt
ROIC8							9.9%	10.8%	(90)bps

 

 

FINANCIAL HIGHLIGHTS

 

Disciplined execution of our sustainable growth strategy delivered high-quality earnings

·      Full year results ahead of upgraded expectations⁹

·      Record revenue increased 7%; pricing contributed 9ppt, offset by 2ppt volume reduction reflecting challenging macroeconomic conditions

·      Record Underlying EBIT due to disciplined focus on cost recovery and self-help measures

Strengthened financial position underpins strategic flexibility

·      Balanced financial position maintained; Covenant Leverage reduced to 0.5x (2022: 0.7x), net capital expenditure of £103m (2022: £102m) supporting further investment for growth

·      Working capital outflow as forecast; good control of inventories and strong cash collection

·      Post-tax ROIC broadly in-line with target; impacted by increased corporation tax rates

Full-year dividend significantly increased by 29% to 13.5p;

·      Payout ratio now at target of 40% (2022: 30%); total cash returned to shareholders in 2023 through dividends increased to £37.3m (2022: £30.5m)

·      Increased payout delivers on our commitment to return capital to shareholders, reflects the health of our balance sheet, confidence in our cash generation and ability to deliver our strategy

 

OPERATING HIGHLIGHTS

 

Resilient performance in tough markets, delivering excellent service to our customers

·      GB revenue increased 6%; solidified our robust market position, delivered excellent customer service, completed two bolt-on transactions and strengthened our airfield surfacing capability

·      Ireland revenue increased 4%; market conditions improving during the year, we completed an important bolt-on acquisition, increased our mineral reserves and grew our aggregate and asphalt volumes

·      Cement delivered another record year, increasing revenue 10%; robust pricing, diversified end-market exposure, market-leading quality and reliability drove a strong performance

 

STRATEGIC HIGHLIGHTS

 

Sustainability gaining momentum

·      We kept our colleagues and contractors safer on our sites

·      Group-wide net zero targets submitted to Science Based Targets initiative (SBTi) for formal validation

·      First CDP rating secured; Climate Change achieved B rating, Water Security received C rating

·      Increased sales of lower clinker content cement and industry-leading levels of alternative fuel substitution achieved

·      Launch of the landmark Peak Cluster carbon capture and storage project hosted at Hope

Delivering growth through optimisation and expansion

·      Tailored operational and commercial efficiency programmes implemented

·      Mineral reserves and resources replenished, maintaining valuable asset base at 1bn tonnes

·      Completed three earnings enhancing transactions with a combined enterprise value of £22m

Listing on the Main Market of the London Stock Exchange and entry to the FTSE 250 index

·      Listing moved to the Main Market and entry to a series of UK FTSE indices

Earnings enhancing acquisition of BMC Enterprises Inc.; launching Breedon's scalable third platform

·      Announcing our entry to the US through the acquisition of BMC Enterprises Inc. (BMC) for US$300 million - see separate announcement issued today www.breedongroup.com/investors

 

CURRENT TRADING AND OUTLOOK

Resilient model, strategically well-positioned

·      The near-term macroeconomic and geopolitical landscape remains uncertain

·      Infrastructure and housing end-markets are forecast to return to growth in the medium-term

·      Our proven strategy offers substantial optionality and multiple routes to growth, underpinned by our healthy balance sheet, diversified funding and thoughtful approach to capital allocation

·      Expect BMC to be earnings enhancing in the first full year of ownership

·      Post-acquisition Pro Forma Covenant Leverage for the Group of c.1.4x; enabling flexibility for dividends and future bolt-on acquisitions across each of our platforms

Rob Wood, Chief Executive Officer, commented:

"The record results we delivered in 2023 are a real accomplishment and something I am extremely proud of. The challenging trading conditions our team faced required agile and bold responses which they took with discipline and determination. As a result we kept our workforce safe and well, reinforced our market positions and were recognised by our clients for the quality of our products and services. For this I sincerely thank the whole team.

"Breedon has proved itself to be dependable and consistent, regardless of the short-term headwinds. Although the near-term outlook remains uncertain, when I take stock I am reassured. The markets we serve, particularly infrastructure and housing, are supported by long-term structural deficits with spending ambitions that are upheld by cross-party government support in the UK and Ireland, where I am further encouraged by the recent progress in Stormont. The mineral of which we are stewards is hundreds of millions of years old and securing additional reserves requires careful planning and committed local engagement, something we excel at. We occupy strong and growing market positions and operate a valuable portfolio of integrated assets, delivering essential construction materials to customers who trust us to provide an excellent service.

"We made further progress on our strategic growth priorities in 2023, our vertical model is maturing and provides us with a strong platform for our future growth. Today I am delighted to announce the acquisition of BMC. This transaction will give us a platform that is well-placed to grow in the highly-fragmented US construction market, is culturally aligned with Breedon and has a familiar performance track record. We are excited for what this new chapter will bring to the Group and we look forward to welcoming the BMC team to the Breedon family."

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 UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended).

 

Notes:

1.     Underlying results are stated before acquisition-related expenses, property gains and losses, AIM to Main Market costs, amortisation of acquisition intangibles and related tax items. References to an Underlying profit measure throughout this announcement are defined on this basis.

2.     Like-for-like reflects reported values adjusted for the impact of acquisitions and disposals.

3.     Earnings before interest and tax, which equates to profit from operations.

4.     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 £0.7m (2022: £1.1m).

5.     Net Debt including IFRS 16 lease liabilities.

6.     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.

7.     FCF conversion: Free Cash Flow relative to Underlying EBITDA.

8.     ROIC: post-tax return on average invested capital.

9.   Information for investors, including analyst consensus estimates, can be found on the Group's website at www.breedongroup.com/investors

 

RESULTS PRESENTATION

Breedon will host a results presentation for analysts and investors at 08:30am today at the offices of Numis, 45 Gresham Street, London EC2V 7BF, 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 Full Year Results 2023
Start Time/Date:	08:30 Wednesday, 6 March 2024 - please join the event 5-10 minutes prior to scheduled start time. When prompted, provide the event title
Confirmation Code:	Breedon Results
United Kingdom, Toll-free:	0808 109 0700
United Kingdom, Local:	+44 (0) 33 0551 0200

 

ENQUIRIES
Breedon Group plc	+44 (0) 1332 694010
Rob Wood, Chief Executive Officer James Brotherton, Chief Financial Officer
Louise Turner-Smith, Head of Investor Relations	+44 (0) 7860 911909
MHP (Public relations adviser)	+44 (0) 7595 461231
Reg Hoare, Rachel Farrington, Charles Hirst	breedon@mhpgroup.com

Breedon Group plc, a leading vertically-integrated construction materials group in Great Britain and Ireland, delivers essential products to the construction sector. Breedon holds 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 3,900 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. Breedon shares (BREE) are traded on the Main Market of the London Stock Exchange.

 

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RECORD REVENUE AND UNDERLYING EBIT

Recent years have presented Breedon with a broad spectrum of challenges. To succeed in these markets has required a clear strategy, a strong business model and an agile team with focus and discipline. At Breedon we have worked hard to ensure we have all three. As a business, we are maturing and our move from AIM to the Main Market in 2023 is evidence of the scale and market position we have achieved in the last decade.

The strong 2023 results were delivered in tough markets and are testament to the resilience of our vertically-integrated model and sustainable growth strategy. Although our key end-markets experienced a number of short-term headwinds during the year, volume contraction was moderate and pricing remained sufficient to fully recover costs.

Infrastructure spending remained stable with major projects making steady progress. Housebuilding was impacted by the macroeconomic landscape and changes to building standards which affected the seasonality of our earnings. Nonetheless, the long-term structural growth drivers remain in place, underpinning the outlook for our key end-markets which continue to experience cross-party political support in Great Britain and Ireland.

The macroeconomic conditions which drive volumes are beyond our direct influence. Therefore, we increased our focus on carefully managing all factors within our control. In 2023, in addition to our deliberate pricing strategy, we emphasised operational and commercial excellence across the Group to maximise the value of our products and services and increase productivity.  

Consequently, we delivered results ahead of expectations⁹, growing revenue 7% to £1,487.5m (2022: £1,396.3m), or 4% on a like-for-like basis when adjusting for the three bolt-on acquisitions completed in the last year.

During the year we invested in central functions in order to support our growth ambitions and delivered record Underlying EBIT of £156.2m (2022: £155.0m). Our Underlying EBIT margin of 10.5%, which reflects the impact of operating leverage on reduced volumes, is 60bps lower than 2022, a year which benefitted materially from our forward energy hedging policy.

Two years ago we established a financial framework with a balanced suite of medium-term targets. Return on invested capital (ROIC), a post-tax measure, moderated during the year to 9.9% (2022: 10.8%, target 10%), reflecting the increase in the UK corporation tax rate. Cash generation remained healthy during the period, enabling us to invest for growth. We maintained our net capital expenditure at £103m (2022: £102m) and completed three bolt-on transactions, investing £20m during the year. As anticipated, working capital experienced an outflow of £9m, primarily due to inflation. Consequently, Free Cash Flow conversion for the year improved to 39% (2022: 29%, target 50%).

Sustaining a robust balance sheet underpins our strategic optionality as we pursue both organic and inorganic routes to growth. During the year Covenant Leverage reduced further to 0.5x (2022: 0.7x), below our medium-term target of 1x to 2x.

To reflect the confidence we have in our vertical model, the strength of our team and our market position, the Board has approved a full-year dividend of 13.5p (2022: 10.5p), a significant increase of 29%. In addition to investing for growth and maintaining sustainable leverage, we have progressed our dividend payout ratio to our target of 40% of Underlying EPS (2022: 30%).

STRATEGY REVIEW

Our team makes the most material difference

The Breedon team is entrepreneurial and adaptable, dedicated to providing our customers with best in class service. They frequently operate in harsh physical conditions, going the extra mile to ensure we deliver high-quality products to our customers on time.

2023 was one of the warmest and wettest years on record, presenting a material limitation to meeting our clients' needs. Yet regardless of this disruption, our first-class team delivered for our customers and their performance was recognised in our latest Net Promoter Score (NPS) surveys; we provided a service classified as 'extremely good' by NPS, with trust scores frequently rated as 'outstanding'.

We never take this performance for granted and continually strive to make Breedon a great place to work. During the year we awarded a pay increase of 6% to our colleagues and partnered with a leading wealth and benefits adviser to support our team through the cost of living crisis. We welcomed 70 new graduates and apprentices (2022: 60) and supported an additional 37 colleagues through further and higher education (2022: 22), receiving enhanced silver membership of The 5% Club which recognises our determination to play our part in the development of a workforce for the future.

Our commitment to our people was reflected in our 2023 colleague engagement survey which delivered its best results ever. With 76% of our colleagues taking part (2022: 75%), 80% felt engaged, an improvement of 3ppt on the prior year. Going forward we will invest further in our team and seek to grow our talent to ensure we can deliver an excellent service to our customers.

Sustain

Our Sustainability Framework has made further tangible progress, delivering some significant milestones in 2023 towards the long-term sustainability of the business.

Our highest priority remains ensuring our 3,900 colleagues and all those that attend our sites go 'Home Safe and Well' every day. In 2023 we made real progress, enhancing the cultural perceptions around our safety behaviours, encouraging reporting and sharing of learnings across the Group.

In 2023, although the lost time injury frequency rate for our colleagues and contractors increased to 3.5 per million hours worked (2022: 3.1), the severity of those injuries diminished, and the broader total injury frequency rate reduced to 17.0 (2022: 17.2). Leading indicators, such as the Visible Felt Leadership visits that we undertake to audit safety behaviour on our sites, increased 7% which should be positive for future outcomes.

In 2021 we established a roadmap to achieve net zero by 2050, setting medium and long-term targets to reduce the carbon footprint of our Cement division, the principal contributor of the Group's CO₂ emissions. In 2023 we extended our net zero plans and our Group-wide targets were submitted to the SBTi for formal validation which will take place in 2024. In 2023 we made our first submission for assessment by CDP which has since been awarded a rating of B for Climate Change and C for Water Security.

Our cement business operates with industry leading levels of alternative fuel substitution, achieving a combined rate of nearly 50% fossil fuel replacement with our modern plant in Kinnegad exceeding over 90% at times. We increased our sales of CEM II cement, a lower clinker content product, and invested further in a network of CEM II silos in GB where regulation has been modified to permit its wider use. Consequently, CEM II now comprises roughly a quarter of our cement sales, increasing by over 50% from the prior year.

Throughout 2023, we increased the proportion of concrete and asphalt sales with sustainable attributes by 3ppt to 40%. Furthermore, we launched the 'Breedon Balance' brand which promotes a broad range of products with sustainable attributes.

Through a combination of these actions we reduced our Group carbon emissions per tonne of product by 5% during 2023 while our carbon intensity by revenue reduced 15%.

Securing a sustainable future for the UK cement industry is vital if we are to achieve net zero as a country. In line with this ambition, during the year we hosted the launch of the Peak Cluster carbon capture and storage initiative, a collaborative project that aims to store over three million tonnes of carbon dioxide emissions each year by 2030, a move that will reduce UK emissions into the atmosphere from cement and lime manufacture by around 40%. This is a landmark project for the industry and for it to be successful it requires significant commitment from the UK Government.

Further detail of the progress our sustainability strategy has delivered to make a material difference to Planet, People and Places will be available upon publication of our Annual Report 2023 on Monday 18 March 2024 at www.breedongroup.com/investors.

Optimise

At Breedon each site has unique characteristics and we continually review the performance of the team and plant to ensure we produce our materials with maximum efficiency and minimum cost. In 2023, each business implemented an operational and commercial excellence programme, revisiting the entire process from quarry to customer.

Using a broad diagnostics benchmark of operational efficiency indicators and financial measures, we conducted site reviews to identify underperforming assets and bottlenecks and establish a plan for training, improvement and investment. Often a few small interventions have a material impact on productivity with rapid payback. Actions have included revisiting quarry architecture, adjusting maintenance schedules to minimise downtime and overtime, and investing in productivity enhancing equipment.

In 2022, we implemented an electronic proof of delivery system, advancing its use across the Group during 2023. By removing c.1.5 million paper tickets each year we have already saved 529 trees, reduced queries by 58% and generated a material working capital improvement with further progress planned for 2024.

Expand

We have once again delivered balanced revenue growth, supported by deliberate pricing, ongoing internal investment and strategic acquisitions.

In 2023 we replenished our strategically valuable asset base of mineral reserves and resources at one billion tonnes, which equates to around 35 years of production. We believe our diligent approach to land management and mineral planning sets us apart and we have identified further mineral planning opportunities in excess of 125 million tonnes.

Our M&A pipeline remains healthy and active with many bolt-on opportunities originating from our local presence and personal engagement with the asset owners. In 2023 we completed three earnings enhancing transactions in GB and Ireland with a combined enterprise value of £22m.

In Ireland the acquisition of Robinson Quarry Masters (Robinsons), a family-run quarrying and concrete block business, has enhanced our mineral footprint north of Belfast. In GB we acquired two downstream businesses; Broome Bros., a leading manufacturer of concrete blocks based in Doncaster, and Minster Surfacing, an award-winning regional surfacing business based in Lincoln. Each of the acquired businesses has integrated well and is performing in line with our expectations.

On 6 March 2024 we announced the acquisition of BMC for an enterprise value of c.US$300m. This is an exciting opportunity to replicate the Breedon model in the highly fragmented US construction materials market through a culturally aligned team.

OUTLOOK

The macroeconomic and geopolitical landscape remains uncertain. While the near-term outlook for our industry is finely balanced, the longer-term outlook for our main end-markets, infrastructure and housebuilding, is well supported by structural growth dynamics and we are confident we will see them return to growth in the medium-term.

As we lap the base effects of 2023, we expect volumes and pricing to stabilise. In the UK the CPA forecasts  construction output will contract by 2.1% in 2024 as stable infrastructure production is offset by ongoing weakness in housebuilding, with both sectors expected to return to growth in 2025. Euroconstruct forecasts RoI GDP growth will remain the highest in Western Europe, leading to construction output of 4.4% as significant foreign direct investment and population growth drive investment in housing and infrastructure.

The construction industry is widely recognised to be an important economic contributor, benefiting from cross-party support. Therefore, we welcome the clarity that will follow the UK general election and we are encouraged by the recent reinstatement of a governing Assembly in Northern Ireland.

Our M&A pipeline remains well populated with active discussions and, with leverage of 0.5x, our healthy balance sheet, diversified funding and thoughtful approach to capital allocation will enable us to respond swiftly when the right transactions become available. Encouragingly, 2024 has begun with the acquisition in January of Eco-Asphalt Supplies, a Merseyside asphalt supplier with strong sustainability credentials, located within the region where we service the National Highways Pavement framework.

The Breedon local model has once again proved its resilience, delivering an outstanding performance in challenging conditions and we are confident in our ability to rapidly respond to the evolving economic and political backdrop. Our growth strategy is well-established, our forward hedging policy remains in place providing cost visibility, and we expect the commercial and operational excellence reviews we implemented in 2023 will generate further productivity gains.

We expect the acquisition of BMC will be earnings enhancing in its first full year of ownership. BMC will be consolidated for fractionally less than ten months in 2024 and our Pro Forma Covenant Leverage on acquisition is c.1.4x, enabling flexibility for dividends and future bolt-on acquisitions across each of our platforms. The acquisition is an exciting opportunity that will enhance the longer-term growth profile of the Group.

 

OPERATIONAL REVIEW

Product volumes

million tonnes except where stated	2023	2022	Change %	LFL  %
Aggregates	25.7	26.3	(2)%	(4)%
Asphalt	3.8	3.8	-	-
Cement	2.1	2.2	(4)%	(4)%
Ready-mixed concrete (m3)	2.9m	3.0m	(3)%	(4)%
Note: Reported percentage movements are based on non-rounded data.

 

Our volume performance reflects the markets in which we operate, in particular the cyclical slowdown in construction activity in the UK through the course of 2023.

 

Great Britain

£m except where stated	2023	2022	Change %	LFL  %
Revenue	1,033.8	972.4	6%	3%
Underlying EBIT	86.4	86.4	-	(2)%
Underlying EBIT margin	8.4%	8.9%	(50)bps

 

The GB business successfully navigated challenging market conditions throughout the year to deliver a solid performance. Our vertical model, entrepreneurial culture and extensive local market knowledge enabled us to grow revenue 6% to £1,033.8m (2022: £972.4m). Adjusting for the acquisitions of Minster Surfacing and Broome Bros. in the first half, like-for-like revenue increased 3%.

Volumes moderated during the course of the year. Changes in housebuilding regulations in the summer caused ready-mixed concrete volumes to soften in the second half. Although infrastructure remained resilient, volumes for aggregates and asphalt were impacted by clients' budget constraints after a long period of building materials cost inflation.

Our key end-markets of infrastructure and housing are structurally under-invested while the supply of the essential heavyside building materials we provide is constrained by planning practices. Consequently, pricing remained robust with average selling prices sufficient to recover rising input costs. Underlying EBIT margin decreased by 50bps to 8.4%, principally due to product mix and the impact of reduced volumes on operating leverage.

Although a culture of continual improvement is embedded throughout the team, in 2023 we reinvigorated our self-help measures, implementing tailored programmes in our materials and surfacing operations. By closely monitoring plant efficiency and with carefully targeted investment we have been able to identify and resolve bottlenecks across our sites. We improved asset run time, reducing the need for overtime working, improving fuel consumption and reducing safety risks.

The location and age of crushing equipment is influential to the efficiency of a site. We upgraded our crushing capability at Dowlow, Leaton and Cloud Hill, enabling plant alterations and productivity gains and were able to remove contractors from the process while maintaining output.

We built out our downstream capability in 2023 further still, pulling more material through the business. We have built a strong reputation for quality and reliability in airfield surfacing leading to a four year pipeline of commercial work with strong partners, and military work for the Defence Infrastructure Organisation. During our first year delivering the National Highways Pavement Delivery framework we have secured a good portfolio of work, and the acquisition of Minster Surfacing has reinforced our regional surfacing, airfields and recycled asphalt capability.

In 2023 we continued to explore opportunities to repurpose depleted quarries and recycle materials. In select locations we are building specialist local partnerships, enabling us to capture recyclable material while taking a fee for receiving inert landfill.

We have invested further in CEM II silos ahead of the building regulation change that occurred in November and extended our ability to receive and store recycled asphalt planings.

Great Britain outlook

The macroeconomic and political backdrop remains unpredictable, leading to budget pressures and delayed project commitments. In our latest NPS survey our customers classified our service as 'extremely good' while trust scores were rated 'outstanding'. This is a consequence of the quality of our products and service and places us in a strong competitive position which we intend to reinforce through our ongoing excellence programmes.

Ireland

£m except where stated	2023	2022	Change %	LFL  %
Revenue	235.5	226.2	4%	3%
Underlying EBIT	29.0	28.3	2%	(1)%
Underlying EBIT margin	12.3%	12.5%	(20)bps

 

Our business in Ireland has a strong reputation for delivering high-quality service to loyal customers, often through frameworks and long-term contracts. We are well positioned to deliver materials to markets that benefit from significant foreign direct investment and rapid population growth while suffering structural infrastructure and housing deficits.

Market conditions varied by region and improved through the course of the year. In Northern Ireland, although significant pent-up demand exists, the absence of a governing Assembly limited the volume of tenders coming to market. Nonetheless, we won work on a number of frameworks. In RoI, tendering and pricing remained resilient; we approached completion of the Dunkettle Interchange, a three-year project in partnership with Sisk, and secured further high-quality new work.

Aggregate volumes increased 11% following the acquisition of Robinsons, asphalt volumes grew 9% due to strong downstream activity in RoI, while ready-mixed concrete volumes declined.

As a result, revenue in 2023 increased to £235.5m. On a like-for-like basis, revenue increased 3% and aggregate volumes increased 5%. We entered the year with a positive pricing tailwind which we sustained in the second half, supporting Underlying EBIT of £29.0m and a margin of 12.3%.

Our land and minerals team work closely with planning authorities to reactivate dormant quarries and extend existing sites. Since 2018 we have successfully extended our reserves and resources from 60 million tonnes to 153 million tonnes today. In 2023 through the acquisition of land adjoining three existing quarries, combined with the addition of Robinsons, we added over 50 million tonnes of mineral with nearly 40 million tonnes at various stages of planning.

Building on the re-branding to Breedon Ireland we undertook the prior year, we reviewed our Ireland growth strategy in 2023 with the intention to be a leader in every market we serve. We implemented an excellence programme promoting optimised processes and enhanced sustainability credentials. Consequently, we aligned operations within materials and surfacing under a single director respectively, dedicated to maximising efficiency across Ireland, further emphasising the pull of materials through the business.

In 2023 we signed up to the Business in the Community Ireland Low Carbon Pledge. We are exploring opportunities for solar farms on our sites, increasing our warm-mix asphalt and materials recycling capabilities, and increasing our electric vehicle fleet. We have an active M&A pipeline to increase our mineral independence, and we work closely with long-term partners on major projects to meet growing market demand.

We work closely with local authorities, national agencies such as Transport for Infrastructure Ireland, and the whole spectrum of contractors. It is increasingly evident that tenders are awarded on quality measures where we perform well. In our latest NPS report our service was classified as 'very good' while our trust score was 'outstanding'. Therefore, we are confident our Ireland business is well positioned to deliver our strategic objectives of growth and market leadership.

Ireland outlook

We deliver high quality work to repeat customers in markets with growing populations and structural housing and infrastructure deficits. RoI is forecast to remain the fastest growing region in Western Europe, driving demand for construction projects and materials. In NI, where there is significant pent-up demand, we are optimistic the recent return of the governing Assembly to Stormont will enable the budget process to be reinstated.  

Cement

£m except where stated	2023	2021	Change %
Revenue	331.2	300.7	10%
Underlying EBIT	55.2	52.1	6%
Underlying EBIT margin	16.7%	17.3%	(60)bps

 

Breedon is a prominent operator in the GB and Ireland cement markets. With Kinnegad, the most modern plant in Ireland, leading the market for fossil fuel replacement and Hope, the largest cement plant in GB, setting the pace for reliability, Breedon Cement is well positioned.

In 2023, as demand from the housebuilding and commercial sectors declined, volumes reduced 4% to 2.1 million tonnes. Pricing increased by 17% leading to an overall revenue increase of 10%.

We take a rigorous approach to plant maintenance, planning years ahead to maximise the benefit of our investment and the productivity of our plants. During the period we undertook the customary annual planned maintenance programme that enables us to sustain our exceptional reliability. Both winter and autumn programmes were completed on schedule and within budget.

Plant Mastery status, an industry recognised measure, is awarded to operations that maintain plant reliability in excess of 96% for three consecutive years and is typically associated with excellent cost and quality control and accompanied by outstanding health, safety and environmental records. In 2023 Hope sustained its Plant Mastery status for a remarkable fifth consecutive year. Kinnegad maintained its strong reliability record, a creditable outcome as the high use of alternative fuels increases the engineering complexity of the cement production process.

Our customers appreciate our consistent quality and reliability and this was recognised in our latest customer survey where our NPS result was classified as 'extremely good' while our trust measure was 'outstanding'.

Within our Sustainability Framework, Breedon has committed to achieve net zero by 2050 and we have a variety of projects under way to reduce our carbon emissions. In 2023, by maximising the use of waste derived alternative fuels which would otherwise enter landfill, we achieved a combined fossil fuel replacement rate of nearly 50% with Kinnegad utilising 79% alternative fuels, exceeding 90% at times. Kinnegad commenced construction of a 17MW solar farm while Hope is undertaking a feasibility study to examine the possibility of a small solar farm that would benefit the wider local community.

Reducing the clinker intensity of our cement with the use of low carbon supplementary cementitious materials will also contribute to reducing our carbon footprint. Approximately 60% of Kinnegad sales are now CEM II (2022: 50%), a product range with lower clinker content. In GB, building standards were modified in November 2023 to permit the wider use of CEM II. More than 10% of Hope sales are already CEM II and, as our customers incorporate the new standards into their designs, we expect this will increase still further.

Reduction of CO₂ emissions is a significant challenge for the cement industry and so we have established innovative partnerships to tackle this objective. Graphene is an extremely versatile material, known to improve the performance of low clinker factor cements. Working in collaboration with our graphene supply partners, we participated in successful field trials of graphene enhanced cement which demonstrated up to a 10% increase in compressive strength and a potential route to further reductions in carbon emissions.

As the UK cement industry works to secure a sustainable future, carbon capture and storage has a vital role to play in reaching our net zero objective. The Peak Cluster carbon capture and storage initiative was launched at our Hope plant during the year; as a key partner we now have a clear path to achieve our carbon reduction goal. The project is in its early stages, considering feasibility and design options. 

Cement outlook

Demand for cement remains resilient and we occupy a robust market position. In the UK, short-term softness in housebuilding is balanced by large ongoing infrastructure projects. In RoI, housing and infrastructure are supported by the Government's long-term development plans to accommodate a strong economy.

FINANCE REVIEW

In 2023 we delivered a further year of strong performance, advancing revenue and Underlying EBIT through robust pricing, disciplined cost management and improvements in operations.

Revenue for the year at £1,487.5m increased by 7% compared to 2022 (£1,396.3m), with pricing of 9% continuing to more than offset the impact of 2% lower volumes. As the year progressed, our markets slowed, with 11% revenue growth in the first half of the year followed by a more modest 3% in the final six months of the year. On a like-for-like basis, excluding the impact of acquisitions, revenue increased by 4% (2022: 11%).

Against this more challenging backdrop we delivered resilient earnings growth with Underlying EBIT of £156.2m up £1.2m on 2022 (£155.0m), with a strong performance from each division and after further investment into our central support functions. On a statutory basis, Group profit from operations of £145.7m reduced by £2.3m from £148.0m in 2022, primarily as a result of the costs associated with the move from AIM to the Main Market which have been presented as non-underlying.

Underlying EBIT margin of 10.5% was below the 11.1% reported in 2022, due to reduced operational gearing in a lower volume environment and the impact of our energy hedges moving back into line with market pricing, having provided a significant benefit throughout 2022. We remain confident in our medium-term ambition to generate an Underlying EBIT margin of between 12% and 15% once volume growth returns to our markets.

Impact of acquisitions and Joint ventures

Three bolt-on acquisitions completed during the year for an aggregate Enterprise Value of £22.0m and contributed £19.0m revenue and £1.8m Underlying EBIT during the period of ownership.

Our share of profit from our associate and joint ventures was lower at £2.6m (2022: £3.5m), primarily due to reductions in Scottish Government road maintenance spending impacting the performance of BEAR Scotland.

Interest

Net finance costs in the year totalled £11.3m (2022: £12.2m) and included interest on the Group's debt facilities, lease liabilities, amortisation of bank arrangement fees, and the unwinding of discounting on provisions, net of interest received from short-term cash deposits and money market funds. Net cash interest of £6.5m (2022: £9.0m) reduced in line with debt levels throughout the year. We incurred a higher non-cash charge to unwind the discount on provisions as a result of higher risk free rates in the year.

Non-underlying items

Non-underlying items in the year amounted to a pre-tax cost of £10.5m (2022: £7.0m), of which the largest item was £6.0m (2022: £4.8m) amortisation of acquired intangible assets. Other non-underlying items comprised £3.6m of AIM to Main Market costs and £0.9m of acquisition-related costs.

Tax

The Group recorded an Underlying tax charge at an effective rate of 20.4% (2022: 16.0%), which equated to a charge of £29.5m (2022: £22.9m). The year on year increase in tax charges was primarily attributable to the increase in the effective UK corporation tax rate from 19% in 2022 to 23.5% in 2023.

The statutory tax charge, calculated relative to statutory profit before tax and inclusive of deferred tax rate changes, was 21.4% or £28.8m (2022: 17.1% or £23.2m).

Alongside a further increase in the UK tax rate to 25%, which will increase the future effective tax rate of the Group from 2024, in December 2021, the OECD released model rules for a new global minimum corporate tax framework applicable to multinational enterprise groups with global revenues of over €750 million (Pillar Two rules).

The UK substantively enacted legislation implementing these Pillar Two rules on 20 June 2023 and they apply to the Group with effect from 1 January 2024.

The Group is reviewing this legislation together with developing guidance. At 1 January 2024 the impact of Pillar Two rules on the Group is limited to the Group's taxable profits generated in RoI. Based on the information currently available, the impact of the Pillar Two rules on the Group tax position is not expected to be material.

We complied effectively with our stated tax strategy, and we make a significant contribution to the economies in which we operate through taxation, either borne by the Group or collected on behalf of, and paid to the tax authorities. In 2023 the total taxes borne and collected by the Group amounted to c.£210m (2022: c.£210m).

Earnings per share

The increase in UK corporation tax rates offset the impact of earnings growth and resulted in a decrease of 4% in Underlying Basic EPS for the year to 33.8p (2022: 35.1p), while Statutory Basic EPS was 31.1 p (2022: 33.2p). Adjusted Underlying Basic EPS, calculated using Underlying earnings and adjusted to exclude the impact of the £0.7m (2022: £1.1m) charge recognised in respect of deferred tax rate changes, decreased by 4% to 34.0p (2022: 35.4p). The Group has no significant dilutive instruments, and diluted EPS measures closely tracked non-diluted measures for the year.

Return on invested capital

The increase in UK corporation tax rates and a higher average capital employed offset the impact of earnings growth, resulting in ROIC of 9.9% for 2023 (2022: 10.8%) using average invested capital. This is in line with the Group's cost of capital and sits broadly in-line with our medium-term target to deliver ROIC in excess of 10%.

Statement of financial position

Net assets at 31 December 2023 were £1,110.7m (2022: £1,043.8m). Total non-current assets of £1,397.9m (2022: £1,370.7m) increased as a result of capital investment in excess of depreciation and the acquisitions completed during 2023. Current assets were £59.8m higher than December 2022; reflecting the impact of inflation on working capital balances, higher cash holdings and purchases of UK ETS credits which are held on balance sheet in inventory.

Total liabilities increased year-on-year, with provision balances increasing to reflect increased expected costs of future restoration compared to 2022, partially offset by increases in discount rates as a result of external market movements during the year.

Impairment reviews

We completed our annual impairment review of goodwill and retain comfortable levels of headroom relative to the carrying value of our asset base.

Group restructuring, share consolidation and capital reduction

In connection with the move from AIM to the Main Market, a new holding company was incorporated during 2023, which obtained control over the Group via a court approved scheme of arrangement on 17th May 2023. This restructuring does not impact reported earnings, cash flows or net assets.

On 17 May 2023 the Group undertook a share consolidation at a ratio of five to one. Earnings and dividend per share measures have been restated to reflect this.

On 9 June 2023 the Group completed a capital reduction which increased the Company's distributable reserves by £471.1m.

Input costs and hedges

Input cost inflation had a less significant impact on our results than in 2022. Although energy (gas and electricity), fuels, bitumen and carbon credits reduced in price throughout the year, the impact of our energy hedges moving back in line with market rates added around £25m of additional cost in 2023 compared with 2022. In 2022 our hedges provided a significant degree of protection from high levels of energy inflation experienced during that year.

Our strategy is to hedge substantially all energy and carbon requirements for at least one year in advance, with further layered purchases extending into future years, to deliver near-term cost certainty. A proportion of our bitumen requirements are hedged in the short-term, typically for larger contracts where pricing is agreed up front. Remaining purchases are made at spot; the market for asphalt, in which bitumen is the primary purchased raw material, has historically responded quickly to bitumen price changes. Most other fuels are purchased at spot and passed on. For 2024, we are hedged substantially in line with our policy.

Free cash flow and conversion

Our Free Cash Flow increased by 38% year-on-year to £94.8m (2022: £68.7m) despite investing significant amounts of capital expenditure, ahead of depreciation. Net capital expenditure increased by £1.4m to £103.4m (2022: £102.0m) comprising capital investment of £106.8m offset by £3.4m of proceeds from specific asset disposals. Working capital flows reflected strong cash collection, offset by the purchase of UK ETS credits.

Free Cash Flow conversion for the year improved by 10 ppts to 39% (2022: 29%) reflecting strong working capital management and lower cash interest costs offset by a higher cash tax charge. This remains lower than our medium-term average target, principally due to our capital investment programme and the impact of increasing statutory rates of taxation. Over the past 5 years our Free Cash Flow conversion has averaged 54%.

Net Debt and borrowing facilities

At 31 December 2023, Net Debt was £169.9m (2022: £197.7m). Net Debt includes IFRS 16 lease liabilities of £48.0m (2022: £49.3m). Covenant Leverage at the year-end was 0.5x (2022: 0.7x) reflecting the resilience of the Group's balance sheet and allows significant flexibility in pursuing our sustainable growth strategy.

The Group's borrowing facilities comprise a £350m multi-currency revolving credit facility (RCF) and a £250m US Private Placement (USPP). During the year, we exercised our option to extend the RCF for a one-year period. Arrangement fees of £0.7m were capitalised in the year and will be amortised over the period of the additional borrowing. Following the exercise of the extension option, the RCF is available to the Group until June 2026.

Interest on the RCF is calculated as a margin referenced to the Group's Covenant Leverage plus the base rate applicable to the currency of borrowing. The USPP, issued in 2021, provides long-term financing at low fixed interest rates with an average fixed coupon of approximately 2%. The USPP comprises £170m sterling and £80m drawn in euro, with a maturity profile between 2028 and 2036.

Our borrowing facilities are subject to leverage and interest cover covenants which are tested half-yearly, and we remained fully compliant with all covenants during the year. The Group maintains a strong liquidity position and at 31 December 2023 had total available liquidity of over £475m comprising undrawn borrowing facilities of £350m and cash and cash equivalents of £126.9m.

Dividend

Subject to shareholder approval, we intend to pay a dividend in respect of the 2023 financial results of 13.5p, an increase of 29% from 2022 (10.5p). This delivers a payout ratio of 40% (2022: 30%) of Underlying Basic EPS, achieving our committed target payout ratio. Since starting to pay a dividend in 2021, we have declared nearly £110m of cash dividends to shareholders.

Assuming further strong financial performance and cash generation, our intention is to maintain the payout ratio at around 40% of Underlying Basic EPS. An interim dividend of 4.0p (2022: 3.5p) was paid on 10 November 2023 and, subject to shareholder approval, the remaining 9.5p (2022: 7.0p) will be paid as a final dividend on 17 May 2024.

Dividends are recorded in the financial statements of the accounting period in which they are paid. Accordingly dividend payments to Breedon Shareholders amounting to £37.3m (2022: £30.5m) have been recognised in the 2023 financial statements. Thoughtful capital allocation is core to our financial strategy, and we remain confident that our progressive dividend policy will not compromise the Group's ability to execute on our strategic objectives.

Capital allocation

Conservative and disciplined financial management and the maintenance of a strong balance sheet are at the core of our thoughtful approach to capital allocation. The Board will always seek to deploy our capital responsibly, focusing on organic investment in our business to ensure that our asset base is well invested. We will look to pursue further selective acquisitions which will accelerate our strategic development and that we are confident will create long-term value.

This conservative approach to financial management enables us to pursue capital growth for our shareholders through active development of our business, while supporting our progressive dividend policy.

RISK

The Group's principal risks in alphabetical order (by risk category) are:

Strategic	Operational
·      Acquisitions and material capital projects	·      Competition
·      Climate change	·      Failure of a critical asset
·      Markets	·      Health and safety
·      Land and mineral management	·      IT and cyber security
·      People	·      Laws, regulations and governance
Financial	·      Supply chain and input costs
·      Treasury

 

Further details of the principal risks facing the Group for the year ended 31 December 2023 are set out in the Group's Annual Report which will be made available at the Group website once published.

The Board consider that these are the risks that could impact the performance of the Group in the current financial year. The Board continues to manage these risks and to mitigate their expected impact.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards and applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards and applicable law, including FRS 101 Reduced Disclosure Framework.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of the Group's profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable, relevant, and reliable and, in respect of the parent Company financial statements only, prudent;

·      for the Group financial statements, state whether they have been prepared in accordance with UK-adopted international accounting standards;

·      for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent Company financial statements;

·      assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·      use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

In accordance with Disclosure Guidance and Transparency Rule (DTR) 4.1.16R, the financial statements will form part of the annual financial report prepared under DTR 4.1.17R and 4.1.18R. The auditor's report on these financial statements provides no assurance over whether the annual financial report has been prepared in accordance with those requirements.

Responsibility statement of the directors in respect of the annual financial report

We confirm that to the best of our knowledge:

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

·      the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

Rob Wood	James Brotherton
Chief Executive Officer	Chief Financial Officer
6 March 2024