Acquisition of Hope Construction Materials Creating the UK’S Largest Independent Building Materials Group 18 NOVEMBER 2015
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Acquisition of Hope Construction Materials Creating the UK’s largest independent building materials group 18 NOVEMBER 2015 BREEDON AGGREGATES 1 ACQUISITION OF HOPE CONSTRUCTION MATERIALS FOR £336 MILLION1 Creating the UK’s largest independent vertically-integrated building materials group • Hope is a leading independent producer of cement, aggregates and concrete • £202 million cash consideration and £134 million share consideration • Acquisition on a cash- and debt-free basis Strong strategic rationale for combination • Entry into cement market through one of the UK’s largest cement plants • Extended and highly complementary geographic footprint • Stronger platform for further bolt-on acquisitions and future growth Financially compelling and value-creating transaction • Double-digit underlying earnings accretion expected in first full year post-acquisition2 • Expected annual synergies of ~£10 million from operational improvements • A transformational deal, potentially nearly doubling Breedon’s annual underlying EBITDA 1 Subject to completion adjustments 2 This should not be construed as a profit forecast and should therefore not be interpreted to mean that earnings per share in any future financial period will necessarily match or be greater than those for the relevant preceding financial period BREEDON AGGREGATES 2 BREEDON AGGREGATES IS THE UK’S LEADING INDEPENDENT AGGREGATES BUSINESS Reserves and resources A fully-integrated aggregates company Over 500m tonnes Over 1,200 employees of owned or controlled mineral reserves and resources Operational assets: • 53 quarries • 26 asphalt plants Revenue • 59 ready-mixed concrete and £305.0m mortar plants • 3 concrete block plants for the 12 months ended 30 June 2015 • 8 regional contract surfacing operations • 1 traffic management services Underlying EBITDA1 company £48.1m for the 12 months ended 30 June 2015 Underlying EBITDA1 margin 15.8% for the 12 months ended 30 June 2015 1 EBITDA before acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items BREEDON AGGREGATES 3 ACQUISITION IS CONSISTENT WITH OUR STRATEGY OF ORGANIC GROWTH AND SECTOR CONSOLIDATION Underlying EBITDA components (£m) Acquisitions1 Organic 4.6 38.5 5.5 5.6 1.8 0.5 13.7 2.6 1.3 2.9 2 2010 2011 2012 2013 2014 Organic Acquisitions Acquisition of Acquisition of Nottingham Acquisition of Acquisition of C&G Concrete Readymix Marshalls’ quarries Huntsmans quarries Acquisition of Acquisition of Aggregate Industries’ Barr quarries Scottish operations Investment in Breedon Bowen joint venture Breedon Aggregates created Extension of Leaton quarry Launch of Major plant replacement Reopening of Mobile Concrete Solutions programme West Deeping quarry Launch of 1stMix Increased capacity at Reopening of Norton Bottoms Ardchronie quarry Purchase of concrete plant at Clearwell quarry The acquisition of Hope is our largest transaction to date Opening of concrete plant at Cannock Purchase of asphalt plants in 1 EBITDA in respect of current and prior-year acquisitions Suffolk and Essex 2 Pro forma BREEDON AGGREGATES 4 HOPE IS A LEADING INDEPENDENT CONSTRUCTION MATERIALS SUPPLIER Founded in January 2013 following Concrete Aggregates the divestment of assets from Lafarge Aggregates depot Aggregates wharf and Tarmac Cement Network Dowlow UK national footprint of over 160 Regional offices operational sites • 1 cement plant 1 • 152 concrete plants Coxhoe 4 cement depots and 4 aggregates • Dewsbury 2 depots – all rail-linked Ashbury Holme Hall Dowlow Hope • 5 aggregates quarries and 1 Dowlow aggregates wharf Walsall Willington Black Cat Potton 3 ~930 employees across the UK Dagenham Briton Ferry Theale 4 ~250mt total reserves and resources Southampton 1 Includes co-located concrete sites and eight sites presently mothballed (as at October 2015) 2 Includes Dagenham cement depot and Theale & Southampton aggregates depots currently under construction 3 As at 31 July 2015 4 Calculated in accordance with 2013 PERC Code BREEDON AGGREGATES 5 HOPE IS THE UK’S ONLY INDEPENDENT CEMENT PRODUCER Well-invested cement plant with long- Product portfolio (2014) life reserves supporting long-term production 24% 27% • At least 20 years of limestone reserves One of the largest cement plants by 76% 73% capacity in UK • 1.4mt production capacity p.a. Type Mode of Transport 12 Twin-kilns provide greater operational CEM I CEM II Rail Road flexibility Hope works cement plant National reach with extensive rail capacity “We note that the Hope plant is among those with the lowest unit production costs, and that its rail- Strategically located cement depots connected depots contribute to relatively low distribution costs.” with 1.0mt+ throughput capacity Competition Commission, 14 January 2014 Strong operational management team 1 Portland cement 2 Portland cement combined with GGBS (ground granulated blast furnace slag) or PFA (pulverised fuel ash) BREEDON AGGREGATES 6 HOPE IS THE UK’S LEADING INDEPENDENT CONCRETE PRODUCER 152 concrete plants nationwide1 • Total capacity of 3m+ m3 p.a. Ensures a stable source of demand for cement and aggregates Integrated platform provides direct routes to end-markets Regional sales volumes (2014) 24% Dowlow South 43% Central North 33% 2.2m m3 of concrete sold in 2014 1 Includes co-located concrete sites and eight sites presently mothballed (as at October 2015) BREEDON AGGREGATES 7 HOPE IS ONE OF THE UK’S LEADING INDEPENDENT AGGREGATES PRODUCERS Crushed Rock Aggregates Quarry Sand & Gravel Aggregates Quarry 5 quarries, well located to serve key River Sand Aggregates Wharf Aggregates Depot markets • ~140mt of reserves and resources 4.7mt of aggregates sold in 2014 Coxhoe Ashbury Holme Hall Limestone, sand & gravel and Dowlow • Dowlow Walsall recycled aggregates Willington/Black Cat Potton Briton Ferry Theale1 Nationwide network of regional depots Southampton1 Potential for rail-linked Dowlow to become a super-quarry Regional volumes (2014) Volumes breakdown (2014) 11% 27% 20% 70% 73% 1 Theale & Southampton aggregates depots currently under construction Central North South External Internal BREEDON AGGREGATES 8 SOLID TRACK RECORD OF GROWTH AND PROFITABILITY Volumes1 ‘000 t ‘000 t ‘000 m3 Strong volume growth +22% +10% +6% across main segments 4,654 4,733 2,313 2,228 1,554 1,613 3,824 2,108 1,410 Positive trading momentum in 2014 and LTM 2 2 2 2013A 2014A LTM 2013A 2014A LTM 2013A 2014A LTM Cement Aggregates Concrete Operational performance Financials £m EBITDA continues to improve +11% 9% 12% 13% Margin 273 286 +46% 246 37 34 Expected annual synergies of ~£10 million 23 2013A 2014A LTM2 2013A 2014A LTM2 Revenue Underlying EBITDA 1 2014 and LTM cement volumes include cement volumes purchased & sales of GGBS 2 For the 12 months ended 30 June 2015 (unaudited) BREEDON AGGREGATES 9 MARKET OUTLOOK IS POSITIVE Output and volume forecasts (2016) Construction Cement Aggregates Concrete Asphalt output volumes volumes volumes volumes +4% +3-5% +3-5% +3-5% +3-5% UK construction output £bn (2013-2019) 5% CAGR 145 151 130 135 140 113 124 2013 2014 2015F 2016F 2017F 2018F 2019F Source Construction Products Association (CPA) and Minerals Products Association (MPA) BREEDON AGGREGATES 10 COMPELLING STRATEGIC RATIONALE FOR A COMBINATION Strengthened market Combines the UK’s two leading independent construction position materials companies Further consolidates the smaller end of the heavyside building Market consolidation materials industry, in line with our strategy Improved product Provides entry into the cement market and creates a vertically- mix integrated and better balanced business Adds the largest cement plant in the UK and a nationwide network Increased scale of concrete plants Extended UK Enhances Breedon’s UK geographic footprint, with rail-linked coverage quarry and national network of depots Operational Expected annual synergies of ~£10 million improvements Greater financial Expected increased cash flow and strong balance sheet provide capacity capacity to pursue future growth opportunities Strengthened Hope management team enhances our pool of talent and management expertise Favourable Positive outlook for the UK building materials market economic backdrop BREEDON AGGREGATES 11 ACQUISITION CREATES THE UK’S LEADING INDEPENDENT PRODUCER OF CEMENT, CONCRETE AND AGGREGATES Pro forma volumes3 35% 72% 1 58 26 211 of pro forma aggregates of pro forma concrete volumes from Hope volumes from Hope cement plant quarries asphalt plants ready-mixed concrete and mortar plants1 Pro forma revenue3 1.6mt* 12.4mt* 1.5mt* 3.0m m3* 48% of pro forma revenue from Hope 3 9 8 1 Pro forma underlying EBITDA3 concrete depots and regional contract traffic block plants wharves2 surfacing management operations services company 1 Includes co-located concrete sites and sites presently mothballed 2 Includes sites currently under construction 43% 3 For the 12 months ended 30 June 2015 (unaudited) * Pro forma sales that the Group would have reported for the year ended 31 December 2014. Cement volumes include cement volumes purchased & sales of GGBS of pro forma underlying EBITDA from Hope BREEDON AGGREGATES 12 POSITIVE FINANCIAL IMPACT LTM pro forma underlying EBITDA (£m)1 Financially compelling and value- EBITDA 16% 13% 14% creating transaction Margin 37 85 • Expected annual synergies of ~£10 million 48 • Double-digit underlying earnings accretion expected in first full year post-acquisition3 Breedon EBITDA Hope EBITDA Combined EBITDA (pre- Financed from increased bank