SUSTAINABLE VALUE Breedon Aggregates Annual Report 2014 BREEDON AGGREGATES ANNUAL REPORT 2014 WE ARE THE UK’S LEADING INDEPENDENT AGGREGATES BUSINESS. OUR OPERATIONS ARE FULLY INTEGRATED – PROCESSING STONE FROM OUR QUARRIES INTO HIGH-QUALITY CONSTRUCTION MATERIALS AND RESTORING THE LAND WE USE. WE AIM TO MAXIMISE OUR RETURNS AT EACH STAGE OF OUR OPERATIONS, IN THE KNOWLEDGE THAT OUR RESOURCES ARE BOTH SCARCE AND VALUABLE. WE ACHIEVE THIS BY WORKING AS EFFICIENTLY AND COMPETITIVELY AS POSSIBLE, WHILST RESPECTING OUR CUSTOMERS, EMPLOYEES, SUPPLIERS AND LOCAL COMMUNITIES. For more information , Our Business Model p8 , Our Strategy p10 For more information visit www.breedonaggregates.com Front cover: Ollie Hunt, Plant Operator, Cloud Hill quarry. Strategic Report Governance Financial statements Additional information IN THIS REPORT STRATEGIC REPORT A review of 2014 from the 2 Breedon Aggregates at a Glance Executive Chairman and the 3 How We Are Organised Group Chief Executive 4 Our Track Record , p12–13 6 Our Markets 8 Our Business Model 10 Our Strategy 11 Key Performance Indicators 12 A Review of 2014 14 Breedon Aggregates Group 16 Breedon Aggregates England 18 Breedon Aggregates Scotland 20 Our Risks 22 Our Financial Review 25 Corporate & Social Responsibility GOVERNANCE Our focused position within Managing the risks to an evolving market our business 30 Corporate Governance 32 Directors , p6 , p20 34 Audit Committee Report 36 Directors’ Remuneration Report 39 Directors’ Report Revenue Profit before taxation 42 Statement of Directors’ Responsibilities in Respect of the Directors’ Report and the Financial Statements £269.7m £21.4m FINANCIAL STATEMENTS 2013: £224.5 million +20.1% 2013: £11.0 million +94.0% 43 Independent Auditor’s Report 44 Consolidated Income Statement 45 Consolidated Statement of Comprehensive Income 46 Consolidated Statement of Financial Position 47 Consolidated Statement Rob Wood, Group Our Corporate & Social of Changes in Equity Finance Director, Responsibility activities 48 Consolidated Statement of Cash Flows , reviews our 2014 p25–29 49 Notes to the Financial Statements financial performance , p22–24 ADDITIONAL INFORMATION 80 Notice of Annual General Meeting 82 Advisers and Company Information 83 Shareholder Information 1 BREEDON AGGREGATES ANNUAL REPORT 2014 STRATEGIC REPORT BREEDON AGGREGATES AT A GLANCE We are a fully-integrated aggregates company – the fifth largest in the UK and the leading independent business Over in the UK aggregates sector. 500m tonnes of owned or controlled mineral reserves and resources Revenue Underlying EBITDA* Underlying EBITDA margin* £269.7m £38.5m 14.3% 2013: £224.5 million +20.1% 2013: £28.3 million +36.2% 2013: 12.6% +1.7ppt Profit before taxation Underlying basic earnings per share* Net debt £21.4m 1.64p £66.3m 2013: £11.0 million +94.0% 2013: 1.12p +46.4% 2013: £54.4 million +£11.9 million * underlying results are stated before acquisitions related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items. References to an underlying profit measure throughout this Annual Report are defined on this basis. 2014: Product volumes Aggregates Asphalt Ready-mixed concrete million t million t million m3 7.7 Aggregates 6.1 The main types of aggregate are crushed rock and sand and gravel. These are used as a strengthening agent, e.g. in asphalt 1.5 and concrete. We also produce a range 1.4 of decorative aggregates sold loose or in bags, used typically in domestic 0.8 and commercial applications, e.g. driveways and architectural landscaping. Typical customers 0.6 • Large and small surfacing projects • Internal use • Consumer and special projects Sales in 2014 7.7 million tonnes 2013: 6.1 million +25.2% 2013 2014 2013 2014 2013 2014 2 Strategic Report Governance Financial statements Additional information HOW WE ARE ORGANISED We operate two fully-integrated We also have a minority shareholding in autonomous businesses in England and BEAR Scotland Limited, a road network Scotland, reflecting the localised nature management company of our markets and enabling us to provide high levels of customer service. Breedon Aggregates Scotland Group revenue Headquarters: Ethiebeaton (near Dundee) Employees: 710 Operational assets: • 38 quarries • 18 asphalt plants • 37 ready-mixed concrete plants • 2 concrete block plants England 54% • 5 regional contract surfacing operations • Traffic management services Scotland 46% company (majority share of Alba Traffic Management Limited) Breedon Aggregates England Group EBITDA Headquarters: Breedon-on-the-Hill (Derbyshire) Employees: 510 Operational assets: • 15 quarries • 9 asphalt plants • 23 ready-mixed concrete and mortar plants • 1 concrete block plant England 55% • 2 regional contract surfacing operations Scotland 45% For more information , Divisional performance review p16–19 Concrete products We manufacture a range of concrete blocks, roofing and walling products. Typical customers • Industrial, commercial, infrastructure and housing Asphalt Ready-mixed concrete • Household customers We mix aggregates with bought-in bitumen and mortars to produce a wide variety of speciality Ready-mixed concrete is made from cement, surfacing products which are used, for aggregates and water and is the most widely example, in roads, car parks and runways. used material throughout the construction sector. Mortars are generally used for laying stones and bricks (masonry mortars) and for Contracting services coating walls (rendering mortars). We undertake minor road surfacing projects and major infrastructure projects. Typical customers Typical customers • Internal and external contractors • Commercial, industrial, infrastructure • Small businesses and households and housing developers Typical customers • Homes and smaller businesses • Road network and infrastructure companies Sales in 2014 Sales in 2014 • Local authorities 0.8 million • Airport operators 1.5 million tonnes • Housebuilders 2013: 1.4 million +12.3% cubic metres 2013: 0.6 million +22.9% 3 BREEDON AGGREGATES ANNUAL REPORT 2014 STRATEGIC REPORT OUR TRACK RECORD During the last five years we have proved our ability to target and execute value-enhancing acquisitions alongside high-returning capital investment and rigorous cost control. Market capitalisation (£million) £500 £400 £300 £200 £100 £0 2010 2011 2012 2013 2014 Acquisitions and investment • Acquisition of • Acquisition of • Acquisition of • Acquisition of • Acquisition of Breedon Holdings C&G Concrete Nottingham Readymix Aggregate Industries’ Huntsman’s Quarries • Breedon Scottish operations • Acquisition of Aggregates created • Acquisition of Barr Quarries Marshalls’ quarries • Investment in Breedon Bowen joint-venture Organic growth • Planning secured • Launch of 1stMix • Major plant • Reopening of West for 12 million • Launch of Mobile replacement Deeping quarry tonne extension of Concrete Solutions programme for • Reopening of Leaton quarry acquired units Ardchronie quarry • Start of project to • Purchase of increase capacity at concrete plant at Norton Bottoms Clearwell quarry • Opening of Cannock concrete plant • Purchase of asphalt plants in Suffolk and Essex 4 Strategic Report Governance Financial statements Additional information Since the creation of Breedon Aggregates four years ago, we have grown our revenue by 87 per cent from £143.8 million to £269.7 million and our underlying EBITDA by 181 per cent from £13.7 million to £38.5 million. We have invested a total of £101.0 million in 7 acquisitions, all of which have enhanced our earnings and improved our strategic position in the UK market. Four-year performance Growth by acquisition and organically overview: Breedon was established in response to the opportunity to create a smaller, focused independent player in a market dominated by the global cement companies. Share price increased by Our strategy has been to grow both organically – by providing a first-class local service – and through acquisition, consolidating the smaller end of the heavyside building 208% materials industry. Since 31 December 2010 Underlying EBITDA components (£m), 2010-2014 Organic Acquisitions† 40.0 Growth in market capitalisation 4.6 38.5 35.0 +£390m 30.0 5.5 Since 31 December 2010 25.0 5.6 Strategic acquisitions investment 20.0 1.8 0.5 2.6 15.0 £101.0m 13.7 1.3 Since 31 December 2010 10.0 2.9 5.0 Underlying EBITDA increased from 0.0 £13.7m to 2010* 2011 2012 2013 2014 * 2010 proforma † EBITDA in respect of current and prior year acquisitions £38.5m Eight commitments to creating value for our stakeholders Proforma 2010 to actual 2014 We operate our business according to eight simple ‘Golden Rules’ which we believe Underlying EBITDA margin raised from give us our strong competitive advantage. 9.5% to 14.3% Proforma 2010 to actual 2014 1 2 3 4 Stay local Stay nimble Devolve Squeeze our Underlying (loss)/earnings per share responsibility assets increased from Easy to do Maximise business with opportunities in Allow decision- Maximise return at every site our markets and making by from every tonne (0.58p) to develop new ones regional teams of material 1.64p Actual 2010 to actual 2014 Net debt reduced from 5 6 7 8 Eliminate Keep central Don’t pay rent Deliver value underperformance overhead to Locate our offices from acquisitions £92.3m to If a plant is not a minimum in our quarries Always performing, fix it Maintain a enhance earnings £66.3m flat structure 31 December 2010 to 31 December 2014 5 BREEDON AGGREGATES ANNUAL REPORT 2014 STRATEGIC