BREEDON GROUP Interim Report 2018 SOLID PROGRESS BREEDON GROUP INTERIM REPORT 2018 01 WWW.BREEDONGROUP.COM FINANCIAL HIGHLIGHTS * Underlying results are stated before Revenue Underlying EBIT* acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items. References to an underlying profit measure throughout £378.4m £42.0m this Interim Report are defined on 30 JUNE 2017: £326.3m 30 JUNE 2017: £35.8m this basis. +16% +17% Underlying profit before taxation* Profit before taxation £37.4m £30.4m 30 JUNE 2017: 32.5m 30 JUNE 2017: £31.2m +15% -3% Underlying basic earnings per share* Net debt 1.96p £383.6m 30 JUNE 2017: 1.84p 30 JUNE 2017: £146.8m +7% • 9.3 million tonnes of aggregates • 1.6 million cubic metres of ready- sold (30 June 2017: 7.9 million mixed concrete sold (30 June tonnes) 2017: 1.7 million cubic metres) • 1.2 million tonnes of asphalt sold (30 June 2017: 0.9 million tonnes) OPERATIONAL HIGHLIGHTS • Resilient performance in • Further progress on safety: LTIFR challenging market: underlying reduced from 1.41 to 0.94 EBIT margin maintained at 11.1% • Completion of Tarmac asset swap • Continued strong cash generation on 1 July, rebalancing aggregates/ and organic investment readymix portfolio • Acquisition of Lagan Group, a • Positive outlook in Ireland key strategic step outside GB; offsetting continued short-term integration progressing well challenges of GB market • Two bolt-on acquisitions • Remain confident of meeting completed in England 2018 market expectations and Scotland Cover photo: Stuart Hopley, Area Operations Manager, Leaton BREEDON GROUP INTERIM REPORT 2018 WWW.BREEDONGROUP.COM 02 Financial Highlights 01 INTRODUCTION Operational Highlights 01 Introduction 02 Breedon Group Overview 03 Business Review 05 Condensed Consolidated Income Statement 09 We are a leading construction Condensed Consolidated Statement of Comprehensive Income 10 materials group in the UK and Condensed Consolidated Ireland. Our operations are Statement of Financial Position 11 Condensed Consolidated fully integrated, supplying Statement of Changes in Equity 12 Condensed Consolidated cement, aggregates, asphalt, Statement of Cash Flows 13 Notes to the Condensed Consolidated ready-mixed concrete and Interim Financial Statements 14 mortar, concrete and clay Advisers and Company Information 20 products and slate. We also provide contract surfacing and highway maintenance services. The group employs nearly 3,000 people and has nearly 900 million tonnes of mineral reserves and resources. Our strategy is to continue growing through organic improvement and acquisition of businesses in the heavyside construction materials market. For more information visit Minffordd asphalt plant near Porthmadog, acquired as part of our asset swap www.breedongroup.com with Tarmac. BREEDON GROUP INTERIM REPORT 2018 03 WWW.BREEDONGROUP.COM BREEDON GROUP OVERVIEW Breedon is a business of significant scale, with operations extending from Stornoway in the north of Scotland to Dartford in Kent and throughout Northern Ireland and the Republic of Ireland. 1 1 3 1 4 3 3 2 2 2 Quarries Asphalt plants Ready-mixed concrete and mortar plants 1 Breedon Northern 43 1 Breedon Northern 16 1 Breedon Northern 56 2 Breedon Southern 25 2 Breedon Southern 10 2 Breedon Southern 101 3 Breedon Cement 5 3 Lagan Group 11 3 Lagan Group 9 4 Lagan Group 11 1 1 1 4 3 2 2 3 3 2 Concrete and clay Contract surfacing & Colleagues (approx.)* products plants highway maintenance operations 1 Breedon Northern 3 1 Breedon Northern 1 1 Breedon Northern 900 2 Breedon Southern 1 2 Breedon Southern 1 2 Breedon Southern 1000 3 Lagan Group 5 3 Lagan Group 2 3 Breedon Cement 240 4 Lagan Group 750 * Excludes central administration All figures correct as at 30 June 2018. BREEDON GROUP INTERIM REPORT 2018 WWW.BREEDONGROUP.COM 04 2 84 37 166 4 6 cement active quarries asphalt plants ready-mixed contract import/export manufacturing concrete and surfacing terminals plants mortar plants businesses 11 7 2 7 1 1 landfill & rail-fed depots slate production concrete clay brick plant tipping sites facilities products plants products plant 1 4 HEBRIDES HIGHLANDS Peterhead Inverness 2 Aviemore 3 Aberdeen NORTH-EAST SCOTLAND FIFE & Dundee TAYSIDE Oban Stirling Edinburgh Revenue by division † Glasgow ARGYLL, CENTRAL BELT, SOUTH SCOTLAND & CUMBRIA £m Londonderry Dumfries Carlisle Newcastle 1 Breedon Northern 103.3 Donegal Belfast NORTH-EAST ENGLAND Hartlepool NORTHERN Keswick 2 Breedon Southern 186.0 IRELAND Enniskillen Kendal Armagh Northallerton Scarborough 3 Breedon Cement 68.9 Ingleton Dundalk Morecambe NORTH Bridlington ENGLAND York 4 Lagan Group 54.6 Harrogate Hull Blackburn Leeds † Excludes eliminations Galway Dublin Manchester REPUBLIC OF IRELAND Lincoln 1 Chester Wrexham Derby WEST ENGLAND Nottingham Limerick AND NORTH WALES EAST 4 ENGLAND Shrewsbury Leicester Norwich Waterford Birmingham Aberystwyth CENTRAL ENGLAND Cork Ipswich 2 Worcester Northampton Cambridge Swansea Gloucester Oxford SOUTH Car ENGLAND London 3 Bristol BREEDON NORTHERN Southampton BREEDON SOUTHERN Underlying EBIT NORTHERN IRELAND by division ‡ REPUBLIC OF IRELAND £m 1 Breedon Northern 9.9 BREEDON CEMENT 2 Breedon Southern 19.4 3 Breedon Cement 10.0 4 Lagan Group 7.6 ‡ Excludes central administration and share of profit of associate and joint ventures Information correct as at 1 July 2018 (post Tarmac asset swap) BREEDON GROUP INTERIM REPORT 2018 05 WWW.BREEDONGROUP.COM BUSINESS REVIEW GROUP RESULTS reedon Group, a leading construction materials group in the UK and Ireland, today announces its unaudited results for the six months to B30 June 2018. This was one of the busiest periods in the Group’s history, with four acquisitions completed by 1 July including our first outside Great Britain (“GB”), coupled with continued organic investment Peter Tom CBE Pat Ward in a number of key projects. We had Executive Chairman Group Chief Executive anticipated a challenging 2018 and so it proved in the first half, with testing trading conditions exacerbated by the FINANCIAL HIGHLIGHTS severe weather in the first quarter and Six months Six months rising input costs throughout the period. ended ended 30 June 30 June Despite these headwinds, we delivered a 2018 2017 resilient performance. £m £m Variance Revenue Our aggregates and asphalt volumes were both ahead, by 17 per cent Breedon Northern 103.3 97.9 +6% (excluding acquisitions, 7 per cent) and Breedon Southern 186.0 190.6 -2% 28 per cent (excluding acquisitions, 2 per Breedon Cement 68.9 71.5 -4% cent) respectively. This contrasts with GB market volume declines of 1.3 per cent Lagan Group 54.6 – – and 1.7 per cent respectively, according Eliminations (34.4) (33.7) +2% to the Mineral Products Association. Total 378.4 326.3 +16% The ready-mixed concrete market was Underlying EBIT particularly difficult and our volumes softened by 7 per cent (excluding Breedon Northern 9.9 10.7 -7% acquisitions, 10 per cent) compared Breedon Southern 19.4 22.7 -15% with a market decline of 6 per cent. Breedon Cement 10.0 9.3 +8% In accordance with the Cement Market Data Order 2016, cement volumes are Lagan Group 7.6 – – not disclosed. Central administration (5.8) (8.1) -28% Share of associate and Group revenue for the half-year was joint ventures 0.9 1.2 -25% £378.4 million (2017: £326.3 million) and underlying earnings before interest and Total 42.0 35.8 +17% tax (“EBIT”) increased by 17 per cent Underlying EBIT margin 11.1% 11.0% to £42.0 million (2017: £35.8 million). Excluding acquisitions, both are marginally down against the prior year. The underlying EBIT margin, our principal performance measure, was maintained at 11.1% in spite of steadily increasing input costs. As in the prior year, the half- year margin is impacted by the phasing of planned cement kiln shutdowns. Whilst the acquisition of Lagan Group (Holdings) Limited (“Lagan Group”) will as expected have a dilutive effect in the short term, we continue to target a 15 per cent underlying EBIT margin for the Group. BREEDON GROUP INTERIM REPORT 2018 WWW.BREEDONGROUP.COM 06 Notwithstanding the seasonality of the quarry in Derbyshire. These investments business, the Group continued to be (coupled with the recent acquisition strongly cash-generative. from Tarmac of a plant at Minffordd near Porthmadog in Wales) have added OPERATING PERFORMANCE further to our GB asphalt capacity. Breedon Northern’s results reflected the subdued markets in which it was ACQUISITION OF LAGAN GROUP We sustained operating. Nevertheless, we supplied On 20 April we completed the several new and existing projects, £455 million acquisition of Lagan Group, investment in including the final phase of the Aberdeen funded by a combination of debt and operational Western Peripheral Route, the new an equity placing. We were particularly £2.2 billion Woodsmith potash mine in pleased that the £170 million equity efficiency Yorkshire and the £50 million expansion placing was significantly oversubscribed, of Peterhead Harbour. We opened a as was the accompanying €5 million improvements strategically valuable new hard rock open offer, which we believe quarry at North Drumboy near Glasgow demonstrated our investors’ confidence and capacity and the sand & gravel quarry we opened in the potential of this important strategic late last year at Low Harperley near step for the Group. expansion” Durham came into full production, Lagan Group gives us immediate scale in enabling us to internalise the supply of a new and growing market outside GB, more material to our concrete plants in with a new modern cement plant and the region. complementary downstream businesses Breedon Southern also traded in weaker with strong development potential. markets, with volumes under pressure, The attractions of the acquisition particularly in ready-mixed concrete. were underlined by Lagan Group’s The picture, as always, varied across performance in the first 10 weeks under our regions, with busier markets in our ownership, which exceeded our the Midlands contrasting with muted expectations, as it benefited from more demand in London and the South-East.