REG - Breedon Group PLC - Final Results
08/03/2023 07:00
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RNS Number : 2097S Breedon Group PLC 08 March 2023
8 March 2023
BREEDON GROUP PLC
Annual results 2022
Growth strategy delivers record earnings, higher returns and reduced leverage
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 2022.
Statutory highlights Underlying(1) highlights
£m 2022 2021 % change 2022 2021 % change % LFL(2)
except where stated
Revenue 1,396.3 1,232.5 13% 1,396.3 1,232.5 13% 11%
EBIT 148.0 127.4 16% 155.0 133.6 16% 15%
EBIT margin 10.6% 10.3% 11.1% 10.8% 30bps
Profit Before Tax 135.8 114.3 19% 142.8 120.5 19%
Basic EPS(3) ( ) 6.65p 4.65p 43% 7.08p 5.98p 18%
Dividend per share 2.1p 1.6p 31%
Net Debt(4) 197.7 212.5 (7)%
Covenant Leverage(5) 0.7x 0.8x (0.1)x
FCF conversion(6) 29% 59% (30)ppt
ROIC(7) 10.8% 9.5% 130bps
FINANCIAL HIGHLIGHTS
Successful implementation of our growth strategy delivers record revenue and
earnings
· Full year results ahead of expectations(8)
· Revenue increased 13%; timely implementation of our dynamic pricing
strategy contributed +20ppt, partially offset by a 10ppt volume reduction
which normalised in line with the market
· Full input cost recovery supported Underlying EBIT growth of 16%,
and margin expansion of 30bps to 11.1%
Thoughtful capital allocation has led to higher returns and a strengthened
financial position
· ROIC increased 130bps to 10.8%, ahead of our medium term target of
10%
· Strong financial position maintained, enabling investment for
growth; Covenant Leverage reduced to 0.7x (2021: 0.8x) while net capital
expenditure increased to £102m (2021: £71m)
· Working capital outflow as forecast, reflecting strong cash
collection offset by the effects of inflation and the purchase of carbon
requirements for 2023
Full year dividend increased 31% to 2.1p;
· Total cash returned to shareholders in 2022 from dividends
increased to £30.5m (2021:£8.4m) reflecting a raised payout ratio of 30%
(2021: 27%)
OPERATING HIGHLIGHTS
Each division contributed to advancing strategy, revenue and earnings
· GB revenue increased 15%; we completed three bolt-on transactions,
and our surfacing business was awarded a place on the National Highways
Pavement Delivery Framework
· Ireland tendering accelerated noticeably in the second half; we won
high-quality infrastructure contracts and successfully recovered input costs
· Cement had a record year; revenue increased 22% and operating
margin expanded 40bps to 17.3% supported by resilient end-markets, dynamic
pricing and full cost recovery
Sustainability agenda progressing
· We committed to the Science Based Targets initiative and disclosed
our first TCFD analysis
· We achieved our highest ever rate of alternative fuel substitution,
increased sales of reduced clinker content product and committed to further
exploration of the Peak Cluster carbon capture and storage project
Seeking admission to the Main Market of the London Stock Exchange
· As a reflection of our scale, maturity and growth ambitions, in the
coming months we intend to seek admission to the Premium Listing segment of
the London Stock Exchange - see separate announcement issued today
CURRENT TRADING AND OUTLOOK
Breedon has begun 2023 positively and in a strong position
· The UK economic backdrop remains uncertain, particularly with
regard to residential housebuilding
· UK Infrastructure and industrial construction end-markets are still
expected to grow in 2023, underpinned by large ongoing projects
· Breedon's Ireland operations are expected to benefit from a strong
macroeconomic backdrop, coupled with the structural need for housing and
infrastructure investment
· Our successful dynamic pricing strategy, forward hedging programme
and careful approach to cost management remain in place
· Our strong balance sheet and thoughtful approach to capital
allocation provides strategic optionality with scope for investment and
acquisition activity focused on the UK and Ireland
· Overall, the Board expectations for 2023 remain unchanged
Rob Wood, Chief Executive Officer, commented:
"2022 was another record year. Each division progressed and we made meaningful
headway on our growth strategy, expanding organically, acquiring strategically
important assets, and moving our sustainability agenda forward.
"We grew sustainably through replenishing and optimising our mineral assets,
investing in our colleague's safety and wellbeing, and reducing our carbon
footprint while maintaining a secure financial position. We have a mineral
pipeline in excess of 100 million tonnes, we achieved the highest substitution
of fossil fuels at our cement plants in our history, and we invested for
growth while still reducing our leverage.
"In recent years our local and entrepreneurial operating model has been tried
and tested, keeping our people safe while growing high-quality earnings, and
maintaining a strong balance sheet. Despite the uncertain economic and
geopolitical landscape, 2023 has begun positively and we are in a strong
position. We will continue to supply essential materials to growing
end-markets, and we remain confident in our ability to deliver."
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 domestic
law by virtue of the European Union (Withdrawal) Act 2018.
Notes:
1. Underlying results are stated before acquisition-related expenses,
redundancy and reorganisation costs, property gains and losses, 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. 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 £1.1m (2021: £17.3m).
4. Net Debt including IFRS 16 lease liabilities.
5. 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.
6. FCF conversion: Free Cash Flow relative to Underlying EBITDA.
7. ROIC: post-tax return on average invested capital.
8. Information for investors, including analyst consensus estimates, can
be found on the Group's website at www.breedongroup.com/investors
(http://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 (http://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 2022
Start Time/Date: 08:30 Wednesday, 8 March 2023 - please join the event 5-10 minutes prior to
scheduled start time. When prompted, provide the confirmation code or event
title
Confirmation Code: 6306831
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
Numis (NOMAD and joint broker) +44 (0) 20 7260 1000
Oliver Hardy (NOMAD), Ben Stoop
HSBC (Joint broker) +44 (0) 20 7991 8888
Sam McLennan, Joe Weaving
MHP (Public relations adviser) +44 (0) 20 3128 8193
Reg Hoare, Rachel Farrington, Charles Hirst breedon@mhpgroup.com
Breedon Group plc
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 3,700 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.
SUSTAINABLE GROWTH STRATEGY DELIVERED RECORD EARNINGS
During 2022, our key construction end-markets, notably infrastructure,
housebuilding and industrial, continued to benefit from long-term structural
growth drivers, enabling us to report record results once again, growing
revenue by 13% and Underlying EBIT by 16%.
Against this supportive landscape, our entrepreneurial and decentralised teams
stayed close to their customers, capitalising on their embedded position
within local markets which informed timely commercial decisions. Our dynamic
pricing strategy, complemented by our strategic hedging programme and careful
cost management, ensured full cost recovery, delivering revenue of £1,396.3m
(2021: £1,232.5m) and Underlying EBIT of £155.0m (2021: £133.6m), along
with margin expansion of 30bps to 11.1%.
Cash generation remained robust and we continued to invest for growth; we
completed three strategically significant bolt-on acquisitions and increased
our net capital expenditure to £102m (2021: £71m) as bottlenecks in the
supply chain relaxed while reducing our Covenant Leverage to 0.7x (2021:
0.8x). ROIC exceeded our medium-term target, increasing 130bps to 10.8%. As a
result of increased levels of capital investment, tax and working capital
movements, Free Cash Flow conversion for the year was 29% (2021: 59%).
The Board regularly reviews capital allocation scenarios, balancing capital
investment and M&A with reducing debt and returning cash to shareholders,
while prioritising profitable growth and ROIC. Alongside these record results,
the Board has approved a full year dividend of 2.1p (2021: 1.6p), an increase
of 31%, as we continue to implement our progressive dividend policy.
As a result of this strong and balanced financial performance, we have made
excellent progress towards the targets we set out at our Capital Markets Event
in the Autumn of 2021, growing revenue, margins and returns while maintaining
a healthy financial position and increasing dividends to shareholders.
STRATEGY REVIEW
Resilient platform for sustainable growth
During Breedon's relatively short history, a resilient platform has been built
and tested in a range of market conditions, from Brexit and the pandemic, to
surging inflation coupled with political turmoil and rising interest rates.
This foundation has been created through a consistent and well-executed
strategy, and has delivered market-leading growth and consistent cash flow.
Since our first full year of trading as Breedon in 2011, the business has
grown revenue 21% and Underlying EBIT 34% on average per annum.
Our business has created significant value and we have continued to develop
our platform through the execution of our strategy; embed a culture of
Sustainability, Optimise our assets and Expand our footprint and capability,
while maintaining a disciplined Financial Framework.
Sustain
Our sustainability framework sets out how Breedon is responding to the urgent
challenge posed by climate change and continues to gain traction alongside
increased disclosure.
We confirmed our commitment to the Science Based Targets initiative in 2022
which in due course will be followed with the release of a plan outlining the
trajectories required to achieve science-based carbon reductions following the
1.5(o)C warming pathway.
We enhanced our risk considerations in respect of the Task Force on
Climate-Related Financial Disclosures, providing a clear analysis of how
climate change impacts our risk and opportunity landscape, and undertaking our
first detailed scenario analysis which can be found in our Annual Report
2022.
We made further progress at our cement plants, achieving our highest ever
combined rate of alternative fuel substitution and biomass usage, nearing 50%
while at times exceeding 90% at Kinnegad. Our electricity requirements in 2022
were substantially all sourced through renewable contracts and we were awarded
planning permission at Kinnegad to install a solar farm with the capacity to
deliver up to 17MW, up to 20% of all the plant's energy needs. Our Hope plant
continued to engage in the pioneering HyNet carbon capture and storage
infrastructure project as a member of the Peak Cluster and we have received
planning consent to progress with the ARM project.
Our deliberate focus on health, safety and wellbeing brings together best
practice, embracing new and innovative technologies with the ambition to
become a leading company in health, safety and wellbeing. In 2022, we
maintained our strong track record, with the lost time injury frequency rate
(LTIFR) falling to 2.10 (2021: 2.19) while the lost time injury severity rate
(LTISR) halved. This was achieved by reinvigorating our Home Safe and Well
programme, increasing training and conducting nearly 40% more visible felt
leadership site visits.
With ambitious growth plans, it is critical we continue to invest in our
talent. In 2022 we enhanced our colleague communication platform, supported 93
colleagues through higher and further education programmes in collaboration
with the Universities of Derby and Newcastle, and recruited 60 new apprentices
across the business. In recognition of the rising cost of living, we made two
additional payments to salary during the year to over 3,000 of our colleagues.
These actions were recognised in our engagement survey; an unprecedented 75%
of our colleagues took part producing an engagement score of 77%, eight
percentage points higher than in 2021.
Optimise
In an industry where new reserves and plants are limited by restrictive
planning practices, we carefully manage the valuable resources we own. Every
day, our team looks for ways to improve the business and this culture of
continuous self-help ensures we are constantly improving the efficiency of our
operations and maximising the returns from our products and services.
In 2022, we implemented electronic proof of delivery across the Group,
improving our customer service, accelerating cash receipts and using less
paper. We delivered £2m of synergies as planned from the integration of the
acquired Cemex assets, and introduced an operating model in GB to optimise
quarrying efficiency and proliferate best practice.
Expand
Growth at Breedon has always been balanced between buy and build. In 2022, the
business grew organically, delivering 11% revenue growth on a like-for-like
basis and 13% overall.
Our vertically-integrated model is backed by around one billion tonnes of
mineral reserves and resources making us one of the largest heavyside building
materials suppliers in the UK and Ireland, with mineral reserves under our
stewardship equivalent to over 30 years of production. The diligent long-term
planning of our land management teams means our mineral planning pipeline is
currently in excess of 100 million tonnes.
Our downstream ready-mixed concrete, asphalt and surfacing operations are
largely self-sufficient, enabling us to pull materials through the operating
model, adding value through the process. This year, we brought together the
asphalt assets acquired from Cemex with our proven surfacing capability to win
a place on the National Highways Pavement Delivery Framework in England.
Our outstanding team has been built around an entrepreneurial culture of
empowerment and decentralisation which makes us a strong partner for our
customers, a trusted owner of assets, and contributes to our active M&A
pipeline. Many of our acquisition opportunities come to us through our local
knowledge and personal engagement with the asset owners.
In 2022, we acquired concrete supplier RT Mycock, further extending our reach
and capability. We enhanced our surfacing platform with the addition of Thomas
Bow, an East Midlands surfacing business we have worked in partnership with
since 2018. We expanded our aggregates capability with the acquisition of
Severn Sands, a family-run marine sand dredging business, bringing valuable
licences in the Bristol channel into the business. These transactions, with a
combined spend of £15.1m, were immediately accretive to earnings, and have
met or exceeded our expectations.
OUTLOOK
We enter 2023 in a strong position, supplying structurally growing end-markets
with essential materials, delivered by our outstanding team and underpinned by
a healthy financial position.
We recognise the UK economic backdrop remains uncertain, particularly with
regard to residential housebuilding. However, the end-markets we serve benefit
from long-term structural growth dynamics. The CPA continues to expect UK
infrastructure and industrial construction output will grow in 2023,
underpinned by large ongoing projects. Euroconstruct forecasts construction
output in RoI will grow 2.5% in real terms, supported by the strong
macroeconomic backdrop and structural need for housing and infrastructure
investment.
Our successful dynamic pricing strategy, forward hedging programme and careful
approach to cost management, which enabled us to fully recover input cost
increases in 2022, remain in place.
Our strategy provides multiple options for growth and our strong balance sheet
and thoughtful approach to capital allocation offers the financial flexibility
to take measured action at the right time. Our M&A pipeline remains robust
and we continue to engage with asset owners in GB and Ireland as we seek to
infill our existing capability and footprint in the near-term. Longer-term, we
continue to explore the possibility of selectively establishing a platform in
the US, a large and fragmented market that offers attractive growth prospects
in-line with our rigorous investment criteria. The cultural and regulatory
profile matches our home markets, playing to our experience and strong track
record of acquisition integration.
The Breedon model has repeatedly demonstrated its resilience, delivering
strong operational performances irrespective of the macroeconomic backdrop,
and we remain confident in our ability to deliver. Overall, the Board's
expectations for 2023 remain unchanged.
OPERATIONAL REVIEW
Product volumes
million tonnes except where stated 2022 2021 2020 2019
Aggregates 26.3 29.2 21.7 20.2
Asphalt 3.8 4.1 3.3 3.0
Cement 2.2 2.4 2.0 2.0
Ready-mixed concrete (m(3)) 3.0m 3.3m 2.6m 3.0m
Volumes reduced in the year as expected to more normal levels following
exceptional post-covid demand in 2021 and the moderation of UK economic
growth.
When compared to 2019, volumes of our core products remain ahead on a
like-for-like basis: aggregates up 1%, asphalt up 9%, and cement up 9%.
Ready-mixed concrete volumes decreased by 9% compared to 2019, reflecting the
planned closure of less profitable plants in 2021 and an increased commercial
focus.
Great Britain
£m except where stated 2022 2021 Change % LFL %
Revenue 972.4 845.2 +15% +11%
Underlying EBIT 86.4 74.3 +16% +15%
Underlying EBIT margin 8.9% 8.8% 10bps
Our GB team had a successful year. We kept our people safe and delivered
significant organic growth, fully recovering rising input costs despite
unpredictable market conditions. Our extensive network, local market knowledge
and entrepreneurial culture meant we recorded revenue of £972.4m (2021:
£845.2m), an increase of 15.0% in the year, or 11.1% on a like-for-like
basis.
Volumes normalised in line with the broader aggregates industry as UK economic
growth moderated. Rising input costs drove the well-publicised need for price
increases and were fully recovered, leading to Underlying EBIT of £86.4m
(2021: £74.3m). Underlying EBIT margin increased by 10bps to 8.9%.
In 2021 we invested in our surfacing business, growing the team and extending
capability. We built on that platform in 2022, expanding our presence in the
East Midlands, acquiring the Thomas Bow surfacing business with which we had
partnered since 2018. This investment was validated when we were awarded a
place on the National Highways Pavement Delivery Framework in England. Our
associate, BEAR Scotland, successfully retained the Transport Scotland North
West Network Management contract, while Breedon remained the dedicated
materials supplier to BEAR and Amey in Scotland on the North West and North
East contracts.
We expanded our strategic capability and reserves through the acquisition of
Severn Sands, a marine sand dredging business, and increased our ready-mixed
concrete offering through the acquisition of RT Mycock.
We complemented our M&A activities with significant organic investment,
directing c.40% of the increased spend towards projects aimed at driving
growth.
The completion and commissioning of the Mansfield asphalt plant met all our
strategic goals. This £6.5m investment has expanded the plant's production
capacity, optimised efficiency, and offers improved sustainability features by
enabling the use of up to 50% recycled asphalt while reducing its carbon
footprint.
Health, safety and wellbeing remains our highest priority. In 2022, we hosted
regular safety workshops across the business, improved our injury frequency
rate and materially reduced the severity of injuries sustained.
Operating the business model relies on our ability to optimise the use of our
mineral reserves and resources and extend the life of our quarries. In 2022,
we secured 14 million tonnes of mineral reserves and resources with an
extensive pipeline at various stages of planning.
Delivering our products sustainably is an operational imperative. Revenue
generated from asphalt and concrete products with sustainable attributes
accelerated materially from 21% in 2021 to 38% in 2022. We launched Breedon
Balance, our new product range that meets stringent sustainability criteria.
In anticipation of a change to building regulations in 2023, we are investing
in a network of silos that will allow us to increase the proportion of CEM II
in our concrete mix, a cement product with a reduced carbon footprint.
Great Britain outlook
We are mindful of the challenges faced by our customers; while we recognise
the uncertainties they face, the CPA continues to forecast growth in
infrastructure and industrial end-markets and we remain focused on working
collaboratively with all our customers to meet their needs while maximising
the efficiency of our operations. We are already seeing the benefits of the
actions we took in 2022 to invest for growth and improve processes and systems
and we expect this to continue.
Ireland
£m except where stated 2022 2021 Change %
Revenue 226.2 225.4 -
Underlying EBIT 28.3 28.2 -
Underlying EBIT margin 12.5% 12.5% -
Our team in Ireland delivered a resilient performance, fully recovering input
costs and winning high-quality new work. Our business has an established
market position across the Island of Ireland and an experienced team, embedded
within a healthy network of repeat customers.
Softness in aggregate and asphalt volumes at the half year reflected the
absence of the governing Assembly in NI and the tendering delays in RoI.
Tendering activity in RoI accelerated notably in the second half.
In NI, the DfI revised the procurement process for infrastructure tenders,
leading to a number of contract awards coming through in the second half of
2022. We were successful in the first two rounds of awards, securing both the
Down and Armagh District Term Surfacing contracts. Tenders have been submitted
for the remaining rounds with outcomes phased through 2023.
We have a successful street lighting maintenance business in NI which benefits
from the switch to more efficient LED technology. In the second half, we were
pleased to win two Street Lighting Maintenance contracts with the DfI, each
for a five-year term.
Across the year as a whole, our infrastructure and housing end-markets
remained robust, supporting a high degree of input cost recovery which yielded
stable results, recording revenue of £226.2m, Underlying EBIT of £28.3m and
Underlying EBIT margin of 12.5%.
The encouraging medium-term economic backdrop in Ireland is led by population
expansion, accompanied by fundamental infrastructure and housing shortages.
Within this market we have an exceptional track record for delivering complex
projects on time, to budget and safely, which enables us to secure
high-quality, risk-managed tenders, with price indexation mechanisms.
Our reputation for high-quality surfacing works helped us secure 27 trunk road
projects and hundreds of local road resurfacing tenders across the Island of
Ireland in the year. We completed work on the M1 near Dublin and the A2 in
Belfast, operating both contracts within restrictions to weekend and
night-time operations. To meet our clients' needs, these projects required
significant planning, collaboration with local stakeholders and commitment
from our supply chain, so we were pleased to deliver them on time and to
budget.
We are positioning the Ireland business for growth and profitability; during
2022 we rebranded Whitemountain and Lagan as Breedon and we invested in the
team. A review of strategic opportunities in Ireland crystalised our decision
to exit our civil engineering business during the year where the contract risk
profile had deteriorated.
We are building new relationships to complement our existing commercial and
public authority partnerships and broadening our reach, enabling us to
leverage our expanded footprint and pull through more of our own material.
We made further progress with minerals in 2022 and have opportunities at
various stages of the planning process. In the year we secured 11 million
tonnes of incremental reserves and resources, reopened the dormant Cahersiveen
quarry in Kerry and progressed a number of other extension opportunities.
Ireland outlook
The Government of Ireland has set out clear long-term spending commitments and
RoI remains the fastest growing economy in Western Europe. In NI, while the
pace of activity continues to be impacted by the absence of the governing
Assembly, our business is underpinned by multi-year frameworks and term
contracts. High-quality tenders are coming to market and our experienced and
agile team are well positioned to win further work.
Cement
£m except where stated 2022 2021 Change %
Revenue 300.7 245.6 +22%
Underlying EBIT 52.1 41.6 +25%
Underlying EBIT margin 17.3% 16.9% +40bps
Our cement plants in GB and Ireland enjoyed their most successful year ever,
aided by the hard work of our colleagues. The division delivered strong
revenue and earnings growth in 2022 as demand in the UK for cement and
cementitious products remained robust. Cement volumes fell 9% to 2.2 million
tonnes from the elevated levels of 2021, driven primarily by lower concrete
volumes and reduced imports.
Pricing remained resilient, increasing steadily during the year in response to
rising input costs. We introduced a dynamic and transparent pricing strategy,
implementing a carbon surcharge mechanism which gives our customers direct
visibility of the carbon cost of the cement they purchase.
Our forward hedging strategy afforded us a clear view of our input costs,
empowering our commercial teams to focus on full cost recovery. Consequently,
revenue increased 22% to £300.7m, delivering Underlying EBIT of £52.1m,
expanding margin by 40bps to 17.3%.
Our teams are embedded in their communities and have a deep personal
connection to the plants. They take enormous pride in meeting their
stakeholder's needs and maximising plant performance.
Our Kinnegad plant improved kiln reliability, a creditable performance in
light of the high proportion of alternative fuels it utilises which adds
complexity to the production process.
In 2021, our Hope plant achieved Plant Mastery status for delivering three
consecutive years of kiln reliability in excess of 96%. This is an industry
recognised measure which denotes market-leading plants with strong cost and
quality control, high workforce engagement and excellent health, safety and
environmental records. This remarkable performance was sustained in 2022,
delivering kiln reliability of 96.1% as a result of the rigorous forward
planning and maintenance programme operated by the team. Both plants delivered
three complex planned kiln maintenance shutdowns on schedule and within
budget.
One of our 2030 sustainability targets is a 30% reduction in gross carbon
intensity per tonne of cementitious product. We are pursuing numerous
strategies to reduce our carbon footprint, switching away from fossil fuel
inputs, reducing the clinker content of our cementitious products and turning
to innovation for carbon abatement solutions.
In 2022, both plants increased fossil fuel replacement, achieving a combined
rate nearing 50% alternative fuel utilisation. Hope increased fuel replacement
by two percentage points while Kinnegad once more improved its world leading
alternative fuel usage to 77% (2021: 75%). Kinnegad was granted planning
permission for a 17MW solar farm while Hope received the necessary planning
consent to start the ARM project in earnest.
Reducing the clinker content of our products supports our clients'
sustainability objectives. CEM II now comprises 50% of Kinnegad sales (2021:
40%) and we expect this contribution will continue to increase.
With respect to carbon abatement, our Hope plant is actively involved in the
HyNet industrial decarbonisation, carbon capture and storage project as a
member of the Peak Cluster. Our participation in this pioneering
infrastructure project will facilitate the capture, transport and storage of
CO(2) emissions.
Cement outlook
The outlook for the cement market is positive, underpinned by large ongoing
infrastructure projects in the UK. In RoI, housing and infrastructure are
supported by the Government of Ireland's development plans to accommodate a
rapidly growing population.
FINANCE REVIEW
In 2022 we delivered another year of record performance, advancing revenue and
Underlying EBIT through robust pricing, disciplined cost management and
improvements in operating performance and reduced our Covenant Leverage to
0.7x.
This record performance was achieved against a backdrop of significant input
cost inflation throughout 2022 and the impact of more challenging
macroeconomic conditions towards the end of the year.
Revenue for the year at £1,396.3m increased by 13% compared to 2021
(£1,232.5m), reflecting the success of our dynamic pricing strategy in
recovering input cost increases, offset by the expected reduction in volumes
to more normal levels following exceptional post-covid demand in 2021 and the
moderation of UK economic growth. Pricing contributed 20ppt of the revenue
improvement, partially offset by overall volume reductions of 10ppt. On a
like-for-like basis, excluding the impact of acquisitions, revenue increased
by 11%.
We delivered record earnings with Group operating profit of £144.5m (2021:
£124.5m) and there was an encouraging improvement in our share of profit of
associate and joint ventures of £3.5m (2021: £2.9m).
Our Underlying EBIT of £155.0m was up £21.4m or 16% on 2021 (£133.6m), with
each division growing earnings compared to 2021.
Underlying EBIT margins strengthened to 11.1% ahead of 10.8% reported in 2021
helped in part by synergy benefits of £2m from the Cemex assets, in line with
the target communicated at the time of the acquisition. This represents
further progress towards our medium-term ambition to generate an Underlying
EBIT margin of between 12% and 15%.
Impact of acquisitions and non-underlying items
Our performance included a contribution of £35.6m revenue and £1.0m
Underlying EBIT from the three strategic bolt-on acquisitions which completed
during the second half of the year.
Non-underlying items in the year amounted to a pre-tax cost of £7.0m (2021:
£6.2m), of which the majority was £4.8m (2021: £3.6m) of amortisation of
acquired intangible assets. Other non-underlying items comprised a net £1.5m
of gains and losses recognised on the disposal of properties and £0.7m of
acquisition related costs.
Interest and profit before tax
Net finance costs in the year totalled £12.2m (2021: £13.1m) and included
interest on the Group's debt facilities and lease liabilities, amortisation of
bank arrangement fees, and the unwinding of discounting on provisions.
Finance costs were lower than the prior year as leverage continued to fall and
we realised a full year of benefits from the refinancing undertaken during
2021.
Approximately 40% of the Group's available facilities are at fixed rates of
interest, with the remainder floating relative to SONIA or EURIBOR as
appropriate.
Profit before tax was £135.8m, 19% above 2021 (£114.3m). Underlying profit
before tax was £142.8m, 19% above 2021 (£120.5m).
Tax
The Group recorded an Underlying tax charge at an effective rate of 16.0%
(2021: 16.1%), which in absolute terms equated to a charge of £22.9m (2021:
£19.4m).
We recognised a non-cash deferred tax charge of £1.1m (2021: £17.3m) to
measure movements in our deferred tax liability in the UK at a higher tax rate
than the current statutory rate of 19%.
We remeasured our existing liability in 2021 following the UK Government
substantively enacting legislation to increase the future rate of corporation
tax to 25% from 19%. To remain consistent we have continued to present rate
change impacts as a separate line within the Underlying column of the
consolidated income statement.
The statutory tax charge, which includes the full impact of the deferred tax
rate changes outlined above, was £23.2m (2021: £35.7m).
Alongside the legislated tax rate change in the UK from 19% to 25% which will
increase the future effective tax rate of the Group from 2023, the Group may
be impacted in the future by BEPS Pillar 2, the OECD initiative for a global
minimum 15% rate, as a result of our trading operations in RoI where the
statutory rate of corporation tax is 12.5%. The Group's corporation tax charge
in RoI was £6.0 million in 2022, so while exposure is not expected to be
material, we continue to closely monitor developments.
We complied effectively with our stated tax strategy, and we continue to 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 2022, the total taxes borne and collected by the Group
amounted to c.£210m (2021: c.£210m).
Earnings per share
Statutory Basic EPS increased by 43% to 6.65p (2021: 4.65p), while Underlying
Basic EPS for the year totalled 7.02p (2021: 4.96p).
Adjusted Underlying Basic EPS, calculated using Underlying earnings and
adjusted to exclude the impact of the £1.1m (2021: £17.3m) charge recognised
in respect of deferred tax rate changes, increased by 18% to 7.08p (2021:
5.98p).
Statutory diluted EPS was 6.63p (2021: 4.62p), with the only adjustment made
in calculating dilution relating to employee share option schemes. Adjusted
Underlying Diluted EPS was 7.05p (2021: 5.95p).
Statement of financial position and ROIC
Net assets at 31 December 2022 were £1,043.8m (2021: £949.8m). Total
non-current assets of £1,370.7m (2021: £1,317.7m) increased as a result of
the impact of exchange rates on Euro-denominated assets and the acquisitions
completed during 2022. Current assets were £63.3m higher than December 2021,
reflecting the impact of inflation on working capital balances, higher cash
holdings and increasing raw materials inventory levels at our cement plants to
manage possible supply chain disruption and ensure continuity of production.
Total liabilities increased year on year, with provision balances increasing
to reflect the impact of a higher inflation rate used in the calculation of
long term site restoration liabilities, partially offset by corresponding
increases in discount rates, as a result of external market movements during
the year.
Using average invested capital, ROIC strengthened through the year to end 2022
at 10.8% (2021: 9.5%) which is in excess of the Group's cost of capital and
demonstrates progress in achieving our medium-term target to consistently
deliver ROIC in excess of 10%.
Impairment review
We completed our annual impairment review of goodwill and retain comfortable
levels of headroom relative to the carrying value of our asset base.
Input cost and hedging strategy
Input cost inflation had a significant impact on our results, with energy (gas
and electricity), fuels, bitumen and the cost of carbon emission permits under
both UK and EU ETS schemes all showing significant volatility. Although energy
costs have fallen from the peaks experienced in the second half of 2022, they
remain elevated relative to historic levels and cost price volatility is
expected to continue into 2023.
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 in advance. Remaining
purchases are at spot; the market for asphalt, in which bitumen is the primary
purchased raw material, has historically responded quickly to bitumen price
changes. Other fuels are purchased at spot and passed on.
Our 2022 earnings have benefited from our hedging programme, with the primary
impact being to provide near term cost certainty and delay the point at which
the Group has been exposed to increased input cost prices. In turn this allows
time for our dynamic approach to pricing to reflect the underlying market
movements, avoiding a potentially significant cost of under recovery due to
sales pricing lags.
For 2023, we are substantially hedged in line with our policy. Recent
reductions in the cost of energy have moved our forward position to align more
closely with market rates. However, our hedges are still expected to provide a
net benefit to the Group during 2023.
Free cash flow
We generated £68.7m of Free Cash Flow (2021: £127.3m) while significantly
increasing capital investment.
Net capital expenditure increased by £30.7m to £102.0m (2021: £71.3m)
comprising capital investment of £106.8m offset by £4.8m of proceeds from
specific asset disposals. This increased investment was in line with our
market guidance of c.£170m in aggregate across 2021 and 2022.
Working capital flows reflected strong cash collection offset by the purchase
of UK ETS carbon credits, the inventory build to ensure continuity of
production at our cement plants and the impact of inflation on working capital
balances.
As a result of increased levels of capital investment, tax and working capital
movements, Free Cash Flow conversion for the year was 29% (2021: 59%). We
continue to target average Free Cash Flow conversion after regular capital
investment of 50%.
Acquisitions
Our Net Debt increased by £15.1m (2021: £6.1m), as a result of the three
bolt-on acquisitions completed during 2022.
Net Debt and borrowing facilities
At 31 December 2022 Net Debt was £197.7m (2021: £212.5m). Net Debt includes
IFRS 16 lease liabilities of £49.3m (2021: £51.0m). Our Covenant Leverage at
the year-end was 0.7x (2021: 0.8x) 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 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 2025 with an option to extend for up to a further year.
Interest on the RCF is calculated as a margin referenced to the Group's
Covenant Leverage plus SONIA or EURIBOR according 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 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 2022, total
undrawn borrowing facilities available to the Group amounted to £350m.
Dividend
Subject to shareholder approval, we intend to pay a dividend in respect of the
2022 financial results of 2.1p, an increase of 31% from 2021 (1.6p). This
equates to a payout ratio of 30% (2021: 27%) of adjusted Underlying EPS.
Assuming continued positive trading conditions and cash generation, the Group
continues to target a payout ratio of 40% of Underlying EPS over time.
An interim dividend of 0.7p (2021: 0.5p) was paid on 30 September 2022 and,
subject to shareholder approval, the remaining 1.4p (2021:1.1p) will be paid
as a final dividend on 5 May 2023. Under IFRS dividends are recorded in the
financial statements of the accounting period in which they are declared.
Accordingly, dividend payments amounting to £30.5m (2021: £8.4m) have been
recognised in the 2022 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 continue to pursue 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, whilst supporting our progressive dividend policy.
2023 technical guidance
We expect working capital to experience the normal seasonal outflow in the
first half of 2023, with an overall modest inflationary outflow for the full
year of c.£20m.
We continue to prioritise investment in the business and expect to invest
c.£90m in capital projects during 2023.
Cash costs of dividends paid during 2023 will be c.£35m and our net interest
expense c.£15m. of which c.£9m will be cash interest.
We expect an effective tax rate of c.20%, reflecting the increased statutory
rate of tax in the UK, with cash tax payments higher than the effective rate
as a result of the accelerated superdeduction capital allowances claimed in
2021 and 2022.
RISK
The Group's principal risks in alphabetical order (by risk category) are:
Strategic Operational Financial
· Acquisitions · Environmental impact · Credit risk
· Climate change · Failure of a critical asset · Currency risk
· Digitalisation · Health, safety and wellbeing · Financing and interest rate risk
· Market conditions · Input costs
· Mineral reserves · IT and cyber security
· People · Legal and regulatory
· Product specification
Further details of the principal risks facing the Group for the year ended 31
December 2022 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
Financial Statements in accordance with applicable law and regulations.
Jersey company law requires the Directors to prepare Financial Statements for
each financial year. Under that law they have elected to prepare the Financial
Statements in accordance with UK-adopted international accounting standards
and applicable law .
Under Jersey company law the Directors must prepare Financial Statements that
give a true and fair view of the state of affairs of the Group and of the
profit or loss of the Group for that period. In preparing these 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;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements;
· assess the Group'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 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 Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with Companies
(Jersey) Law, 1991. 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 Company and the Group and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Jersey governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions. The directors
shall remain responsible for establishing and controlling the process for
doing so, and for ensuring that the financial statements are complete and
unaltered in any way.
Rob Wood James Brotherton
Chief Executive Officer Chief Financial Officer
8 March 2023
condensed Consolidated Income Statement
for the Year ended 31 December 2022
2022 2021
Underlying Non-underlying* Total Underlying Non- underlying* Total
(note 4) (note 4)
£m £m £m £m £m £m
Revenue 1,396.3 - 1,396.3 1,232.5 - 1,232.5
Cost of sales (910.1) - (910.1) (804.1) - (804.1)
Gross profit 486.2 - 486.2 428.4 - 428.4
Distribution expenses (231.0) - (231.0) (210.6) - (210.6)
Administrative expenses (103.7) (7.0) (110.7) (87.1) (6.2) (93.3)
Group operating profit 151.5 (7.0) 144.5 130.7 (6.2) 124.5
Share of profit of associate and joint ventures 3.5 - 3.5 2.9 - 2.9
Profit from operations 155.0 (7.0) 148.0 133.6 (6.2) 127.4
Financial income 0.2 - 0.2 - - -
Financial expense (12.4) - (12.4) (13.1) - (13.1)
Profit before taxation 142.8 (7.0) 135.8 120.5 (6.2) 114.3
Tax at effective rate (22.9) 0.8 (22.1) (19.4) 1.0 (18.4)
Changes in deferred tax rate (1.1) - (1.1) (17.3) - (17.3)
Taxation (24.0) 0.8 (23.2) (36.7) 1.0 (35.7)
Profit for the year 118.8 (6.2) 112.6 83.8 (5.2) 78.6
Attributable to:
Breedon Group shareholders 118.7 (6.2) 112.5 83.7 (5.2) 78.5
Non-controlling interests 0.1 - 0.1 0.1 - 0.1
Profit for the year 118.8 (6.2) 112.6 83.8 (5.2) 78.6
* Non-underlying items represent acquisition-related expenses, redundancy and
reorganisation costs, property losses, amortisation of acquisition intangibles
and related tax items.
Earnings per share
Basic 6.65p 4.65p
Diluted 6.63p 4.62p
Dividends in respect of the year
Dividend per share 2.10p 1.60p
condensed Consolidated Statement of Comprehensive Income
for the year ended 31 december 2022
2022 2021
£m £m
Profit for the year 112.6 78.6
Other comprehensive income/(expense)
Items which may be reclassified subsequently to profit and loss:
Foreign exchange differences on translation of foreign operations, net of 10.2 (14.7)
hedging
Effective portion of changes in fair value of cash flow hedges (1.3) 1.2
Taxation on items taken directly to other comprehensive income 0.2 (0.2)
Other comprehensive income/(expense) for the year 9.1 (13.7)
Total comprehensive income for the year 121.7 64.9
Total comprehensive income for the year is attributable to:
Breedon Group shareholders 121.6 64.8
Non-controlling interests 0.1 0.1
121.7 64.9
condensed Consolidated Statement of Financial Position
at 31 December 2022
2022 2021
£m £m
Non-current assets
Property, plant and equipment 787.9 749.9
Right-of-use assets 47.1 49.6
Intangible assets 518.2 501.5
Investment in associate and joint ventures 13.7 12.2
Trade and other receivables 3.8 4.5
Total non-current assets 1,370.7 1,317.7
Current assets
Inventories 94.8 62.0
Trade and other receivables 218.6 205.9
Cash and cash equivalents 101.7 83.9
Total current assets 415.1 351.8
Total assets 1,785.8 1,669.5
Current liabilities
Interest-bearing loans and borrowings (7.9) (7.2)
Trade and other payables (263.8) (257.7)
Current tax payable (3.8) (4.7)
Provisions (9.2) (9.5)
Total current liabilities (284.7) (279.1)
Non-current liabilities
Interest-bearing loans and borrowings (291.5) (289.2)
Provisions (76.8) (63.9)
Deferred tax liabilities (89.0) (87.5)
Total non-current liabilities (457.3) (440.6)
Total liabilities (742.0) (719.7)
Net assets 1,043.8) 949.8
Equity attributable to Breedon Group shareholders
Stated capital 555.0 553.0
Hedging reserve 0.1 1.2
Translation reserve 0.4 (9.8)
Retained earnings 488.0 405.2
Total equity attributable to Breedon Group shareholders 1,043.5 949.6
Non-controlling interests 0.3 0.2
Total equity 1,043.8 949.8
condensed Consolidated Statement of Changes in Equity
for the year ended 31 december 2022
Stated capital Hedging reserve Translation reserve Retained earnings Attributable to Breedon Group shareholders Non-controlling interests Total
equity
£m £m £m £m £m £m £m
Balance at 1 January 2021 551.6 0.2 4.9 331.6 888.3 0.1 888.4
Shares issued 1.4 - - - 1.4 - 1.4
Dividends paid - - - (8.4) (8.4) - (8.4)
Total comprehensive income for the year - 1.0 (14.7) 78.5 64.8 0.1 64.9
Share-based payments (inclusive of deferred tax recognised in equity) - - - 3.5 3.5 - 3.5
Balance at 31 December 2021 553.0 1.2 (9.8) 405.2 949.6 0.2 949.8
Shares issued 2.0 - - - 2.0 - 2.0
Dividends paid - - - (30.5) (30.5) - (30.5)
Total comprehensive income for the year - (1.1) 10.2 112.5 121.6 0.1 121.7
Share-based payments (inclusive of deferred tax recognised in equity) - - - 0.8 0.8 - 0.8
Balance at 31 December 2022 555.0 0.1 0.4 488.0 1,043.5 0.3 1,043.8
condensed Consolidated Statement of Cash Flows
for the Year ended 31 december 2022
2022 2021
£m £m
Cash flows from operating activities
Profit for the year 112.6 78.6
Adjustments for:
Depreciation and mineral depletion 83.5 83.3
Amortisation 4.8 3.6
Financial income (0.2) -
Financial expense 12.4 13.1
Share of profit of associate and joint ventures (3.5) (2.9)
Loss on sale of property, plant and equipment 2.4 -
Gain on stepped acquisition (0.3) -
Share-based payments 1.2 2.9
Taxation 23.2 35.7
Operating cash flows before changes in working capital and provisions 236.1 214.3
Increase in trade and other receivables (0.2) (17.6)
Increase in inventories (31.7) (3.5)
(Decrease)/increase in trade and other payables (9.1) 17.2
Increase in provisions 7.7 6.7
Cash generated from operating activities 202.8 217.1
Interest paid (6.7) (6.8)
Interest element of lease payments (2.5) (2.6)
Interest received 0.2 -
Income taxes paid (25.8) (13.6)
Net cash from operating activities 168.0 194.1
Cash flows used in investing activities
Acquisition of businesses (12.6) (6.1)
Dividends from associate and joint ventures 1.7 1.9
Purchase of property, plant and equipment (106.8) (76.9)
Proceeds from sale of property, plant and equipment 4.8 5.6
Net cash used in investing activities (112.9) (75.5)
Cash flows used in financing activities
Dividends paid (30.5) (8.4)
Proceeds from the issue of shares (net of costs) 2.0 1.4
Proceeds from new interest-bearing loans (net of costs) - 513.9
Repayment of interest-bearing loans - (563.1)
Revolving Credit Facility extension costs (0.7) -
Repayment of lease obligations (8.8) (9.7)
Net cash used in financing activities (38.0) (65.9)
Net increase in cash and cash equivalents 17.1 52.7
Cash and cash equivalents at 1 January 83.9 31.7
Foreign exchange differences 0.7 (0.5)
Cash and cash equivalents at 31 December 101.7 83.9
Notes to the Financial Statements
1 Basis of preparation
Breedon Group plc is a company domiciled in Jersey. The financial information
(note 11) consolidates the results of the Company and its subsidiary
undertakings, and equity account for the Group's interest in its associate and
its joint ventures (collectively the 'Group').
The financial information has been prepared in accordance with UK-adopted
international accounting standards and under the historical cost convention
except for the revaluation to fair value of certain financial instruments.
Alternative performance measures
The following non-GAAP performance measures have been used in the financial
statements:
- Underlying Earnings Before Interest and Tax (EBIT) - Like-for-like revenue - Return on invested capital
- Underlying EBIT Margin - Underlying Basic Earnings Per Share (EPS) - Covenant Leverage
- Underlying EBITDA - Free Cash Flow - Net Debt
- Like-for-like Underlying EBIT - Free Cash Flow conversion - Net Debt (excluding IFRS 16)
Management uses these terms as they believe these measures allow a better
understanding of the Group's underlying business performance. These
alternative performance measures are well understood by investors and
analysts, are consistent with the Group's historic communication with
investors and reflects the way in which the business is managed.
A reconciliation between these alternative performance measures to the most
directly related statutory measures is included within note 10.
2 Going concern
These financial statements are prepared on a going concern basis which the
directors consider to be appropriate for the following reasons:
The Group meets day-to-day working capital and other funding requirements
through banking facilities, which include an overdraft facility. Longer term
debt financing is accessed through the Group's USPP loan note programme. The
facilities comprise a £350m multi-currency RCF, which runs to at least June
2025 and £250m of USPP loan notes with maturities between 2028 and 2036.
The Group comfortably met all covenants in 2022 and other terms of its
borrowing agreements in the period, and maintained a track record of
profitability and cash generation, with an overall profit before taxation of
£135.8m and net cash from operating activities of £168.0m.
The Group has prepared cash flow forecasts for a period of twelve months from
the date of signing these financial statements, which show a sustained trend
of profitability and cash generation and retained covenant headroom, even
under a 'severe but plausible' downside scenario of forecast cash flows.
The base case assumes a trading performance delivered in line with market
consensus over the forecast period, whilst the downside scenario models a 30
per cent reduction in revenues, which the Group believes is an extremely
severe sensitivity relative to likely outcomes and historic experience.
As at 31 December 2022, the Group had cash of £101.7m and undrawn banking
facilities of £350.0m. At the date of this report, the Group retains a
similar level of liquidity, which is expected to provide sufficient available
funds for the Group to discharge its liabilities as they fall due.
Consequently, the directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for at least 12
months from the date of approval of these financial statements and therefore
have prepared the financial statements on a going concern basis.
3 Segmental analysis
The principal activities of the Group are the quarrying of aggregates and
manufacture and sale of construction materials and buildings products,
including cement, asphalt and ready-mixed concrete, together with related
activities in GB and Ireland.
The Group's activities comprise the following reportable segments:
Great Britain: our construction materials and surfacing businesses in Great
Britain.
Ireland: our construction materials and surfacing businesses on the Island of
Ireland.
Cement: our cementitious operations in Great Britain and Ireland.
2022 2021
Revenue *Underlying Revenue *Underlying
EBITDA EBITDA
Income statement £m £m £m £m
Great Britain 972.4 136.1 845.2 124.2
Ireland 226.2 34.4 225.4 35.4
Cement 300.7 79.6 245.6 67.7
Central administration - (15.1) - (13.3)
Eliminations (103.0) - (83.7) -
Group 1,396.3 235.0 1,232.5 214.0
Reconciliation to statutory profit
Group Underlying EBITDA as above 235.0 214.0
Depreciation and mineral depletion (83.5) (83.3)
Great Britain 86.4 74.3
Ireland 28.3 28.2
Cement 52.1 41.6
Central administration (15.3) (13.4)
Underlying Group operating profit 151.5 130.7
Share of profit of associate and joint ventures 3.5 2.9
Underlying profit from operations (EBIT) 155.0 133.6
Non-underlying items (note 4) (7.0) (6.2)
Profit from operations 148.0 127.4
*Underlying EBITDA is earnings before interest, tax, depreciation and mineral
depletion, amortisation, non-underlying items (note 4) and before our share of
profit of associate and joint ventures.
Analysis of revenue by geographic location of end-market
2022 2021
£m £m
United Kingdom 1,217.3 1,088.2
Republic of Ireland 176.5 141.1
Other 2.5 3.2
1,396.3 1,232.5
3 Segmental analysis (continued)
Analysis of revenue by major products and service lines by segment
2022 2021
£m £m
Sale of goods
Great Britain 829.0 740.2
Ireland 82.0 66.4
Cement 300.7 245.6
Eliminations (103.0) (83.7)
1,108.7 968.5
Surfacing
Great Britain 143.4 105.0
Ireland 144.2 159.0
287.6 264.0
Total 1,396.3 1,232.5
Timing of revenue recognition
Sale of goods revenue relates to products for which revenue is recognised at a
point in time as the product is transferred to the customer. Surfacing
revenues are accounted for as products and services for which revenue is
recognised over time.
Statement of financial position
2022 2021
Total Total Total Total
assets liabilities assets liabilities
£m £m £m £m
Great Britain 900.9 (228.0) 841.8 (203.0)
Ireland 260.6 (40.5) 254.4 (45.8)
Cement 519.7 (62.0) 487.2 (65.0)
Central administration 2.9 (19.3) 2.2 (17.3)
Total operations 1,684.1 (349.8) 1,585.6 (331.1)
Current tax - (3.8) - (4.7)
Deferred tax - (89.0) - (87.5)
Net Debt 101.7 (299.4) 83.9 (296.4)
Total Group 1,785.8 (742.0) 1,669.5 (719.7)
Net assets 1,043.8 949.8
4 Non-underlying items
Non-underlying items are those which are either unlikely to recur in future
periods or which distort the underlying trading performance of the business,
including non-cash items. The directors monitor the performance of the Group
using alternative performance measures which are on an underlying basis. In
the opinion of the directors, this presentation aids understanding of the
underlying business performance and any references to underlying earnings
measures throughout this report are made on this basis. Underlying measures
are presented on a consistent basis over time to assist in the comparison of
performance.
2022 2021
£m £m
Included in administrative expenses:
Redundancy and reorganisation costs - 1.2
Acquisition costs 0.7 0.7
Property (gains) and losses 1.5 0.7
Amortisation of acquired intangible assets 4.8 3.6
Total non-underlying items (before tax) 7.0 6.2
Non-underlying taxation (0.8) (1.0)
Total non-underlying items (after tax) 6.2 5.2
Acquisition costs are presented net of a £0.3m gain on stepped acquisition.
See note 9.
5 Taxation
Recognised in the condensed consolidated income statement
2022 2021
£m £m
Current tax
Current year 23.6 19.1
Prior year 1.0 (0.1)
Total current tax 24.6 19.0
Deferred tax
Current year (1.8) (1.1)
Change in deferred tax rate 1.1 17.3
Prior year (0.7) 0.5
Total deferred tax (1.4) 16.7
Total tax charge in the condensed consolidated income statement 23.2 35.7
Recognised in equity
2022 2021
£m £m
Deferred tax
Cash flow hedges (0.2) 0.2
Share-based payments 0.4 (0.6)
Total tax charge/(credit) in equity 0.2 (0.4)
5 Taxation (continued)
Reconciliation of effective tax rate
2022 2021
£m £m
Profit before taxation 135.8 114.3
Tax at the Company's domestic rate of 19% 25.8 21.7
Difference between Company and subsidiary statutory tax rates (2.6) (2.0)
Expenses not deductible for tax purposes 0.6 0.7
Enhanced capital allowances (1.4) (1.5)
Share-based payments 0.8 -
Unrecognised deferred tax assets (0.7) (0.4)
Income from associate and joint ventures already taxed (0.7) (0.5)
Change in deferred tax rate 1.1 17.3
Adjustment in respect of prior years 0.3 0.4
Total tax charge 23.2 35.7
The Company is tax resident in the UK, with a 19% tax rate. The Group's
subsidiary operations pay tax at a rate of 19% (2021: 19%) in the UK and 12.5%
(2021: 12.5%) in RoI.
Excluding the impact of non-underlying items and the change in deferred tax
rate, the Group's Underlying effective tax rate is 16.0% (2021: 16.1%).
Including these items, the Group's reported tax rate for the year is 17.1%
(2021: 31.2%).
On 24 May 2021, legislation was passed which substantively enacted an increase
in UK corporation tax rate from 19% to 25% from April 2023. This will result
in higher tax charges in future years and a deferred tax charge of £17.3m was
recognised in the prior year to remeasure the Group's UK deferred tax
liabilities held at 31 December 2021 to this higher rate.
6 Interest-bearing loans and borrowings
Net Debt
2022 2021
£m £m
Cash and cash equivalents 101.7 83.9
Current borrowings (7.9) (7.2)
Non-current borrowings (291.5) (289.2)
Net Debt (197.7) (212.5)
IFRS 16 lease liabilities 49.3 51.0
Net Debt (excluding IFRS 16) (148.4) (161.5)
Analysis of borrowings between current and non-current
2022 2021
£m £m
Lease liabilities 7.9 7.2
Current borrowings 7.9 7.2
Bank and USPP debt 250.1 245.4
Lease liabilities 41.4 43.8
Non-current borrowings 291.5 289.2
6 Interest-bearing loans and borrowings (continued)
The Group's borrowing facilities comprise a £350m multi-currency RCF and a
£250m USPP.
The RCF is available to the Group until June 2025 with an option to extend for
up to a further one year period. Interest on the RCF is calculated as a margin
referenced to the Group's Covenant Leverage plus SONIA or EURIBOR according to
the currency of borrowing. Interest margin on the revolving credit facility
was charged in the period at rates of between 1.7% and 1.8%.
The USPP was issued in 2021 with an average fixed coupon of approximately 2%
and comprises £170m sterling and £80m drawn in euro, with a maturity profile
between 2028 and 2036.
During the year, the Group exercised an 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.
Borrowing facilities are subject to leverage and interest cover covenants
which are tested half-yearly. The Group remained fully compliant with all
covenants during the year.
7 Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the
year attributable to equity holders of the parent company (Breedon Group
shareholders) by the weighted average number of ordinary shares outstanding
during the year.
Diluted earnings per share amounts are calculated by dividing profit for the
year attributable to Breedon Group shareholders by the weighted average number
of ordinary shares outstanding during the year plus the weighted average
number of ordinary shares that would be issued on the conversion of all the
potential dilutive ordinary shares into ordinary shares.
Calculations of these measures and reconciliations to related alternative
performance measures are as follows:
Basic EPS to adjusted Underlying Basic EPS
2022 2021
Earnings Shares EPS Earnings Shares EPS
£m millions pence £m millions pence
Basic EPS 112.5 1,692.767 6.65 78.5 1,688.243 4.65
Adjustments to earnings
Earnings impact of change in deferred tax rate (note 5) 1.1 - 0.06 17.3 - 1.02
Non-underlying items (note 4) 6.2 - 0.37 5.2 - 0.31
Adjusted Underlying Basic EPS 119.8 1,692.767 7.08 101.0 1,688.243 5.98
Basic EPS to Underlying Basic EPS
2022 2021
Earnings Shares EPS Earnings Shares EPS
£m millions pence £m millions pence
Basic EPS 112.5 1,692.767 6.65 78.5 1,688.243 4.65
Adjustments to earnings
Non-underlying items (note 4) 6.2 - 0.37 5.2 - 0.31
Underlying Basic EPS 118.7 1,692.767 7.02 83.7 1,688.243 4.96
7 Earnings per share (continued)
Diluted EPS to Underlying Diluted EPS
2022 2021
Earnings Shares EPS Earnings Shares EPS
£m millions pence £m millions pence
Diluted EPS 112.5 1,696.994 6.63 78.5 1,698.462 4.62
Adjustments to earnings
Non-underlying items (note 4) 6.2 - 0.37 5.2 - 0.31
Underlying Diluted EPS 118.7 1,696.994 7.00 83.7 1,698.462 4.93
Dilutive items in both the current and prior year related to share-based
payments.
8 Stated capital
All shares issued by Breedon are ordinary shares which have no par value and
are fully paid. The Company has no limit to the number of shares which may be
issued.
The holders of ordinary shares are entitled to receive dividends as declared
and are entitled to one vote per share at meetings of the Company.
2022 2021
millions millions
Issued ordinary shares at the beginning of year 1,689.7 1,687.6
Issued in connection with:
Exercise of savings-related share options 3.1 2.1
Vesting of Performance Share Plan awards 1.6 -
1,694.4 1,689.7
Movements during 2022:
The Company issued 3.1m shares, for cash, raising £2.0m in connection with
the exercise of certain savings-related share options and issued 1.6m shares
for nil consideration in connection with the vesting of awards under the
Performance Share Plans.
Movements during 2021:
The Company issued 2.1m shares, for cash, raising £1.4m in connection with
the exercise of certain savings-related share options.
9 Acquisitions
Current year acquisitions
The Group completed three acquisitions in the year, acquiring 80% of the
ordinary share capital of Thomas Bow Limited (1 July 2022), and 100% of the
ordinary share capitals of R T Mycock & Sons Limited (1 July 2022) and
Severn Sands Limited (1 August 2022). The fair value of the assets and
liabilities acquired are set out as follows:
Book value Fair value adjustments Provisional fair value on acquisition
£m £m £m
Intangible assets - 5.8 5.8
Property, plant and equipment 3.6 - 3.6
Right-of-use assets 1.6 0.9 2.5
Inventories 0.3 - 0.3
Trade and other receivables 11.1 - 11.1
Cash and cash equivalents 6.3 - 6.3
Trade and other payables (12.7) - (12.7)
Provisions - (0.2) (0.2)
Lease liabilities (1.6) (0.9) (2.5)
Current tax payable (0.3) - (0.3)
Deferred tax liabilities (0.8) (1.3) (2.1)
Total 7.5 4.3 11.8
Consideration - cash 18.9
Consideration - deemed proceeds from stepped acquisition of Breedon Bow 0.7
Highways Limited
Deferred consideration 0.9
Goodwill arising 8.7
Prior to the acquisition of Thomas Bow Limited, the Group & Thomas Bow
Limited were parties in a joint venture, Breedon Bow Highways Limited, which
from the date of acquisition became a wholly owned subsidiary. The effective
acquisition of Thomas Bow Limited's interest in Breedon Bow Highways has been
accounted for as a stepped acquisition in line with IFRS 3, with a disposal
for assumed proceeds equal to the fair value of £0.7m. A £0.3m gain on
stepped acquisition has been recognised within non-underlying items (note 4).
The deferred consideration of £0.9m relates to a put liability over the
remaining 20% of the ordinary shares of Thomas Bow Limited which are held by
the management of Thomas Bow Limited. This put liability has been accounted
for using the assumed acquisition method.
The fair value adjustments primarily comprised:
- Intangible assets, including the value of acquired customer lists
and permits;
- Lease liabilities and associated right-of-use assets for leased
properties;
- Dilapidation provisions to comply with contractual agreements for
leased properties; and
- Deferred tax balances.
The goodwill arising represents expected synergies, the potential for future
growth, access to new markets and the skills of the existing workforce.
Goodwill is not deductible for tax purposes.
Prior year acquisition
On 1 June 2021, the Group acquired the entire share capital of Micromix
(Northern) Limited (trading as Express Minimix) for consideration of £2.6m.
No adjustments have been made in respect of the acquisition within the
measurement period and the provisional values reported in the prior year are
now considered final.
10 Reconciliation to non-GAAP measures
Non-GAAP performance measures are used throughout the Annual Report and the
Financial Statements. This note provides a reconciliation between these
alternative performance measures to the most directly related statutory
measures.
Reconciliation of earnings based alternative performance measures
2022 Great Britain Ireland Cement Central administration Share of profit of associate and Total
joint ventures
and
eliminations
£m £m £m £m £m £m
Revenue 972.4 226.2 300.7 (103.0) - 1,396.3
Profit from operations 148.0
Non-underlying items (note 4) 7.0
Underlying EBIT 86.4 28.3 52.1 (15.3) 3.5 155.0
Underlying EBIT margin 8.9% 12.5% 17.3% 11.1%
Underlying EBIT 86.4 28.3 52.1 (15.3) 3.5 155.0
Share of profit of associate - - - - (3.5) (3.5)
and joint ventures
Depreciation and mineral depletion 49.7 6.1 27.5 0.2 - 83.5
Underlying EBITDA 136.1 34.4 79.6 (15.1) - 235.0
2021 Great Britain Ireland Cement Central administration Share of profit of associate Total
and joint ventures
and
eliminations
£m £m £m £m £m £m
Revenue 845.2 225.4 245.6 (83.7) - 1,232.5
Profit from operations 127.4
Non-underlying items (note 4) 6.2
Underlying EBIT 74.3 28.2 41.6 (13.4) 2.9 133.6
Underlying EBIT margin 8.8% 12.5% 16.9% 10.8%
Underlying EBIT 74.3 28.2 41.6 (13.4) 2.9 133.6
Share of profit of associate - - - - (2.9) (2.9)
and joint ventures
Depreciation and mineral depletion 49.9 7.2 26.1 0.1 - 83.3
Underlying EBITDA 124.2 35.4 67.7 (13.3) - 214.0
10 Reconciliation to non-GAAP measures (continued)
Free Cash Flow
2022 2021
£m £m
Net cash from operating activities 168.0 194.1
Net cash used in investing activities (112.9) (75.5)
Acquisition of businesses 12.6 6.1
Cash impact of non-underlying items 1.0 2.6
Free Cash Flow 68.7 127.3
Underlying EBITDA 235.0 214.0
Free Cash Flow conversion 29% 59%
Return on invested capital
2022 2021
£m £m
Underlying EBIT 155.0 133.6
Underlying effective tax rate 16.0% 16.1%
Taxation at the Group's underlying effective rate (24.8) (21.5)
Underlying earnings before interest 130.2 112.1
Net assets 1,043.8 949.8
Net Debt (note 6) 197.7 212.5
Invested capital 1,241.5 1,162.3
Average invested capital* 1,201.9 1,184.5
Return on invested capital** 10.8% 9.5%
* Average invested capital is calculated by taking the average of the
opening invested capital at 1 January and the closing invested capital at 31
December. Opening invested capital at 1 January 2021 was £1,206.7m.
** Return on invested capital is calculated as underlying earnings before
interest for the previous twelve months, divided by average invested capital
for the year.
Covenant Leverage
2022 2021
£m £m
Underlying EBITDA 235.0 214.0
Impact of IFRS 16 (11.3) (10.7)
Underlying EBITDA for covenants 223.7 203.3
Net Debt (excluding IFRS 16) 148.4 161.5
Covenant leverage 0.7x 0.8x
Covenant leverage is defined as the ratio of Underlying EBITDA to Net Debt,
with both Underlying EBITDA and Net Debt adjusted to reflect the material
items which are adjusted by the Group and its lenders in determining leverage
for the purpose of assessing covenant compliance and, in the case of our bank
facilities, the margin payable on overdrawn borrowings. In both the current
and prior periods, the only material adjusting item was the impact of IFRS 16.
11 Financial information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2022 or 2021 but is derived
from those accounts. Statutory accounts for 2021 have been delivered to the
Jersey Companies Registry, and those for 2022 will be delivered in due course.
The Auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under Article 113B(3) or Article 113B(6) of
the Companies (Jersey) Law 1991.
The Annual Report will be made available to shareholders on or before 21 March
2023 and will be displayed on the Company's website, www.breedongroup.com.
Copies of the Annual Report and Accounts will be available from the Company's
Registered Office, 28 Esplanade, St Helier, Jersey, JE2 3QA.
This Announcement of results for the year ended 31 December 2022 was approved
by the directors on 8 March 2023.
Cautionary Statement
This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014 (which forms part of domestic UK law pursuant to the
European Union (Withdrawal) Act 2018 ("EUWA")) ("UK MAR"). In addition, market
soundings (as defined in MAR) were taken in respect of certain matters
contained in this announcement with the result that certain persons became
aware of inside information (as defined in MAR), as permitted by MAR. This
inside information is set out in this announcement. Therefore those persons
that received inside information in a market sounding are no longer in
possession of such inside information relating to the Company and its
securities.
GLOSSARY
The following definitions apply throughout this announcement, unless the
context requires otherwise.
Adopted IFRS International Financial Reporting Standards as adopted by the UK
ARM Alternative Raw Material
Breedon Breedon Group plc
CEM II CEM II is a composite cement; comprising Portland cement and up to 35% of
other single constituents to reduce the product's carbon intensity
Cemex Cemex UK Operations Limited
Covenant Leverage Leverage as defined by the Group's banking facilities. This excludes the
impact of IFRS 16 and includes the proforma impact of M&A
EBIT Earnings before interest and tax
EPS Earnings per share
EURIBOR Euro Inter-bank Offered Rate
GAAP Generally Accepted Accounting Principles
GB Great Britain
Group Breedon and its subsidiary companies
IAS International Accounting Standards
IFRS International Financial Reporting Standard
Invested capital Net assets plus net debt
Ireland The Island of Ireland
IT Information Technology
Leverage Net debt expressed as a multiple of Underlying EBITDA
Like-for-like Like-for-like reflects reported values adjusted for the impact of
acquisitions, disposals and the timing of cement plant maintenance shutdowns
compared to the comparable period.
M&A Mergers & acquisitions
NI Northern Ireland
Ppt Percentage point
RCF Revolving credit facility
RoI Republic of Ireland
ROIC Post tax Return on Invested Capital for the previous twelve months
SONIA Sterling Overnight Index Average
UK United Kingdom (GB & NI)
UK ETS UK Emissions Trading Scheme
Underlying Stated before acquisition related expenses, redundancy and reorganisation
costs, property items, amortisation of acquisition intangibles and related tax
items
Underlying EBITDA Earnings before interest, tax, depreciation and amortisation non-Underlying
items and before our share of profit from associate and joint ventures
USPP US Private Placement
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