Breedon Regulatory News (BREE)

17 July 2014

Breedon Aggregates Limited

("Breedon Aggregates" or "the Group")

Interim results (unaudited) for six months to 30 June 2014

Breedon Aggregates, the UK's largest independent aggregates business, announces its unaudited interim results for the six months ended 30 June 2014.

3.6 million tonnes of aggregates sold (30 June 2013: 2.7 million tonnes)

0.7 million tonnes of asphalt sold (30 June 2013: 0.6 million tonnes)

326,000 cubic metres of ready-mixed concrete sold (30 June 2013: 283,000 cubic metres)

Highlights

· Trading strongly ahead of comparable period in the prior year

· Volumes ahead in all key product groups

· Underlying EBITDA margin up over one percentage point to 14.2%

· Organic investment generating improved operational performance

· Mineral reserves enhanced with further extensions

· Agreement reached with the Competition & Markets Authority, paving way for integration of former Aggregate Industries businesses

· Successful bolt-on acquisition of Huntsmans

· Refinancing completed post-period-end

† Underlying results are stated before acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items. References to an underlying profit measure throughout this Announcement are defined on this basis.

Looking ahead Peter Tom CBE, Executive Chairman, commented:

"The business has performed well in the first half of the year and we expect to make further progress during the second half.

"The integration of the former AI business in Scotland will deliver synergy benefits and enable us to further improve service levels. There are a number of acquisitions and internal investment opportunities under review and we would anticipate further business development activity in the coming months.

"As always, we extend our thanks to all our colleagues for their contribution to the success of the business in the first six months of 2014 and we look forward to working with them to deliver another good result for the full year."

- ends -

The full text of the Group's interim statement is attached, together with detailed financial results.

Enquiries:

Interim results (unaudited) for the six months to 30 June 2014

Group Results

Breedon Aggregates Limited, the UK's largest independent aggregates business, today announces its results for the six months to 30 June 2014.

Group results include a full six months' benefit from the acquisitions of the former Marshalls quarries in England and the former Aggregate Industries (AI) operations in Scotland, which were completed on 30 April 2013.

The results also include a month's contribution from Huntsman's Quarries ("Huntsmans"), which was acquired on 1 June 2014 for a cash consideration of £15 million, extending the Group's operations in Gloucestershire and into Worcestershire.

We are very pleased both with the performance of the underlying business and with last year's acquisitions, and are confident that Huntsmans will also represent an excellent investment for Breedon.

Group revenue for the half-year was 25% ahead of the comparable period including acquisitions and 14% excluding acquisitions. Underlying earnings before our share of associated undertakings, interest, tax, depreciation and amortisation ("EBITDA") increased by 37% to £17.8 million (30 June 2013: £13.0 million). Excluding acquisitions, underlying EBITDA increased by 16% and the underlying EBITDA margin improved to 14.2% (30 June 2013: 12.9%).

Financial Highlights

Operating Performance

Trading during the first half was in line with expectations and strongly ahead of the first six months of 2013, driven primarily by a much improved first quarter compared to the same period last year, which was severely affected by poor weather. The UK construction sector continued to recover, with first-quarter output growing by 5.4% year on year and by 0.6% compared to the last quarter of 2013. Much of this growth was driven by housing, which in the first quarter was over 25% ahead year-on-year.

The Mineral Products Association ("MPA") has reported national volume increases of 15-18% for aggregates and asphalt and 5% for concrete in the first quarter of 2014.

The Group's first-half sales volumes were well ahead of last year, with aggregates up 31%, asphalt up 16% and concrete up 15%.

Market conditions in England generally remain stronger than in Scotland, although the Scottish business had a strong first quarter on the back of increased spending by Transport Scotland. We continue to focus on our core customers and markets, where we successfully differentiate our products by offering better quality and service. The improved market conditions have enabled us to increase prices, recovering input costs, and make up some of the ground lost during the recession.

We have finally come to the end of the long-running investigation by the Competition & Markets Authority ("CMA") into the acquisition of the AI business in northern Scotland. This drawn-out process started at the end of April 2013 and, as previously reported, the CMA's findings mean that we are obliged to sell one concrete plant and one asphalt plant in the Aberdeen area and enter into a price-control agreement on asphalt in the Inverness area. We have six months to comply with the findings. Pleasingly we are now able to fully integrate the business, which has been operating as a commercially independent entity for the past year, and we expect to deliver synergy benefits in the second half of this year.

We continue to invest in our core business and in the first half we acquired a new sand and gravel quarry at West Deeping in Lincolnshire and opened a new concrete plant at Cannock near Stafford. We also acquired, from AI, the concrete plant in our Clearwell quarry (purchased from Marshalls last year). In addition, we invested in a significant amount of capital equipment in the first half, including new processing plant at Craigenlow quarry in Scotland and a major investment to increase capacity at our large Norton Bottoms quarry near Newark. We continue to see good opportunities for further organic investment in the business at attractive returns.

Safety performance has continued to improve, with our key Long Term Injury Frequency Rate falling by almost 20% over the past 12 months. However, during the first six months of 2014 we reported two Lost Time Incidents compared with only one in the same period last year. While any increase is disappointing, the business is much larger than it was then and the trends continue to move in the right direction. Our target is a further 50% reduction in accident frequency in the full year.

Our associate company, BEAR Scotland, successfully retained the strategically important North East trunk road maintenance contract with Transport Scotland for a further 6-8 years. This follows it winning the North West contract last year and means that Breedon will continue to supply both areas for at least another five years.

Balance sheet and cash flow

Net assets at 30 June 2014 were £156.7 million, compared to £149.0 million at 31 December 2013 and £142.8 million at 30 June 2013.

Cash generated from operating activities was £13.0 million, after an increase in working capital of £4.1 million as a result of the seasonal requirements of the business. The Group spent £14.3 million on acquisitions and incurred £6.3 million on capital expenditure of which £4.2 million was spent in cash. The Group received £1.1 million from asset disposals and it repaid £2.8 million of finance leases. The net cash outflow for the period was £8.0 million and net debt at 30 June 2014 was £63.0 million, compared to £54.4 million at 31 December 2013 and £72.2 million at 30 June 2013.

In early July we signed a new four-year £100 million committed revolving credit facility, which includes an additional £50 million accordion option. The agreement refinances the Group's existing facility, which was due to mature in 2015 and which has now been cancelled. The new facility is at a lower cost with greater flexibility to support our bolt-on acquisition strategy.

Outlook

The general outlook for the UK economy and for the construction sector continues to be encouraging. GDP grew by 3.1% year on year in the first quarter of 2014, which is the fastest rate of growth since 2007. Unemployment continues to fall and the economy is now only 0.6% below its pre-recession peak. However, there are concerns that efforts to move towards a more balanced economy are meeting with limited success and the recovery remains heavily dependent on the housing market which could be adversely affected if interest rates increase later in the year.

The strong growth in construction in the first quarter looks set to continue and the MPA has recently revised upwards its forecast increase in national volumes to 5-6%. However, there are significant regional variations. London and the South East continue to lead the way, but the Midlands has also seen strong growth, which should continue to benefit our English business. It now seems certain that March 2013 will have been the trough of the construction recession.

There is cross-party political support for significant future investment in infrastructure and housing, with the announcement of £100 billion of investment up to 2020 and the reorganisation of transport funding as part of the Infrastructure Bill currently going through Parliament.

In England, we expect demand to remain strong in the second half of the year, with supplies continuing to the A453, the i54 Jaguar Land Rover project and the Nottingham Tramway. We also expect strong second-half performances from our recently acquired quarry in Gloucestershire and we have won a contract to supply Hereford County for the first time through Balfour Beatty. Other regional markets in Manchester and North Wales also remain busy.

In Scotland, underlying demand is not as strong as in England, but the North East market remains very busy and we have a significant presence there following the AI acquisition last year. We have recently secured a contract to extend Stornoway harbour with BAM Nuttall as main contractor. In addition, the £745 million Aberdeen Western Peripheral Route has moved a step closer with Connect Roads (a joint venture between Balfour Beatty, Galliford Try and Carillion) appointed preferred bidder in June. Work should start early in 2015.

The independence vote in Scotland in September is creating some uncertainty and whilst this is likely to continue as the referendum date approaches, we continue to believe that the medium-term prospects for infrastructure investment and housing look good, regardless of the outcome.

The business has performed well in the first half of the year and we expect to make further progress during the second half. The integration of the former AI business in Scotland will deliver synergy benefits and enable us to further improve service levels. There are a number of acquisitions and internal investment opportunities under review and we would anticipate further business development activity in the coming months.

As always, we extend our thanks to all our colleagues for their contribution to the success of the business in the first six months of 2014 and we look forward to working with them to deliver another good result for the full year.

Peter Tom CBE Simon Vivian

Executive Chairman Group Chief Executive

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Condensed Consolidated Income Statement

for the six months ended 30 June 2014

* Non-underlying items represent acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items.

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2014

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Condensed Consolidated Statement of Financial Position

at 30 June 2014

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2014

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2014

Breedon Aggregates Limited 

Interim results (unaudited) for the six months to 30 June 2014

Notes to the Condensed Consolidated Interim Financial Statements

1 Basis of preparation

Breedon Aggregates Limited is a company domiciled in Jersey.

These Condensed Consolidated Interim Financial Statements (the "Interim Financial Statements") consolidate the results of the Company and its subsidiary undertakings (collectively the "Group").

These Interim Financial Statements have been prepared in accordance with IAS 34: Interim Financial Reporting, as adopted by the EU. The Interim Financial Statements have been prepared under the historical cost convention except where the measurement of balances at fair value is required.

The Interim Financial Statements have been prepared applying the accounting policies and presentation that were applied in the presentation of the Company's Consolidated Financial Statements for the year ended 31 December 2013 except for the following which became effective for periods beginning on or after 1 January 2014 and were adopted by the Group:

· IFRS 10 - Consolidated Financial Statements

· IFRS 11 - Joint Arrangements

· IFRS 12 - Disclosures of Interests in Other Entities

· IAS 28 - Investments in Associates and Joint Ventures

· Amendments to IAS 36 - Impairment of Assets

· Amendments to IFRS 2 - Share Based Payments

· Amendments to IFRS 3 - Business Combinations

The adoption of the above standards and amendments has not had a material effect on the result for the period.

These Interim Financial Statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board's guidance on the review of interim financial information. These statements do not include all of the information required for full annual financial statements and should be read in conjunction with the full Annual Report for the year ended 31 December 2013.

The comparative figures for the financial year ended 31 December 2013 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor. The report of the auditor (i) was unqualified and (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report.

2 Going concern

The Group meets its day-to-day working capital and other funding requirements through its banking facility, which includes an overdraft facility. On 11 July 2014, the Group refinanced its bank borrowings (see note 13).

The Group actively manages its financial risks and operates Board approved polices, including interest rate hedging policies, that are designed to ensure that the Group maintains an adequate level of headroom and effectively mitigates financial risks.

On the basis of current financial projections and facilities available, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, consider that it is appropriate to adopt the going concern basis in preparing these Interim Financial Statements.

3 Financial risks, estimates, assumptions and judgements

In preparing these Interim Financial Statements, management have been required to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and income and expense. Actual results may differ from estimates. The significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are the same as those that applied to the Consolidated Financial Statements for the year ended 31 December 2013 as set out in note 27 of the Annual Report and Accounts for that year.

Details of the main risks the Group faces are set out on pages 23 to 25 of the Group's Annual Report and Accounts for the year ended 31 December 2013. The Directors consider that these are the risks that could impact the performance of the Group in the remaining six months of the current financial year. As in the previous year, these risks are being managed and their anticipated impact mitigated.

Breedon Aggregates Limited 

Interim results (unaudited) for the six months to 30 June 2014

Notes to the Interim Financial Statements (continued)

4 Segmental analysis

Segmental information is presented in respect of the Group's business segments in line with IFRS 8 - Operating Segments which requires segmental information to be presented on the same basis as it is viewed internally. The Group's Board of Directors, considered as the Group's "Chief Operating Decision Maker", views the business on a geographical basis. As such, two operating segments (England and Scotland) have been identified as reportable segments. There are no other operating segments. The majority of revenues are earned from the sale of aggregates, related products and services.

5 Non-underlying items

As required by IFRS 3 - Business Combinations, acquisition costs have been expensed as incurred. Additionally, the Group incurred redundancy costs in respect of the reorganisation of parts of the businesses. Non-underlying items also include property items, the amortisation of acquisition intangible assets and related tax items.

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Notes to the Interim Financial Statements (continued)

6 Financial income and expense

7 Taxation

The Company is resident in Jersey which has a zero per cent tax rate. The tax charge for the six months ended 30 June 2014 has been based on the estimated effective blended rate applicable for existing operations for the full year. This is based on an effective rate of 21.50% on profits arising in the Group's UK subsidiary undertakings with no tax deduction for expenses arising in Jersey.

A reduction in the UK corporation tax rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Group's future current tax charge accordingly

 8 Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings.

The bank loans and overdrafts carry a rate of interest of 3% above LIBOR and are secured on the freehold and leasehold properties and other assets of the Company and its subsidiary undertakings and have a final repayment date of 5 September 2015. On 11 July 2014, the Group refinanced its bank borrowings (see note 13).

Net debt

Net debt comprises the following items:

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Notes to the Interim Financial Statements (continued)

9 Earnings per share

The calculation of earnings per share is based on the profit for the period attributable to ordinary shareholders of £6,999,000 (30 June 2013: £3,346,000, 31 December 2013: £9,348,000) and on the weighted average number of ordinary shares in issue during the period of 1,008,465,099 (30 June 2013: 751,125,117, 31 December 2013: 865,119,988).

The calculation of underlying earnings per share is based on the profit for the period attributable to ordinary shareholders, adjusted to add back the non-underlying items, of £7,328,000 (30 June 2013: £4,116,000, 31 December 2013: £9,651,000) and on the weighted average number of ordinary shares in issue during the period as above.

Diluted earnings per ordinary share is based on 1,092,019,925 (30 June 2013: 863,538,602, 31 December 2013: 944,453,198) shares and reflects the effect of all dilutive potential ordinary shares.

10 Acquisitions

On 1 June 2014, the Group acquired the entire issued share capital of Huntsman's Quarries Limited. This transaction has been accounted for as a business combination.

The fair value of the consideration paid and the consolidated net assets acquired, together with the goodwill arising in respect of this business combination, are as follows:

The provisional fair value adjustments comprise adjustments to mineral reserves and resources, land and buildings and investments to reflect fair value at the date of acquisition; to inventories to reflect fair value; and to deferred tax balances.

The goodwill arising represents the geographic location of the assets acquired and the skills of the existing workforce.

During the period, this business contributed revenues of £940,000, underlying EBITDA of £280,000 and underlying operating profit of £208,000 to the Group's results. If this acquisition had occurred on 1 January 2014, the results of the Group would have shown revenue of £128,964,000, underlying EBITDA, before share of associated undertaking, of £18,553,000 and underlying operating profit for the period of £11,006,000

Prior year acquisitions

On 30 April 2013, the Group acquired certain trade and quarrying assets from Marshalls Mono Limited and on 30 April 2013, the Group acquired certain Scottish trade and assets from Aggregate Industries UK Limited. These transactions have been accounted for as business combinations. Details of the fair value of consideration paid and the net assets acquired, together with the goodwill arising in respect of these business combinations of £12,509,000, are given in note 26 on pages 82 and 83 of the Group's Annual Report and Accounts for the year ended 31 December 2013. There have been no changes in the provisional fair value adjustments in the six months to 30 June 2014.

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2014

Notes to the Interim Financial Statements (continued)

11 Related party transactions

Related parties are consistent with those disclosed in the Group's Annual Report and Accounts for the year ended 31 December 2013. All related party transactions are on an arm's length basis.

12 Stated capital

During the period, the Company issued 51,749 ordinary shares of no par value at 15.0 pence per share and 1,959,055 ordinary shares of no par value at 16.4 pence per share in connection with the exercise of certain savings related share options.

On 3 June 2014, the Company issued 6,979,451 ordinary shares of no par value in connection with the Breedon Aggregates Performance Share Plan, details of which are given in note 19 on page 75 of the Group's Annual Report and Accounts for the year ended 31 December 2013

13 Post Balance sheet events

On 11 July 2014, the Group entered into a new four year £100 million, multicurrency revolving bank facility to refinance all its existing bank borrowings. The new facility will be secured by way of a floating charge on the Group's assets. Based on the Group's current leverage ratio, the initial interest rate applicable to the new facility is 1.7% above LIBOR.

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ from those currently anticipated.