Breedon Regulatory News (BREE)

23 July 2015

Breedon Aggregates Limited

("Breedon Aggregates" or "the Group")

Interim results (unaudited) for the six months to 30 June 2015

Breedon Aggregates, the UK's largest independent aggregates business, announces its unaudited interim results for the six months ended 30 June 2015.

† 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.

4.5 million tonnes of aggregates sold (30 June 2014: 3.6 million tonnes)

0.9 million tonnes of asphalt sold (30 June 2014: 0.7 million tonnes)

0.4 million cubic metres of ready-mixed concrete sold (30 June 2014: 0.3 million cubic metres)

Highlights

· Strong trading performance

· Underlying business well ahead of prior year

· Underlying EBITDA margin up to 17.0%

· Huntsmans and former Barr business performing well

· Step-up in capital investment on track

· Mineral reserves & resources replenished

· Several acquisition opportunities under review

Looking ahead Peter Tom CBE, Executive Chairman, commented:

"Trading during the first half was strong, with both the underlying business and recent acquisitions performing ahead of our expectations. March was a record month for the Group, with exceptional performances from both England and Scotland.

"Assuming that current trading conditions continue through the second half of 2015, we believe that market expectations for the year will be exceeded."

- ends -

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

Breedon will host a meeting for invited analysts at 9.00am today and there will be a simultaneous dial-in broadcast of the meeting. Please call 0844 335 0993 to listen to the broadcast. The passcode is 79071269 #. A recording of the meeting will be available to play or download from our website later today at http://www.breedonaggregatesir.com and the presentation can also be viewed or downloaded from the same location from 8.55am this morning.

Enquiries:

Note to Editors

Breedon Aggregates is the leading independent aggregates business in the UK after the four global majors. It operates 53 quarries, 26 asphalt plants, 59 ready-mixed concrete plants and three concrete block plants in England and Scotland and employs around 1,240 people. The Group has strong asset backing, with over 500 million tonnes of mineral reserves and resources in the UK. Breedon Aggregates' strategy is to grow through consolidation of the UK heavyside building materials sector.

Interim results (unaudited) for the six months to 30 June 2015

Group Results

Breedon Aggregates Limited, the UK's largest independent aggregates business, today announces its results for the six months to 30 June 2015.

Group results include a full six months' benefit from the acquisitions of Huntsman's Quarries (Huntsmans), which was acquired on 1 June 2014 and Barr Quarries (Barr), which was acquired on 31 October 2014.

We are very pleased with the performance of both the underlying business and last year's acquisitions.

Group revenue for the half-year of £160.5 million was 28 per cent ahead of the comparable period. Underlying earnings before our share of associate and joint venture, interest, tax, depreciation and amortisation (EBITDA) increased by 54 per cent to £27.3 million (30 June 2014: £17.8 million). The EBITDA margin improved to 17.0 per cent (30 June 2014: 14.2 per cent).

When we formed Breedon Aggregates in 2010, we set ourselves a medium-term underlying EBITDA margin target of 15 per cent. We are pleased to have broken through that goal this year, helped by the unusually low oil price, and we think it appropriate to set a new target. We are therefore now aiming for an underlying EBIT margin of 15 per cent by 2020 (representing an underlying EBITDA margin of approximately 20 per cent), which is consistent with that being achieved by the industry prior to the recession.

Financial Highlights

Operating Performance

Trading during the first half was strong, with both the underlying business and recent acquisitions performing ahead of our expectations. March was a record month for the Group, with exceptional performances from both England and Scotland. The result of the general election in May removed potential political uncertainty and the economic situation in the UK has continued to improve. First-half underlying EBITDA of £27.3 million was significantly ahead of the comparable period in 2014, driven by: a strong start to the year in England, on the back of buoyant demand and good weather; the additional contribution from last year's acquisitions; and the benefit of the fall in oil prices in the final quarter of last year.

There has been some confusion surrounding the recent performance of UK construction. Provisional figures from the ONS in May indicated a decline of 1.1 per cent in the first quarter of this year. This was however challenged by the Construction Products Association (CPA), based on evidence from its members, following which the ONS revised its figures and now estimates that output was flat quarter-on-quarter and increased by 4.4 per cent compared to the same quarter last year. In their latest trade survey, CPA members report strong demand and improving prices in the first four months of 2015.

The Mineral Products Association (MPA) figures for the first quarter of 2015 certainly indicate continued growth, with approximate volume increases of 11 per cent in aggregates, 14 per cent in asphalt and 8 per cent in concrete, compared to the same quarter last year.

A number of key contracts were supplied in the period. We commenced off-site supplies to the £750 million Aberdeen Ring Road (AWPR) and continued to supply both the new Jaguar Land Rover plant in the West Midlands and the Nottingham Tram project.

Our step-up in capital investment continued and we committed nearly £3 million to the former Barr business to catch up on significant under-investment identified at the time of acquisition. In addition, new asphalt plants were ordered to replace a 40-year-old plant near Inverness and the recently sold plant at Tom's Forest quarry near Aberdeen.

In England, we approved a major upgrade to the crushing equipment at our largest quarry, Cloud Hill near Breedon on the Hill in the East Midlands, and also invested in additional equipment at Huntsmans to increase capacity and enable the production of dense concrete blocks at the quarry. The two asphalt plants which we bought from Hope Construction Materials last year were refurbished and are making a useful contribution to profits. We submitted a major planning application for additional reserves at our Clearwell quarry in Gloucestershire, acquired from Marshalls in 2013, and a new sand and gravel quarry is also expected to come on stream at Earls Barton near Northampton in the second half of the year.

Safety performance during the first six months was somewhat disappointing, with four lost-time injuries reported compared to two in the same period last year. The annualised frequency rate (LTIFR), our key measure of performance, remained flat but, encouragingly, the severity rate continued to fall and we are working hard to achieve an improved performance in the remainder of the year.

Balance sheet and cash flow

Net assets at 30 June 2015 were £181.7 million, compared to £167.2 million at 31 December 2014 and £156.7 million at 30 June 2014.

Cash generated from operating activities was £17.5 million, after an increase in working capital of £9.7 million as a result of the increased trading performance and seasonal requirements of the business. Group capital expenditure totalled £7.1 million of which £2.5 million was spent in cash with the balance being funded by way of finance leases. The Group received £1.3 million from asset disposals and it repaid £3.8 million of finance leases. The net cash outflow for the period was £6.1 million and net debt at 30 June 2015 was £58.3 million, compared to £66.3 million at 31 December 2014 and £63.0 million at 30 June 2014.

The ratio of net debt to EBITDA reduced to 1.2x at 30 June 2015, compared to 1.7x at 31 December 2014 and 1.9x at June 2014.

Outlook

Underlying trading conditions continue to look robust with economic indicators pointing to further growth in GDP and construction output in 2015. The macroeconomic background is favourable, with low unemployment and the long-awaited improvement in real wages starting to come through.

The outlook in England continues to be positive, with a number of target contracts identified for the second half of 2015. In Scotland, underlying demand is not as strong and, in particular, there is no sign of increased maintenance spending by Transport Scotland following the significant declines between 2009 and 2011. Several large contracts are however about to start in Scotland, including the A9 dualling, surfacing of the new Forth Crossing and a number of large wind farms.

The MPA forecasts volume growth of around 5 per cent over the next few years which, if achieved, would mean that national consumption of aggregates will return to pre-recession levels by about 2020. The recent Budget has confirmed that the Government remains committed to infrastructure investment, particularly on road related projects, and we expect the overall economic environment to remain favourable in the medium term.

Hydrocarbon prices appear to have bottomed in the final quarter of last year and nudged upward through the first half of this year. The industry is expecting this trend to continue in the coming months, with some potential impact on margins. However, assuming that current trading conditions continue through the second half of 2015, we believe that market expectations for the year will be exceeded.

We continue to pursue our stated acquisition strategy and have several acquisition opportunities under review.

Finally, we would like to thank all our colleagues for their contribution to the success of the business in the first half of the year and we look forward to working with them to achieve 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 2015

Condensed Consolidated Income Statement

for the six months ended 30 June 2015

* 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 2015

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2015

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2015

Condensed Consolidated Statement of Financial Position

at 30 June 2015

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2015

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2015

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2015

Condensed Consolidated Cash Flow Statement

for the six months ended 30 June 2015

Breedon Aggregates Limited 

Interim results (unaudited) for the six months to 30 June 2015

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 2014.

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 2014.

The comparative figures for the financial year ended 31 December 2014 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, which expires in July 2018.

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 2014 as set out in note 27 of the Annual Report and Accounts for that year.

The principal risks and uncertainties the Group faces are in respect of the following:

· Market conditions

· Competition and margins

· Acquisitions

· Liquidity

· Legal and regulatory

· Health & safety and environment

· People

· IT

Further details of these main risks are set out on pages 20 to 21 of the Group's Annual Report and Accounts for the year ended 31 December 2014. 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 2015

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 related 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 2015

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 2015 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 20.25 per cent on profits arising in the Group's UK subsidiary undertakings with no tax deduction for expenses arising in Jersey.

Reductions in the UK corporation tax rate from 23 per cent to 21 per cent (effective from 1 April 2014) and 20 per cent (effective from 1 April 2015) were substantively enacted on 2 July 2013. In the Summer Budget on 8 July 2015, the Chancellor announced additional planned reductions to 18 per cent by 2020. 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 Group refinanced its bank loans and overdrafts in July 2014. The bank loans and overdrafts carried a rate of interest of 3.0 per cent above LIBOR prior to refinancing. Since July 2014 they have carried a rate of interest of 1.7 per cent above LIBOR and are secured by a floating charge over the assets of the Company and its subsidiary undertakings and have a final repayment date of 11 July 2018.

Net debt

Net debt comprises the following items:

Breedon Aggregates Limited

Interim results (unaudited) for the six months to 30 June 2015

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 £13,626,000 (30 June 2014: £6,999,000, 31 December 2014: £17,069,000) and on the weighted average number of ordinary shares in issue during the period of 1,060,836,750 (30 June 2014: 1,008,465,099, 31 December 2014: 1,013,408,839).

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 £13,645,000 (30 June 2014: £7,328,000, 31 December 2014: £16,622,000) and on the weighted average number of ordinary shares in issue during the period as above.

Diluted earnings per ordinary share is based on 1,094,464,951 (30 June 2014: 1,092,019,925, 31 December 2014: 1,090,713,882) shares and reflects the effect of all dilutive potential ordinary shares.

10 Acquisitions

There have been no acquisitions in the period.

Prior year acquisitions

On 1 June 2014, the Group acquired the entire issued share capital of Huntsman's Quarries Limited and on 31 October 2014, the Group acquired the entire issued share capital of Barr Quarries 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 £7,545,000, are given in note 26 on pages 75 to 77 of the Group's Annual Report and Accounts for the year ended 31 December 2014. There have been no changes in the provisional fair value adjustments in the six months to 30 June 2015.

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 2014. All related party transactions are on an arm's length basis.

12 Stated capital

During the period, the Company issued 89,478 ordinary shares of no par value at 15.0 pence per share, 619,176 ordinary shares of no par value at 16.62 pence per share, 14,550 ordinary shares of no par value at 37.8 pence per share and 290 ordinary shares of no par value at 41.35 pence per share in connection with the exercise of certain savings related share options.

During the period, the Company issued 46,936,068 ordinary shares of no par value in connection with the purchase of all the remaining Marwyn Participation Shares, details of which are given in note 19 on page 66 of the Group's Annual Report and Accounts for the year ended 31 December 2014.

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.