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9
MAKING A
MATERIAL
DIFFERENCE
BREEDON GROUP
ANNUAL REPORT 2019
www.breedongroup.com
From our quarries and
plants come the essential
construction materials that
build our homes, workplaces
and leisure spaces.
From roads to airport runways,
from houses to warehouses,
shops to offices, walkways,
cycle paths, tennis courts and
golf courses, you’ll find our
products transforming the lives
of people at work and at play in
cities, towns and villages across
Great Britain and Ireland.
From the ground up, we are
MAKING A
MATERIAL
DIFFERENCE
IN THIS REPORT
STRATEGIC REPORT
2019 highlights
Our strategy
Our business at a glance
Statement from the Chair
Group Chief Executive’s review
Our business model
Our markets
Our strategy: progress and priorities
Our Key Performance Indicators
Managing our risks and opportunities
Group Finance Director’s review
Business reviews
Resources and relationships
Health and safety
Climate change and energy
Social responsibility
Environment and nature
Circular economy
Our stakeholders
GOVERNANCE
Board of Directors
Corporate Governance statement
Audit Committee report
Directors’ Remuneration report
Nomination Committee report
Directors’ Report
Statement of Directors’ Responsibilities
FINANCIAL STATEMENTS
Independent Auditor’s report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
ADDITIONAL INFORMATION
Shareholder information
Advisers and company information
Glossary
02
04
06
08
12
16
18
20
22
24
28
33
44
46
48
50
52
53
54
58
60
66
69
77
79
82
84
90
91
92
93
94
95
135
138
139
Please read this report in conjunction with the
glossary on pages 139 and 140.
Front cover: Restoration work underway at our
former Black Cat quarry in Bedfordshire, where
we largely completed mineral extraction in 2019
FOR MORE INFORMATION
www.breedongroup.com
ABOUT US
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WHO WE ARE
A leading vertically-integrated
construction materials group
in Great Britain and Ireland.
Our core outputs are
aggregates and cement, from
which we produce a range of
value-added products including
asphalt, ready-mixed concrete
and mortar, together with the
delivery of specialist contracting
services including highway
surfacing and maintenance.
OUR STRATEGY
We are an ambitious company
in our tenth year of consistent
growth. As we look ahead,
we have set out in this report a
clear guide to our medium-term
objectives and strategy. We aim
to be a leading international
construction materials group
creating superior value for all our
stakeholders. We have detailed
the six pillars of our strategy
on pages 4 and 5.
Whitemountain’s Temple Quarry near Belfast
BREEDONGROUP.COM
01
STRATEGIC REPORT
2019 HIGHLIGHTS
REVENUE
UNDERLYING EBIT*
£929.6m
2018: £862.7m +8%
£116.6m
2018: £103.5m +13%
UNDERLYING EBIT MARGIN*
PROFIT BEFORE TAX
12.5%
2018: 12.0% +0.5ppt
£94.6m
2018: £79.9m +18%
UNDERLYING BASIC EARNINGS PER SHARE*
BASIC EARNINGS PER SHARE
5.08p
2018: 4.70p +8%
4.64p
2018: 4.01p +16%
NET DEBT
£290.3m
2018: £310.7m
* Underlying results are stated before acquisition-related expenses, redundancy
* Underlying results are stated before acquisition-related expenses, redundancy
and reorganisation costs, property items, amortisation of acquisition
and reorganisation costs, property items, amortisation of acquisition
intangibles and related tax items.
intangibles and related tax items. References to an underlying profit measure
References to an underlying profit measure throughout this Annual Report are
throughout this Annual Report are defined on this basis.
defined on this basis, and a reconciliation to the most directly related statutory
measure is provided on pages 132 to 134.
Read about our progress against the six pillars of our strategy on pages 4 and 5.
02
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT
We delivered a strong
result, reflecting an
excellent performance in
challenging conditions
All three of our Divisions
produced improved results
Strong cash flow resulted
in closing post IFRS 16
Leverage of 1.6
We largely completed the
integration of Lagan
The acquisition of Roadway
strengthened our position in
North Wales
Our Capital Concrete
joint venture gave us critical
mass in the London
readymix market
We negotiated the acquisition
of a substantial portfolio of
assets from CEMEX in the UK
We committed to the GCCA’s
Sustainability Charter
We intend to declare a
maiden dividend with our
2021 interims
Above: James Quinn, skipper of Whitemountain’s sand dredger on
Lough Neagh in Northern Ireland
Above: Rita Simpson, who keeps the pre-heater tower at our Hope
cement works flowing
Above: Paddy O’Shea, Control Room Operator, Cloud Hill quarry
BREEDONGROUP.COM
0303
BREEDONGROUP.COMSTRATEGIC REPORT OUR STRATEGY
There are six pillars to our
strategy, which together
constitute the essential elements
of Breedon’s investment case.
From this year we will report on
our progress against these pillars.
6.
A GROWING,
WELL-UTILISED
ASSET BASE
5.
CONSERVATIVE
FINANCIAL
MANAGEMENT
1.
A CLEAR PURPOSE AND
THE RIGHT CULTURE
OUR SIX
PILLARS
4.
LONG-TERM
GROWTH MARKETS
2.
ROBUST
GOVERNANCE
3.
COMMITMENT TO
SUSTAINABILITY
AND SOCIAL
RESPONSIBILITY
1.
A CLEAR PURPOSE AND
THE RIGHT CULTURE
Our purpose is simple: to make a material
difference to the lives of our colleagues, our
customers and our communities, recognising
that our products are essential to our economic
livelihood and to the development of healthy
living and working spaces for everyone.
We acknowledge that no company can achieve
its purpose without the right culture, rooted in
strong ethical values and behaviours, and a safe
working environment. Over the past year we have
engaged in a wide-ranging consultation with our
colleagues in an effort to define and give clear
expression to that culture. It can be summarised
in the four values which will guide us in everything
we do over the coming years:
• Keep it simple
• Make it happen
• Strive to improve
• Show we care
Our priority is to ensure that these values
become deeply embedded in our business,
that they are reflected in the working
environment we provide for our colleagues
and that they drive the right leadership
behaviours in our management team.
04
2.
ROBUST
GOVERNANCE
We are already compliant with the Quoted
Companies Alliance (QCA) Corporate
Governance Code, having a strategy and
business model which promotes long-term
shareholder value and meets our shareholders’
needs and expectations, supported by effective
risk management and broad stakeholder
engagement activity.
We have been steadily developing our Board
to ensure that it is well balanced, with the right
mix of skills and experience, evaluated against
clear and relevant objectives, with governance
structures that are fit for purpose and support
sound decision-making.
We have always sought to adhere to the
highest standards of corporate best practice,
which in due course will naturally support a
likely transition from the Alternative Investment
Market (AIM) to a full listing on the London
Stock Exchange, at which point we will be
governed by the Financial Reporting Council’s
(FRC) UK Corporate Governance Code, with
which we are already substantially compliant.
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT 3.
COMMITMENT TO
SUSTAINABILITY AND SOCIAL
RESPONSIBILITY
As an extractive industry we have an obligation
to ensure that our impact on the environment
and society are minimised. Being a good
corporate citizen is essential to protecting
our licence to operate and is central to our
purpose: to make a material difference to the
communities we serve.
From 2019 we have fully embraced our wider
stakeholder and social responsibilities by
targeting full compliance with the five pillars
of the Global Cement and Concrete
Association’s (GCCA) Sustainability Charter:
• Health and safety
• Climate change and energy
• Social responsibility
• Environment and nature
• Circular economy
5.
CONSERVATIVE FINANCIAL
MANAGEMENT
Breedon has always sought to balance growth
and profitability. We prioritise the maintenance
of a strong balance sheet with a responsible
approach to Leverage and deploy our capital
responsibly, allowing us to commit significant
organic investment to our business whilst
continuing to pursue acquisitions to accelerate
our strategic development.
This conservative approach to financial
management will enable us to continue
pursuing capital growth for our shareholders,
whilst supporting our future dividend policy.
4.
LONG-TERM
GROWTH MARKETS
We will continue to focus on construction
materials markets that deliver profitable growth
across the cycle.
We see numerous opportunities to expand
both our geographical footprint and our
product portfolio through organic investment
and acquisitions.
As we look over time to international markets
beyond Great Britain (GB) and Ireland,
we will focus only on those countries which
are characterised by robust legal systems,
reliable planning regimes and benign local
cultures with minimal political risk.
6.
A GROWING, WELL-UTILISED
ASSET BASE
The resources we use to produce our products
are scarce and valuable, so it is vital that we
maintain a high level of mineral reserves and
maximise the value of every tonne of material
we quarry or manufacture. We achieve this
through a disciplined approach to quarry
acquisition and development, coupled with a
deep-rooted culture of self-help that ensures
our operations remain efficient and competitive
irrespective of market conditions.
At the end of 2019 we had nearly 900 million
tonnes of mineral reserves and resources,
enough to last 38 years at current rates of
extraction, coupled with two cement plants
with high replacement values.
Looking to the future, we aim to increase
our asset base in all the markets in which we
operate and ensure that we continue extracting
value as efficiently as possible and with due
regard to our responsibilities as stewards of
the land on which we operate.
05
BREEDONGROUP.COMSTRATEGIC REPORT OUR BUSINESS AT A GLANCE
OUR BUSINESS AT A GLANCE
We are a leading vertically-integrated
construction materials group in
GB and Ireland.
GREAT BRITAIN
In GB we operate a nationwide network of quarries
and downstream operations extending from
Stornoway in the Hebrides to Hampshire in the
south of England. Our contracting services business
undertakes contract surfacing for both minor and
major infrastructure projects.
PRODUCT VOLUMES 2019
REVENUE
AGGREGATES
million tonnes
ASPHALT
million tonnes
19.4
1.6
20.2
2.6
2.8
0.9
3.0
1.1
£615.1m
UNDERLYING EBIT
£62.8m 50%*
of Group
Key Assets
• Substantial permitted mineral reserves and resources
• Extensive network of quarries, rail-linked aggregates
depots, asphalt plants, ready-mixed concrete plants
and concrete products manufacturing facilities
throughout England, Scotland and Wales
• Nationwide fleet of delivery vehicles for all products
• Sizeable contracting services operations
Strategic Advantages
• Strong reserve base
• Fully vertically-integrated operations, yielding
economies of scale
• Highly localised service with diverse range
of customers
• Well positioned to secure acquisitions in
fragmented market
* Excludes central administration and share of profit of associate and joint ventures.
Further segmental information is provided in note 2 to the Financial Statements on
page 103.
17.8
2018
17.6
2019
+4%
1.9
2018
1.9
2019
+6%
CONCRETE
million m3
CEMENT
million tonnes
3.2
0.1
3.0
0.2
2.0
2.0
3.1
2018
2.8
2019
-7%
2018
2019
+3%
Great Britain
Ireland
Cement
Volume data in the above charts have been rounded to the nearest 0.1 million.
Reported percentage movements are calculated based on non-rounded data.
06
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT IRELAND
Breedon trades under the Whitemountain brand in
Northern Ireland (NI) and as Lagan in the Republic
of Ireland (RoI). We operate a nationwide network
of quarries and downstream operations alongside
a significant contracting services business which
undertakes contract surfacing as well as major
infrastructure and highway maintenance contracts
throughout Ireland.
CEMENT
Breedon’s Cement Division operates two cement
plants, in GB and Ireland, including the UK’s largest
cement plant by capacity, together with four import/
export terminals and a rail-linked distribution network.
REVENUE
REVENUE
£202.0m
£186.4m
UNDERLYING EBIT
UNDERLYING EBIT
£26.8m 21%*
of Group
£36.3m 29%*
of Group
Key Assets
Key Assets
• Highly regarded contract surfacing and highway
• Two well-invested cement plants, including the
maintenance business operating across RoI and GB
• Bitumen importation and distribution business,
including production of bitumen emulsions and
polymer modified bitumen and binders
• Growing network of quarries, asphalt plants,
ready-mixed concrete plants and concrete and
clay products manufacturing facilities throughout
NI and RoI
UK’s largest plant by capacity, together capable of
producing more than two million tonnes of cement
each year
• Import and export capability through three terminals
in GB and another in Ireland
• Rail-linked distribution network in GB, servicing four
regional cement depots with more than a million
tonnes of throughput capacity
• Port terminal for export of high-margin high PSV
• Major cement bagging plant at Dagenham just
aggregates to GB
outside London
Strategic Advantages
Strategic Advantages
• Established position in RoI market with strong
• Flexibility of supply due to production capability
growth prospects
• Excellent contract surfacing track record, including
specialist expertise in airport runway surfacing
• Enhanced platform for further organic growth
and bolt-on acquisition opportunities in
fragmented markets
in GB and Ireland, coupled with cementitious
import capacity
• Bulk supply complemented by higher-margin
bagged products distributed to builders merchants
market in GB and Ireland
• Reduced distribution costs due to rail links from
our Hope Works to regional depots
07
BREEDONGROUP.COMSTRATEGIC REPORT STRATEGIC REPORT
STATEMENT FROM THE CHAIR
The challenging
environment
only served to
intensify our
efforts to improve
our business.”
Amit Bhatia
Non-executive Chairman
08
08
BREEDON GROUP ANNUAL REPORT 2019
BREEDON GROUP ANNUAL REPORT 2019
This is my inaugural report to shareholders
as Chairman of Breedon and I would like to
start by acknowledging the strong legacy left
by my predecessor, Peter Tom, and thanking
him for his distinguished service over the
past 10 years. That said, Pat Ward and his
excellent team have made my transition both
smooth and enjoyable.
2019 was one of the most challenging years
we have faced so far. As a result of the uncertainties
surrounding the United Kingdom’s (UK) withdrawal
from the European Union (EU), we spent much of the
year swimming against the tide. UK business
investment is estimated to have fallen by 1.4 per cent,
construction markets were broadly flat and
competition was tough. This difficult backdrop,
however, only served to intensify our team’s efforts to
improve our business. To deliver a 13 per cent increase
in Underlying earnings before interest and tax (“EBIT”)
on eight per cent higher revenues under these
conditions is testament to the skill and resourcefulness
of management and the dedication and commitment
of our 3,000 colleagues.
Able managers of high character running businesses
about which they are passionate are good ingredients
for success. We are fortunate to have these qualities in
abundance throughout Breedon.
Acquisitions
In October we were pleased to complete the
acquisition of Roadway Civil Engineering & Surfacing
Ltd (“Roadway”) and in December we formed a
strategically important joint venture in London with
Robert Brett & Sons Limited (“Brett”), trading as
Capital Concrete Limited (“Capital Concrete”).
We followed this up immediately after the year-end
with an agreement to acquire a portfolio of high-
quality assets from CEMEX UK Operations Limited
(“CEMEX”) in the UK, which will substantially
strengthen our GB network and our platform for
further growth. Our pipeline remains robust and we
remain keen to transact with companies that add to
Breedon’s strategic goals and share our values.
You can read more about our performance and the
background to these acquisitions in your Group Chief
Executive’s review on pages 12 to 15.
Shareholder value
Good performance, of course, is of limited value
unless investors enjoy the benefits and there is no
doubt that the performance of our share price during
the year was largely disappointing, driven partly by
a weak macroeconomic environment and partly by a
significant churn in our shareholder register unrelated
to the performance of the business. Throughout this
period, we have remained focused on preserving and
enhancing Breedon’s intrinsic value, so that as
conditions improve, so does our company’s value.
It was pleasing to note the rise in the share price
towards the end of the year, signifying that the hard
work of the past few years was being recognised.
This gave a much-needed boost to our colleagues
and provided a deserved reward for our investors.
Unforeseen global events outside our control may have
an adverse effect on the economy, but we will remain
steadfast in our efforts to operate our businesses as
efficiently and profitably as possible. From the first
day that your company was admitted to trading on
AIM in 2008, we have been fortunate to have had
supportive shareholders who joined us because they
wished to make a long-term investment in a business
that would do well and do good. We have benefited
enormously from your support.
Sustainability
We understand that as one of the leading businesses
in the UK and Ireland, operating in an environmentally
sensitive industry, Breedon’s obligations go well
beyond delivering a strong financial performance.
Our responsibility is to all our stakeholders and this
is reflected in our newly-defined purpose: to make a
material difference to the lives of our customers, our
colleagues and our communities. Making this purpose
a reality is vital to maintaining our licence to operate,
to the successful execution of our strategy and to
ensuring that we are the best corporate citizen we
can be.
Climate change and sustainability are defining factors
in determining a company’s long-term prospects.
We understand the role we play and recognise that
we must place these issues at the heart of our business
and strengthen our commitment to transparency, so
that our shareholders have a clear picture of how we
manage these important issues. A company cannot
achieve long-term success without having a strong
sense of purpose and a determined consideration of a
broad range of stakeholders. Ultimately, purpose is the
engine of long-term profitability. It is the duty of your
Board to implement frameworks for managing
sustainability issues and to produce effective
disclosures associated with them.
You can gauge the measure of our commitment on
pages 45 to 53, where you will see that we have
adopted the GCCA Sustainability Charter, obligating
us to set and achieve demanding targets on health
and safety; climate change and energy; social
responsibility; environment and nature; and the
circular economy. The Board will be uncompromising
in its requirement for continuous improvement in all
these areas in the years ahead.
Purpose and values
It is of course the case that genuinely improving the
lives of our stakeholders can only happen if we have a
culture rooted in strong ethical values and behaviours.
In 2019 we embarked on a wide-ranging internal
consultation, including a Group-wide engagement
survey, in an effort to define and articulate our
culture more clearly. The values we identified will be
embedded in the business and provide the benchmark
against which we will measure our success in engaging
with and changing the lives of our stakeholders, both
inside and outside the company, in the coming years.
09
BREEDONGROUP.COMSTRATEGIC REPORT STATEMENT FROM THE CHAIR CONTINUED
Governance
You should rightly expect strong governance to be
at the heart of our culture. In this regard, you will
have seen that during 2019 the Board was further
strengthened with the appointments of experienced
non-executive directors Clive Watson and Moni
Mannings, who this year assume respectively
the chairs of our Audit Committee and
Remuneration Committee.
I am also delighted to announce that in spring 2020
we will welcome Carol Hui to the Board as an
independent non-executive director. Carol is Chief of
Staff and General Counsel at Heathrow Airport
Holdings Limited and has previously served in senior
positions in oil and gas, logistics and infrastructure
companies. She was also a corporate finance lawyer
at Slaughter and May. She is currently Chairwoman of
Robert Walters Plc and a non-executive director of the
British Tourist Authority.
On behalf of the Board, I would like to record my
appreciation to David Williams, who retired from the
Board at the end of last year, and to Susie Farnon and
Peter Cornell, who will retire prior to the 2020 Annual
General Meeting (“AGM”). David and Susie have served
on the Board for a decade or more and I thank them
for their dedicated and loyal service.
Dividend
One of the most common questions I have been asked
since becoming Chairman is when Breedon will begin
paying a dividend. I am delighted to be able to confirm
that we intend to adopt a progressive distribution
policy from next year, commencing with a maiden
dividend to be declared with our 2021 interim results.
Strategy
As we look back on our successes over the last
10 years, it is appropriate that we should have taken
stock of our strategy to ensure that we are match-fit
for the coming years.
Over the long term we aspire to be a leading vertically-
integrated international construction materials group
delivering superior value for all our stakeholders.
Please take a moment to read pages 4 and 5, where
we explain how we will achieve this by maintaining a
clear purpose and culture, with robust governance,
a commitment to sustainability and social
responsibility, operating in long-term growth markets,
with conservative financial management and a growing
and well-utilised asset base.
The future
Looking ahead, I remain enthusiastic about the future.
Breedon has an exceptional team of people who have
consistently delivered exceptional results. I am
confident that we are well equipped to tackle any
challenge with which we are presented and ready to
take full advantage of the many opportunities which
lie ahead.
Amit Bhatia
Non-executive Chairman
11 March 2020
10
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT T
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Norton Bottoms quarry in Lincolnshire
BREEDONGROUP.COM
11
STRATEGIC REPORT
GROUP CHIEF EXECUTIVE’S REVIEW
We closed
2019 with a
strong result.”
Pat Ward
Group Chief Executive
12
BREEDON GROUP ANNUAL REPORT 2019
We closed 2019 with a strong result, in line
with the market’s expectations, reflecting an
excellent performance from our businesses
in some challenging market conditions.
On behalf of the Board and Executive
Committee, I would like to begin my review
with a sincere thank you to all our colleagues
for their tireless efforts.
MARKET BACKGROUND
The UK construction industry endured one of its
toughest periods for many years, with output in GB
remaining stubbornly flat amid declines in activity in
the public non-housing, industrial, commercial and
repair, maintenance and improvement sectors.
Growth was once again largely accounted for by
infrastructure and housing, which worked to our
advantage given that these represent the majority
of our end-use markets, although as always there
were significant regional variations.
In RoI, the picture was very different. Total output
is estimated to have risen by around eight per cent,
supported by exceptional growth in new residential
construction activity.
A more detailed assessment of our markets can be
found on pages 18 and 19.
TRADING PERFORMANCE
Revenues rose by eight per cent to £929.6 million,
generating a 13 per cent increase in Underlying EBIT
to £116.6 million, equivalent to an Underlying EBIT
margin of 12.5 per cent. Profit before tax rose
18 per cent to £94.6 million. Strong cash generation
remains one of Breedon’s distinctive characteristics
and once again we delivered an excellent result.
Starting this year, we will be disclosing our Free Cash
Flow (“FCF”) annually as a Key Performance Indicator
(“KPI”), together with our Return on Invested Capital
(“ROIC”), which we believe investors regard as
important additional measures of our performance.
All three of our Divisions (Great Britain, Ireland and
Cement) produced improved results, albeit with
inevitable regional variations depending on their
respective market conditions, achieved against the
backdrop of improved selling prices and assisted by
a generally more benign input cost environment.
A detailed review of our Divisional performances is
contained in the Business reviews on pages 33 to 43.
Thanks to our strong cash flow, post IFRS 16 net debt
at the end of the year stood at £290.3 million,
equivalent to 1.6 times Underlying EBITDA (earnings
before interest, tax, depreciation and amortisation and
before our share of profit from our associate and
joint ventures).
ORGANIC DEVELOPMENT
We have consistently deployed capital expenditure
at least to the level of depreciation, believing that
well-invested plant and equipment is vital to the
efficient long-term performance of our quarries,
plants and contracting services operations. 2019 was
no exception, with around £60 million directed to
operational enhancements, increased capacity,
geographical expansion and further development
of our mineral reserves and resources.
Among the landmark projects undertaken during the
year was a major replant at our North Cave quarry in
Yorkshire, together with new wash plants in our sand
and gravel quarry at Low Plains in Cumbria and in our
temporary pit at Loak Farm in Perthshire. The latter
will equip us to service upcoming demand from the
second phase of the A9 Dualling scheme, for which we
won a major supply and lay surfacing contract during
the year. We also completed the replacement of the
raw mill drive and kiln shell at our Hope cement works.
Once again we worked hard to create and release new
sources of minerals, including the development of a
new sand and gravel quarry at Willington near Bedford
and substantial additional aggregates reserves
released at Norton Bottoms quarry in Lincolnshire.
In RoI we opened a sixth quarry, at Castlepollard in
County Westmeath. We will continue selectively to
reopen our remaining mothballed quarries in RoI as
market demand dictates.
ACQUISITIONS
The acquisition of Roadway for £13.5 million in
October represented an important step in establishing
Breedon as a fully integrated business in North Wales.
It enables us for the first time to offer a comprehensive
asphalt supply and lay service throughout North
Wales, Shropshire, Cheshire and Merseyside and
provides an additional route to market for aggregates
from our quarries in the region.
In December we realised our longstanding strategic
ambition to secure critical mass in the London
ready-mixed concrete market through the creation of
a joint venture with Brett. The company, which trades
across Greater London as Capital Concrete, is jointly
owned by Breedon and Brett, together with the
company’s senior management, and provides both
partners with a strong platform from which to develop
our offerings to the largest construction materials
market in the UK.
Shortly after the year-end, in January 2020, we agreed
to acquire a substantial portfolio of high-quality assets
from CEMEX in the UK. This £178 million acquisition is
due to complete in the second quarter of this year and
will significantly extend the Group’s national network
via a single transaction, strengthening our footprint in
six key regions of GB, bringing us around 650 new
high-quality, well trained colleagues, and adding nearly
170 million tonnes of mineral reserves and resources.
13
BREEDONGROUP.COMSTRATEGIC REPORT GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
OUTLOOK
Breedon is in excellent shape. We have a well-
established business extending throughout GB
and Ireland, having delivered great results irrespective
of market conditions. We have an outstanding team
of colleagues and, following the acquisition of the
CEMEX asset portfolio, we will have the backing of
more than a billion tonnes of valuable mineral reserves
and resources, together with two well-invested
cement plants.
After 10 years of successful and profitable growth,
we have a clear strategy for the coming years, built
on a clear market philosophy, strong governance,
a healthy culture and a firm commitment to playing
our part in alleviating the impact of climate change
and delivering a sustainable future.
With the UK Government committed to significantly
increased investment in infrastructure, we are well
placed to benefit from the increased demand for our
products that this will create.
The Group is monitoring the potential impact of the
COVID-19 virus and has contingency plans in place
which will be refined as the Government releases
more information.
I am confident that we will make further progress
in 2020 and beyond.
Pat Ward
Group Chief Executive
11 March 2020
The purchase is fully consistent with our strategy
of acquiring earnings-enhancing aggregates-led
businesses with strong potential for performance
improvements and synergy benefits. It is also one of a
number of significant transactions we have concluded
with our major peers over the last few years,
confirming our ability to benefit from non-core
divestments by our larger competitors.
The TUPE consultation process is well underway,
IT migration planning is on track and we are engaged
in constructive discussions with the Competition
and Markets Authority in relation to its review of
the transaction.
SAFETY
I am pleased to report that we made very encouraging
progress in reducing the frequency of lost-time injuries
last year. As a result, we saw our key historical safety
metric, our Employee Lost-Time Injury Frequency Rate
(LTIFR) fall to 1.05, only marginally above our target
for the year.
This year we are also reporting our Total Injury
Frequency Rate (TIFR), which takes account of all
injuries, however minor. This fell to 17.17 from 20.54
in 2018.
Although these are encouraging outcomes and
compare favourably with our industry peers, we are
not complacent – there are still too many minor injuries
occurring in our business and we will not be satisfied
until we are sending all our colleagues home in the
same condition they arrived at work.
In 2019 we appointed our first Group Head of Health,
Safety & Environment, who brings with him a wealth of
experience from within our industry and has assumed
overall responsibility for the health and safety of our
3,000 colleagues, as well as overseeing our
environmental activities. We look forward to him
taking our safety engagement to new levels.
COLLEAGUE ENGAGEMENT
As the Chairman reports in his statement, last year we
undertook our first Group-wide engagement survey,
as part of an extensive consultation on the Group’s
purpose and values. We have always believed that the
quality and dedication of our people are among the
primary reasons for Breedon’s competitive advantage,
but we believed it was important for us to delve more
deeply into our colleagues’ perceptions of the
company they work for, acknowledging what we do
well and not so well, in order to articulate our values
more clearly and embed them in the business.
At the end of January 2020 we launched our new
purpose and values to our top 100 managers,
who enthusiastically embraced them and began to roll
them out to their respective teams in the weeks that
followed. We go into more detail on this exercise on
page 51.
14
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT GROUP CHIEF
EXECUTIVE
Q&A 2019
Group Chief Executive answers some
key questions on Breedon’s performance
in 2019 and on the future of the Group.
Q
A
Q
A
WHAT DO YOU THINK WERE BREEDON’S
GREATEST ACHIEVEMENTS IN 2019?
I would highlight two things. Firstly, I was
particularly pleased that we succeeded in
bringing down our LTIFR to close in line with our
target for 2019. This is evidence that the safety
culture we have been working so hard to embed
in our business is really taking root and that
keeping each other safe is becoming second-
nature to us all. Secondly, I would point to the
excellent operational performance delivered by
our team, who overcame very challenging
market conditions to deliver an outstanding
result, whilst largely completing the integration
of our largest acquisition to date.
WHY WAS IT SO IMPORTANT TO DEFINE
BREEDON’S PURPOSE AND VALUES?
Breedon has grown large and grown quickly,
in part via the acquisition of 16 businesses over
the past 10 years. Each of those businesses had
its own distinctive culture and legacy and it has
become increasingly important that we bind
ourselves together through a shared purpose
and common values that clearly distinguish us
from our competitors. We want to ensure that
we all understand what it means to be a
‘Breedon person’, making a material difference
to our customers, communities and each other.
Q
A
Q
A
WHERE WILL YOU LOOK NEXT FOR
ACQUISITION OPPORTUNITIES?
There is plenty still to go for in GB and Ireland,
where our markets remain fragmented and offer
plentiful opportunities for bolt-on acquisitions.
Even after we have completed the acquisition
of CEMEX’s assets this year, there will still be
regions of GB where we remain under-
represented and in Ireland we have a well-
defined pipeline of opportunities. As we have
indicated in the strategic overview on pages
4 and 5 of this report, we are ambitious and aim
in the years ahead to be a leading international
construction materials group, provided our
expansion criteria are met.
WHAT ARE BREEDON’S STRATEGIC
PRIORITIES FOR THE YEAR AHEAD?
Our first priority, of course, is to deliver on our
expectations from the core business. At the
same time, we will complete the acquisition of
CEMEX’s assets in the UK and progress planning
for their integration into the Group. We will also
continue to seek out bolt-on acquisition
opportunities, whilst maintaining high levels of
organic investment in our operations. With the
political environment more stable and the
prospect of major infrastructure spending to
come, we are exceptionally well placed to
benefit from improving markets in GB and the
continuing growth in construction activity in RoI.
15
BREEDONGROUP.COMSTRATEGIC REPORT STRATEGIC REPORT
OUR BUSINESS MODEL
We have a vertically-integrated business model which gives us significant economies
of scale, a high level of self-sufficiency and tight control over our costs.
The objective of our business model is to extract maximum value from every tonne of
aggregates we quarry and every tonne of cement we produce, through the efficient
manufacture and sale of a wide range of downstream products and associated services.
CORE
ASSETS
nearly
900mt
reserves and resources
2
cement plants
CORE
OUTPUTS
Aggregates
Cement
We seek continually to extend our mineral reserves
organically and by acquisition, aiming to replenish as
much as possible of what we use and ensure that we
always have a ready supply of raw material for our
downstream operations.
Our business depends upon securing planning
consents for new reserves and extensions, which are
granted sparingly. To achieve this, we maintain good
relationships with local authorities, landowners and
communities, and identify suitable opportunities to
acquire new quarries and reserves where possible and
to expand our cementitious business.
Whether we are extracting and processing aggregates,
or producing cement, we focus on doing it as
efficiently and cost-effectively as possible.
The logistics of manufacturing and distributing cement
and extracting, processing and transporting
aggregates are complex and require great technical
proficiency. We rely on well-invested plant and smart
utilisation, coupled with rigorous quality and
environmental controls, to ensure that every tonne of
material we produce is fit for purpose, whether its
destiny is as a raw material for asphalt, ready-mixed
concrete, blocks, or a host of other applications.
THE LONG-TERM SUCCESS OF OUR BUSINESS
MODEL IS SUPPORTED BY OUR KEY RESOURCES
AND RELATIONSHIPS:
Read about our Resources and Relationships
on pages 44 to 53.
• HEALTH AND
SAFETY
• CLIMATE CHANGE
AND ENERGY
16
16
BREEDON GROUP ANNUAL REPORT 2019
BREEDON GROUP ANNUAL REPORT 2019
T
R
O
P
E
R
C
G
E
T
A
R
T
S
I
RECYCLE
ADDED VALUE
PRODUCTS AND SERVICES
LONG-TERM
GROWTH MARKETS
Asphalt
Ready-mixed concrete
Contracting services
Other products
Infrastructure
Housing
Commercial
Other
The essence of our business model is to maximise
the return on every tonne of material we produce,
whether it is rock, sand or gravel from our quarries,
or cementitious products from our cement works and
import terminals. Our vertical integration provides
valuable, margin-enhancing routes to market for our
core mineral and cement outputs.
We invest heavily in optimising the efficiency of our
product manufacturing plants at every stage.
We also constantly innovate to produce higher-margin
specialist performance mixes of both ready-mixed
concrete and asphalt. The success of our contracting
services business is down to judicious management of
contracts and excellent service delivery.
Our markets are characterised by steady growth over
the cycle and the prospects both in GB and Ireland in
the medium to long term are positive, with high levels
of pent-up demand for our products.
We have successfully positioned our business to take
advantage of these growth opportunities, particularly
in infrastructure – including road maintenance –
industrial and housing, which together account for
the majority of our end-use markets.
• SOCIAL
RESPONSIBILITY
• ENVIRONMENT
AND NATURE
• CIRCULAR
ECONOMY
BREEDONGROUP.COM
BREEDONGROUP.COM
17
17
OUR MARKETS
KEY
MARKETS
As a leading construction materials group in GB and Ireland, Breedon remains well positioned
to benefit from growth in our key construction markets over the medium term.
MODEST GROWTH IN GB
The Construction Products Association (CPA) reports
that activity in our industry was relatively buoyant
during the first half of 2019, especially set against the
unseasonably poor weather in the comparable period
of 2018. However, from the summer of 2019, against
the backdrop of persistent political uncertainty and
continuing delays to major infrastructure projects, the
market slowed and at the time of writing was forecast
to have ended the year with output only 0.6 per cent
ahead, reflecting a particularly sharp downturn in
commercial and repair and maintenance.
Demand for mineral products was correspondingly
impacted, with aggregates sales down 0.6 per cent,
sand and gravel down 5.4 per cent and asphalt down
0.9 per cent. Once again, ready-mixed concrete was
the weakest of the downstream product categories,
declining by 4.1 per cent.
GB VOLUME TRENDS
Above: The Crossways Bridge on the Colley Lane Southern Access
Road erected by Whitemountain
AGGREGATES –
GB MARKET SIZE
ASPHALT –
GB MARKET SIZE
130.4mt
2018: 133.3mt
-2.2%
22.7mt
2018: 22.9mt
-0.9%
READY-MIXED CONCRETE –
GB MARKET SIZE
16.4mm3
2018: 17.1mm3
-4.1%
GB AGGREGATES
MARKET GROWTH
m tonnes
GB ASPHALT
MARKET GROWTH
m tonnes
GB READY-MIXED CONCRETE
MARKET GROWTH
m cubic metres
GB CEMENTITIOUS
MARKET GROWTH
m tonnes
125.2
130.5
130.6
133.3
130.4
21.9
22.7
22.7
22.9
22.7
17.0
17.7
17.4
17.1
16.4
14.0
15.0
14.6
15.2
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019*
+4.2%
over 5 years
+3.7%
over 5 years
-3.5%
over 5 years
* Cementitious market volumes for
2019 will be published in late 2020
Sources: Construction Industry Federation, CPA (forecast), CITB, Danske
Bank, Euroconstruct, IMF, Mineral Products Association (MPA) members
18
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT CONTINUING STRONG PERFORMANCE IN IRELAND
The RoI market once again performed strongly, with
construction output estimated to have grown by eight
per cent. The residential and civil engineering sectors
performed particularly well. In NI, despite some
weakness in the second quarter, employment growth
in the construction sector remained strong and output
is forecast to have grown by 1.2 per cent over the year.
OUTLOOK REMAINS POSITIVE
The resolution of the Brexit impasse and the election
of a new UK Government with a substantial majority
removed much of the uncertainty which had beset our
industry for the previous three years and sentiment
greatly improved as we transitioned from 2019
to 2020.
The new Government’s commitment to increased
housebuilding, coupled with promised investment in
a number of key infrastructure projects which have
been on hold for some time, provide much needed
encouragement for our industry in GB and hold out
the prospect of a significant improvement in
construction output in the medium term.
In Ireland, the outlook remains even more positive.
Output in RoI is expected to grow by nearly nine per
cent over the period 2020-21, significantly
outperforming the EU average. Residential investment
is expected to be particularly buoyant, increasing by
approximately 17 per cent in 2020, with housing
completions forecast to reach 45,000 units by 2024 –
a significant increase on 2019. Output in NI is expected
to continue growing steadily, with any benefits arising
from the restored Legislative Assembly still to be felt.
LONG-TERM GROWTH MARKETS
In GB, aggregates volumes are 20 per cent below
2007 levels and per capita production is 20 per
cent below the EU average, pointing to significant
upside potential. The UK Government has
acknowledged that UK infrastructure is
significantly underinvested and is committed to
spending increases.
By the end of 2021, infrastructure output is
projected to reach £24.7 billion, the highest
on record, and the National Infrastructure
and Construction Pipeline already includes
£413 billion of planned private and public
investment until 2022.*
In Ireland, the RoI’s Department of Finance and
Public Expenditure and Reform predicts that
investment in the building and construction
sector will increase from €29 billion in 2019 to
€41 billion by 2023, while construction output in
NI is forecast to continue rising by 0.8 per cent
per annum to 2023.
*Prior to any spending increases announced in the spring 2020 Budget
TOTAL INFRASTRUCTURE INVESTMENT
(% of GDP)
35
30
25
20
15
10
0
8
9
1
2
8
9
1
4
8
9
1
6
8
9
1
8
8
9
1
0
9
9
1
2
9
9
1
4
9
9
1
6
9
9
1
8
9
9
1
0
0
0
2
2
0
0
2
4
0
0
2
6
0
0
2
8
0
0
2
0
1
0
2
2
1
0
2
4
1
0
2
6
1
0
2
8
1
0
2
Germany
France
United States
United Kingdom
GB INFRASTRUCTURE OUTPUT (£bn)
24.5
23.3
22.6
20.5
21.3
2017A
2018A
2019E
2020F
2021 Proj
TOTAL CONSTRUCTION OUTPUT IN
REPUBLIC OF IRELAND (% growth)
172
Above: The Henry Street Jetty in Enniskillen, constructed
by Whitemountain
100
2015
2016
2017
2018
2019
2020
2021
19
BREEDONGROUP.COMSTRATEGIC REPORT OUR STRATEGY: PROGRESS AND PRIORITIES
The six pillars of our strategy are outlined on pages 4 and 5. Here we report on our progress in
2019 and our priorities for the current year.
A CLEAR PURPOSE AND
THE RIGHT CULTURE
ROBUST GOVERNANCE
COMMITMENT TO
SUSTAINABILITY AND
SOCIAL RESPONSIBILITY
Why this is
important
The most successful
companies, financially and
socially, are those with a
clearly articulated purpose
and direction. The right
culture, rooted in strong
ethical values and
behaviours, are vital to
Breedon achieving
its purpose.
Breedon aspires to the
highest standards of
corporate governance, in
order to ensure the full
support of our shareholders
and other stakeholders, to
attract quality people and
potential acquisitions, and to
support our likely transition
to a full LSE listing in
due course.
As an extractive industry,
being a good corporate
citizen is crucial to
maintaining our licence to
operate. Reducing our
environmental footprint and
our impact on the
communities we serve are
increasingly important
ethical considerations for
our investors.
• Employee TIFR
• Reserves and resources life
• Emissions intensity
• Underlying basic EPS
• Reserves and resources life
• Emissions intensity
• Employee LTIFR
• Employee TIFR
• Emissions intensity
A Group-wide engagement
survey, accompanied by
colleague forums and
consultation with senior
management, resulted in a
newly articulated Group
purpose and supporting
values which are now being
embedded across
the company.
The Board adopted the QCA
Corporate Governance Code
from 1 January 2019.
The Board was subsequently
strengthened with the
appointment of a new
non-executive chairman and
two highly experienced
non-executive directors.
We signed up to the GCCA’s
Sustainability Charter,
against which we report our
progress in the Resources
and Relationships section of
this Annual Report. We also
began the process of
recruiting our first Group
Head of Sustainability.
Embed the Group’s purpose
and values in colleague
induction and training
programmes, Personal
Development Reviews and
all internal and external
communications.
Appointment of two further
non-executive directors.
Pursue programme of
meetings with Environment,
Sustainability and
Governance (ESG)
specialists within our
major shareholders.
Agree performance criteria
for all key sustainability
areas: health and safety,
climate change and energy,
social responsibility,
environment and nature and
the circular economy, and set
targets for the future.
• Acquisitions
• Environment and
climate change
• Health and safety
• Legal and regulatory
• People
• Acquisitions
• Environment and
climate change
• Financing,
liquidity and currency
• Health and safety
• IT and cyber security
• Legal and regulatory
• People
• Acquisitions
• Competition and margins
• Environment and
climate change
• Health and safety
• Legal and regulatory
• People
Lead KPI
Progress
in 2019
Priorities
for 2020
Risk
factors
20
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT LONG-TERM
GROWTH MARKETS
CONSERVATIVE
FINANCIAL
MANAGEMENT
A GROWING, WELL-
UTILISED ASSET BASE
To secure continued increases in
revenues and profits and deliver
further capital growth, we must
ensure that our markets can
deliver sustained growth across
the cycle, both in GB and Ireland
and, in due course, further afield.
In a highly capital-intensive
industry it is important that we
maintain financial prudence,
in order to meet the investment
needs of our business, secure
financing on attractive terms
and ensure that we remain
competitive irrespective of
market conditions.
Our business is dependent on
securing and replenishing scarce
mineral resources and exploiting
them efficiently by maximising
the value of every tonne of
aggregate we extract and every
tonne of cement we manufacture.
• Revenue
• Underlying EBIT margin
• ROIC
• Leverage
• ROIC
• FCF
• Underlying EBIT margin
• ROIC
• Reserves and resources life
Solid contracting and asphalt
production platform established
in North Wales via acquisition of
Roadway. Critical mass secured
in London readymix market via
Capital Concrete joint venture.
Post-year-end agreement to
secure assets from CEMEX in
the UK.
Strong earnings growth and
continuing strong cash flow
reduced net debt below
£300 million and Leverage to
1.6x. This was after sustained
capital investment in the business
at around the level of
depreciation, expenditure on a
bolt-on acquisition and
investment in a new joint venture.
Reserves extended at Boyne Bay
and Low Harperley quarries and
incremental reserves secured at
Potton and Norton Bottoms.
Development of new sand and
gravel quarry at Willington
and reopening of dormant
quarry at Castlepollard in
County Westmeath.
Complete acquisition of the
CEMEX assets and progress
planning for integration.
Pursue further bolt-on
acquisitions and continue organic
investment in core business.
Maintain high level of cash flow
and further reduce Leverage
following planned completion of
acquisition of the CEMEX assets
in second quarter of the year.
Preserve headroom for further
bolt-on acquisitions financed
from existing resources.
Continue programme of quarry
extensions, plant openings and
new mineral sourcing, including
the planned opening of a new
sand and gravel quarry at South
Boreland in Dumfriesshire.
• Acquisitions
• Competition and margins
• Environment and climate change
• Financing, liquidity
and currency
• IT and cyber security
• Legal and regulatory
• Market conditions
• Acquisitions
• Competition and margins
• Financing, liquidity
and currency
• Legal and regulatory
• Market conditions
• Acquisitions
• Competition and margins
• Environment and
climate change
• Legal and regulatory
• People
21
BREEDONGROUP.COMSTRATEGIC REPORT OUR KEY PERFORMANCE INDICATORS
We use our KPIs both to measure our progress against our strategy (pages 20 and 21) and as
risk monitors (pages 26 and 27). From 2019 we have added two new financial KPIs (ROIC and
FCF) and two new non-financial KPIs (Employee TIFR and Emissions Intensity).
FINANCIAL KPIs
REVENUE
£m
UNDERLYING EBIT MARGIN
%
UNDERLYING BASIC EPS
pence
318.5
454.7
652.4
862.7
929.6
11.9
13.1
12.3
12.0
12.5
2.68
3.49
4.14
4.70
5.08
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
+192%
Five-year performance
+0.6ppt
Five-year performance
+90%
Five-year performance
Why we’ve chosen this measure:
This metric tracks the Group’s top-line
growth. We also use it as a risk monitor.
How we’ve performed:
Continued good progress through a
combination of organic growth
and acquisitions.
Why we’ve chosen this measure:
This metric tracks improvements in the
relative profitability of the Group and enables
us to monitor progress against our stated
objective of achieving a 15 per cent
Underlying EBIT margin in the medium term.
We also use it as a risk monitor.
How we’ve performed:
Our Underlying EBIT margin increased, despite
challenging trading conditions in 2019.
Remuneration link:
A component of this measure is used to
determine award levels of our annual
cash bonus.
Why we’ve chosen this measure:
This metric tracks improvements in the
underlying basic EPS for our shareholders.
We also use it as a risk monitor.
How we’ve performed:
The eight per cent increase in our Underlying
basic EPS in 2019 reflects the improved
performance of the business.
Remuneration link:
This measure is used to determine vesting
levels in our performance share plans.
LEVERAGE
times
RETURN ON INVESTED CAPITAL
%
FREE CASH FLOW
£m
2015
1.9
0.9
2.0
1.6
13.6
11.2
10.2
9.9
8.8
49.7
64.1
63.3
99.5
90.0
0.2
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
-4.8ppt
Five-year performance
+81%
Five-year performance
Why we’ve chosen this measure:
This metric tracks the ability of the Group to
generate sufficient cash flows to service the
needs of the business and to pursue its
acquisition strategy, whilst covering its
contractual debt-servicing obligations.
We also use it as a risk monitor.
How we’ve performed:
The Group continued to generate healthy
cash flow, enabling us to reduce our net debt
to £290.3 million at 31 December 2019,
equivalent to 1.6 times Underlying EBITDA.
Why we’ve chosen this measure:
This metric tracks how well the Group
generates returns in relation to the average
capital invested and we target a return across
the cycle exceeding our cost of capital.
How we’ve performed:
The decline in 2019 reflects the impact of the
acquisition of Lagan Group (Holdings)
Limited (“Lagan”) in April 2018 on capital
invested. However, at 8.8 per cent it more
than covers our cost of capital.
Why we’ve chosen this measure:
This metric tracks the Group’s free cash flow
to ensure that its profits generate sufficient
cash to support its capital allocation
priorities: maintaining a strong balance sheet,
sustaining organic investment, pursuing
acquisition opportunities and in due course
maintaining progressive dividend payments.
How we’ve performed:
The decline in 2019 reflects the expected
working capital reversal following an
exceptionally strong performance in 2018.
22
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT
NON-FINANCIAL KPIs
EMPLOYEE LTIFR
per million hours worked
EMPLOYEE TIFR
per million hours worked
2.72
1.87
1.41
1.81
1.05
N/A
15.64
14.28
20.54
17.17
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
-61%
Five-year performance
+10%
Five-year performance
Why we’ve chosen this measure:
This industry-standard metric tracks our
health and safety performance and enables
us to maintain a strong health and safety
culture. We also use it as a risk monitor.
How we’ve performed:
We delivered an encouraging performance in
2019, reducing our LTIFR to its lowest level in
the Group’s history.
Remuneration link:
This measure is also used to potentially
modify the level of annual cash bonus.
Why we’ve chosen this measure:
We believe it is appropriate to report on this
wider measure of our health and safety
performance, which indicates the total
recorded injury frequency rate of the Group.
We also use it as a risk monitor.
How we’ve performed:
This decreased in 2019, although there is still
work to do to establish a consistent
downward trend.
Remuneration link:
This measure is also used to potentially
modify the level of annual cash bonus.
RESERVES AND RESOURCES LIFE
years
EMISSIONS INTENSITY
tCO2e/£ revenue (kg)
59
45
42
39
38
1.9
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Why we’ve chosen this measure:
This metric tracks the ability of the Group to
replenish its reserves and resources. We also
use it as a risk monitor.
How we’ve performed:
We continued to preserve our asset base in
2019 and ended the year with reserves and
resources of nearly 900 million tonnes.
2019 represents the Group’s first
formal SECR report
Why we’ve chosen this measure:
This is a reporting requirement of the UK
Government’s Streamlined Energy and
Carbon Reporting (SECR) regime, with which
we have elected to comply a year early.
We also use it as a risk monitor.
How we’ve performed:
This is our first report and we will use it as
the baseline for all future reporting.
Where a financial KPI is a
non-statutory measure of
performance, a reconciliation
to the most directly related
statutory measure is provided
on pages 132 to 134 in note 28
to the Financial Statements.
23
BREEDONGROUP.COMSTRATEGIC REPORT
MANAGING OUR RISKS AND OPPORTUNITIES
By identifying and managing our existing and emerging risks effectively we can focus on our
long-term business opportunities.
Our strategy informs the setting of the Group’s
priorities. Opportunities, and the risk accepted in
pursuit of these, are guided by the risk appetite set
by the Board and governed by the Group’s risk
management framework.
The Group’s principal risks and uncertainties do not
comprise all the risks associated with the Group.
Additional risks not presently known or currently
deemed to be less material may also have an adverse
effect on the Group’s business in the future.
Risk is an inherent and accepted element of doing
business and effective risk management is
fundamental to how we run our business. The Group’s
approach to risk management is to identify material,
existing and emerging risks and then to develop
actions or processes to accept, transfer or mitigate
those risks to an acceptable level.
This year we have chosen to present ‘Environment and
climate change’ separately from ‘Health and Safety’ as
a principal and emerging risk, recognising the increase
in its profile, both externally, and within the Group.
THE GROUP’S PRINCIPAL RISKS, IN ALPHABETICAL
ORDER, ARE:
1. Acquisitions
2. Competition and margins
3. Environment and climate change
4. Financing, liquidity and currency
5. Health and safety
6. IT and cyber security
7. Legal and regulatory
8. Market conditions
9. People
During the year the remaining eight of our net risk
ratings remained unchanged. However, prior to our
announcement on 8 January 2020 of our conditional
agreement to acquire certain assets and operations
from CEMEX in the UK, our assessment of the risks
from ‘Acquisitions’ and from ‘Financing, liquidity and
currency’ would have reduced. This is because of the
successful integration of Lagan into the Group, its
financial performance and the Group’s strong cash
generation and deleveraging. Subsequent to the
CEMEX announcement and expected completion in
the second quarter of 2020, retaining these two risks,
as high and medium ratings respectively,
remains appropriate.
BREXIT
The Group continues to manage the potential impacts
that Brexit could have on its business and on our risk
assessment. Brexit has not been presented as an
additional principal risk, but adds an additional level
of uncertainty that increases the overall risk profile of
the Group.
With the exception of cement and the importation of
bitumen, our businesses are all essentially local and
our products do not generally cross national borders.
In addition, the supply chain is generally local.
In the case of cement and bitumen, however, we do
import into the UK from the EU.
The major risk to this importation would be if the UK
left the EU without a deal following the end of the
transition period in 2020. In such a scenario World
Trade Organisation (WTO) rules would prevail and the
Group could be exposed to:
• supply chain delays;
• the requirement for additional working capital; and
• tariffs.
In addition, the Group could also be indirectly
impacted by reduced confidence, delays in our wider
supply chains and labour shortages.
We have contingency plans in place to mitigate the
cement and bitumen risks. Contingency planning in
respect of the indirect risks is more challenging and to
a large extent we are unable to mitigate against them.
The Group will continue to monitor its Brexit risk
position and respond as clarity emerges.
COVID-19
The Group’s operations are based in GB and Ireland,
which have both reported cases of COVID-19. The UK
Government’s current response to these cases is to
minimise the spread of the virus, and at the time of
writing it is too soon to quantify the extent of the risk
posed. The business has contingency plans in place,
which focus primarily on the health and wellbeing of
our employees, whilst seeking to minimise the
disruption to the business.
24
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT RISK MANAGEMENT FRAMEWORK
Board
Responsible for the Group’s system of risk management and internal control and for reviewing
their effectiveness.
Audit Committee
Reviews the suitability and effectiveness of risk management processes and internal controls on behalf
of the Board.
Group Finance Director
Provides a twice-yearly update to the Board on the key risks and controls within the Group, highlighting the
roles and responsibilities of key management in managing those risks.
Group Controls Manager
Works with the businesses to identify and assess the key risks and controls and reports them to the Group
Finance Director. In addition, facilitates the embedding and monitoring of the Board’s agreed risk management
process within the business, under the direction of the Group Finance Director.
Risk-owners/Senior Management Team
Directors and senior managers ensure that the risk management framework is implemented effectively within
their respective business areas. Their key responsibilities include ensuring an effective risk culture is in place,
with risk management embedded in the business.
RISK APPETITE
The Group’s risk appetite is reviewed annually and approved by the Board in order to guide management.
It defines the level of risk the Group is willing to accept in pursuit of its strategy.
RISK HEAT TABLE
Principal risk
Appetite
(High, medium,
low or very low)
Impact
(High, medium
or low)
Likelihood
(Probable,
possible or
remote)
Movement
from
prior year
Net risk rating
high
medium
low
very low
Acquisitions
Medium/High High
Possible
Competition and margins
Very low
High
Probable
Environment and climate change
Very low
Medium
Possible
N/A
Financing, liquidity and currency
Very low
Medium
Possible
Health and safety
IT and cyber security
Legal and regulatory
Market conditions
People
Read our viability statement on page 81.
Very low
Medium
Possible
Very low
Very low
High
Low
Possible
Possible
Medium/High High
Probable
Low
Medium
Possible
25
BREEDONGROUP.COMSTRATEGIC REPORT MANAGING OUR RISKS AND OPPORTUNITIES
CONTINUED
Risk description
How we mitigate them
KPI used
as a risk
monitor
Fit with
strategy
1. ACQUISITIONS
We could overpay for, fail successfully
to integrate, or fail to deliver the
expected returns from, an acquisition.
We may also fail to identify potential
acquisitions to sustain our growth
strategy.
The Group has a strong acquisition track record, supported by our specialist advisers
and rigorous due diligence processes. All major acquisitions are approved by the
Board and all acquisitions are subject to detailed integration plans which are
executed by project teams, with progress monitored by the Board.
We have developed a management structure which facilitates our growth strategy
and, where appropriate, we make arrangements to retain acquired senior
management. The Board holds strategy meetings with our external advisers to
review wider acquisition opportunities and our businesses are all tasked with bringing
forward potential bolt-on acquisition targets for review at Group level.
2. COMPETITION AND MARGINS
Increased competition, increases in
energy and hydrocarbon costs or
commodity prices, heavy reliance on
key suppliers and poor haulage
management could impact
profitability or cause supply issues.
An unplanned production outage at a
cement plant could significantly
impact our ability to supply cement
both internally and externally.
We maintain a diverse customer base and focus on providing a high level of service.
All major contracts are approved by the Board.
We operate a strategic purchasing plan to minimise key supplier risks, notably in
energy and hydrocarbons, including bitumen, and we seek to offset rising
commodity prices through our product pricing strategy and hedging programmes
and by optimising our internal supply chain. Experienced Transport Managers
optimise truck availability to match demand and we actively engage with our
subcontractors.
Both cement plants have real-time performance monitoring and preventative
maintenance and inspection programmes and mitigating cement procurement
strategies are in place. We hold Business Interruption Insurance and continue to
strengthen business continuity plans.
3. ENVIRONMENT AND CLIMATE CHANGE N/A
The Group’s impact upon the
environment or the effects of climate
change could expose us to regulatory
breaches, significant disruption,
reputational risk or a reduction in
demand for our products.
The Group is a member of the GCCA and as such must comply with the GCCA
Sustainability Charter by 2023. We are committed to setting targets, implementing
sustainability initiatives and reporting our performance to the GCCA.
We have engaged a Carbon and Energy Management company and implemented
processes to comply with the SECR regulations.
Emission restrictions and the
transition to a low carbon economy
could impact performance.
Management, training and control systems are in place to prevent environmental
incidents, including a Group Health, Safety, Environment and Quality policy. We are
committed to reducing the level of carbon emissions and have stringent emissions
monitoring, maintenance and inspection regimes at key sites.
Further information on our sustainability targets and initiatives can be found within
Resources and Relationships on pages 44 to 53 and our SECR reporting is on pages
48 and 49.
4. FINANCING, LIQUIDITY AND CURRENCY
The Group may not have sufficient
financial resources to meet our
obligations as they fall due, or to
continue to invest organically or to
undertake acquisitions.
We maintain strong relationships with our key banks and shareholders and the
Group’s committed credit facility runs to April 2022. We manage our liquidity risk by
continuously monitoring forecasts and cash flows to ensure that we maintain
significant headroom.
The Group borrows at floating and
fixed interest rates and is therefore
exposed to fluctuations in those rates.
Our business in RoI exposes us to
additional foreign exchange risks.
We use interest rate caps to manage our exposure to changes in floating interest
rates and our activities are conducted primarily in the local currencies of our
respective businesses, resulting in a low level of foreign currency transactional risk.
We hedge a proportion of our net investments in foreign businesses with foreign
currency borrowings, but do not generally hedge the income statement
transactional risks.
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• Leverage
• FCF
• Reserves and
resources life
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
• Emissions
intensity
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
• Emissions
intensity
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• Leverage
• ROIC
• FCF
5. HEALTH AND SAFETY
Failure to manage health and safety
risks could expose the Group to
significant potential disruption,
regulatory breaches, liabilities and
reputational damage.
We safeguard the health and safety of employees, contractors and others working
on behalf of the Group, employing experienced health and safety professionals who
promote a strong safety culture and provide relevant training. We have recently
appointed a Group Head of Health, Safety and Environment to further drive forward
our health and safety strategy.
We are constantly improving communication and reporting across the Group.
Visible Felt Leadership visits are conducted, our Executive Committee holds regular
safety days and we have a Fleet Risk Group which manages risk and safety issues
associated with the management of our vehicle fleet.
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
• Employee LITFR
• Employee TIFR
26
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT Risk description
How we mitigate them
KPI used
as a risk
monitor
Fit with
strategy
6. IT AND CYBER SECURITY
Disruption to the IT environment
could affect our operational
performance and lead to reputational
damage, regulatory penalties or
significant financial loss.
Failure to keep up to date with
advances in technology could impact
demand and our ability to access
the market.
Our Group’s dedicated internal IT support teams and external service providers
continue to monitor and respond to new and expanding cyber risks by implementing
best practice in IT security management and by continuing to strengthen the Group’s
disaster recovery plans.
All IT system development projects are carefully planned and managed with defined
governance and control procedures and we have an ongoing IT systems
enhancement programme.
7. LEGAL AND REGULATORY
A legal or regulatory breach
(excluding environmental or health
and safety breaches) could result in
disruption to operations and
reputational damage or regulatory
bodies could prevent us from
consolidating the smaller end of the
heavyside materials industry.
Product quality issues could result in
customer claims, while planning and
licensing restrictions could prevent us
from operating facilities or extracting
mineral reserves economically.
Our Company Solicitor and Group Tax Manager monitor and respond to legal and
regulatory developments. Compliance policies are maintained and a rolling training
programme is in place. We have recently updated our Group Code of Business
Conduct and have clearly defined our purpose and corporate values. We engage
local legal, tax and planning experts for advice on new laws and regulations in our
markets.
We have clear and regularly updated contracting terms with all our customers and
suppliers. We maintain strict quality control policies and procedures with high quality
laboratories and experienced technical teams, and hold all appropriate business
accreditations and insurances.
Our Planning and Estates teams monitor and respond to changes in planning
regulations, and track our mineral reserves against planning consents. We consult
regularly with our stakeholders, especially those impacted by our operations.
Our transport teams manage compliance with the Group’s Goods Vehicle Operator
licences and road traffic laws.
8. MARKET CONDITIONS
Changes in the macro-economic
environment, shifts in Government
policy and adverse weather could all
have an impact on demand for our
products and utilisation of our assets.
We closely follow published indicators of activity in our sectors, including market
data and economic forecasts drawn from a wide range of sources. We also maintain
regular contact with our key suppliers and customers in order to identify significant
events which could potentially impact the Group. Our formal budgeting and
forecasting process takes account of these assessments.
Difficult economic conditions could
also increase our exposure to credit
risk from our customers.
We also maintain broad exposure to a diverse range of end-uses for our products
and our presence in both the UK and Irish markets provides geographical diversity.
Credit risk insurance cover is maintained over the majority of our private sector
customers and authorisation procedures are in place for both insured and
uninsured risk.
9. PEOPLE
Failure to recruit, develop and retain
the right people could have an
adverse impact on our ability to meet
our strategic objectives, as could
failing to create a corporate culture
that is based upon ethical values and
behaviours.
The Board approves the Group’s Human Resources policies and the Nomination
Committee regularly reviews the succession plan for key leadership roles.
The Remuneration Committee reviews all key aspects of executive and senior
management remuneration and appropriate packages are in place to assist in the
attraction and retention of key employees. We have a standardised grading and
benefit structure, with a formal development and performance monitoring process.
Our experienced senior leadership team is supported by high-quality operational
management and we are strengthening this cohort with the roll-out of management
and commercial development programmes.
We have completed an extensive review to ensure that a common culture, principles,
values and standards of behaviour are recognised throughout the business and we
continue to recruit upcoming talent onto apprenticeship programmes to improve the
talent pipeline.
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
• Reserves and
resources life
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
• Emissions
intensity
• Revenue
• Underlying
EBIT margin
• Underlying
basic EPS
• FCF
Key
A CLEAR PURPOSE AND
THE RIGHT CULTURE
ROBUST
GOVERNANCE
LONG-TERM
GROWTH MARKETS
CONSERVATIVE
FINANCIAL
MANAGEMENT
COMMITMENT TO
SUSTAINABILITY AND
SOCIAL RESPONSIBILITY
A WELL-UTILISED,
GROWING ASSET BASE
27
BREEDONGROUP.COMSTRATEGIC REPORT STRATEGIC REPORT
GROUP FINANCE DIRECTOR’S REVIEW
Our conservative
approach will enable us
to continue pursuing
capital growth,
whilst supporting
the dividend policy
announced today.”
Rob Wood
Group Finance Director
28
BREEDON GROUP ANNUAL REPORT 2019
Revenue for the year at £929.6 million was eight per
cent ahead of 2018 (£862.7 million). On a like-for-like
basis, revenue was up one per cent on 2018.
Underlying EBIT was £116.6 million, 13 per cent
ahead of 2018 (£103.5 million). On a like-for-like
basis, Underlying EBIT improved by 10 per cent.
It is worth noting that, as reported in our November
2019 trading update, the integration of Lagan is now
largely complete and our current annual cost synergies
run-rate has hit the targeted £5 million.
The Group’s Underlying EBIT margin improved by
0.5 percentage points to 12.5 per cent. We continue
to target 15 per cent in the medium term, but do not
believe that the pursuit of this target in isolation is in the
best interests of our shareholders; we have therefore
introduced two additional financial measures to our KPIs:
FCF and ROIC. We believe that these two additional
measures will ensure better shareholder alignment.
NON-UNDERLYING ITEMS
Non-underlying items in the year amounted to a net
pre-tax cost of £8.0 million (2018: £11.8 million),
the major items being acquisition costs, redundancy
and reorganisation costs and amortisation of acquired
intangible assets.
During the year we delivered strong earnings
growth, underpinned by both organic
growth and contributions from our recent
acquisitions, the most significant being the
April 2018 acquisition of Lagan.
Group aggregates volumes for the year were up four
per cent at 20.2 million tonnes, asphalt volumes were
up six per cent at 3.0 million tonnes, ready-mixed
concrete volumes were down seven per cent at
3.0 million cubic metres and cement volumes were up
three per cent at 2.0 million tonnes.
Excluding the impact of acquisitions and disposals,
like-for-like aggregates volumes were down three per
cent, asphalt volumes down four per cent, ready-
mixed concrete volumes down four per cent and
cement volumes down three per cent.
These like-for-like volumes were delivered in difficult
trading conditions. The political uncertainty created
by Brexit overshadowed all our markets in GB during
2019, although as always there were marked regional
variations dependent upon localised projects and road
schemes. In Ireland, in addition to Brexit, market
conditions in NI were compounded by the absence of
the Northern Ireland Executive, whilst activity in RoI
was more positive. In Cement, the Irish market
remained challenging throughout 2019, with all regions
relatively muted apart from Dublin which continued to
grow strongly, whilst in GB market conditions were
broadly stable.
REVENUE AND UNDERLYING EBIT
Great Britain
Ireland
Cement
Central administration
Share of profit of associate and joint ventures
Eliminations
Total
2019
2018
Revenue
£m
615.1
202.0
186.4
–
–
(73.9)
Underlying
EBIT*
Underlying
EBIT margin
£m
62.8
26.8
36.3
(10.9)
1.6
–
%
10.2
13.3
19.5
–
–
–
Revenue
£m
609.8
156.3
176.5
–
–
(79.9)
Underlying
EBIT*
Underlying
EBIT margin
£m
61.4
20.9
31.4
(11.9)
1.7
–
%
10.1
13.4
17.8
–
–
–
929.6
116.6
12.5
862.7
103.5
12.0
* Underlying results are stated before acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related
tax items.
29
BREEDONGROUP.COMSTRATEGIC REPORT
GROUP FINANCE DIRECTOR’S REVIEW CONTINUED
INTEREST
Net finance costs in the year totalled £14.0 million
(2018: £11.8 million) and included interest on the
Group’s bank facilities, amortisation of bank
arrangement fees, interest on lease liabilities and the
unwinding of discounting on provisions. The higher
costs in 2019 reflected the interest element of lease
liabilities following the adoption of IFRS 16 in 2019.
PROFIT BEFORE TAX
Profit before tax was £94.6 million, 18 per cent ahead
of 2018 (£79.9 million). Underlying profit before tax
was £102.6 million, 12 per cent ahead of 2018
(£91.7 million).
As guided previously, the adoption of IFRS 16 – Leases
in 2019 under the ‘modified retrospective’ approach
did not have a material impact on the Income
Statement at the Underlying profit before tax level; an
increase in Underlying EBITDA was offset by increased
depreciation and interest costs. However, £47.0 million
of additional debt has been recognised on adoption as
at 1 January 2019. This does not impact our ability to
comply with the covenants associated with our
banking facility, as these are tested by reference to
accounting policies that were in place at the time the
facility was entered into.
TAX
The tax charge was £16.6 million (2018: £15.3 million).
An Underlying tax charge of £17.3 million
(2018: £15.9 million) was recorded in the year,
resulting in an Underlying effective tax rate for the full
year of 16.9 per cent (2018: 17.3 per cent), reflecting
increased profits in RoI which are taxed at a lower rate
than in the UK.
The Group’s tax strategy is to comply with all relevant
regulations, whilst managing the total tax burden and
seeking to maintain a stable effective tax rate.
The Group seeks to achieve this through operating an
uncomplicated Group structure.
The Group endeavours to structure its affairs in a
tax-efficient manner where there is commercial benefit
in doing so, with the aim of supporting investment in
the business and its capital expenditure programmes.
It seeks to ensure that all tax affairs are administered in
a lawful and responsible manner and that its actions
do not adversely impact its reputation as a responsible
taxpayer. The parameters which govern the Group’s
approach are set by the Board, which regularly reviews
the Group’s tax strategy.
The Board and Audit Committee are kept regularly
informed of all material developments relating to the
Group’s tax position. The Group Tax Manager oversees
tax compliance activities on a day-to-day basis and
reports to senior management.
There is an integrated approach to governance across
the business through management control, policies,
procedures and training. Risks inherent in the
calculation, collection and payment of tax are
mitigated by documented policies and procedures.
On an annual basis, the Group carries out a review for
the purpose of complying with the UK Senior
Accounting Officer legislation.
30
The Group takes appropriate tax advice and support
from reputable professional firms in relation to any tax
planning considerations. It is open and transparent in
its dealings with Her Majesty’s Revenue & Customs
(HMRC) in the UK and the Office of the Revenue
Commissioners (“the Revenue”) in RoI and deals with
any queries in a timely and open manner and on a
full-disclosure basis. In areas of complexity, it is
proactive in engaging with HMRC and the Revenue.
The Group has a Prevention of Facilitation of Tax
Evasion policy, which confirms both its zero tolerance
approach to acts of criminal facilitation of tax evasion
and its commitment to act fairly, professionally and
with integrity in all its business dealings.
The Group’s tax liabilities arise in the UK and RoI
subsidiary companies. In terms of the corporation tax
position, all years up to 2016 are agreed in respect of
companies acquired prior to 2018.
The Group makes a significant contribution to the
economies in which it operates through taxation,
either borne by the Group or collected on behalf of,
and paid to, HMRC or the Revenue. In 2019 the total
taxes borne and collected by the Group amounted to
nearly £175 million (2018: over £150 million).
EARNINGS PER SHARE
Basic EPS for the year was 4.64 pence (2018: 4.01
pence), reported after the non-Underlying items
mentioned above. Underlying basic EPS for the year
totalled 5.08 pence (2018: 4.70 pence).
STATEMENT OF FINANCIAL POSITION
Net assets at 31 December 2019 were £839.1 million
(2018: £773.3 million). The net assets continue to be
underpinned by the mineral reserves and resources of
the Group, which at the end of December 2019
totalled nearly 900 million tonnes, and by our two
well-invested cement plants.
RETURN ON INVESTED CAPITAL
Using average invested capital, year-end ROIC was
8.8 per cent (2018: 9.9 per cent). The decline in 2019
reflects the impact of the Lagan acquisition in
April 2018 on capital invested. However, at 8.8 per
cent it more than covers our cost of capital.
CASH FLOW
Net cash from operating activities was £136.5 million
(2018: £134.7 million).
In addition to delivering short-term earnings growth
and optimising working capital, we are positioning the
Group for the longer term and, as part of that, we are
investing further in plant and equipment and adding
acquisitions where these make strategic and
financial sense.
During 2019 the Group spent £8.9 million of cash on
Roadway and a further £3.0 million on a 43 per cent
stake in Capital Concrete (2018: £406.3 million on four
acquisitions: Staffordshire Concrete Limited (“Staffs
Concrete”); Blinkbonny Quarry (Borders) Limited
(“Blinkbonny”); Lagan; and four quarries and an
asphalt plant from Tarmac Holdings Limited).
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT 2019 NET DEBT MOVEMENT
£million
0
(10.3)
(12.2)
(18.1)
(55.8)
(15.9)
(246.7)
(310.7)
180.2
(47.0)
(290.3)
43.6
Opening
debt
Underlying
EBITDA
Working
Capital
Interest
Tax
Net capital
expenditure
Acquisitions
and
investment
Debt
assumed on
adoption of
IFRS 16
Other
Reported
statutory
closing debt
Impact of
IFRS 16 on
closing debt
Closing debt
excluding
IFRS 16
Inflow
Outflow
IFRS 16 impact
The Group also incurred capital expenditure of
£56.3 million (2018: £48.6 million).
Further details of this expenditure can be found in
the Business Reviews on pages 33 to 43.
Proceeds from the sale of property, plant and
equipment totalled £3.3 million in 2019
(2018: £4.9 million).
Proceeds from the issue of shares was £1.0 million
(2018: £171.2 million, which included the net proceeds
of the equity placing and open offer in respect of the
Lagan acquisition).
The repayment of loans of £69.2 million in 2019
reflects the strong cash generation of the Group
(2018: new loans of £409.7 million and repayment of
loans of £246.1 million, reflecting the refinancing
undertaken at the point of the Lagan acquisition).
Repayment of lease obligations totalled £12.9 million
(2018: £7.4 million).
FREE CASH FLOW
FCF was £90.0 million (2018: £99.5 million).
The decline in 2019 reflects the expected working
capital reversal following an exceptionally strong
performance in 2018.
NET DEBT
Net debt at 31 December 2019 was £246.7 million on a
pre-IFRS 16 basis (2018: £310.7 million) and Leverage
was 1.4 times (2018: 2.0 times). Including the impact
of IFRS 16 – Leases, which was adopted for the first
time in 2019, net debt at 31 December 2019 was
£290.3 million and Leverage was 1.6 times.
This deleveraging clearly demonstrates the highly
cash-generative nature of the Group.
Aside from the impact of IFRS 16 – Leases, key
movements include: Underlying EBITDA of
£180.2 million (2018: £154.4 million); a working capital
outflow of £10.3 million (2018: £11.4 million inflow);
interest and tax payments of £30.3 million
(2018: £25.8 million); net capital expenditure, including
IFRS 16 assets, of £55.8 million (2018: £43.7 million);
expenditure on acquisitions, including the purchase of
a 43 per cent stake in Capital Concrete, of £15.9 million
(2018: £461.3 million); and equity raised of £1.0 million
(2018: £171.2 million).
BANK FACILITIES
At the time of completing the Lagan acquisition in
April 2018 we entered into a new four-year
£500 million facility agreement, comprising a term loan
of £150 million and a multi-currency revolving credit
facility of £350 million.
The facility is subject to a floating interest rate based
on LIBOR or, in relation to any loan in Euros,
EURIBOR, plus margin. At 31 December 2019, the
total undrawn facility available to the Group amounted
to £204.7 million.
The facility is subject to Group Leverage and Group
interest cover covenants which are tested half-yearly.
At 31 December 2019, the Group comfortably
complied with these two covenants. Based on our
current estimates, we expect to comply with all our
covenants for the foreseeable future.
The Group has in place an interest rate hedge
which partially mitigates the risk of interest rate rises
on the Group’s bank loans (see note 20 to the
Financial Statements).
31
BREEDONGROUP.COMSTRATEGIC REPORT GROUP FINANCE DIRECTOR’S REVIEW CONTINUED
CAPITAL ALLOCATION PRIORITIES
Maintain
a strong
balance sheet,
providing
flexibility to
pursue growth
opportunities
Optimise organic investment
to sustain growth
Support strategy of
acquisitions to accelerate our
strategic development
Enable a
progressive
dividend policy
CAPITAL ALLOCATION
We prioritise the maintenance of a strong balance
sheet and deploy our capital responsibly, allowing us
to commit significant organic investment to our
business whilst continuing to pursue acquisitions to
accelerate our strategic development.
This conservative approach to financial management
will enable us to continue pursuing capital growth for
our shareholders, whilst also supporting the dividend
policy announced today.
DIVIDENDS
Recognising the Group’s scale, level of maturity and
cash generation, the directors propose to adopt a
progressive dividend policy from 2021.
The Board intends that the Company will pay an
interim and a final dividend in the approximate
proportions of one-third and two-thirds, respectively,
of the annual dividend.
The first dividend is therefore currently expected to be
declared with the 2021 interim results.
POST BALANCE SHEET EVENT
In early January 2020 we announced that we had
entered into a conditional agreement with CEMEX to
acquire certain assets and operations in the UK for
£155 million in cash together with the assumption of
£23 million of lease liabilities.
Completion is expected in the second quarter of 2020,
subject to completion of a TUPE consultation process.
The cash consideration will be financed from our
existing £350 million revolving credit facility and a
drawdown of an £80 million term loan through exercise
of an accordion option agreed at the time of the
2018 refinancing.
Rob Wood
Group Finance Director
11 March 2020
32
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT T
R
O
P
E
R
C
G
E
T
A
R
T
S
I
BUSINESS
REVIEWS
Breedon reports as three Divisions:
Great Britain, Ireland (Lagan and
Whitemountain) and Cement
(GB and RoI).
Great Britain
Ireland
Cement
34
36
37
Naunton quarry in Gloucestershire
BREEDONGROUP.COM
33
BUSINESS REVIEWS
GREAT BRITAIN
Our operations in GB generated a one per
cent increase in revenues to £615.1 million
(2018: £609.8 million) and a two per cent
increase in Underlying EBIT to £62.8 million
(2018: £61.4 million), with a relatively
stronger performance in England and Wales
than in Scotland, where markets were very
much softer.
The political uncertainty created by Brexit
overshadowed all our markets in GB during 2019,
although as always there were marked regional
variations dependent upon localised projects and
road schemes.
BREEDON NORTHERN
Scotland was hampered once again by a lack of
major capital infrastructure spending which
inevitably created some margin pressure, although the
relatively wide spread of end-use markets we serve
helped to protect the business from weakness in
individual sectors.
Despite the softness of the market, we took a good
share of the available work, including three major new
airport runway surfacing projects at Orkney, Aberdeen
and RAF Kinloss. We also continued to supply
significant volumes of high-specification ready-mixed
concrete to Edinburgh Airport and RAF Lossiemouth.
We were particularly pleased to be awarded a
substantial supply and lay surfacing contract by
Balfour Beatty for the latest phase of the A9 Dualling
project: a 9.5 kilometre stretch between Luncarty and
Pass of Birnam, part of Transport Scotland’s £3 billion
upgrade of 129 kilometres of the A9 between Perth
and Inverness.
The integration of Daviot and Low Plains quarries,
acquired last year from Tarmac, continued with major
investments to improve production and profitability at
these two strategically important sites. Investment in a
new wash plant at Loak Farm also enhances our ability
to profitably service the nearby A9 contract.
Elsewhere, we continued to ramp up production from
our new quarry at North Drumboy near Glasgow.
Our decision to construct a new ready-mixed concrete
plant at our Raisby quarry in County Durham was
immediately vindicated with the award of a maiden
contract to supply substantial volumes to a large
flooring contract at a distribution centre near Durham,
which continued through the first quarter of this year.
More generally, we made good progress in rationalising
our network where the footprints of the former Hope
Construction Materials and Sherburn Minerals Group
concrete plants overlapped.
34
Above: New stands at Edinburgh Airport
New land and mineral purchases extended the reserves
and resources available at our Boyne Bay and Low
Harperley quarries and we look forward in the current
year to the opening of a new sand and gravel quarry at
South Boreland in south-west Scotland to replace our
worked-out quarry at Clayshant.
BREEDON SOUTHERN
Our markets for all products in England and Wales
were challenging, with the year becoming more
difficult as it progressed. Housebuilding was the most
robust sector and growth in the early months
supported the market overall. Outside of housing,
whilst commercial work declined, the East Midlands
benefited from an active distribution infrastructure
market. Local Authority work was subdued, and
highways work sporadic. The West Midlands benefited
from early HS2 work. Our price performance was
particularly pleasing, with all major product groups
showing growth over the previous year.
Major contracts included the supply of rock armour
from Minffordd quarry for sea defences at Friog in
North Wales and substantial quantities of ready-mixed
concrete to BAM Nuttall’s £100 million Boston Barrier
flood defence project in Lincolnshire. Welsh Slate
continued to capitalise on its global reputation with
the full re-roofing of the Perth Museum in Australia,
involving the supply of three square kilometres of
roofing slate.
Another landmark was the selection by the Royal
Horticultural Society of our proprietary Breedon
Golden Amber Gravel for its spectacular new garden
at Bridgewater in Manchester.
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT Above: Capital Concrete, our new joint venture in London
Investment continued in the expansion of our quarry
and plant network, with the development of a new
sand and gravel quarry and concrete plant at
Willington near Bedford, a new concrete plant at
Borras in Clwyd and planning permission secured for a
new concrete plant at Stevenage together with a new
rail head and concrete plant at Thorney Mill
near Slough.
Incremental aggregates reserves were secured at
Potton quarry in Bedfordshire and we commenced
extraction of new minerals from the extension recently
obtained at Norton Bottoms quarry in Lincolnshire,
which will provide us with access to an additional
seven million tonnes of material over the next 15 years.
One of the corporate development highlights of the
year was the formation of our new joint venture with
Brett to service the London ready-mixed concrete
market. Capital Concrete had already established a
strong presence in London and by combining our
London plants in the joint venture with those of Brett,
we secured immediate critical mass in this, the UK’s
largest market. We are both ambitious for Capital
Concrete and look forward to developing a business of
significant scale in London over the next few years.
The other highlight was the acquisition of Roadway,
which gives us a well-established term maintenance
and surfacing business in North Wales together with a
newly-erected asphalt plant at Wrexham. This provides
us with a solid contracting and asphalt production
platform in the region which reaches into new markets
and allows our surrounding quarries to maximise value
by internalising more of their output.
Despite the softness of the market,
we took a good share of the available
work, including three major new
airport surfacing projects at Orkney,
Aberdeen and RAF Kinloss. We also
continued to supply significant volumes
of high-specification ready-mixed
concrete to Edinburgh Airport and
RAF Lossiemouth.”
We were particularly pleased to see our safety record
improving across GB in 2019, with a significant
reduction in our Employee LTIFR and a wide range of
new safety initiatives implemented, including:
enhanced training on crucial isolation and lockout
procedures; the re-induction of our drivers; the rollout
of our new IDC health screening programme; and the
introduction of a new incident root-cause investigation
training course.
Looking ahead to the remainder of 2020, we see an
improving outlook in GB as investment in our key
sectors begins to recover. We aim to at least maintain
our market shares, whilst pressing ahead with price
increases to recover past cost increases and improve
margins wherever possible.
35
BREEDONGROUP.COMSTRATEGIC REPORT BUSINESS REVIEWS CONTINUED
IRELAND
Our operations in Ireland, trading as
Whitemountain in NI and Lagan in RoI,
increased revenues by 29 per cent to
£202.0 million (2018: £156.3 million) and
Underlying EBIT by 28 per cent to £26.8
million (2018: £20.9 million). Both businesses
performed well during the year, with Lagan
delivering an especially strong result.
WHITEMOUNTAIN
Market conditions in NI were challenging due to Brexit
uncertainty and the absence of the Northern Ireland
Executive, leading to the sharpest contraction in
business activity of all UK regions, with construction
orders continuing to shrink and more subdued
volumes in the second half. Tender opportunities were
limited and legal challenges to tenders hampered
progress of awards and impacted spending.
Whitemountain nonetheless performed strongly by
concentrating on selective work streams and applying
strict cost control. We continued to build on internal
supply to other Group companies, with a significant
increase in 2019, and are focused on further increasing
internal aggregates volumes in 2020.
A significant investment in relocating and replacing the
primary crusher at our Temple quarry will improve
production capacity, facilitate access to reserves and
increase profitability.
In addition to our work in NI, Whitemountain also
engages in selective contracts in GB. For example,
we successfully completed the £18.4 million new road
contract at Colley Lane in Bridgwater, which opened
to the public at an official ceremony in December and
received enthusiastic plaudits from Somerset County
Council. Elsewhere, we won a substantial contract at
DP World London Gateway Port for the construction
of 1.3 kilometres of new distribution park spine roads,
where work will continue through the second quarter
of this year. We were also awarded a four-year
Civil Engineering Framework for Newry, Mourne &
Down District Council.
We worked hard at improving our health, safety and
environmental performance. An initiative to increase
reported safety observations helped reduce our
Employee LTIFR and we introduced new asset
management software to record inspections, usage
and repair of company assets. It was encouraging to
see Alpha Resource Management, our waste to energy
business in NI, awarded a WISHNI (Waste Industry
Safety and Health Forum Northern Ireland)
Ambassador Award.
We maintained our engagement with local universities,
offering placement opportunities to civil engineering
and quantity surveying students, and also developed
a Higher Level Civil Engineering Apprenticeship
programme which enables apprentices both to qualify
and to benefit from on-the-job training.
We aim in the current year to maintain our market
share, focusing on recovering costs and increasing our
margin. The recent re-establishment of the Northern
Ireland Executive offers the potential for approval to
be given to a number of delayed infrastructure
projects, which can only be good news for our NI
business. We also continue to seek commercial
opportunities in GB for Whitemountain’s contracting
operation, with further potential for expanding internal
material supply.
LAGAN
Market conditions in RoI were positive, with a relatively
stronger first half. There is some evidence that a more
recent modest reduction in tenders has been
occasioned by the well-publicised overspend on the
new €2 billion National Children’s Hospital in Dublin,
which has led to short-term reductions in expenditure
elsewhere in the economy. Nonetheless, we delivered
a strong performance over the year.
Above: The Rose Fitzgerald Kennedy Bridge, the longest in Ireland, part of the New Ross Bypass in County Wexford
36
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT We completed a number of high-profile projects in
2019, including the New Ross Bypass in County
Wexford for BAM Dragados, which involved
approximately 15 kilometres of roadworks and nearly
30 new structures, including Ireland’s longest bridge.
A successful overlay on Runway 16-34 at Dublin
airport led to the award of the next phase for the same
runway. Later in the year we were awarded a sizeable
contract to supply asphalt to the new N4 Sligo to
Collooney dual carriageway.
Our programme to extend our quarry network in RoI
continued with the reopening of a dormant quarry at
Castlepollard in County Westmeath, bringing to six the
number of active quarries operated by Lagan.
A new bespoke health and safety training programme,
‘360° Safety’, which focused on the interaction
between people and vehicles, was completed by all
Lagan employees and contractors. In addition,
Lagan successfully migrated and gained accreditation
to the ISO 45001 Safety Management Standard.
Later in the year we completed our successful annual
programme of dyeing all the lakes in our dormant
quarries black, to discourage trespass and swimming.
Looking ahead to the remainder of 2020, the
prospects for construction in RoI remain very
encouraging, with all forecasters predicting a healthy
growth in output on the back of a continuing
strong economy.
CEMENT
Our Cement business delivered a six
per cent increase in revenues to
£186.4 million (2018: £176.5 million) and
a 16 per cent increase in Underlying EBIT
to £36.3 million (2018: £31.4 million) against
the backdrop of mixed markets.
The Irish cement market remained challenging
throughout 2019, with all regions relatively muted
apart from Dublin, which continued to grow strongly.
In GB, market conditions were broadly stable.
Confidence in both markets was clearly impacted by
uncertainties around Brexit.
Major investments at Hope Works included the
completion of our raw mill drive and kiln shell
replacement projects, together with the overhaul of
our PCA rail fleet. All three kiln shutdowns at Hope
and Kinnegad were completed ahead of time and
on budget.
Kiln reliability at Hope remained at high levels,
with clinker production ahead of 2018. Kinnegad met
all clinker demand and averaged more than 72 per
cent usage of alternative fuels, ahead of budget,
with successful trials of solid recovered fuel (SRF)
paving the way for further progress. Kinnegad also
commenced its LEAN waste project with the emphasis
on delivering further environmental improvements and
cost-savings. In all, our cement kilns consumed around
218,000 tonnes of waste in 2019.
Safety initiatives at Hope involved widespread
engagement with our colleagues both at the Works
and in our road and rail fleet, which resulted in a
much-improved safety performance in 2019, including
a totally harm-free kiln shutdown. At Kinnegad, the
fourth annual edition of 5-Star Safety was launched,
incorporating a team-led site safety improvement
programme, which resulted in nearly 90 safety
improvements being implemented. Health and
wellbeing activities were increased in the second half
of the year at Hope and at Kinnegad, with workshops
provided across both sites.
Sustainability, most notably the call from across the
political spectrum for agreement on ‘Net Zero’ carbon
targets, has risen to the top of our agenda and we are
in the process of finalising a definitive sustainability
roadmap in conjunction with the GCCA and MPA
which will drive our strategy for substantially reducing
carbon emissions from our cement plants within an
achievable timeframe.
In the remainder of the current year, our commercial
priority is to implement price increases to recover cost
inflation. A major investment in a new bag filter to
replace the electrostatic precipitator system is now
underway at Kinnegad, with further alternative fuel
trials planned during the year. We are also exploring
further alternative fuel options at Hope, together with
planning applications for a supplementary raw material
delivery system and a longer-term project to extend
the limestone quarry.
Above: Barnett Dock aggregates terminal, Port of Belfast
Above: Kinnegad quarry and cement plant in County Westmeath
37
BREEDONGROUP.COMSTRATEGIC REPORT STRATEGIC REPORT
MAKING A MATERIAL DIFFERENCE
FROM AIR
TO SEA
ENSURING
SAFE LANDINGS
Our expertise in airport infrastructure
helps to keep aircraft flying in and
out of some of the busiest airports in
GB and Ireland.
In 2019 Lagan carried out a major rehabilitation
project on Runway 16/34 at Dublin Airport,
including the installation of specialist Marshall
Pavement surfacing material, with all works
carried out overnight. Lagan was also nominated
for an Irish Construction Excellence Award for
exceptional delivery of the rehabilitation of
2,400 metres of 30-year old runway at Shannon
Airport, involving a team of 90 colleagues and a
fleet of 70 vehicles, again with all the work
carried out overnight.
When the RAF began replacing its ageing fleet
of Nimrod MR2s, Breedon was chosen to supply
material for construction of hangars and aprons
at RAF Lossiemouth to accommodate its
successor, the Boeing P-8A Poseidon maritime
aircraft. And at Edinburgh Airport, Breedon was
selected to supply material for new aircraft
stands, the latest phase in a £220 million five-year
investment programme at the international hub.
During the year we also carried out major runway
resurfacing works at Aberdeen and Orkney
Airports and at RAF Kinloss.
38
BREEDON GROUP ANNUAL REPORT 2019
Above: Runway resurfacing at RAF Kinloss (courtesy of the
Defence Industry Organisation)
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This package of coastal works provides
the airport with the protection required
against the North Atlantic.”
Keith Inglis
Head of Infrastructure Services at Highlands and
Islands Airports Limited
PROTECTING
OUR COASTLINES
Our products are widely used for
coastal protection and flood defences,
and for the construction and
maintenance of harbours.
Benbecula Airport in the Outer Hebrides is
shielded from the worst of the North Atlantic
weather by several thousand tonnes of gabion
stone from our Druim Reallasger quarry in
North Uist and in 2019 we supplied substantial
quantities of rock armour from our Minffordd
quarry to Friog Corner in North Wales to protect
a Meirionnydd village from rising sea levels.
In Lincolnshire we supplied a specially designed
high-strength self-compacting concrete to the
£100 million Boston Flood Barrier project to
protect the town from tidal flooding.
Towards the end of the year we supplied
significant quantities of concrete to a customer
at the Port of Blyth for construction of specialist
mattresses to protect the East Anglia One
offshore windfarm. Cromarty Firth Port Authority,
Aberdeen Harbour, Whitehills Harbour and
Dunbar Harbour were among the many other
customers who benefited from our products,
including specialist underwater concrete for pier
repairs and slipways.
Above: At work on the Boston Flood Barrier
Full page: Coastal protection works at Benbecula Airport
BREEDONGROUP.COM
39
STRATEGIC REPORT
BRINGING
PROSPERITY
TO OUR TOWNS
AND CITIES
Breedon is a major provider of products
and services to the local and national
highway networks of GB and Ireland,
ensuring that our roads are safe to drive
on and our communities have the local
transport infrastructure they need to
flourish and prosper.
In 2019 Whitemountain brought relief to the
residents of Bridgwater in Somerset with
completion of the £18.4 million Colley Lane
Southern Access Road, including the construction
of two new bridges, 840 metres of new
carriageway, together with cycleways and
footpaths. The new road scheme freed a major
bottleneck in the town and opened up brownfield
development sites to support the delivery of
planned housing and employment land.
Meanwhile, in Kettering, Northamptonshire,
Breedon Southern and Whitemountain are
undertaking enabling works to facilitate a major
urban extension programme, including the
eventual construction of 5,500 dwellings,
community facilities and new public open spaces.
Full page: The Colley Lane Southern Access Road near
Bridgwater in Somerset
MAKING A MATERIAL DIFFERENCE
FROM TOWN
TO COUNTRY
40
BREEDON GROUP ANNUAL REPORT 2019
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HELPING
OUR RURAL
COMMUNITIES
PROSPER
Breedon is at the heart of many farming
communities in GB and Ireland, providing
the infrastructure farmers need to keep
their crops and livestock healthy.
Our products are used in the construction and
maintenance of farm roads, animal housing,
stables, milking parlours, workshop floors, crop
storage and silage clamps. And our agricultural
lime is highly sought after as a fundamental
natural ingredient in soil care, helping to increase
crop yields.
In Ireland, Lagan is helping to develop new
geosynthetic solutions to the problem of failing
‘bog rampart roads’, which float on peat and have
been moving and splitting in recent years due to
drought-like conditions which have seen the
water table fall.
And of course no countryside community would
survive without the rural road network which
keeps it connected. Breedon is a major supplier
of asphalt, contracting services and highway
maintenance to national highways agencies and
rural local authorities, linking our towns, cities
and villages across GB and Ireland.
Above: Whitemountain at work on the non-national roads
network in Donegal
BREEDONGROUP.COM
41
STRATEGIC REPORT
CONTRIBUTING
TO GREAT
WORK SPACES
We believe that working environments
should look good and feel good.
From smart office buildings to high-
throughput distribution centres,
manufacturing plants and retail parks,
we supply the construction materials
that our customers use to build great
work spaces.
In 2019 we supplied material for construction
of Glasgow’s landmark office building at
177 Bothwell Street, part of the ambitious
Bothwell Exchange development. Its 13 storeys
and 313,000 square feet of luxury highly
sustainable office space make it the largest office
building in the city – and it even boasts an 8,000
square feet rooftop terrace, complete with a
running track.
Above: 177 Bothwell Street in Glasgow
Thanks for all the great work you
have done... The service has been
second to none.”
David Griffiths
Site Engineer, 177 Bothwell Street
42
BREEDON GROUP ANNUAL REPORT 2019
MAKING A MATERIAL DIFFERENCE
FROM WORK
TO PLAY
AND PLACES
TO RELAX
We make it possible for thousands of
visitors every year to visit our stately
homes and historic monuments, which
are graced with durable, hard-wearing
walkways and pathways built from our
specialist self-binding Golden Amber
gravel, holder of the Royal Warrant.
The Centenary Garden at Exbury in Hampshire
(pictured below) is just one of the latest tourist
attractions to benefit from Breedon’s Golden
Amber gravel pathways, which blend perfectly
into this tranquil environment designed by Royal
Horticultural Society gold medal award-winning
designer Marie-Louise Agius.
Full page: The Great Pagoda in the Royal Botanical Gardens at
Kew, roofed with Welsh Slate
BREEDONGROUP.COM
4343
BREEDONGROUP.COMSTRATEGIC REPORT STRATEGIC REPORT
RESOURCES
AND
RELATIONSHIPS
In the following pages we report on the
key resources and relationships on which
the success of our business depends.
Introduction
1. Health and Safety
2. Climate Change and Energy
3. Social Responsibility
4. Environment and Nature
5. Circular Economy
45
46
48
50
52
53
Craigenlow quarry in Aberdeenshire
44
BREEDON GROUP ANNUAL REPORT 2019
RESOURCES AND RELATIONSHIPS
T
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In 2018 Breedon became an active member
of the GCCA, which aims to drive industry
leadership in the manufacture and use of
cement and concrete, improve the social
and environmental impact of the sector’s
activities and products and foster innovation
and collaboration with industry associations
and innovators along the length of the
built-environment value chain.
In 2019 we made a strong commitment to the five
pillars of sustainability contained in the GCCA’s
Sustainability Charter and its associated guidelines:
Health and Safety; Climate Change and Energy; Social
Responsibility; Environment and Nature; and the
Circular Economy. Breedon has until 2023 to ensure
that these are fully embedded across all our business
lines, that our KPI reporting is harmonised with others
in our sector and that we report all relevant
performance data. In many cases we will be complying
with other statutory reporting requirements, some of
which are more onerous than those of the GCCA, but
we will always comply with the GCCA’s guidelines as a
minimum and in general will seek to go well
beyond them.
We made a strong commitment to the five
pillars of the GCCA Sustainabilty Charter.”
In 2019 we established a GCCA working group, with
representation from all business lines, charged with
revising our targets and policies. We also appointed a
new Head of Health, Safety and Environment, together
with an Environment and Systems Adviser specialising
in data collection and analysis.
This year we will add to our resources in this critical
area with the appointment of a dedicated Head of
Sustainability, who will actively engage with academic
and engineering institutions, sustainability experts and
our stakeholders, to actively encourage our businesses
to seek best practice and technological innovation.
As we begin embedding the GCCA’s sustainability
pillars across the Group, we have elected to report
our Resources and Relationships activity in 2019 under
these five headings, which will be the model for all our
future annual reporting, with clear performance criteria
and targets. There is inevitably significant overlap
between the pillars, but we have sought wherever
possible to position our reports where it seems most
appropriate to do so.
GROUP SUSTAINABILITY PRIORITIES FOR 2020
Complete collation of GCCA KPIs and confirm our
internal targets in line with the five pillars.
Reissue revised policies to our stakeholders.
Recruit a new Head of Sustainability.
Increase the rate of recycling of on-site waste and
internally-produced product.
Implement a strategy to reduce fuel consumption in
our transport fleets.
Continue to introduce more sustainable, green
energy substitutes into our business and reduce
reliance on fossil fuels and their derivatives.
Ensure that all our managers are trained in
sustainability principles, with the support of the
Institute of Environmental Management and
Assessment.
Standardise energy and carbon reporting systems
across the Group.
Above: Ashwood Dale quarry in Derbyshire, where recently restored land is slowly blending into the landscape
BREEDONGROUP.COM
45
RESOURCES AND RELATIONSHIPS CONTINUED
RESOURCES AND RELATIONSHIPS CONTINUED
1
HEALTH
AND SAFETY
The GCCA Charter requires us to apply
and report against its good safety practice
guidelines and promote the sharing of good
health practices.
We continued our journey in 2019 towards our ultimate
goal of Zero Harm, seeing a significant decrease in
both Lost Time Injuries among employees and
contractors and in our Employee LTIFR, which fell from
1.81 to its lowest ever level of 1.05 per million hours
worked. As a wider measure, we also track our
Employee TIFR, which includes all incidents – however
minor – requiring medical treatment; this saw a
reduction from 20.54 in 2018 to 17.17 in 2019.
January saw Back to Work presentations and tool box
talks delivered to the whole business, and Lagan
completed its 360° Safety programme in RoI.
A bi-monthly wellness newsletter was launched across
the business in February and in March over 800
company-employed and contract drivers were
re-inducted on safety-critical tasks in Breedon
Southern. Incident investigation programmes were
held throughout the business to improve the quality of
incident investigations and establish root causes, while
updated LOTOTO (Lock Out – Tag Out – Try Out)
training was rolled out across the Group using
materials customised from the MPA.
In August we appointed our first Group Head of
Health, Safety and Environment to ensure closer
alignment of our health and safety strategy and to
consolidate best practice from around our businesses.
Our SHE (safety, health and environment) Assure
software platform was extended to include a health
and safety training module, enabling us to request and
book sector-specific courses directly against a full
training matrix; an environment and sustainability
module; and an asset module for recording safety-
critical equipment. In November, Whitemountain
launched a programme for managing occupational
road risk in NI, including both off-road assessment and
on-road driver training.
As 2019 closed, our Cement Division focused on the
next phase of their behavioural safety journey in GB,
involving a detailed employee and management
cultural survey and senior management behavioural
workshops across both the Hope cement works and
their associated depots and terminals.
Our contracting services businesses in GB introduced
a new HAV (Hand Arm Vibration) electronic recording
and evaluation system to replace older software and
paper-based systems for monitoring power tools used
on their surfacing sites.
Lagan, Whitemountain’s Alpha landfill site and our
Kinnegad Works all successfully achieved accreditation
to the new ISO 45001 health and safety management
standard and Whitemountain won the Regional NI
Award in the 2019 NISO/NISG All Ireland
Occupational Safety Awards. Our tile business in
NI also received a Silver Award in the RoSPA Annual
Health & Safety Awards.
The team at Breedon’s
roof tile works receiving
their Silver Achievement
Award at the RoSPA
Health & Safety Awards
in Glasgow, one of
many safety awards
won by Breedon
colleagues around the
Group in 2019.
46
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT EMPLOYEE TIFR
per million hours worked
N/A
15.64
14.28
20.54
17.17
2015
2016
2017
2018
2019
EMPLOYEE LTIFR
per million hours worked
2.72
1.87
1.41
1.81
1.05
2015
2016
2017
2018
2019
PRIORITIES FOR 2020
Target further improvement in Employee LTIFR
for 2020.
Launch new Group Health and Safety Procedures
manuals, including revised Group Health and
Safety Standards.
Renew focus on enhancing pedestrian and vehicle
segregation, including rollout of MPA guidelines and
best practice.
Integrate our Group statutory inspection
programmes to further enhance good practice and
allow easier management decision-making on
priority areas for improvement.
Extend occupational health screening X-ray service
into prevention of exposure to RCS (Respirable
Crystalline Silica) and complete all remaining
medical assessments.
Increase the number of mental health first-aiders,
as part of a broadening health and wellbeing
programme.
Roll out Occupational Road Risk Policies and
training.
Above: Confined space training at Whitemountain
47
BREEDONGROUP.COMSTRATEGIC REPORT
RESOURCES AND RELATIONSHIPS CONTINUED
2
CLIMATE CHANGE
AND ENERGY
The GCCA Charter requires us to develop
a climate change mitigation strategy and
publish and report on targets and progress.
As part of our legal disclosure obligations,
we are required from the current financial
year to report against the UK Government’s
SECR regulations, which are somewhat
more stringent than that of the GCCA.
We have elected to comply with this
requirement a year early and our full 2019
SECR report follows.
ENERGY AND CARBON STATEMENT
The below statement contains Breedon Group’s annual
energy consumption, associated relevant greenhouse
gas (“GHG”) emissions, and additional related
information. Under new UK SECR regulations our UK
businesses will be required to include energy and
emissions data from electricity, gas and transport
within their annual company reporting from 2020.
As a Group, we are exceeding the legal minimum
reporting requirements by broadening the scope to
include non-UK information and all Scope 1 and 2
emissions in this Group statement. In addition, the
cement manufacturing process produces a significant
amount of process emissions. These emissions have
also been included here to provide a true reflection
of our carbon footprint.
METHODOLOGY
The methodology applied to the calculation of
greenhouse gas emissions is the ‘GHG Protocol
Corporate Accounting and Reporting Standard’.
An ‘operational control’ boundary has been applied.
Carbon conversion factors have been taken from
‘UK Government GHG Conversion Factors for
Company Reporting – 2019’. Emissions are reported as
CO2e. Only ‘location-based’ electricity emissions have
been reported.
ENERGY USE AND GREENHOUSE GAS EMISSIONS
The table below shows the total annual energy use
associated with the consumption of: electricity, natural
gas, all other fuels combusted on-site, and fuel
consumed directly for business transport purposes,
for the year ended 31 December 2019.
ENERGY CONSUMPTION AND EMISSIONS 2019
By reporting segment
On-site combustion (MWh)
Electricity (MWh)
Road Transport (MWh)
Energy (MWh)
Scope 1 (tCO2e)
Scope 2 (tCO2e)
Total Energy Emissions (tCO2e)
Process Emissions Scope 1 (tCO2e)
Total Emissions (tCO2e)
By geographic location
UK
Rest of World
Total
48
Great Britain
426,798
73,478
65,099
565,375
124,499
19,341
143,840
–
143,840
Energy MWh
2,069,353
748,446
2,817,799
Ireland
176,629
15,464
13,516
Cement
Group Total
1,789,461
2,392,888
240,438
16,916
329,380
95,531
205,609
2,046,815
2,817,799
47,867
5,316
53,183
–
53,183
475,184
70,772
545,956
1,021,060
1,567,016
%
tCO2e (inc. process)
73%
27%
100%
1,294,852
469,187
1,764,039
647,550
95,429
742,979
1,021,060
1,764,039
%
73%
27%
100%
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT Above: Investment in alternative fuels and new technology has made our Kinnegad cement works increasingly energy-efficient
EMISSIONS INTENSITY
For the purposes of baselining and ongoing
comparison, we have chosen to express the emissions
using a carbon intensity metric. The intensity metric
chosen is £ revenue.
The resultant emissions intensity is: 1.9kg CO2e/£ revenue.
ENERGY EFFICIENCY ACTION
During the course of 2019, Breedon undertook a
number of actions to reduce our energy consumption.
Under the UK Energy Savings Opportunity Scheme
(ESOS), our UK operations undertook a
comprehensive energy audit, reviewing energy
consumption across the business. This process has
outlined a number of opportunities which will form
the basis of an ongoing energy reduction programme.
We have also established a new centralised data
capture process which will enable the organisation to
better monitor energy consumption and improve
granularity of reporting.
Other energy reduction activities and
achievements include:
• The utilisation of new, low-drag, filter bag
technology at our Kinnegad cement plant has
resulted in a significant reduction in the energy
consumption associated with this part of the
process, as well as a reduction in waste generated.
• In GB, improvements to air-conditioning systems,
replacement of fluorescent lighting with LED,
measures to reduce office solar gain, and the
replacement of several pumps and conveyor motors
with more efficient equipment at several sites.
• A number of energy reduction measures undertaken
by Whitemountain, including: converting all external
lighting to LED, investment in new energy-efficient
primary crushing plant, dumpers, loading shovels
and excavators throughout its quarries, the
introduction of charging points for electric vehicles,
and ensuring that all HGVs meet the latest European
emission standards.
• A continued push towards alternative fuel
substitution at both our Kinnegad and Hope cement
plants, to reduce our reliance on fossil fuels. We look
for continual improvement through external
assessment and accreditation under ISO 14001 but
in 2019 we also extended our commitment through
the rollout of ISO 6001 (responsible sourcing),
initially in our ready-mixed concrete business.
• Extension of the scope of Whitemountain’s
ISO 50001 Energy Management System to include
the sand dredging operation at Lough Neagh and all
its concrete plants, meaning that all Whitemountain
sites in NI are now certified to ISO 50001.
• 100 per cent of the electricity we purchase in GB and
Ireland is now from renewable sources.
PRIORITIES FOR 2020
Recruit Head of Sustainability who will focus on
building our plans to deliver energy savings
identified in the ESOS audit in 2019.
Work towards implementing the recommendations
of the Taskforce on Climate-related Financial
Disclosures (TCFD).
49
BREEDONGROUP.COMSTRATEGIC REPORT RESOURCES AND RELATIONSHIPS CONTINUED
3
SOCIAL
RESPONSIBILITY
The GCCA Charter requires us to publish
a Code of Conduct incorporating the
principles of internationally proclaimed
human rights, apply the Association’s
Social Impact Assessment guidelines and
establish a systematic dialogue process with
stakeholders (see also pages 54 and 55).
STAKEHOLDER ENGAGEMENT
For the last 10 years Breedon has pursued its mission
to be the safest and most profitable construction
materials company in the UK and, more recently,
Ireland. But we acknowledge that our corporate
responsibilities extend well beyond performing well for
our shareholders. Whilst we continue to pursue
profitable growth and capital appreciation for our
financial stakeholders, who fund our development,
we are also committed to improving the lives of all our
stakeholders, both inside and outside the company.
It is this commitment which gave birth to the company
purpose which we have articulated for the first time in
this report: to make a material difference, to the lives
of our colleagues, customers and communities.
This clear purpose will be a cornerstone of our
strategy for the future, guiding our behaviour and
setting the benchmark against which we will measure
all our stakeholder engagement activity.
Our purpose is supported by four simple business
principles, or values, which we developed in 2019
following a wide-ranging engagement survey among
our 3,000 colleagues. They are:
• Keep it simple
• Make it happen
• Strive to improve
• Show we care
During 2020 we will be working hard to firmly embed
these values at every level of our business. We will
provide our colleagues with the tools and training they
need to ensure that these values become part of
Breedon’s DNA and are evident to everyone with
whom our colleagues come into contact.
This is not to say that we did not continue to support
our customers, colleagues and communities in 2019.
From practical support for the BBC’s DIY SOS:
The Big Build TV programme and ITV’s Love your
Garden, to donations of stone for a World War II
memorial in Scotland and a Saxon heritage memorial
in Cambridgeshire, Breedon provided material and
manpower for a wide variety of community projects.
50
Our Hope cement works was once again very active in
its local community, hosting a highly-successful open
day for local residents and businesses to celebrate its
90th year of operation and using its annual golf day to
raise funds for local hospice and end-of-life care
charities in Derbyshire.
In NI, the Whitemountain Programme celebrated its
substantial investment in local community and
biodiversity projects since its formation in 2008,
with 200 projects supported to date (see page 52).
We continued to focus much of our effort on
educational support, working in partnership with a
large number of local schools, colleges and universities
across GB and Ireland. A variety of young sportsmen
and women benefited from our sponsorship of kit or
playing pitches, not to mention our continued
sponsorship of the Highland League in Scotland, now
in its 10th year.
PRIORITIES FOR 2020
Maintain positive engagement with communities
neighbouring our operations and establish
community liaison groups at all major quarry sites.
Publish significant historic knowledge discovered
through archaeological investigations in our
quarries.
Above: Members of St Teresa’s Youth Centre in Belfast, among the
many beneficiaries of the Whitemountain Programme
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT MARIA
Maria Dargie joined Breedon straight
from school, following completion of
her Scottish Highers, beginning her
apprenticeship as a Customer Service
Administrator at Clatchard quarry in Fife.
On completion of her apprenticeship, Maria was
awarded an SCQF Level 6 in Business Administration
and a Diploma in Digital Application.
Jennifer Forbes, Customer Service Manager for
Fife & Tayside, who also started her working life as
an apprentice, said: “It’s definitely a great way to
attract young people into our industry. It’s been
fantastic to be a part of Maria’s development
during the last couple of years.”
Since completing her apprenticeship at the end of
2019, Maria has moved into a trainee role
supporting the Contracting Commercial team.
ENGAGEMENT WITH OUR COLLEAGUES
As part of our work to develop a clear purpose and
values for our business, we undertook the Group’s
first-ever large-scale employee engagement survey in
2019, which sought to establish current engagement
levels in our business and identify areas where we
need to improve working conditions for our
colleagues. The survey revealed generally encouraging
results, with relatively high levels of engagement, pride
and loyalty to Breedon.
Health and safety and relationships with managers and
colleagues registered among the highest scores and
trust in our leadership is solid. The survey, however,
pointed to a need for improved communication of our
strategy to our colleagues and for more visibility of our
senior management team in the business, both areas
of focus for us in 2020.
In our 2018 report we committed to expanding the
reach and content of our Management Development
Programme (BMDP) and we continued to roll it out
throughout 2019, taking the total number of managers
who have completed the programme to over 200.
In addition, we introduced a standalone Finance for
Managers workshop, delivered by our internal finance,
marketing and strategy teams, which is being
extended across the UK and Ireland in 2020.
In the last quarter of 2019 we piloted new commercial
learning programmes which are now being launched
across our GB business. The Commercial Leaders
Programme (CLP) is targeted at managers in
commercial and customer service roles and the
Commercial Development Programme (CDP) is
designed for our commercial and customer service
colleagues. Both will continue to run throughout 2020
and into 2021.
In 2019 we launched our Driver Apprenticeship
Academy in Breedon Southern, recruiting nine new
colleagues who, as part of their apprenticeship, will
obtain a light goods vehicle driving licence. To date
nearly all the apprentices have successfully obtained
their licence, with our remaining colleagues currently
taking their tests. In all, we recruited 25 new
apprentices, trainees and placement students across
the Group, taking the total number of colleagues on
apprenticeships in 2019 to 45. We also had our first
successful ‘Mastership’, with a colleague achieving an
MBA with Distinction from Cranfield University.
As our Group expands, we are adapting and
developing to support our growing business.
Changed and newly-formed teams have been
supported with resilience workshops, offering tools
that can improve their physiological, emotional and
cognitive resilience and wellbeing, drawing on
techniques used by elite athletes to develop mental
toughness, as well as advice and guidance on how to
improve energy levels and sleep. In 2019, a number of
colleagues attended one of these workshops and they
will continue to be available in 2020.
Building on a fantastic year for results in 2018,
18 colleagues achieved qualifications from Derby
University in 2019, of whom eight were awarded
Distinctions in their Foundation Degrees.
We continued to sponsor advanced learning for our
colleagues, with 37 new enrolments in further and
higher education programmes in 2019.
We continued to provide coaching and mentoring
support to our senior colleagues. Seventeen senior
managers spent one-to-one time developing their
leadership skills with the support of a performance
coach. Further leadership development took place
towards the end of 2019 through a 360-degree
feedback exercise and behavioural profiling of the
Executive Committee.
PRIORITIES FOR 2020
Embed the Group’s purpose and values throughout
the business.
Continue to deliver our Management Development
Programme and embed the behaviours in the
business.
Build the capabilities of our commercial teams
through our CLP and CDP programmes.
Continue delivering on our strategy to recruit
through apprenticeships.
Design programmes and solutions to develop our
leaders of the future.
51
BREEDONGROUP.COMSTRATEGIC REPORT RESOURCES AND RELATIONSHIPS CONTINUED
4
ENVIRONMENT
AND NATURE
The GCCA Charter requires us to apply
the Association’s Environment and Nature
guidelines and set and report on emissions
(see SECR report on pages 48 and 49),
biodiversity and water usage.
We undertook a number of initiatives in 2019 to reduce
the impact of our operations on the environment,
make our products more eco-friendly and encourage
conservation and biodiversity.
Our search for more sustainable construction products
continued, with the extension of our BREEDON Eco™
range of eco-friendly concretes for drives, shed bases,
foundations and agricultural applications. These
products, developed by our in-house R&D Team,
use responsibly-sourced recycled aggregates with low
embodied carbon which reduce reliance on extraction
of virgin materials and are currently being test-
launched in East Anglia.
Having joined the MPA’s Good Neighbour Scheme,
we signed up all our quarries in NI and our dredging
operation at Lough Neagh. The aim of the scheme is
to engage fully with our local communities and strive
to be good neighbours.
Lagan has been piloting with local authorities a range
of geogrid/geosynthetic solutions to the major
problem of damaged roads in boggy sections of the
Irish countryside. These ‘bog rampart’ roads literally
float on the peat and drought-like conditions in 2018
caused many of them to fail. Working with Titan
Environmental Containment in Canada, Lagan
conceived a number of pilot schemes using a variety
of geogrid and glass grid solutions to reinforce the soil
and provide a more robust base for the roads.
PRIORITIES FOR 2020
Continue to husband our assets by converting
existing mineral resources into reserves.
Maximise economic viability and minimise
environmental impact through innovative quarry
designs.
Continue to create educational opportunities in
geodiversity and improve awareness of our industry
through our employee STEM (Science, Technology,
Engineering and Mathematics) ambassadors.
The Whitemountain Programme has
distributed over £6 million to community
and biodiversity projects.”
One of the achievements of which we are most proud
is our work on the £100 million Boston Flood Barrier in
Lincolnshire, where we designed and deployed special
high-strength self-compacting concrete mixes to
effect a robust barrier against tidal flooding.
This year sees construction of the dock ‘wet gate’,
using the same specialist limestone mixes and
proprietary concretes.
In NI we continued to work closely with voluntary
organisations to promote conservation and enhance
local biodiversity. This included helping the Belfast Hills
Partnership (BHP) to develop a new native woodland
nursery near our Blackmountain quarry. We also
worked with BHP volunteers to plant native tree
species at Blackmountain using recycled soils and
dredging spoil which would otherwise have been
bound for our inert landfill facility.
The Whitemountain Programme funded 34 projects
in 2019, allocating nearly £1.5 million to various
community and ecological projects within a 15-mile
radius of our Mullaghglass landfill site. Since its
inception in 2007, the Whitemountain Programme has
distributed over £6 million of Landfill Communities
Fund funding to fantastic community and biodiversity
projects, helping communities bring their plans for
positive change to reality.
52
Above: Restored wetland at West Deeping quarry
Above: Our cement works in the Hope Valley has set aside land for the
Derbyshire Wildlife Trust’s Forest School, where children can get back
to nature in a safe environment
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT 5
CIRCULAR
ECONOMY
The GCCA Charter requires us to promote
the principles of the circular economy
across our value chain, in particular applying
the guidelines developed for fuel and raw
material use in cement production (see under
‘Climate Change and Energy’ on pages 48
and 49).
For Breedon, it is useful to think of the application of
the circular economy to our business under the three
key principles of ‘reduce, reuse, recycle’. We have over
many years implemented a wide variety of schemes
and policies to reduce our dependence on fossil fuels
and other scarce or environmentally compromised raw
materials and we made further progress in these areas
in 2019. To take a selection of examples:
In Scotland we worked with our associate company
BEAR Scotland to resurface part of the A92 trunk road
and with Transerv on the A75, both using recycled tar
planings processed at our Clatchard and Tongland
quarries via a novel technology from Eurovia called
Recofoam®. This innovative system reduces CO2
emissions during the production process by around
50 per cent. At Connah’s Quay in Wales, we have been
piloting the use of recycled plastic as a substitute for
bitumen, which will reduce the use of oil-based
products in the manufacture of asphalt and should
extend the life of roads in Flintshire.
In RoI, we significantly reduced the need to dispose of
waste product by reprocessing around 35,000 tonnes
of scalpings and other material within our quarries in
County Cork to produce saleable products and we
plan to more than double this during 2020.
We increased the proportion of reclaimed asphalt
pavement (RAP) used in our asphalt plant in Rossmore
to approximately 25 per cent by the end of 2019,
reducing our dependence on virgin aggregates.
We also secured a permit to accept planings at our
Kinnegad depot, where they will be reprocessed and
reused as RAP.
At our Kinnegad cement plant, the new SRF
processing facility was commissioned in conjunction
with Panda Recycling and began operations in
February. The facility allows our cement plant to
process incoming SRF to a smaller and more uniform
sized fuel, which in turn allows our operations to
maintain tighter control over the quality of the fuel,
increasing efficiency and maximising fossil
fuel replacement.
We commissioned an innovative 3.5 hectare system to
manage and treat pumped groundwater during the
deepening of our Rossmore quarry in County Cork.
Intercepted groundwater is pumped to a settlement
lagoon system for treatment prior to discharge to
ground via an infiltration pond, effectively recharging
the underlying aquifer and eliminating the risk of
over-abstracting groundwater.
PRIORITIES FOR 2020
Continue to maximise the use of alternative fuels in
cement manufacture.
Identify suitable plants for installation of RAP
systems, in order to increase our use of RAP and
reduce our dependence on virgin aggregates.
Continue to ensure that waste aggregate and other
materials are reused or recycled wherever
practicable, with consideration to life cycle
assessment.
This is only the
second time that
this technology
has been used in
Scotland.”
A finished stretch of the A92 in Scotland,
surfaced with recycled tar planings
Alan Mackenzie
Managing Director, Breedon Northern
53
BREEDONGROUP.COMSTRATEGIC REPORT OUR STAKEHOLDERS
The Board of Breedon Group plc is of the opinion that it has acted in a way which would
be likely to promote the success of the company for the benefit of its members and other
stakeholders through the decisions it has taken in the year to 31 December 2019.
OUR STAKEHOLDERS
HOW WE ENGAGE
WHAT ARE THEIR
MATERIAL ISSUES
Colleagues
We recognise our dedicated workforce as a key driver of the
value derived from the business. Our colleagues are
experienced and continuously developed to fulfil their
potential. All employees are offered a fair benefits and
compensation package relative to their role and level in the
organisation.
• Intranet, newsletters,
presentations, email,
notices and post
• Employee groups
and committees
• Employee survey
• Development reviews
• Physical working conditions
• Pay and benefits
• Communication
• Opportunities for development
and training
• Health and safety
Customers and Suppliers
Breedon works alongside its customers by striving to deliver
best customer service and to seek innovative solutions to
support many of the major projects on which it operates.
We pride ourselves on going the extra mile and recognise
customer loyalty as a key part of our long-term success.
The Company also recognises the huge role its suppliers play
in its long-term success. We strive to maximise value from our
suppliers and work with them to support the delivery of
our customers’ needs.
• Direct engagement
• Contracts and terms
of business
• Third party engagement
• Website
• Industry associations
• Cost
• Product development
• Service levels
• Sustainability commitments
• Product quality
• Payment practises
Communities
We are at the heart of the communities in which we operate
and recognise our responsibility to be good, supportive and
engaged neighbours. Where appropriate, Breedon’s businesses
have active liaison programmes with the communities in
which they operate, and they seek to take into account the
interests and concerns of those communities in their
operational activities.
• Local liaison meetings
• Social media
• Community events
• Letters, emails, notices
• Websites
• Noise
• Transportation routes
• Safety
• Environment
• Communication
• Support for local causes
Investors
Our shareholders play an important role in the continued
success of our business. We maintain purposeful and close
relationships with them.
• One-to-one meetings
• Telephone calls
• Site visits and field trips
• Investor conferences
• Brokers’ contacts
• Governance
• Profitability and return
on investment
• Sustainability commitments
• Dividend policies
Regulators/Local Government
Developing and sustaining good relationships with the many
regulators who govern our businesses is central to the success
of our business and maintaining our license to operate.
We are committed to adherence to our legal and regulatory
requirements.
• Mandatory returns
and applications
• HSE visits
• Notices
• Meetings with regulators
• Emissions and discharges
• Climate change
• Site restoration
• Health and safety
• Vehicle management
54
OUR IMPACT IN 2019
Colleagues
• Engaged colleagues through the group-wide staff survey – participation at c 50%
• Over 1,000 colleagues participated in SAYE share option schemes
• 37 colleagues enrolled and 20 completed higher education programmes
• 132 colleagues completed the BMDP and development of the Breedon CDP commenced
• Well embedded apprenticeship schemes for mechanical and electrical engineers as well as a graduate programme
• Significant decrease in the number of LTI’s to 1.05 per million hours worked
• Medical assessments of nearly 800 operational staff
Customers and Suppliers
• New purchasing terms of business rolled out in 2019 to customers and new suppliers signed up to the Code of Conduct
• Internal guidance distributed highlighting specific modern slavery risks
• Unique dry ridge fixing system launched
• UK Stone Direct launched – direct Welsh slate flooring, paving, rockery stones and aggregate
• Lagan is helping to develop new geosynthetic solutions to the problem of failing ‘bog rampart roads’
• Breedon Northern completed resurfacing works on part of the A92 trunk road at Ladybank, Fife, using reprocessed asphalt
stripped from the same stretch of road
• At Connah’s Quay in Wales, piloted the use of recycled plastic as a substitute for bitumen
• In RoI, we significantly reduced the need to dispose of waste product by reprocessing around 35,000 tonnes of scalpings and
other material within our quarries in County Cork to produce saleable products
• In our cement production we use SRF/chipped tyres and other alternative fuels as fossil fuel replacements
Communities
Grampian operations
• Dedicated website established to provide information about the Hope cement works
• Sponsorship of Breedon Highland League supporting local communities in the regions of our Highlands and
• Creation of community path networks in various locations
• Supporting local causes through donations of product and the provision of labour
• The Whitemountain Programme has funded 34 community and ecological projects allocating c £1.5 million
• All NI sites are now signed up to the MPA Good Neighbour Scheme, with similar schemes being considered elsewhere
• At Hope Works c £100,000 given for local activities, sponsorships and donations and communities use of facilities
Investors
• Non-executive Chairman appointed following retirement of previous Executive Chairman
• New independent Board members appointed to strengthen the Board
• Member of GCCA – made a commitment in 2019 to the five pillars of its Sustainability Charter
• Recruitment of Group Head of Sustainability commenced
• Intention to commence a progressive dividend policy from 2021 announced
Regulators/Local Government
• Successful planning applications received
• Group Head of Health, Safety and Environment appointed and recruitment announced for Group Head of Sustainability
• All Whitemountain sites in NI certified to ISO 5001 Energy Management System
• Health and safety training completed for Breedon Southern readymix sites in risk assessment, isolation, contractor
management and hazard spotting
• Lagan, Whitemountain’s Alpha landfill site and Kinnegad works all accredited with the ISO 45001 health and safety
management standard
• SECR reporting requirements adopted one year early
BREEDON GROUP ANNUAL REPORT 2019STRATEGIC REPORT The Board is committed to and actively encourages effective relationships and communication
with the Group’s stakeholders so that a greater understanding of each others needs may be
realised. The Board believes that by taking into account stakeholder interests, this in turn will
help maximise value for the Group and the continued long-term success of Breedon.
OUR STAKEHOLDERS
HOW WE ENGAGE
OUR IMPACT IN 2019
WHAT ARE THEIR
MATERIAL ISSUES
We recognise our dedicated workforce as a key driver of the
• Intranet, newsletters,
• Physical working conditions
Colleagues
value derived from the business. Our colleagues are
experienced and continuously developed to fulfil their
potential. All employees are offered a fair benefits and
compensation package relative to their role and level in the
organisation.
presentations, email,
notices and post
• Employee groups
and committees
• Employee survey
• Development reviews
• Pay and benefits
• Communication
and training
• Health and safety
• Opportunities for development
Customers and Suppliers
Breedon works alongside its customers by striving to deliver
• Direct engagement
• Cost
best customer service and to seek innovative solutions to
support many of the major projects on which it operates.
We pride ourselves on going the extra mile and recognise
customer loyalty as a key part of our long-term success.
The Company also recognises the huge role its suppliers play
in its long-term success. We strive to maximise value from our
suppliers and work with them to support the delivery of
our customers’ needs.
• Contracts and terms
• Product development
of business
• Service levels
• Third party engagement
• Sustainability commitments
• Website
• Industry associations
• Product quality
• Payment practises
Colleagues
• Engaged colleagues through the group-wide staff survey – participation at c 50%
• Over 1,000 colleagues participated in SAYE share option schemes
• 37 colleagues enrolled and 20 completed higher education programmes
• 132 colleagues completed the BMDP and development of the Breedon CDP commenced
• Well embedded apprenticeship schemes for mechanical and electrical engineers as well as a graduate programme
• Significant decrease in the number of LTI’s to 1.05 per million hours worked
• Medical assessments of nearly 800 operational staff
Customers and Suppliers
• New purchasing terms of business rolled out in 2019 to customers and new suppliers signed up to the Code of Conduct
• Internal guidance distributed highlighting specific modern slavery risks
• Unique dry ridge fixing system launched
• UK Stone Direct launched – direct Welsh slate flooring, paving, rockery stones and aggregate
• Lagan is helping to develop new geosynthetic solutions to the problem of failing ‘bog rampart roads’
• Breedon Northern completed resurfacing works on part of the A92 trunk road at Ladybank, Fife, using reprocessed asphalt
stripped from the same stretch of road
• At Connah’s Quay in Wales, piloted the use of recycled plastic as a substitute for bitumen
• In RoI, we significantly reduced the need to dispose of waste product by reprocessing around 35,000 tonnes of scalpings and
other material within our quarries in County Cork to produce saleable products
• In our cement production we use SRF/chipped tyres and other alternative fuels as fossil fuel replacements
Communities
Communities
We are at the heart of the communities in which we operate
• Local liaison meetings
• Noise
and recognise our responsibility to be good, supportive and
engaged neighbours. Where appropriate, Breedon’s businesses
have active liaison programmes with the communities in
which they operate, and they seek to take into account the
interests and concerns of those communities in their
• Social media
• Transportation routes
• Community events
• Safety
• Letters, emails, notices
• Environment
• Websites
• Communication
operational activities.
• Support for local causes
• Dedicated website established to provide information about the Hope cement works
• Sponsorship of Breedon Highland League supporting local communities in the regions of our Highlands and
Grampian operations
• Creation of community path networks in various locations
• Supporting local causes through donations of product and the provision of labour
• The Whitemountain Programme has funded 34 community and ecological projects allocating c £1.5 million
• All NI sites are now signed up to the MPA Good Neighbour Scheme, with similar schemes being considered elsewhere
• At Hope Works c £100,000 given for local activities, sponsorships and donations and communities use of facilities
Investors
Our shareholders play an important role in the continued
• One-to-one meetings
• Governance
success of our business. We maintain purposeful and close
relationships with them.
• Telephone calls
• Profitability and return
• Site visits and field trips
on investment
• Investor conferences
• Brokers’ contacts
• Sustainability commitments
• Dividend policies
Investors
• Non-executive Chairman appointed following retirement of previous Executive Chairman
• New independent Board members appointed to strengthen the Board
• Member of GCCA – made a commitment in 2019 to the five pillars of its Sustainability Charter
• Recruitment of Group Head of Sustainability commenced
• Intention to commence a progressive dividend policy from 2021 announced
Regulators/Local Government
Regulators/Local Government
Developing and sustaining good relationships with the many
• Mandatory returns
• Emissions and discharges
regulators who govern our businesses is central to the success
and applications
of our business and maintaining our license to operate.
We are committed to adherence to our legal and regulatory
• HSE visits
• Notices
requirements.
• Climate change
• Site restoration
• Health and safety
• Meetings with regulators
• Vehicle management
management and hazard spotting
• Lagan, Whitemountain’s Alpha landfill site and Kinnegad works all accredited with the ISO 45001 health and safety
management standard
• SECR reporting requirements adopted one year early
• Successful planning applications received
• Group Head of Health, Safety and Environment appointed and recruitment announced for Group Head of Sustainability
• All Whitemountain sites in NI certified to ISO 5001 Energy Management System
• Health and safety training completed for Breedon Southern readymix sites in risk assessment, isolation, contractor
55
BREEDONGROUP.COMSTRATEGIC REPORT GOVERNANCE
GOVERNANCE
REPORT
In the following pages we report on the
governance framework and how it drives
the long-term success of our business.
Board of Directors
Corporate Governance statement
Audit Committee report
Directors’ Remuneration report
Nomination Committee report
Directors’ Report
Statement of Directors’ Responsibilities
58
60
66
69
77
79
82
Tongland quarry, Kirkcudbright
56
BREEDON GROUP ANNUAL REPORT 2019
E
C
N
A
N
R
E
V
O
G
BREEDONGROUP.COM
57
BOARD OF DIRECTORS
OUR LEADERSHIP
Our Board comprises an executive leadership
team with extensive experience of the
international aggregates industry, supported
by experienced non-executive directors who
bring strong governance disciplines and a
valuable external perspective to our business.
BOARD OF DIRECTORS
A Member of the Audit Committee
R Member of the Remuneration Committee
N Member of the Nomination Committee
S Senior Independent Director
Appointed to Board: 2016
Independent: No
Core strengths and experience:
• Over 15 years’ experience in corporate finance
and private equity
Other positions currently held:
• Chairman, Queens Park Rangers Football Club
• Partner, Summix Capital
• Director of Brimary Investments Sarl, QPR
Holdings Limited, Summix Capital Limited and
Global Relief Initiative
• Advisory Board Member, Metro Bank PLC
• Member of the External Advisory Council for
Internationalisation, Cornell University
Background
Amit is founder and managing partner of Swordfish Investments,
a private equity and venture capital business. He is also Partner
at Summix Capital, a strategic land fund and a Partner at Initial
Capital, a firm that invests in early stage technology companies.
He is Chairman of the Global Relief Initiative, a philanthropic trust
he founded in 2011. He is a Gold Leaf member at the Aspen
Institute and a William Pitt group member at Chatham House.
Amit was Executive Chairman of Hope Construction Materials
until it was acquired by Breedon Group in August 2016 when he
joined the Board. He was appointed Deputy Chairman in 2018
and Non-executive Chairman in May 2019.
Appointed to Board: 2016
Core strengths and experience:
• Over 30 years’ experience in the aggregates
and construction industries in the UK, USA
and Middle East
• Former CEO of Aggregate Industries Europe,
a subsidiary of LafargeHolcim
• Director of Minerals Products Association
Background
Pat spent 20 years with Aggregate Industries in various roles
across their UK and US businesses. He joined them in 1995 and
in 1999 was given the opportunity to relocate to Denver as Vice
President of the Colorado business. At the time of leaving the
USA, Pat had responsibilities for the businesses in Nevada,
Colorado, Texas, Oklahoma and the Mid-Atlantic region. He was
appointed CEO of Aggregate Industries Europe in April 2014.
Pat joined Breedon in January 2016, and was appointed to the
Board in March 2016.
Appointed to Board: 2014
Core strengths and experience:
• Over 15 years’ experience in the building
materials industry, including Hanson PLC and
HeidelbergCement AG
• Qualified Chartered Accountant with
M&A experience
Background
Rob has over 15 years’ experience in the international building
materials industry. He qualified as a Chartered Accountant with
Ernst & Young and subsequently joined Hanson PLC where he
held a number of senior positions including Finance Director
Brick Continental Europe, Finance Director Building Products
UK and Chief Financial Officer Australia and Asia Pacific.
Following the acquisition of Hanson PLC by HeidelbergCement
AG, Rob returned to the UK and joined Drax Group plc as Group
Financial Controller. During his time at Drax he also spent a
period of time as Head of M&A. Rob joined Breedon and was
appointed to the Board in 2014.
N
AMIT BHATIA
Non-executive Director,
Chairman
PAT WARD
Group Chief Executive
ROB WOOD
Group Finance Director
58
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 A
R
N
PETER CORNELL
Non-executive Director
A
R
N
S
SUSIE FARNON
Non-executive Director
A
R
N
MONI MANNINGS
Non-executive Director
A
R
N
CLIVE WATSON
Non-executive Director
Appointed to Board: 2018
Independent: Yes
Core strengths and experience:
• Senior corporate lawyer with significant
experience in investment markets
Other positions currently held:
• Non-executive Chairman of Augusta Securities
• Non-executive Chairman of
Grant Thornton (C.I.)
• Non-executive Chairman of
Lexington Consultants
• Partner of Metric Capital Partners
Background
Prior to co-founding Metric Capital in 2011, Peter was a Managing
Director at Terra Firma, one of Europe’s leading private equity
firms. He formerly spent more than 20 years with international law
firm Clifford Chance, latterly as Global Managing Partner. Peter is
a Partner in Metric Capital, a Special Situations Fund targeting
mid-sized companies throughout Europe with approximately
€3 billion of assets currently under management. He was
appointed to the Board in October 2018. Peter will retire prior to
the 2020 AGM.
Appointed to Board: 2010
Independent: Yes
Core strengths and experience:
• Chartered Accountant with significant
experience in the financial services industry
Other positions currently held:
• Non-executive director of a number of listed
and unlisted companies
Background
Susie was a Banking and Finance Partner with KPMG Channel
Islands from 1990 until 2001 and Head of Audit at KPMG Channel
Islands from 1999. She has served as President of the Guernsey
Society of Chartered and Certified Accountants and as a member
of The States of Guernsey Audit Commission, and is a former
Commissioner of the Guernsey Financial Services Commission.
She is a non-executive director of a number of listed and unlisted
companies and is a member of the Board of The Association of
Investment Companies. Susie was appointed to the Board of
Breedon in 2010 and became the Senior Independent Director in
January 2012. She was appointed as Chair of the Audit Committee
in 2018. Susie will retire prior to the 2020 AGM.
Appointed to Board: 2019
Independent: Yes
Core strengths and experience:
• Solicitor with significant Board and
Remuneration Committee Chair experience
Other positions currently held:
• Senior Independent Director and Chair of the
Remuneration Committee of Investec Bank PLC
• Non-executive Chair of Investec Holdings
(Ireland) Limited
• Non-executive Chair of Investec Europe Limited
• Deputy Chair of Barnardo’s
Background
Moni is a non-executive Director of a number of limited
companies, Senior Independent Director and Chair of
Remuneration at Investec Bank PLC and Deputy Chair of
Barnardo’s. Moni previously held a number of senior non-
executive positions, including as a Board member of the Solicitors
Regulation Authority (chairing its Equality, Diversity and Inclusion
Committee), Cranfield University, Dairy Crest PLC and Polypipe
Group plc where she was also Chair of the Remuneration
Committee. Until 2017, Moni was Chief Operating Officer of
Aistemos Limited, a leading IP data analytics and strategy
company. From 2000 until 2016, Moni was a Partner and Head of
the International Banking and Finance Division of Olswang LLP,
before which she held senior positions with Dewey Ballantine LLP
and Simmons & Simmons. Moni was appointed to the Board in
December 2019 and appointed Chair of the Remuneration
Committee in January 2020.
Appointed to Board: 2019
Independent: Yes
Core strengths and experience:
• Chartered Accountant and member of the
Chartered Institute of Tax with significant
finance experience in a variety of industries
Other positions currently held:
• Non-executive Director
discoverIE Group PLC
Background
Clive has considerable finance experience, having previously been
the Group Finance Director of Spectris PLC, a leading international
provider of productivity-enhancing instrumentation and controls,
Chief Financial Officer and Executive Vice President for business
support at Borealis, a leading provider of polyolefins, Group
Finance Director at Thorn Lighting Group and held a variety of
finance roles at Black & Decker. In 2019, Clive retired from the
Board of Spectris PLC and as a non-executive director of Spirax
Sarco Engineering plc, the FTSE 100 engineering company, where
he was Chair of the Audit Committee and Senior Independent
Director. Clive is currently a non-executive director and chair of
the Audit and Risk Committee for discoverIE Group plc, an
international group of businesses which designs, manufactures
and supplies electronic components. Clive was appointed to the
Board in September 2019 and it is expected that he will become
Chairman of the Audit Committee following Susie Farnon’s
retirement from the Board.
59
BREEDONGROUP.COMGOVERNANCE CORPORATE GOVERNANCE STATEMENT
DELIVER GROWTH
PRINCIPLE 1
Establish a strategy and business
model which promote long-term
value for shareholders
The Board has established the Group’s strategy and
regularly reviews it. The Board have defined six
strategic pillars which form the foundation of the
Group strategy and which will be of focus in 2020.
These are: a clear purpose and the right culture; robust
governance; a commitment to sustainability and social
responsibility; long-term growth markets; conservative
financial management; and a well-utilised, growing
asset base.
The Board ensures that the Group communicates its
strategy to investors, colleagues and other
stakeholders using means appropriate for each group.
We have a fully vertically-integrated business model
which gives us significant economies of scale, a high
level of self-sufficiency and tight control over our
costs. The objective of our business model is to extract
maximum value from every tonne of aggregates we
quarry and every tonne of cement we produce,
through the efficient manufacture and sale of a wide
range of downstream products and
associated services.
The Group’s Business Model and Strategy, together
with the key challenges faced by the Group in their
execution, are described in more detail on pages 16
and 17, and 20 and 21.
PRINCIPLE 2
Seek to understand and meet shareholder
needs and expectations
The Board is committed to and actively encourages
effective relationships and communication with the
Company’s shareholders.
Dialogue with shareholders
Breedon is committed to maintaining good
communications with its shareholders. Members of the
Board have face-to-face meetings with representatives
of institutional shareholders and potential investors so
to enable a greater understanding primarily of the
business but mainly the Board’s strategy for the
continued long-term success of the business.
Through these meetings, the Board is able to gain
feedback to have a clear understanding of the views of
the major shareholders, and the needs of potential
shareholders so that these can be considered.
During 2019 over 80 meetings were held with
shareholders, ranging from telephone calls, one-to-one
meetings and site visits. This equates in the period to
the Executive team having contact with shareholders
Amit Bhatia
Chairman
2019 has seen a strengthening of the Board
of directors, which continues to develop
to align and support the strategic growth
of the Group. The directors recognise the
value of strong and effective corporate
governance and are fully accountable to the
Group’s stakeholders including colleagues,
shareholders, customers and suppliers.
The Board is responsible for ensuring that commercial
risks and financing needs are properly considered, the
obligations of a public company are adhered to and all
decisions are made objectively in the interest of the
Group and its stakeholders. The executive directors of
the board, through their operational roles, will
continue to have close involvement with the
operations of the business.
The Board adopted the QCA Corporate Governance
Code (‘QCA code’) with effect from 1 January 2019.
In this section of our report we have broadly set out
our approach to governance and how it complies with
the QCA Code and have provided further information
on how the Board and its Committees operate.
The Board believes that it complies with all of the
principles of the QCA code.
The Company will provide annual updates on its
compliance with the QCA Code in its future annual
reports, which will also be published on its website.
60
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 holding over 70% of the Group. The Group Chief
Executive plays an important role in ensuring that all
views of shareholders are communicated to the Board
as a whole, and we believe that this has been
successful in ensuring that all directors have a clear
understanding of major shareholders.
The Executive Directors are primarily responsible for
shareholder liaison and may be contacted via
investors@breedongroup.com. Any individual can
subscribe for the Group’s regulatory news and
information via www.breedongroup.com.
Use of general meetings
All shareholders are actively encouraged to participate
in the Company’s AGM. At general meetings the
Company proposes separate resolutions on each
substantially separate issue. The Company provides
shareholders with the opportunity to appoint a proxy.
In addition, proxy votes are counted, and the results
announced after any vote on a show of hands.
The Chair of the Remuneration, Audit and Nomination
Committees, the Senior Independent Director, and all
other directors are available to answer questions at
each AGM of the Company.
The Company arranges that notice of the AGM and
related papers are sent to shareholders at least
20 working days before the meeting, giving time for
all shareholders to consider resolutions properly.
PRINCIPLE 3
Take into account wider stakeholder
and social responsibilities and their
implications for long-term success
Breedon recognises the importance of balancing
the interests of its key stakeholders – employees,
customers, investors, suppliers and the wider
communities in which it operates. Engaging with our
stakeholders strengthens our relationships and helps
us make better business decisions to deliver on
our commitments.
The way in which the Board engages and takes into
account stakeholder issues, together with the resultant
impact is detailed on pages 44 to 53 of the Resources
and Relationships section of the Strategic Report.
PRINCIPLE 4
Embed effective risk management,
considering both opportunities and
threats, throughout the organisation
The Board recognises its responsibility for determining
the nature and extent of the principal risks it is willing
to take in achieving its strategic objectives and
priorities and maintains sound risk management and
internal control systems. The Board reviews and
approves the Group’s risk appetite on an annual basis.
Risk management processes are embedded
throughout the Group and assist management in
identifying and understanding the risk that they face
in delivering business objectives and the key controls
that they have in place to manage those risks.
By identifying and managing those existing and
emerging risks, the Board can focus on long-term
business opportunities.
The Board is responsible for the Group’s systems
of risk management and internal control, and for
reviewing their effectiveness. The Audit Committee
reviews the suitability and effectiveness of risk
management processes and controls on behalf
of the Board.
The Group Finance Director provides a twice-yearly
update to the Board on the key risks and controls
within the Group, highlighting the roles and
responsibilities of key management in managing
those risks.
The Group Controls Manager works with the
businesses to identify and assess the key risks and
controls and reports them to the Group Finance
Director. In addition they facilitate the embedding and
monitoring of the Board’s agreed risk management
process within the business, under the direction of the
Group Finance Director.
Directors and senior managers ensure that the risk
management framework is implemented effectively
within their respective business areas. Their key
responsibilities include ensuring an effective risk
culture is in place, with risk management embedded in
the business.
The Group’s principal risks are: acquisitions;
competition and margins; environment and climate
change; financing, health and safety; IT and cyber
security; legal and regulatory; liquidity and currency;
people; and market conditions.
Further details of the Group’s approach to risk
management, together with a full description of the
key risks faced by the Group, are set out in pages
24 to 27.
61
BREEDONGROUP.COMGOVERNANCE CORPORATE GOVERNANCE STATEMENT CONTINUED
MAINTAIN A DYNAMIC
MANAGEMENT FRAMEWORK
PRINCIPLE 5
Maintain the board as a well-functioning,
balanced team led by the chair
The Chairman sets the Board’s agenda and the Board
is provided with clear, regular and timely information
on the financial performance of the businesses within
the Group, and of the Group as a whole, together with
other trading reports, contract performance and
market reports and data, including reports on
personnel-related matters such as health and safety
and environmental issues. The Board has approved a
schedule of matters reserved for the Board.
The Chairman encourages and facilitates the
contribution of each of the directors to ensure that no
one individual can dominate its proceedings.
All directors are encouraged to use their independent
judgement and to challenge all matters, whether
strategic or operational.
The current Board comprises the Non-executive
Chairman, two executive directors (Group Chief
Executive and Group Finance Director), four
independent non-executive directors (being Susie
Farnon, who is the Senior Independent Director, Peter
Cornell, Clive Watson who was appointed as a non-
executive director with effect from 1 September 2019,
and Moni Mannings who was appointed as a non-
executive director with effect from 1 December 2019).
Peter Tom, Executive Chairman and David Williams a
non-executive director who was not considered to be
independent, left the Board during 2019.
The Board has established Audit, Remuneration and
Nomination committees to support the Board in the
performance of its duties, and it believes that the
members of those committees have the appropriate
skills and knowledge to perform the functions
delegated to them.
The time commitment expected from directors is set
out in their service agreements or letters of
appointment (as appropriate). Executive directors are
required to work such hours as may be necessary for
the proper performance of their duties. The Board has
agreed that each executive director may also take on
one non-executive directorship of a public company
outside of the Breedon Group.
Non-executive directors are expected to devote such
time as is necessary for the proper performance of
their duties, including in preparation for and
attendance at Board, committee and shareholder
meetings. When accepting their appointment, each
non-executive director confirms that they can allocate
sufficient time to meet the expectations of their role.
The Board is satisfied that it has a suitable balance
between independence on the one hand, and
knowledge of the Group on the other, to enable it to
discharge its duties and responsibilities effectively.
The Board considers all of its non-executive directors,
with the exception of the Non-executive Chairman, to
be independent in character and judgement.
62
Details of the directors’ attendance at Board meetings
are set out below:
MEETING ATTENDANCE
Meetings
attended
Eligible
to attend
7
7
7
7
6
1
3
3
7
7
7
7
7
7
1
3
3
7
Amit Bhatia
Pat Ward
Rob Wood
Peter Cornell
Susie Farnon
Moni Mannings1
Clive Watson2
Peter Tom CBE3
David Williams4
1 Appointed 1 December 2019
2 Appointed 1 September 2019
3 Retired 29 May 2019
4 Retired 31 December 2019
PRINCIPLE 6
Ensure that between them the directors
have the necessary up-to-date experience,
skills and capabilities
The composition and performance of the Board, and
the skills and experience of each director are regularly
evaluated, to ensure that they best fit the evolution of
the Group’s business. The Nomination Committee
regularly reviews the succession plan to ensure that
when seeking to recommend new members to the
Board, consideration of a range of relevant matters
including the diversity of its composition is given.
The Board considers that each of the directors brings
a senior level of experience and judgement to bear on
issues of operations, finance, strategy, performance,
resources (including key appointments) and standards
of conduct. All directors are given regular access to
the Group’s operations and personnel as and when
required. All non-executive directors have a wealth
and breadth of experience gained through their
directorships on other listed Boards. The individual
biographical details of directors including the skills and
experience they bring to the Board can be found on
pages 58 and 59.
The roles of Non-executive Chairman and Group Chief
Executive are not exercised by the same individual and
the division of responsibility is clear and set out on the
Group’s website.
The primary role of the Chairman is to ensure the
Board is effective in setting and implementing the
Group’s direction and strategy and the operation of
the Company’s governance structures. He is also
responsible for leadership of the Board and ensuring
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 that the Group maintains an appropriate level of
dialogue with its shareholders. The role of the Chief
Executive is to oversee the operational management of
the Group’s businesses, and the role of the Senior
Independent Director is to act as a sounding board for
the Chairman and other members of the Board and to
be an alternative point of access for shareholders for
matters that they do not wish to raise through
other channels.
The Board considers and reviews the requirement for
continued professional development and each director
is encouraged to reflect on their own individual needs.
The Board seeks to ensure that their awareness of
developments in corporate governance and the
regulatory framework is current, as well as remaining
knowledgeable of any industry-specific updates.
The Group Services Director, the Group’s Nominated
Adviser and other external advisers serve to
strengthen this development by providing guidance
and updates as required.
Breedon has a robust succession plan which has seen
the appointment of the Non-executive Chairman and
two new independent non-executive directors in 2019.
The Board recognises that following the departure of
Peter Tom and David Williams during 2019, there
remains one non-executive director, Susie Farnon who
has served on the Board for more than nine years,
however Susie will be retiring prior to the 2020 AGM.
Peter Cornell will also retire from the Board prior to
the AGM.
All directors stand for re-election by shareholders
every year, notwithstanding that the Articles of
Association of the Company require only one third of
them to do so annually.
Following the recommendation of the Nomination
Committee in February 2020, it is anticipated that
Carol Hui will be appointed to the Board in
spring 2020.
PRINCIPLE 7
Evaluate board performance based on
clear and relevant objectives, seeking
continuous improvement
The Board regularly reviews its own effectiveness and
considers whether it comprises the appropriate skills
to meet the needs of the business. The Chairman is in
regular contact with each member of the Board to
ensure that any concerns that any of them may have
are identified and can be acted upon.
The Board aims to carry out an externally facilitated
Board Effectiveness Review every three years.
The most recent review, carried out in 2017, consisted
of each director participating in a one-to-one interview
with the provider and the output of those interviews
then being compiled in a report for consideration by
the Board as a whole. While the review covered the
whole spectrum of the Board’s activities, it had a
particular focus on four key areas which the directors
had identified in advance as being worthy of additional
attention. Those areas related to the Board’s approach
to strategy, succession planning, risk and employee
management and development.
The review concluded that the Breedon Group Board
was highly effective. It comprises well-experienced
individuals, has good reporting, little bureaucracy,
conducts well controlled and open meetings and
benefits from a high level of challenge. There is a high
degree of trust amongst the directors and between
the directors and senior management.
The Board will undertake an externally facilitated
review in 2020, which will follow recommendations
from the ICSA: The Governance Institute & Department
for Business, Energy and Industrial Strategy Quality
and Effectiveness of Board Evaluations Review which
will allow the Board to understand its own
effectiveness, the impact it has had since the last
review and how it may make further enhancements to
its own performance. The review will be set in context
of the changes made to the composition of the Board
in 2019 to ensure that it continues to function in an
efficient and productive manner.
63
BREEDONGROUP.COMGOVERNANCE CORPORATE GOVERNANCE STATEMENT CONTINUED
PRINCIPLE 8
PRINCIPLE 9
Promote a corporate culture that is based
on ethical values and behaviours
All Group employees are expected to maintain an
appropriate standard of conduct in all of their
activities, and the directors seek to set the tone for
such behaviour through their own actions.
To promote a common culture across the organisation,
Breedon has defined a clear purpose and set of values
that will support the successful delivery of the Breedon
strategy. Led by the Board and Executive Committee,
the Group is embedding the purpose “to make a
material difference to the lives of our colleagues,
customers and communities” to create a work place
where people feel safe, proud and motivated to do
their best. The values at the heart of our business:
keep it simple; make it happen; show you care; and
strive to improve, will drive the performance of the
business, motivating and engaging employees,
building customer loyalty and strengthening our
relationship with local communities.
The Group has established a robust Compliance
Framework to regulate its activities in respect of inter
alia Business Conduct, Modern Slavery, Competition
Law Compliance, Anti-Bribery and Corruption, Data
Protection, Whistleblowing, Non-facilitation of Tax
Evasion and Conduct of Suppliers and closely monitors
compliance with these.
Through our Visible Felt Leadership programme,
our leaders can ensure that there is a culture of safe
behaviour through interactions which allow
opportunities for the exchange of views in an open
and honest environment.
Maintain governance structures and
processes that are fit for purpose
and support good decision-making by
the Board
The Board meets at least six times per year (it met
seven times in 2019) in accordance with its scheduled
meeting calendar. The Board receives appropriate and
timely information prior to each meeting, a formal
agenda is produced, and these papers are distributed
in good time before each meeting. At the start of each
meeting, the Board considers any Directors’ Conflicts
of Interest.
The Board is responsible for the long-term success of
the Group. It is responsible for overall Group strategy,
approval of annual budgets, annual and interim results,
dividend policies and approval of major investments,
including long-term contracts, acquisitions or large
capital items. However, the Board recognises that
governance is not just about compliance. The Board
strives for good and effective governance, with
informed and transparent decisions being made
contributing to the delivery of the Group strategy.
The Chairman is responsible for maintaining strategic
focus and direction and the Group Chief Executive is
responsible for implementing the strategy and
overseeing the management of the Group through the
executive and management teams.
There is a formal schedule of matters reserved to the
Board which includes Strategy and Management,
Structure and Capital, Financial Reporting and
Controls, Internal Contracts, Contracts,
Communication, Board Membership and other
appointments, Remuneration, Governance and
Corporate Policies.
The Board is supported by the Audit, Remuneration
and Nomination committees. Terms of reference of
each board committee, and the schedule of matters
reserved to the Board are set out on the Group’s
website at www.breedongroup.com. The activities of
the Audit, Remuneration and Nomination committees
during 2019 are described on pages 66 to 78.
The executive and management teams, who are
overseen by the Group Chief Executive with input from
the individual business managing directors, are
responsible for day-to-day management of the Group’s
business and its overall trading, operational and
financial performance.
64
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 BUILD TRUST
PRINCIPLE 10
Communicate how the company
is governed and is performing by
maintaining a dialogue with shareholders
and other relevant stakeholders
Breedon is committed to maintaining good
communications with its shareholders, and it has put
in place appropriate processes and structures to allow
that to happen. The Group communicates with its
shareholders through the Annual Report and
Accounts, trading announcements, the AGM and in
the manner set out in the commentary above in
relation to Principle 2.
It maintains a dedicated email address which current
or potential investors can use in order to communicate
with the Group’s investor relations team
(investors@breedongroup.com).
The Group announces the result of the proxy votes
cast for each resolution proposed at each general
meeting of the Company immediately after such
meeting, and a range of corporate information
(including all historical annual reports and notices of
meetings, announcements and presentations) is made
available on the Group’s website at
www.breedongroup.com.
The Board receives regular updates on the views of
shareholders through reports and notes from its
brokers and other Board members. Analysts notes are
also reviewed and discussions held with the Company’s
brokers to maintain a broad understanding of varying
investor views.
Amit Bhatia
Non-executive Chairman
11 March 2020
65
BREEDONGROUP.COMGOVERNANCE AUDIT COMMITTEE REPORT
The Audit Committee maintained its focus on ensuring high standards of financial governance
during the year.
MEETING ATTENDANCE
Susie Farnon,
Committee Chairman
Peter Cornell,
Independent Non-executive Director
Clive Watson,
Independent Non-executive Director*
* appointed 1 September 2019
Meetings
attended
Eligible
to attend
3
3
1
3
3
1
The role of the Audit Committee is to monitor the
integrity of the Group’s Financial Statements and to
ensure that the interests of shareholders are properly
protected in relation to financial reporting and
internal control.
The Audit Committee monitors and reviews the
effectiveness of the internal financial controls, the
internal control and risk management systems and the
compliance environment operating within the Group.
This includes the Group’s whistleblowing
arrangements, which the Committee ensures allows for
proportionate and independent investigation alongside
appropriate follow up action of concerns raised.
The Audit Committee makes recommendations to the
Board in respect of the appointment of the external
auditor, reviews and monitors their independence and
objectivity and approves their remuneration. The Audit
Committee consults with the external auditor on the
scope of their work and reviews all major points arising
from the audit.
The Audit Committee was chaired by myself
throughout the year, and comprised Peter Cornell and
Clive Watson (who was appointed to the Board and
the Audit Committee on 1 September 2019).
The Committee has relevant financial experience at a
senior level as set out in their biographies on pages 58
and 59. The Audit Committee met three times formally
in 2019 and also held informal discussions with the
external auditor as appropriate.
The principal activities of the Audit Committee in
respect of the year ended 31 December 2019, and the
manner in which it discharged its responsibilities, were
as follows:
Susie Farnon
Chair, Audit Committee
KEY ACTIVITIES CARRIED OUT IN THE YEAR:
During the year, the Committee met formally three
times and discussed the following:
• External audit tender process
• Audit planning
• Auditor’s fees and independence
• Auditor’s effectiveness
• Interim report and annual report
• Internal audit
• Internal controls and risk management
• Taxation
• Going concern and viability statement
• Significant accounting matters
• Plans for transition to new accounting standards
• Whistleblowing
• The Audit Committee’s terms of reference
66
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 FINANCIAL STATEMENTS
The Audit Committee reviewed and agreed the
external auditor’s strategy and approach in advance of
their audit for the year ended 31 December 2019, and
reviewed reports on the outcome of the audit.
The Audit Committee also reviewed the 2019
Preliminary Results Announcement, the 2019 Annual
Report, the 2019 Interim Results Announcement and
the 2019 Interim Report.
SIGNIFICANT ACCOUNTING MATTERS
During the year, the Audit Committee considered key
accounting issues, judgements and disclosures in
relation to the Group’s Financial Statements. The most
significant of which was impairment of goodwill.
The Audit Committee also received communications
from management and the external auditor on a
number of other accounting matters, including the
adoption of IFRS 16 – Leases in the year, the valuation
of mineral reserves and resources, revenue recognition,
restoration provisions, and the possible impact of
Brexit on the Group.
Area of Judgement
Detail
Action taken
IMPAIRMENT OF GOODWILL
The Group has £410.1 million
of goodwill which it has
recognised on acquisitions
and which represents the
excess of the fair value of the
consideration paid over the
share of identifiable assets
acquired and liabilities
assumed.
Goodwill is not amortised but
is reviewed for impairment
on an annual basis, or more
frequently if there are
indications that the goodwill
may be impaired. This testing
is performed at the lowest
level at which management
monitor goodwill, being the
groups of CGUs which
comprise the Group’s three
operating segments.
The recoverable amounts for
each segment to which
goodwill has been allocated
are calculated by
determining the value in use
of each segment which is
based on the net present
value of projected cash flows.
The most significant
judgements are in setting
the assumptions for the
calculation of the value in
use, which includes the
discount rate applied to
cash flows, forecast financial
performance and the
longer-term rate of growth.
Details of the assumptions
used are provided in note 9
to the Financial Statements.
Cash flows for each segment were calculated over
a 30-year period, starting with the 2020 budget
approved by the Board, followed by forecast three
year plan results for 2021 and 2022 and
subsequently by a longer term growth assumption
of between 1.5 and 2.5 per cent for the remaining
27 years.
These cash flows were adjusted for the impact of
working capital and capital expenditure, before
being discounted at a pre-tax discount rate of
between 9.4 and 10.1 per cent which was calculated
by an external expert.
The recoverable amounts of each segment show
significant headroom compared to their carrying
value when reasonably possible changes are made
to key assumptions.
The Audit Committee discussed the assumptions
underlying the cash flow projections with both
management and the external auditor, considered
the appropriateness of the key assumptions and the
adequacy of the disclosure provided in note 9 of the
Financial Statements. They also considered the
additional analysis around the possible impact of
Brexit on impairment calculations which was
prepared by management.
Following discussion on headroom and sensitivity,
the Committee was satisfied that no impairment of
goodwill was necessary.
67
BREEDONGROUP.COMGOVERNANCE AUDIT COMMITTEE REPORT CONTINUED
GOING CONCERN AND VIABILITY
The Audit Committee reviews supporting papers from
management to support the Going Concern and
Viability statements set out on page 81. This includes
sensitivity analysis over key assumptions.
Following this review, the Committee recommended to
the Board the approval of both statements.
EXTERNAL AUDIT TENDER
KPMG LLP either directly or via KPMG Channel Islands
Limited has acted as auditor since the formation of the
Group in 2008. Given the length of tenure, a
competitive tender process for the appointment of the
external auditor was undertaken by the Audit
Committee in 2019 on behalf of the Board.
A selection panel was formed comprising the
members of the Audit Committee alongside the Group
Finance Director and Group Financial Controller.
Five audit firms were initially approached, of which
three were shortlisted, being KPMG LLP as the
incumbent as well as a candidate from both inside and
outside the ‘big four’.
Each shortlisted firm was sent a Request for Proposal,
setting out details of the process, timetable and
evaluation criteria. The evaluation criteria included, but
were not limited to, the experience and personal
credentials of the audit team, their understanding of
the business and the industry, approach to quality
assurance and value for money.
A comprehensive data room was set up to provide
each firm with sufficient information to produce a
detailed proposal, with additional meetings being held
with both the Audit Committee and senior members of
management throughout the process.
All three firms presented their proposal for the audit in
November 2019, followed by a question and answer
session. After careful consideration of the merits of
each proposal, the Audit Committee (having consulted
with management) recommended to the Board two
choices for external auditor, with a reasoned
preference that KPMG LLP be retained as external
auditor, albeit with an increased focus on the most
effective use of data and analytics within the audit.
The Board accepted the recommendation of the
Audit Committee, and shareholders will be asked to
approve the reappointment of KPMG LLP as auditor
at the AGM.
EXTERNAL AUDITOR
The external auditor, KPMG LLP, attends meetings of
the Audit Committee. The Audit Committee has the
opportunity to meet with the external auditor without
the executive directors being present to provide a
forum to raise any matters of concern in confidence.
The Audit Committee discusses and agrees the scope
of the audit plan for the full year with the auditor.
The external auditor reports on the control
environment in the Group, key accounting matters and
mandatory communications. The Audit Committee
also receives and reviews a report from the external
auditor setting out to its satisfaction how its
independence and objectivity is safeguarded when
providing non-audit services.
The value of non-audit services provided by KPMG in
respect of the year ending 31 December 2019
amounted to nil (2018: £16,000, principally in respect
of life assurance and pension advisory services).
During the year there were no circumstances where
KPMG was engaged to provide services prohibited by
the FRC’s 2016 ethical standard or which might have
led to a conflict of interest.
The Audit Committee continues to be satisfied with
the work of KPMG and that they continue to remain
objective and independent.
Following the conclusion of the 2019 audit, the lead
audit partner, Craig Parkin has served two years of a
maximum tenure of five years before rotating to
assure independence.
INTERNAL AUDIT
The Group does not have a formal internal audit
function. However, the Group Controls Manager
performs a number of activities that an internal audit
function would perform. The Audit Committee receive
regular formal updates covering planned activities,
findings of reviews performed and updates on agreed
actions from previous reviews.
The Audit Committee considers this is appropriate
given the close involvement of the executive directors
and senior management on a day-to-day basis, the
location of operations in the UK and RoI and the work
of the Group Controls Manager. However, the need for
an internal audit function will be kept under review by
the Audit Committee on behalf of the Board.
WHISTLEBLOWING
The Group has adopted a whistleblowing policy which
gives its employees, or indeed any other third party,
the means to raise concerns in confidence and (if they
wish) anonymously. The Audit Committee reviews
reports on notifications received and ensures that
arrangements are in place for the proportionate and
independent investigation of such matters and for
follow up action.
Susie Farnon
Chair, Audit Committee
11 March 2020
68
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 DIRECTORS’ REMUNERATION REPORT
The Group needs to ensure that its pay and benefits practices are competitive but consistent
with its circumstances.
2019 BUSINESS PERFORMANCE
2019 was an extremely busy year for the Group, with
the focus on ongoing performance, the first full year
contribution from Lagan and the delivery of the
resulting synergies. The acquisition of Roadway was
completed in October, with the joint venture with Brett
in London (Capital Concrete) completing in December.
In terms of remuneration, our success in 2020 led to an
annual cash bonus outcome towards the higher-end of
the scale, but an anticipated PSP vesting at just below
two-thirds of maximum.
As reported in the Statement from the Chair, Group
Chief Executive’s review on pages 8 to 15, and the
Group Finance Director’s review on pages 28 to 32,
the Group continued to perform well, driving positive
results in a tough trading environment for the sector.
DECISIONS IN RELATION TO DIRECTORS’
REMUNERATION IN 2019
A benchmarking exercise was undertaken in 2019 in
order to set the pay of the new Chairman following
Peter Tom’s retirement. The base salaries set for 2019
were as follows, with executive salaries increasing in
line with the wider workforce:
• £170,000 for the Non-executive Chairman,
• £615,000 for the Group Chief Executive, and
• £410,000 for the Group Finance Director.
The bonuses earned in the year by the directors reflect
the performance of the business. Further information
is given on page 75.
REMUNERATION COMMITTEE
The responsibility for establishing the Group’s overall
Remuneration Policy lies with the Board. The role of
the Remuneration Committee is broadly to determine
the terms of employment for the executive directors
and senior management of the Group within the
framework agreed by the Board. The Committee works
within agreed terms of reference to make
recommendations to the Board on that framework.
The terms of reference for the Committee are available
on the Group’s website.
The Remuneration Committee was chaired by David
Williams throughout the year and his co-members
were Susie Farnon and Peter Cornell. The Committee
met formally five times in 2019. David retired on
31 December 2019 after which date I became Chair.
LOOKING FORWARD TO 2020
During 2020, as I mentioned earlier in my report,
I intend to conduct a full review of policy, with an
open engagement with shareholders thereafter.
In accordance with Breedon’s usual salary review
timetable for the Group as a whole, executive
directors’ salaries have been reviewed and increases
will be implemented with effect from 1 April 2020 in
line with those applied to the wider workforce.
These salaries will be reported in the 2020 Directors’
Remuneration report. A summary of our approach to
other elements of executive remuneration is set out
on pages 70 to 76.
69
Moni Mannings
Chair, Remuneration Committee
KEY ACTIVITIES CARRIED OUT IN THE YEAR:
During the year, the Remuneration Committee met
formally five times and discussed the following:
• Executive salaries
• Annual bonuses
• Long-term incentives
• Chairman’s fee
• Pay and benefit levels across the Group
• The Directors’ Remuneration report
MEETING ATTENDANCE
David Williams,
Committee Chairman
Peter Cornell,
Independent Non-executive Director
Susie Farnon,
Independent Non-executive Director
Meetings
attended
Eligible
to attend
5
5
5
5
5
5
DEAR SHAREHOLDER
I am pleased to present the Directors’ Remuneration
report for the year ended 31 December 2019.
Having been appointed as non-executive director on
1 December 2019 and Chair of the Remuneration
Committee on 1 January 2020, I can report that all
aspects of executive remuneration are in order. I would
like to place on record my thanks to the outgoing
Chair of the Committee for his work over many years
during which Breedon has grown rapidly and executive
remuneration has been at the forefront of driving this
growth and success of the business. During 2020,
I intend to review all aspects of our remuneration
policy together with our advisers, to ensure it is
appropriate for Breedon as we enter the next phase of
growth and development. Once this review is
complete, towards the summer I intend to consult with
our major shareholders to ensure we have alignment.
The Report is set out in two sections: the ‘Policy
Report’ summarises our current Remuneration Policy;
and the ‘Annual Report on Remuneration’ shows the
amounts earned by directors in 2019, and how we
propose to apply the Policy.
BREEDONGROUP.COMGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
POLICY REPORT
BASE SALARY
To provide a competitive base salary reflective of the particular skills and experience of an individual.
Performance conditions
None.
Operation
Reviewed annually or on a significant
change of responsibilities.
Salaries are determined by
reference to the skills and personal
performance of the individual.
The Remuneration Committee also
takes into account external market
data and pay and employment
conditions elsewhere in the Group
when considering increases to base
salary levels.
Maximum opportunity
Whilst there is no maximum salary,
increases will normally be broadly in
line with the range of salary increases
awarded (in percentage of salary
terms) to the wider workforce.
Salary increases above this level
may be awarded to take into
account individual circumstances,
including a change in the scope or
responsibilities of the role, a change
in market practice, a change in the
size or complexity of the business or
to reflect development and
performance in role.
ANNUAL CASH BONUS
To incentivise the delivery of annual financial, strategic and safety objectives.
Operation
Maximum opportunity
Performance conditions
Executive directors may participate
in the annual bonus scheme.
Performance measures and targets
are set by the Remuneration
Committee at the start of the
financial year or later if appropriate
and, based on performance, bonuses
are paid in cash shortly after the
completion of the audit of the
annual results.
For executive directors, the
maximum opportunity is 125 per
cent of salary. This level of incentive
opportunity reflects the Committee’s
desire to retain a high proportion of
remuneration on variable pay.
Bonuses are not pensionable.
Performance is assessed against
financial targets. A moderator may
also be applied to increase or decrease
the outturn dependent on average
capital employed performance against
targets, subject to the 125 per cent of
salary limit.
The bonus may be reduced or
eliminated if safety performance
or accident records reach unacceptable
levels.
PERFORMANCE SHARE PLANS (PSPs)
To drive superior performance of the Group and delivery of the Group’s long-term objectives, aid retention and
align directors’ interests with those of the Company’s shareholders.
Operation
Maximum opportunity
Performance conditions
Annual share-based awards with a
three-year performance period.
In line with best and market practice,
it is currently intended that rolling
annual awards will be made.
The maximum award limit in any
financial year under the plan rules is
250 per cent of base salary.
In 2019 awards with a face value of
150 per cent of salary were made to
the Executive Chairman and Group
Chief Executive, and 125 per cent to
the Group Finance Director.
It is expected that a similar level of
award will be made in 2020, for the
Group Chief Executive and Group
Finance Director.
The vesting of awards is subject to
the satisfaction of performance
conditions, typically measured over
a period of at least three years.
Performance conditions, and their
weightings where there is more than
one metric, are reviewed annually to
maintain appropriateness and
relevance. Awards are based on
financial measures which may include,
but are not limited to, EPS.
Awards will usually vest between
20 per cent and 100 per cent for
performance between ‘threshold’
(the lowest level of performance which
results in any level of vesting) and
‘maximum’ performance.
70
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 PENSION
To aid recruitment and retention by allowing the directors to make provision for long-term retirement benefits
comparable with similar roles in similar companies.
Operation
A salary supplement equivalent to
the contribution that would
otherwise be made to a defined
contribution pension plan.
Maximum opportunity
The Group Chief Executive and the
Group Finance Director receive a
salary supplement of 17.5 per cent of
their base salary in lieu of a pension
contribution.
Performance conditions
None.
OTHER BENEFITS
To provide market-competitive, cost-effective benefits.
Operation
Maximum opportunity
Performance conditions
Other benefits may include private
medical insurance, car allowance,
executive medical screening and
the reimbursement of certain
travel costs.
The Company also operates a UK
ShareSave scheme on an annual
basis. This scheme is open to all
employees of the Group who have
completed the requisite length of
service at the launch of each
invitation to participate.
None.
Based on costs determined by
third-party providers.
ShareSave contribution limits and
the ShareSave option exercise
price are set as permitted by the
applicable tax legislation and
apply in the same way to all
qualifying employees.
APPROACH TO PERFORMANCE MEASURES
The Committee’s approach to the setting of performance measures for the annual bonus and PSPs is to select
measures that are aligned with the Group’s key performance indicators and the interests of shareholders.
Targets are set at levels which require stretching performance to be achieved for maximum payout, but without
encouraging excessive risk-taking. When setting targets, the Committee considers a number of reference points,
including the Company’s own plans, external expectations and the economic environment.
The annual bonus targets for 2019 were set by reference to Underlying EBIT, which tracks improvements in the
profitability of the Group.
Health and safety performance is fundamental to the Group. We are committed to maintaining a safe environment
at all of our operations and have set ourselves the goal of achieving Zero Harm across the entire business.
To reflect this, the annual bonus may be reduced or eliminated if safety performance or accident records reach
unacceptable levels.
The current performance measure for the PSPs is based on EPS, reflecting our focus on profitability and the
delivery of value to shareholders, whilst maintaining simplicity and line-of-sight for the participants.
The Committee retains the ability to adjust or set different performance measures or targets if events occur
(such as a change in strategy, a material acquisition and/or disposal of a Group business, or a change in prevailing
market conditions) which cause the Committee to consider that the measures are no longer appropriate and that
an amendment is required to enable them to achieve their original purpose.
The PSPs are operated in accordance with their terms, which includes the ability of the Committee to adjust
awards in the event of a variation of share capital.
71
BREEDONGROUP.COMGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
NON-EXECUTIVE DIRECTORS
NON-EXECUTIVE DIRECTORS’ REMUNERATION
To provide market-competitive, cost-effective benefits.
Operation
Non-executive directors each receive a basic fee for holding the office of non-executive director, and may also
receive an additional fee for further responsibilities (such as holding the office of Senior Independent Director or
chairing a Board committee). Fees are set by the Board as a whole, taking into account market rates and the
required time commitment.
Non-executive directors do not participate in any incentive scheme, share scheme or pension arrangement, but
may be eligible to receive benefits such as the use of secretarial support, travel costs or other benefits that may
be appropriate.
SERVICE AGREEMENTS/LETTERS OF APPOINTMENT OF THE DIRECTORS AND LOSS OF OFFICE
Each of the directors has a service agreement or letter of appointment with the Company as follows:
Director
Amit Bhatia
Pat Ward
Rob Wood
Peter Cornell
Susie Farnon
Moni Mannings1
Clive Watson2
Peter Tom3
David Williams5
Date of contract/letter of appointment
From the Director From the Company
Notice Period
1 August 2016
N/A
N/A
20 January 2016
12 months
12 months
27 February 2014
12 months
12 months
31 August 2018
25 October 2010
29 October 2019
24 July 2019
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5 June 20084
12 months
12 months
5 June 2008
N/A
N/A
1 Moni Mannings appointed to the Board on 1 December 2019
2 Clive Watson appointed to the Board on 1 September 2019
3 Peter Tom retired from the Board on 29 May 2019
4 The service agreement was entered into with Rise Rocks Limited for the purposes of procuring the services of Peter Tom as a consultant to the Company in the role of
Executive Chairman.
5 David Williams retired from the Board on 31 December 2019
72
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 The Board’s overriding approach to payments for loss of office is to act in shareholders’ interests. The principles
on which payments for loss of office will be approached are set out below.
Notice periods and
payments in lieu of notice
Annual bonus
PSP
Other payments
The maximum notice period for executive directors is 12 months. The Committee retains
the right to terminate an executive director’s service agreement by making a payment in
lieu of notice, consisting of salary, cost of benefits and loss of pension provision for the
notice period (or the unexpired portion of it).
It is the Company’s policy to have regard to the executive director’s duty to mitigate
his/her loss in respect of those contractual rights that he/she would otherwise be entitled
to receive.
The payment of bonus for the year in which the executive director leaves is determined by
the Committee, taking into consideration their contribution up to the leaving date and
normal pro-rating for time in service during the year.
PSP awards will usually lapse on cessation of employment. However, if a participant leaves
due to death, ill health, injury, retirement with the agreement of the Committee, or any
other reason at the discretion of the Committee, his/her award shall either vest on the
normal vesting date or at the date of cessation. In either case, the extent of vesting will be
determined by reference to the extent the performance conditions are satisfied and,
unless the Committee determines otherwise, the proportion of the vesting period that
has elapsed.
Payments may be made in the event of a loss of office under the ShareSave scheme,
which is governed by its rules and the applicable legislation and which does not provide
discretion in the case of leavers.
In appropriate circumstances, other payments may also be made, such as in respect of
accrued holiday and outplacement and legal fees.
RECRUITMENT REMUNERATION
When appointing a new executive director, the Committee will seek to ensure that his/her remuneration
arrangements are in the best interests of the Company, and not more than is appropriate. The Committee will
typically determine a new executive director’s remuneration package in line with the policy set out above.
However, the Committee retains discretion to award different elements of remuneration in appropriate
circumstances, such as:
• if an interim appointment is being made to fill a role on a short-term basis,
• if, in exceptional circumstances, a non-executive director is required to take on an executive function,
• if the circumstances of the recruitment make it appropriate to provide relocation, travel and
subsistence payments,
• where it is considered appropriate to reflect remuneration arrangements provided by a previous employer,
including that the Committee may grant ‘buy-out’ awards to reflect remuneration forfeited on leaving a previous
employer. Any such buy-out award would be determined taking into account relevant factors of the forfeited
award – including the period over which it would have vested and any applicable performance conditions, and
• where it is considered appropriate to reimburse the new director for any costs he/she may have incurred as a
consequence of resigning from their previous employment.
The Committee would not use this discretion to make a non-performance-based incentive payment, such as a
guaranteed bonus.
73
BREEDONGROUP.COMGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
ANNUAL REPORT ON REMUNERATION
The remuneration of the directors for the year ended 31 December 2019 was as shown in the table below:
Director
Amit Bhatia*
Peter Tom CBE**
Pat Ward
Rob Wood
Peter Cornell
Susie Farnon
Moni Mannings***
Clive Watson****
David Williams*****
Total
2019
Salary
Bonus
(note 1)
Fees
(note 2)
Benefits
(note 3)
Pension
(note 4)
PSP awards
vesting
(note 5)
Total
–
–
–
–
121,385
309,492
–
–
–
–
–
121,385
298,733
608,225
611,250
635,234
407,500
423,489
–
–
–
–
–
–
–
–
–
–
–
–
50,000
70,000
5,000
20,000
60,000
19,292
92,646
718,070 2,076,492
22,174
61,764
242,537 1,157,464
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50,000
70,000
5,000
20,000
60,000
1,018,750 1,058,723
635,877
41,466
154,410 1,259,340 4,168,566
*
**
Amit Bhatia appointed Chairman on 29 May 2019
Peter Tom retired from the Board on 29 May 2019
*** Moni Mannings appointed to the Board on 1 December 2019
**** Clive Watson appointed to the Board on 1 September 2019
***** David Williams retired from the Board on 31 December 2019
Notes:
1 Further information in relation to the bonuses payable to Pat Ward and Rob Wood is given on page 75 and these bonuses were earned pursuant to their service agreements
and the rules of the Group’s executive bonus scheme.
2 Included in fees above is an amount of £189,375 (2018: £437,500) in respect of services provided by Rise Rocks Limited, a company in which Peter Tom had a beneficial
interest, and the sum of £120,117 (2018: £340,335) which was paid to Rise Rocks Limited as a bonus pursuant to the consultancy agreement between the Company and Rise
Rocks Limited; further information is given on page 76. Both these payments were prorated to 29 May 2019 when Peter Tom retired from the Board.
3 Benefits paid to Pat Ward and Rob Wood comprise the provision of private medical insurance, the provision of a car allowance and the reimbursement of certain travel costs.
4 Both Pat Ward and Rob Wood received a salary supplement in lieu of a contribution to a pension arrangement.
5 Further information in relation to the PSP awards vesting for Peter Tom, Pat Ward and Rob Wood is given on page 75. These PSP awards vested in accordance with the
scheme rules.
74
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 The remuneration of the directors for the year ended 31 December 2018 was as shown in the table below:
Director
Peter Tom CBE
Pat Ward
Rob Wood
Amit Bhatia
Peter Cornell*
Susie Farnon
Simon Vivian**
David Warr***
David Williams
Total
2018
Bonus
(note 1)
Fees
(note 2)
Benefits
(note 3)
Pension
(note 4)
PSP awards
vesting
(note 5)
Total
–
777,835
–
–
574,900 1,352,735
Salary
–
581,250
453,780
383,750
352,520
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,500
12,500
58,650
12,500
57,500
57,500
16,960
89,383
192,384 1,333,757
22,656
59,012
547,736 1,365,674
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,500
12,500
58,650
267,301
279,801
–
–
57,500
57,500
965,000
806,300 1,013,985
39,616
148,395 1,582,321 4,555,617
* Peter Cornell joined the Board on 1 October 2018
** Simon Vivian retired from the Board on 7 March 2018
*** David Warr retired from the Board on 31 December 2018
Notes:
1 The bonuses payable to Pat Ward and Rob Wood were earned pursuant to their service agreements and the rules of the Group’s executive bonus scheme. In addition, Rob
Wood had a supplement of £50,000 applied to his bonus to reflect his contribution to the acquisition and subsequent integration of the Lagan business.
2 Included in fees above is an amount of £437,500 (2017: £393,750) in respect of services provided by Rise Rocks Limited, a company in which Peter Tom has a beneficial
interest, and the sum of £340,335 (2017: £335,560) which was paid to Rise Rocks Limited as a bonus pursuant to the consultancy agreement between the Company and Rise
Rocks Limited.
3 Benefits paid to Pat Ward and Rob Wood comprise the provision of private medical insurance, the provision of a car allowance and the reimbursement of certain travel costs.
4 Both Pat Ward and Rob Wood received a salary supplement in lieu of a contribution to a pension arrangement.
5 PSP awards which vested in 2018 in respect of the three years 2015, 2016 and 2017 and additionally for Rob Wood in respect of 2014.
BONUSES
Pat Ward and Rob Wood were each eligible to earn a bonus of up to 125 per cent of salary, based on the achievement
of stretching Underlying EBIT targets. Bonuses were earned as set out below:
Threshold level of
Underlying EBIT
Target level of
Underlying EBIT
Maximum level of
Underlying EBIT
Actual level of
Underlying EBIT1
Bonus earned
(percentage of salary)
£m
102.3
£m
116.6
£m
122.1
£m
118.3
%
103.29
1 Including a capital employed moderator.
PSP AWARDS VESTING IN RESPECT OF PERFORMANCE IN 2019
Awards were granted under the PSPs in April 2017, with vesting subject to a performance condition based on Underlying
diluted EPS growth in excess of RPI over a performance period running from 2017 to 2019. Subject to the rules of the PSPs,
the executive directors’ awards will vest in April 2020 as described below:
Director
Peter Tom CBE*
Pat Ward
Rob Wood
Vesting level
Threshold
EPS
growth in
excess of RPI
(20% of the
award vests)
Maximum
EPS
growth in
excess of RPI
(100% of the
award vests)
Actual EPS
growth in
excess of RPI
Percentage
Number
of shares
25%
25%
25%
59%
59%
59%
42.82%
61.85%
231,112
42.82%
61.85%
430,083
42.82%
61.85%
258,050
Shares
subject to
award
373,665
695,364
417,218
* The option to Peter Tom was granted to Rise Rocks Limited, a company in which he had a beneficial interest and which provided his services as Executive Chairman of the
Company. Following Peter Tom’s retirement from the Board. on 29 May 2019, the number of shares held under the Option was reduced pro rata to the length of his service in
accordance with the rules of the Scheme.
75
BREEDONGROUP.COMGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED
PSP AWARDS GRANTED IN 2019
On 15 April 2019, awards were granted to the executive directors under the PSPs. The vesting of those awards is
subject to a performance condition based on Underlying diluted EPS growth as follows, assessed over 2019, 2020 and
2021:
EPS growth per annum
Less than 4.9%
Equal to 4.9%
Between 4.9% and 10.5%
10.5% or more
Percentage of award that vests
0%
20%
Between 20% and 100% on a straight line basis
100%
Awards were granted to the Executive Chairman and Group Chief Executive at 150 per cent of salary and the Group
Finance Director at 125 per cent as follows:
Peter Tom CBE†:
Pat Ward:
Rob Wood:
1,014,479 shares
1,352,639 shares
751,466 shares
† The award to Peter Tom was granted to Rise Rocks Limited, a company in which he had a beneficial interest and which provided his services as Executive Chairman of the
Company. Following Peter Tom’s retirement from the Board. on 29 May 2019, the number of shares held under the Option was reduced, pro rata to the length of his service
to 42,579 shares in accordance with the rules of the Scheme.
IMPLEMENTATION OF THE REMUNERATION POLICY IN 2020
A review of policy will take place in 2020 followed by consultation with our major shareholders.
EXECUTIVE DIRECTORS’ SALARIES
In accordance with Breedon’s usual salary review timetable for the business as a whole, executive directors’
salaries for 2020 will increase with effect from 1 April 2020. Any increases to executive directors’ salaries will be in
line with the range of increases awarded to the wider workforce and will be reported in the 2020 Directors’
Remuneration report.
NON-EXECUTIVE DIRECTORS’ FEES
The fee for the non-executive chairman for 2020 is £170,000.
The basic fee for the non-executive directors for 2020 are:
• Basic fee: £50,000;
• The additional fee for holding the office of Senior Independent Director, for chairing the Audit or Remuneration
Committee remains at: £10,000.
EXECUTIVE DIRECTORS’ BONUS OPPORTUNITY
For 2020, the executive directors will continue to have the opportunity to earn a bonus of up to 125 per cent of
salary. The bonus will be subject to stretching performance conditions based on Underlying EBIT.
The performance targets contain confidential information and so are not disclosed on a prospective basis.
However, the Committee proposes to disclose the targets, and performance against them, retrospectively as has
been done for the bonuses earned in 2019.
PSP AWARDS
The Committee currently expects to grant awards under the PSPs in 2020 at the level of 150 per cent of salary for
the Group Chief Executive, and 125 per cent for the Group Finance Director.
The awards will vest subject to the satisfaction of a performance condition assessed over 2020, 2021 and 2022.
DIRECTORS’ INTERESTS IN SHARE PLANS
Details of the directors’ interests in the Company’s share-based incentive schemes are set out on page 80.
Moni Mannings
Chair, Remuneration Committee
11 March 2020
76
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 NOMINATION COMMITTEE REPORT
The Nomination Committee has continued to keep the leadership of the Group under review,
and to ensure adequate resources are made available to support its future development.
Amit Bhatia
Chairman, Nomination Committee
KEY ACTIVITIES CARRIED OUT IN THE YEAR:
During the year, the Committee met five times and
discussed the following:
• Succession Plans for executive directors and
the Executive Committee
• Retirement and appointment of Chairman
of the Board
• Retirement and appointment of
non-executive directors
MEETING ATTENDANCE
Meetings
attended
Eligible
to attend
Amit Bhatia,
Committee Chairman
Peter Cornell,
Independent Non-executive Director
Susie Farnon,
Independent Non-executive Director
Peter Tom, CBE
Executive Chairman*
David Williams,
Non-executive Director**
Clive Watson,
Independent Non-executive Director***
* Peter Tom retired from the Board on 29 May 2019
** David Williams retired from the Board on 31 December 2019
*** Clive Watson appointed to the Board on 1 September 2019
3
4
5
1
4
1
3
5
5
1
4
1
The role of the Committee is to:
• Regularly review the structure, size and composition
(including the skills, knowledge, experience and
diversity) of the Board and make recommendations
to the Board with regard to any changes;
• Give full consideration to succession planning for
directors and other senior executives in the course of
its work, taking into account the challenges and
opportunities facing the company, and the skills and
expertise needed on the Board in the future;
• Keep under review the leadership needs of the
organisation, both executive and non-executive,
with a view to ensuring the continued ability of the
organisation to compete effectively in
the marketplace;
• Keep up to date and fully informed about strategic
issues and commercial changes affecting the
company and the market in which it operates; and
• Be responsible for identifying and nominating for the
approval of the Board, candidates to fill Board
vacancies as and when they arise.
During the year, the focus of the Committee has been
the composition of the Board and the succession plans
for the Group’s senior executives, to ensure that there
is the appropriate balance of skills, knowledge,
experience and diversity, to enable the continued
success of Breedon to achieve its strategic goals.
This was primarily driven by:
• The consideration of the retirement of the
Executive Chairman and the recommendation
of the appointment of Amit Bhatia as
Non-executive Chairman (under the Chairmanship of
the Senior Independent Director);
• The consideration of the retirement of two long
serving non-executive directors and the
recommendation of the appointment of two
independent non-executive directors; and
• The consideration of succession plans for executive
director and Executive Committee roles.
As per the Terms of Reference, throughout the year
the Nomination Committee was chaired by the
Chairman of the Company, except on one occasion
when under discussion included the appointment of
his own successor. The quorum for Committee
meetings is a minimum of two directors and must
comprise a majority of independent directors.
The Committee was quorate for all meetings in 2019.
77
BREEDONGROUP.COMGOVERNANCE NOMINATION COMMITTEE REPORT CONTINUED
TERMS OF REFERENCE
The full Terms of Reference for the Nomination
Committee are available on our corporate website.
CHAIRMAN’S REPORT
2019 has seen the Nomination Committee fully
consider the succession plan for both the Board and
senior executives within the business. In terms of the
Board, the Committee reviewed the future position as
to those directors nearing the end of their term
(particularly those that had given considerable length
of service) and the role of independent Board
members, alongside the current composition and
attributes of the Board. The Committee reflected on
the recommendation made in 2018 with my
appointment as Deputy Chairman and in consideration
of the retirement of Peter Tom as Executive Chairman,
they recommended to the Board that I should be
appointed as Non-executive Chairman. The Committee
had identified as a key directive, the requirement for a
search process for two new independent non-
executive directors balancing any potential conflicts
of interest whilst seeking industry expertise, skills and
diversity to complement the Board. The process was
supported by Korn Ferry, an executive search and
recruitment company, engaged solely for this purpose.
The Nomination Committee recommended the
appointment to the Board of Clive Watson
and Moni Mannings as independent non-
executive directors.
Following the recommendation of the Nomination
Committee in February 2020, it is anticipated that
Carol Hui will be appointed to the Board in
spring 2020.
With regards to senior executives, the Nomination
Committee considered proposed succession plans for
both executive director and Executive Committee roles
to ensure the continued strategic operational
leadership of the company.
The Nomination Committee firmly believes that an
inclusive culture, with a range of perspectives is a key
driver of business success and is committed to having
a diverse Board, so to make effective contributions
and effectively challenge management.
Amit Bhatia
Chairman, Nomination Committee
11 March 2020
78
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 DIRECTORS’ REPORT
The directors present their report, together with the audited Financial Statements,
for the year ended 31 December 2019.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The principal activities of the Group are the quarrying of aggregates and manufacture and sale of construction
materials and building products in GB and Ireland, including cement, asphalt and ready-mixed concrete, together
with related activities. Further details of the Group’s activities and future developments are included in the
Statement from the Chair, and the Group Chief Executive’s review on pages 8 to 15 and in the Group Finance
Director’s review and Business reviews on pages 28 to 43.
RISK MANAGEMENT
The Board is responsible for the Group’s system of risk management and continues to develop policies and
procedures that reflect the nature and scale of the Group’s business. Further details of the key areas of risk to the
business identified by the Group are included on pages 24 to 27. Details of the Group’s operational key
performance indicators are shown on pages 22 and 23.
RESULTS AND DIVIDENDS
For the year to 31 December 2019, the Group’s profit before tax was £94.6 million (2018: £79.9 million) and after
tax was a profit of £78.0 million (2018: £64.6 million). Recognising the Group’s scale, level of maturity and cash
generation, the Directors propose to adopt a progressive dividend policy from 2021.
STATED CAPITAL
Details of the Company’s shares in issue are set out in note 18 to the Financial Statements.
DIRECTORS
The following directors served during the year:
Amit Bhatia
Pat Ward
Rob Wood
Peter Cornell
Susie Farnon
Non-executive Chairman
Group Chief Executive
Group Finance Director
Independent Non-executive Director
Independent Non-executive Director
Moni Mannings (appointed 1 December 2019)
Independent Non-executive Director
Clive Watson (appointed 1 September 2019)
Independent Non-executive Director
Peter Tom CBE (retired 29 May 2019)
Executive Chairman
David Williams (retired 31 December 2019)
Non-executive Director
Biographical details of the directors serving at the year-end can be found on pages 58 and 59 and details of the
directors’ service contracts are given in the Directors’ Remuneration report on page 72.
DIRECTORS’ INTERESTS
The directors in office at 31 December 2019 had interests in the issued share capital of the Company as shown in
the table below:
Amit Bhatia
Pat Ward
Rob Wood
Peter Cornell
Susie Farnon
Moni Mannings*
Clive Watson**
* Moni Mannings appointed to the Board on 1 December 2019
** Clive Watson appointed to the Board on 1 September 2019
Ordinary Shares
2019
2018
500,000
500,000
1,072,994
483,590
940,395
672,823
140,000
140,000
1,865,000 1,865,000
–
35,000
–
–
79
BREEDONGROUP.COMGOVERNANCE DIRECTORS’ REPORT CONTINUED
In addition, the following directors had an interest in the shares set against their names in the table below in
accordance with the rules of the Group’s share-based incentive schemes:
Pat Ward
Rob Wood
Performance Share Plan
Savings-Related
Share Option Scheme
31 December
2019
31 December
2018
31 December
2019
31 December
2018
3,118,157 2,938,313
54,545
30,030
1,763,214 1,437,279
54,545
79,365
The savings-related share options held by Pat Ward and Rob Wood are exercisable at a price of 55.0 pence and
are normally exercisable between 1 May 2024 and 30 October 2024.
Further details of the above schemes are set out in note 19 to the Financial Statements.
All the interests are beneficial, unless indicated otherwise. No director has any interests in the issued share capital
or loan stock of any subsidiary undertaking.
Clive Watson, Non-executive Director purchased 37,500 ordinary shares, increasing his interest to 72,500 ordinary
shares on 20 January 2020. There were no further changes in the directors’ interests between 1 January 2020 and
11 March 2020.
SUBSTANTIAL SHAREHOLDINGS
The Company is aware that, as at 25 February 2020, other than the directors, the interests of shareholders
holding three per cent or more of the issued share capital of the Company were as shown in the table below:
Invesco Perpetual Asset Management
Abicad Holding Limited*
Columbia Threadneedle Investments
Lansdowne Partners
Merian Global Investors
Octopus Investments
Investec Asset Management
AXA Investment Managers
Blackrock Investment Management
Aviva Investors
Number
177,651,682
164,959,102
131,865,704
111,070,275
91,953,182
73,460,657
63,024,081
61,356,676
59,315,026
53,217,590
%
10.6
9.8
7.8
6.6
5.5
4.3
3.7
3.7
3.5
3.2
* Amit Bhatia has been appointed as Abicad Holding Limited’s Representative Director on the Board of the Company pursuant to a relationship deed dated
17 November 2015.
EMPLOYEES
The Group recognises the importance of employee involvement in the operation and development of its business
units, which are given autonomy, within a group policy and structure, to enable management to be fully
accountable for their own actions and gain maximum benefit from local knowledge. Employees are informed by
regular consultation, intranet, and internal newsletters of the progress of both their own business units and the
Group as a whole.
The Group is committed to providing equal opportunities for individuals in all aspects of employment, and
considers the skills and aptitudes of disabled persons in recruitment, career development, training and promotion.
If existing employees become disabled, every effort is made to retain them, and retraining is arranged
wherever possible.
POLITICAL CONTRIBUTIONS
The Group did not make any contributions to political parties during either the current or the previous year.
80
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 ANNUAL GENERAL MEETING
The Annual General Meeting will be held in the Park Suite, Park Plaza, Westminster Bridge, County Hall – Riverside
Building, Belvedere Road, London SE1 7GP on 21 April 2020 at 2.00pm. The formal notice convening the AGM,
together with explanatory notes on the resolutions contained therein, is included in the separate circular
accompanying this document and is available on the Company’s website at www.breedongroup.com.
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 April 2022. Further details of the Group’s bank facilities are
given on page 31.
The Group actively manages its financial risks as set out in note 20 to the Financial Statements and operates
Board-approved financial policies, 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 it appropriate to adopt the going concern basis in preparing these Financial Statements.
VIABILITY STATEMENT
The directors have assessed the viability of the Group over a period to December 2022. This is the same period
over which financial projections were prepared for the Group’s strategic financial plan.
In making their assessment the directors have taken into account the Group’s current position and the potential
impact of the principal risks and uncertainties set out on pages 24 to 27 on its business model, future
performance, solvency or liquidity. They also stress tested their analysis by running a number of credible scenarios
and considered the availability of mitigating actions.
Based on this assessment, the directors confirm that they have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over the period to December 2022.
In making this statement, the directors have assumed that financing remains available and that mitigating actions
are effective.
DISCLOSURE OF INFORMATION TO AUDITOR
The directors who hold office at the date of this Report confirm that, so far as they are each aware, there is no
relevant audit information of which the Company’s Auditor is unaware, and each director has taken all steps that
he or she ought to have taken to make himself or herself aware of any relevant audit information and to establish
that the Company’s Auditor is aware of that information.
AUDITOR
Further to the tender exercise for audit services undertaken by the Audit Committee in 2019 (detailed on
page 68) KPMG LLP has expressed willingness to continue in office and, in accordance with Article 113 of the
Companies (Jersey) Law 1991, a resolution to reappoint KPMG LLP will be proposed at the forthcoming AGM.
By order of the Board
Amit Bhatia
Non-executive Chairman
11 March 2020
Pat Ward
Group Chief Executive
81
BREEDONGROUP.COMGOVERNANCE
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Financial Statements in accordance with applicable law
and regulations.
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 International Financial Reporting Standards
and applicable law.
Under company law the directors must not approve the Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the company and of the profit or loss of the company 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 and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
• assess the Company’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 Company 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 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 the Jersey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
82
GOVERNANCEBREEDON GROUP ANNUAL REPORT 2019 S
T
N
E
M
E
T
A
T
S
I
L
A
C
N
A
N
F
I
FINANCIAL
STATEMENTS
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
84
90
91
92
93
94
95
Crime Rigg quarry in County Durham
BREEDONGROUP.COM
83
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF BREEDON GROUP PLC
1. OUR OPINION IS UNMODIFIED
We have audited the Financial Statements of Breedon Group plc (“the Group”) for the year ended 31 December
2019 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the
Consolidated Statement of Changes in Equity, and the related notes, including the accounting policies in note 1.
In our opinion:
• give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the
European Union (“IFRSs as adopted by the EU”), of the state of the Group’s affairs as at 31 December 2019 and
of the Group’s profit for the year then ended; and
• the Financial Statements have been prepared in accordance with the requirements of the Companies (Jersey)
Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and
are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as
applied to listed entities. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion.
Overview
Materiality:
Financial Statements as a whole
Coverage
Key audit matters
4.8% of Group profit before tax. (2018: 4.6% of Group profit
before tax adjusted for acquisition costs of £6.4 million).
£4.5m (2018: £4.0m)
94% (2018: 93%) of Group profit before tax
vs 2018
Brexit
The impact of uncertainties due to the UK exiting the European Union on our audit.
Goodwill
Recoverability of goodwill allocated to Cement and Ireland.
Key
Risk unchanged from 2018
84
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 2. KEY AUDIT MATTERS: INCLUDING OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of
the Financial Statements and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the
key audit matters in arriving at our audit opinion above, together with our key audit procedures to address those
matters. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
The impact of
uncertainties due to
the UK exiting the
European Union on
our audit.
Refer to page 24
(principal risks),
page 81 (viability
statement), pages 66
to 68 (Audit
Committee report).
The risk
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness of estimates, in particular
as described in the key audit matter on
recoverability of goodwill allocated to
Cement and Ireland and related
disclosures and the appropriateness of the
going concern basis of preparation of the
Financial Statements. All of these depend
on assessments of the future economic
environment and the Group’s future
prospects and performance.
Brexit is one of the most significant
economic events for the UK and its effects
are subject to unprecedented levels of
uncertainty of consequences, with the
full range of possible effects unknown.
Our response
We developed a standardised firm-wide
approach to the consideration of the
uncertainties arising from Brexit in planning
and performing our audits.
Our procedures included:
• Our Brexit knowledge: We considered
the directors’ assessment of Brexit-related
sources of risk for the Group’s business
and financial resources compared with
our own understanding of the risks.
We considered the directors’ plans to
take action to mitigate the risks.
• Sensitivity analysis: When addressing
the recoverability of goodwill allocated to
Cement and Ireland and other areas that
depend on forecasts and cash flows, we
compared the directors’ analysis to our
assessment of the full range of reasonably
possible scenarios resulting from Brexit
uncertainty and, where forecast cash
flows are required to be discounted,
considered adjustments to discount rates
for the level of remaining uncertainty.
• Assessing transparency: As well as
assessing individual disclosures as part
of our procedures on the recoverability of
goodwill allocated to Cement and Ireland,
we considered all of the Brexit-related
disclosures together, including those
in the strategic report, comparing the
overall picture against our understanding
of the risks.
However, no audit should be expected
to predict the unknowable factors or all
possible future implications for a company
and this is particularly the case in relation
to Brexit.
85
BREEDONGROUP.COMFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF BREEDON GROUP PLC CONTINUED
2. KEY AUDIT MATTERS: INCLUDING OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED
Recoverability of
goodwill allocated to
Cement (£152.0 million
(2018: £155.0 million))
and Ireland (£106.4
million (2018: £110.0
million)).
Refer to page 67 (Audit
Committee report),
page 99 (accounting
policy) and page 111
(financial disclosures).
The risk
Forecast-based valuation
Both the Cement and Ireland businesses
are still at an early stage in their trading
lifecycle under the Group’s ownership and
market conditions continue to
be challenging.
As a result, the amount of headroom of
value in use over carrying value is at risk
of being reduced or eliminated when
testing these Cash Generating Units
for impairment.
There are inherent uncertainties and
estimations involved in forecasting
and discounting future cash flows
and relatively minor changes in these
assumptions could give rise to material
changes in the assessment of the
recoverable amount of goodwill.
The effect of these matters is that,
as part of our risk assessment for audit
planning purposes, we determined that
the recoverable amount of goodwill of
£258.4 million had a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes greater
than our materiality for the Financial
Statements as a whole, and possibly
many times that amount. In conducting
our final audit work, we reassessed the
degree of estimation uncertainty to be
less than that materiality.
Our response
Our procedures included:
• Benchmarking assumptions:
We challenged, using our own valuation
specialists, the key inputs used in the
Group’s calculation of the discount
rates by comparing them to externally-
derived data, including available sources
for comparable companies.
• Our sector experience: Assessed whether
assumptions used, in particular those
relating to forecast cash flow growth
and long-term growth rates reflect our
knowledge of the business and industry,
including known or probable changes in
the business environment.
• Historical comparisons: Considered
historical forecasting accuracy, by
comparing previously forecast cash
flows to actual results achieved.
• Comparing valuations: Compared the
sum of the discounted cash flows to the
Group’s market capitalisation to assess
the reasonableness of those cash flows.
• Sensitivity analysis: Performed our own
sensitivity analysis over the reasonably
possible combination of changes in the
forecasts on the assumptions
noted above.
• Assessing transparency: Assessed
whether the Group’s disclosures regarding
the sensitivity of the impairment
assessment to changes in key
assumptions and the impact of Brexit,
appropriately reflected the risks inherent
in the valuation of goodwill.
We continue to perform procedures over recognition and valuation of tangible and intangible assets acquired
with business acquisitions in the period. However, as the acquisition of Roadway this year is significantly smaller
than the Lagan acquisition in the prior year, we have not assessed this as one of the most significant risks in our
current year audit and, therefore, it is not separately identified as a key audit matter in our report this year.
Similarly, we continue to perform procedures over going concern. However, given the level of headroom on the
Group’s financing and covenants, considered alongside the maturity profile of the Group’s borrowings, we have
not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately
identified as a key audit matter in our report this year.
86
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 3. OUR APPLICATION OF MATERIALITY AND AN
OVERVIEW OF THE SCOPE OF OUR AUDIT
Materiality for the Financial Statements as a whole
was set at £4.5 million (2018: £4.0 million). This has
been determined with reference to a benchmark of
Group profit before tax of £94.6 million
(2018: £86.3 million Group profit before tax adjusted
for acquisition costs). The benchmark profit before tax
for the current year was not adjusted for acquisition
costs given no significant acquisitions occurred in the
year. The materiality represents 4.8% (2018: 4.6% profit
before tax of £86.3 million adjusted for acquisition
costs of £6.4 million) of this benchmark.
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £225,000 (2018: £200,000), in addition
to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 25 (2018: 32) reporting components,
9 (2018: 12) were subject to full scope audits for
group reporting purposes, whilst none (2018: 2) were
subject to a review of financial information (including
enquiry). The group audit team carried out the work
on all of the components located in Great Britain.
A separate UK audit director with a team from KPMG
Ireland carried out the work over those components
based in Ireland.
The component materialities, ranged from £0.5 million
to £3.6 million (2018: £0.1 million to £3.0 million),
having regard to the mix of size and risk profile of
the Group across the components.
The components within the scope of our work
accounted for the percentages illustrated opposite.
The remaining 1.0% (2018: 7.0%) of total Group
revenue, 6.0% (2018: 7.0%) of Group profit before
tax and 3.0% (2018: 5.0%) of total Group assets is
represented by the remaining reporting components,
none of which individually represented more than
2.0% (2018: 3.0%) of any of total Group revenue,
Group profit before tax or Group total assets.
For these residual components, we performed analysis
at an aggregated group level to re-examine our
assessment that there were no significant risks of
material misstatement present.
Group profit before tax
£94.6m (2018: £86.3m
Group profit before tax
adjusted for acquisition
costs of £6.4 million)
Group profit before tax
Group materiality
Group Materiality
£4.5m (2018: £4.0m)
£4.5m
Whole Financial
Statements materiality
(2018: £4.0m)
£3.6m
Range of materiality at 9
components (£0.5m-£3.6m)
(2018: £0.1m to £3.0m)
£0.2m
Misstatements reported
to the Audit Committee
(2018: £0.2m)
Group revenue
Group profit before tax
16
94%
(2018 – 93%)
77
94
1
99%
(2018 – 93%)
92
99
Group total assets
1
97%
(2018 – 95%)
94
97
Full scope for group audit purposes 2019
Full scope for group audit purposes 2018
Specified risk-focused audit procedures 2018
Residual components
87
BREEDONGROUP.COMFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF BREEDON GROUP PLC CONTINUED
5. WE HAVE NOTHING TO REPORT ON THE OTHER
INFORMATION IN THE ANNUAL REPORT
The directors are responsible for the other information
presented in the Annual Report together with the
Financial Statements. Our opinion on the Financial
Statements does not cover the other information and,
accordingly, we do not express an audit opinion or,
except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our Financial
Statements audit work, the information therein is
materially misstated or inconsistent with the Financial
Statements or our audit knowledge. Based solely on
that work we have not identified material
misstatements in the other information.
6. WE HAVE NOTHING TO REPORT ON THE OTHER
MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
Under the Companies (Jersey) Law 1991, we are
required to report to you if, in our opinion:
• proper accounting records have not been kept by
the Company; or
• proper returns adequate for our audit have not been
received from branches not visited by us; or
• the Company’s Financial Statements are not in
agreement with the accounting records and returns;
or
• we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
7. RESPECTIVE RESPONSIBILITIES
Directors’ responsibilities
As explained more fully in their statement set out
on page 82, the directors are responsible for:
the preparation of the Financial Statements including
being satisfied that they give a true and fair view;
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; assessing the Group and parent
Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern; and using the going concern basis of
accounting unless they either intend to liquidate the
Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
4. WE HAVE NOTHING TO REPORT
ON GOING CONCERN
The directors have prepared the Financial Statements
on the going concern basis as they do not intend to
liquidate the parent Company or the Group or to cease
their operations, and as they have concluded that the
parent Company’s and the Group’s financial position
means that this is realistic. They have also concluded
that there are no material uncertainties that could have
cast significant doubt over their ability to continue as
a going concern for at least a year from the date of
approval of the Financial Statements (“the going
concern period”).
Our responsibility is to conclude on the
appropriateness of the directors’ conclusions and,
had there been a material uncertainty related to going
concern, to make reference to that in this audit report.
However, as we cannot predict all future events or
conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the
absence of reference to a material uncertainty in this
auditor’s report is not a guarantee that the Group or
the parent Company will continue in operation.
In our evaluation of the directors’ conclusions,
we considered the inherent risks to the Group’s and
the parent Company’s business model and analysed
how those risks might affect the Group’s and the
parent Company’s financial resources or ability to
continue operations over the going concern period.
The risks that we considered most likely to adversely
affect the Group’s and the parent Company’s available
financial resources over this period were the impact of
macro-economic factors following a no-deal Brexit.
As these were risks that could potentially cast
significant doubt on the parent Company’s or the
Group’s ability to continue as a going concern,
we considered sensitivities over the level of available
financial resources indicated by the parent Company’s
or the Group’s financial forecasts taking account of
reasonably possible (but not unrealistic) adverse
effects that could arise from these risks individually
and collectively and evaluated the achievability of the
actions the directors consider they would take to
improve the position should the risks materialise.
We also considered less predictable but realistic
second order impacts, such as the erosion of customer
or supplier confidence, which could result in a rapid
reduction of available financial resources.
Based on this work, we are required to report to
you if we have concluded that the use of the going
concern basis of accounting is inappropriate or there
is an undisclosed material uncertainty that may cast
significant doubt over the use of that basis for a period
of at least a year from the date of approval of the
Financial Statements.
We have nothing to report in these respects and we
did not identify going concern as a key audit matter.
88
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 Auditor’s responsibilities
Our objectives are to obtain reasonable assurance
about whether the Financial Statements as a whole are
free from material misstatement, whether due to fraud
or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but
does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of the
Financial Statements.
A fuller description of our responsibilities is
provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
8. THE PURPOSE OF OUR AUDIT WORK AND TO
WHOM WE OWE OUR RESPONSIBILITIES
This report is made solely to the Company’s members,
as a body, in accordance with Article 113A of the
Companies (Jersey) Law 1991. Our audit work has
been undertaken so that we might state to the
Company’s members those matters we are required to
state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other
than the Company and the Company’s members, as a
body, for our audit work, for this report, or for the
opinions we have formed.
Craig Parkin
for and on behalf of KPMG LLP,
Chartered Accountants and Recognised Auditor
One Snowhill
Snowhill Queensway
Birmingham
B4 6GH
11 March 2020
89
BREEDONGROUP.COMFINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Note
1,2
11
2
6
6
7
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Group operating profit
Share of profit of associate
and joint ventures
Profit from operations
Financial income
Financial expense
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity holders of the parent
Non–controlling interests
Profit for the year
Basic earnings per ordinary share 24
Diluted earnings per
ordinary share
24
2019
Non –
underlying*
(note 3)
£m
Underlying
£m
–
–
–
–
(8.0)
(8.0)
–
(8.0)
–
–
(8.0)
0.7
(7.3)
(7.3)
–
(7.3)
929.6
(587.2)
342.4
(163.8)
(63.6)
115.0
1.6
116.6
–
(14.0)
102.6
(17.3)
85.3
85.2
0.1
85.3
5.08p
5.07p
2018
Non –
underlying*
(note 3)
£m
Underlying
£m
–
–
–
–
(11.8)
(11.8)
–
(11.8)
–
–
(11.8)
0.6
(11.2)
(11.2)
–
(11.2)
862.7
(556.9)
305.8
(145.5)
(58.5)
101.8
1.7
103.5
0.1
(11.9)
91.7
(15.9)
75.8
75.7
0.1
75.8
4.70p
4.68p
Total
£m
929.6
(587.2)
342.4
(163.8)
(71.6)
107.0
1.6
108.6
–
(14.0)
94.6
(16.6)
78.0
77.9
0.1
78.0
4.64p
4.63p
Total
£m
862.7
(556.9)
305.8
(145.5)
(70.3)
90.0
1.7
91.7
0.1
(11.9)
79.9
(15.3)
64.6
64.5
0.1
64.6
4.01p
3.99p
* Non–underlying items represent acquisition–related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related
tax items.
90
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Profit for the year
Other comprehensive income
Items which may be reclassified subsequently to profit and loss:
Foreign exchange differences on translation of foreign operations, net of hedging
Effective portion of changes in fair value of cash flow hedges
Taxation on items taken directly to other comprehensive income
7
Note
Other comprehensive (expense)/income for the year
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Equity holders of the parent
Non-controlling interests
2019
£m
78.0
(13.3)
(1.5)
0.2
(14.6)
63.4
63.3
0.1
63.4
2018
£m
64.6
6.6
–
–
6.6
71.2
71.1
0.1
71.2
91
BREEDONGROUP.COMFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2019
Non-current assets
Property, plant and equipment
Intangible assets
Investment in associate and joint ventures
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Stated capital
Hedging reserve
Translation reserve
Retained earnings
Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
2019
£m
2018
£m
8
9
11
13
14
15
16
17
15
17
12
18
18
18
698.6
464.2
10.8
665.9
467.0
6.4
1,173.6
1,139.3
58.5
164.7
23.8
247.0
54.8
160.8
37.6
253.2
1,420.6
1,392.5
(43.9)
(177.9)
(7.6)
(2.5)
(31.2)
(177.5)
(7.3)
(2.3)
(231.9)
(218.3)
(270.2)
(32.2)
(47.2)
(349.6)
(581.5)
839.1
550.0
(1.3)
(6.7)
297.0
839.0
0.1
839.1
(317.1)
(36.2)
(47.6)
(400.9)
(619.2)
773.3
549.0
–
6.6
217.5
773.1
0.2
773.3
These Financial Statements were approved by the Board of Directors on 11 March 2020 and were signed on its
behalf by:
Pat Ward
Group Chief Executive
Rob Wood
Group Finance Director
92
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Balance at 1 January 2018
Shares issued
Expenses of share issue
Dividend to non-controlling
interests
Total comprehensive income
for the year
Share-based payments
Balance at 31 December 2018
Shares issued
Dividend to non-controlling
interests
Total comprehensive income for
the year
Share-based payments
Stated
capital
£m
377.8
174.9
(3.7)
–
–
–
549.0
1.0
–
–
–
Balance at 31 December 2019
550.0
Hedging
reserve
£m
Translation
reserve
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
6.6
–
6.6
–
–
(1.3)
(13.3)
Retained
earnings
£m
150.1
–
–
–
64.5
2.9
217.5
–
–
77.9
1.6
–
(1.3)
–
(6.7)
297.0
Attributable
to equity
holders of
parent
£m
527.9
174.9
(3.7)
Non-
controlling
interests
£m
0.2
–
–
Total
equity
£m
528.1
174.9
(3.7)
–
(0.1)
(0.1)
71.1
2.9
773.1
1.0
0.1
–
0.2
–
71.2
2.9
773.3
1.0
–
(0.2)
(0.2)
63.3
1.6
839.0
0.1
–
0.1
63.4
1.6
839.1
93
BREEDONGROUP.COMFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation
Financial income
Financial expense
Share of profit of associate and joint ventures
Net gain on sale of property, plant and equipment
Share-based payments
Taxation
Operating cash flow before changes in working capital and provisions
(Increase)/decrease in trade and other receivables
Increase in inventories
Decrease in trade and other payables
Decrease in provisions
Cash generated from operating activities
Interest paid
Interest element of lease payments
Dividend paid to non-controlling interests
Income taxes paid
Net cash from operating activities
Cash flows used in investing activities
Acquisition of businesses
Purchase of share in joint venture
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
(Issue)/repayment of loan to joint venture
Interest received
Dividends from associate and joint ventures
Net cash used in investing activities
Cash flows (used in)/from financing activities
Proceeds from the issue of shares (net of costs)
Proceeds from new interest-bearing loans (net of costs)
Repayment of interest-bearing loans
Repayment of lease obligations
Net cash (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Foreign exchange differences
Cash and cash equivalents at 31 December
94
Note
2019
£m
2018
£m
78.0
64.6
65.2
3.1
–
14.0
(1.6)
(0.8)
1.6
16.6
176.1
(0.8)
(5.7)
(1.8)
(2.0)
52.6
4.2
(0.1)
11.9
(1.7)
(0.5)
2.9
15.3
149.2
13.5
(0.6)
(0.2)
(1.3)
165.8
160.6
(8.4)
(2.6)
(0.2)
(18.1)
136.5
(8.9)
(3.0)
(56.3)
3.3
(4.0)
–
0.8
(8.9)
(0.4)
(0.1)
(16.5)
134.7
(406.3)
–
(48.6)
4.9
0.4
0.1
0.4
(68.1)
(449.1)
1.0
–
(69.2)
(12.9)
(81.1)
(12.7)
37.6
(1.1)
23.8
171.2
409.7
(246.1)
(7.4)
327.4
13.0
23.9
0.7
37.6
10
26
11
11
18
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The principal activities of the Group are the quarrying of aggregates and manufacture and sale of construction
materials and building products, including cement, asphalt and ready-mixed concrete, together with related
activities in GB and Ireland. Breedon Group plc is a company domiciled in Jersey. The address of the Company’s
registered office is 28 Esplanade, St Helier, Jersey JE2 3QA.
Basis of preparation
These Financial Statements consolidate 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’).
Applicable laws and accounting standards
These consolidated Financial Statements have been prepared in accordance with Adopted IFRS. The consolidated
Financial Statements have been prepared under the historical cost convention except for the revaluation to fair
value of certain financial instruments.
Parent company information has not been provided in accordance with Article 105 (11) of the Companies
(Jersey) Law 1991.
The accounting policies set out below have, unless otherwise stated, been applied consistently throughout the
year presented in this financial information.
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 April 2022. Further details of the Group’s bank facilities are
given in note 15.
The Group actively manages its financial risks as set out in note 20 and operates Board-approved financial
policies, 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 it appropriate to adopt the going concern basis in preparing these Financial Statements.
Accounting estimates and judgements
The preparation of Financial Statements in conformity with Adopted IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the
Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated Financial Statements, are disclosed in note 27.
Presentation
These Financial Statements are presented in Pounds Sterling (“Sterling”), which is the Group’s functional currency.
All financial information presented has been rounded to the nearest 0.1 million.
New IFRS Standards and Interpretations
The following standards have been adopted by the Group during the year:
IFRS 16 – Leases
The Group has adopted IFRS 16 – Leases from 1 January 2019. The primary impact of the new standard has been
to bring arrangements previously accounted for under IAS 17 as operating leases on balance sheet, with a
right-of-use asset and corresponding financial liability of £47.0m recognised on transition at 1 January 2019,
being primarily the discounted value of the £69.9m of operating lease commitments disclosed at 31 December
2018 in accordance with IAS 17 – Leases. There was no impact on net assets at the date of transition.
The right-of-use asset is presented within property, plant and equipment in the Consolidated Statement of
Financial Position and the lease liability is presented within interest-bearing loans and borrowings (see Leases
accounting policy on page 102).
95
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
New IFRS Standards and Interpretations CONTINUED
IFRS 16 – Leases CONTINUED
The Group has adopted the modified retrospective approach to implementation, meaning the asset and liability
have been recognised from 1 January 2019 without restatement of comparative information for 2018, which
continues to be reported under IAS 17. It has also elected to take advantage of the practical expedients permitted
by the Standard not to recognise lease assets and liabilities in respect of short-term and low-value leases.
This accounting change does not impact the covenants on the Group’s banking facility, as they are calculated
with reference to the accounting standards adopted by the Group at the point at which the facility was taken out.
The impact of the adoption of IFRS 16 on the Group for the year ended 31 December 2019 has been as follows:
Impact of IFRS 16 on the Consolidated Income Statement for the year ended 31 December 2019
Group operating profit
Share of profit of associate and joint ventures
Profit from operations
Financial income
Financial expense
Profit before taxation
Taxation
Profit for the period
As reported
£m
IFRS 16
adjustments
£m
107.0
1.6
108.6
–
(14.0)
94.6
(16.6)
78.0
(1.0)
–
(1.0)
–
2.3
1.3
–
1.3
Impact of IFRS 16 on the Consolidated Statement of Financial Position at 31 December 2019
As reported
£m
IFRS 16
adjustments
£m
Amounts
without
adoption
£m
106.0
1.6
107.6
–
(11.7)
95.9
(16.6)
79.3
Amounts
without
adoption
£m
698.6
(42.3)
656.3
164.7
0.9
(41.4)
165.6
(43.9)
5.0
(38.9)
(270.2)
(32.2)
(231.6)
(33.1)
38.6
(0.9)
42.7
1.3
Non-current assets
Property, plant and equipment
Current assets
Trade and other receivables
Change in total assets
Current liabilities
Interest-bearing loans and borrowings
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Change in total liabilities
Change in total equity
96
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 1 ACCOUNTING POLICIES CONTINUED
New IFRS Standards and Interpretations CONTINUED
The Group has also adopted the following standards from 1 January 2019:
• IFRIC 23 – Uncertainty over Income Tax Treatments
• Amendments to IFRS 9 – Prepayment Features with Negative Compensation
• Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures
• Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
• Annual Improvements to IFRS Standards 2015–2017 Cycle
The adoption of these standards has not had a material impact on the Financial Statements.
New IFRS Standards and Interpretations not adopted
At the date on which these Financial Statements were authorised, there were no Standards, Interpretations and
Amendments which had been issued but were not effective for the year ended 31 December 2019 that are
expected to materially impact the Group’s Financial Statements.
Basis of consolidation
Subsidiary undertakings are entities controlled by the Group. Control exists when the Group is exposed to or has
rights to variable returns from its investment with the investee and has the ability to effect those returns through
its power over the investee. In assessing control, potential voting rights that are currently exercisable or
convertible are taken into account. Ordinarily, the Group considers a company a subsidiary undertaking when it
holds more than 50 per cent of the shares and voting rights. The Financial Statements of subsidiary undertakings
are included in the Group’s Financial Statements from the date that control commences until the date that
control ceases.
Associates are those entities in which the Group holds more than 20 per cent of the shares and voting rights and
has significant influence, but not control, over the financial and operating policies. Joint ventures are those
entities over whose activities the Group has joint control, requiring unanimous consent for strategic financial and
operating decisions. The Group’s Financial Statements includes the Group’s share of the total comprehensive
income of its associate and joint ventures on an equity accounted basis, from the date that significant influence or
joint control commences until the date that significant influence or joint control ceases. When the Group’s share
of losses exceeds its interest in an associate or joint venture, the Group’s carrying amount is reduced to nil and
recognition of further losses is discontinued, except to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of an associate or joint venture.
Foreign exchange
Foreign exchange transactions
Transactions in foreign currencies are recorded at the spot rate at the transaction date. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the balance sheet date, with all currency
translation differences recognised within the Consolidated Income Statement, except for those monetary items
that provide an effective hedge for a net investment in a foreign operation.
Foreign exchange translation
The consolidated Financial Statements are presented in Sterling, which is the functional currency of the Group.
The individual Financial Statements of the Group’s subsidiaries and joint ventures with a functional currency other
than Sterling are translated into Sterling according to IAS 21 – The Effects of Changes in Foreign Exchange Rates.
Results and cash flows are translated using average annual exchange rates for the reporting period, assets and
liabilities translated using the closing rates at the reporting date and equity at historic exchange rates.
The translation differences resulting from this are recognised in the Consolidated Statement of Comprehensive
Income until the subsidiary is disposed of. Goodwill and fair value adjustments arising on acquisition of a foreign
operation are regarded as assets and liabilities of the foreign operation and are translated accordingly.
Financial instruments
Financial instruments are recognised when the Group becomes a party to the contractual provisions of the
instrument. The principal financial assets and liabilities of the Group are as follows:
Trade receivables and trade payables
Trade receivables and trade payables are initially recognised at fair value and then are stated at amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, including bank deposits with original maturities of
three months or less. For the purposes of the Consolidated Statement of Cash Flows, bank overdrafts are also
included as they are an integral part of the Group’s cash management.
97
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Financial instruments CONTINUED
Bank and other borrowings
Interest-bearing bank loans and overdrafts and other loans are recognised initially at fair value less attributable
transaction costs. All borrowings are subsequently stated at amortised cost with the difference between initial net
proceeds and redemption value recognised in the Consolidated Income Statement over the period to redemption
on an effective interest basis.
Derivative financial instruments
The Group uses financial instruments to manage financial risks associated with the Group’s underlying business
activities and the financing of those activities. The Group does not undertake any trading in financial instruments.
Derivatives are initially recognised at fair value on the date that the contract is entered into and subsequently
remeasured in future periods at their fair value. The gain or loss on the remeasurement of fair value is recognised
immediately in profit or loss, unless a derivative financial instrument is designated as a hedge of the variability in
cash flows of a recognised asset or liability. In this instance the effective part of any gain or loss on the derivative
financial instrument is recognised in the Consolidated Statement of Comprehensive Income and in the hedging
reserve. Any ineffective portion of the hedge is recognised immediately in the Consolidated Income Statement.
Amounts recorded in the hedging reserve are subsequently reclassified to the Consolidated Income Statement
when the expense for the hedged transaction is actually recognised.
To qualify for hedge accounting, the hedging relationship must meet several conditions with respect to
documentation, probability of occurrence, hedge effectiveness and reliability of measurement. At the inception of
the transaction, the Group documents the relationship between hedging instruments and hedged items, as well
as its risk management objective and strategy for undertaking the hedge transaction. This process includes
linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or
forecast transactions. The Group also documents its assessment, at hedge inception and on an annual basis, as to
whether the derivatives that are used in hedging transactions have been, and are likely to continue to be, effective
in offsetting changes in fair value or cash flows of hedged items.
Mineral reserves and resources
Mineral reserves and resources are stated at cost, including both the purchase price and costs incurred to gain
access to the reserves. The value of mineral reserves and resources recognised as a result of business
combinations is based on the fair value at the point of acquisition.
These assets are depreciated using a physical unit-of-production method, over the commercial life of the quarry.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and any recognised
impairment loss. This includes right-of-use assets recognised under IFRS 16 – Leases.
Depreciation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful
lives of assets, in order to write off the cost or deemed cost of assets. The estimated useful lives are as follows:
• Freehold buildings
• Fixtures and fittings
• Office equipment
• Fixed plant
• Loose plant and machinery
• Motor vehicles
• Right-of-use assets
–
–
–
–
–
–
–
50 years
up to 10 years
up to 5 years
up to 35 years
up to 10 years
up to 10 years
life of lease or the useful economic life of underlying asset
No depreciation is provided on freehold land.
98
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 1 ACCOUNTING POLICIES CONTINUED
Intangible assets and goodwill
The Group measures goodwill as the fair value of the purchase consideration transferred including the recognised
amount of any non-controlling interest in the acquiree, less the fair value of the identifiable assets acquired and
liabilities assumed, all measured as of the acquisition date. Fair value adjustments are always considered to be
provisional at the first reporting date after the acquisition to allow the maximum time to elapse for management
to make a reliable estimate.
The Group measures non-controlling interests at a proportionate share of the recognised amount of the
identifiable net assets at the acquisition date.
Goodwill arising on the acquisition of subsidiary undertakings is recognised as an asset in the Consolidated
Statement of Financial Position and is subject to annual impairment review. Goodwill arising on the acquisition of
associated undertakings is included within the carrying value of the investment. When the excess is negative,
a gain on bargain purchase is recognised immediately in the Consolidated Income Statement.
Other intangible assets that are acquired by the Group as part of a business combination are stated at cost less
accumulated amortisation and impairment losses. Cost reflects management’s judgement of the fair value of the
individual intangible asset calculated by reference to the net present value of future economic benefits accruing
to the Group from the utilisation of the asset, discounted at an appropriate discount rate. Other intangibles
arising on the acquisition of associated undertakings are included within the carrying value of the investment.
Amortisation is based on the useful economic lives of the assets concerned, currently being the consumption
of economic benefits over a period of up to 20 years.
Impairment
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets
(see separate accounting policies), are reviewed at each reporting date to determine whether there is any
indication of impairment. Impairment reviews are undertaken at the level of each significant cash-generating unit,
which is no larger than an operating segment as defined by IFRS 8 – Operating Segments. If any such indication
exists then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
Non-current assets held exclusively with a view to resale
Non-current assets acquired exclusively with a view to subsequent disposal are classified as assets held for resale
at the acquisition date only where all criteria set out in IFRS 5 – Non-current Assets Held for Sale and
Discontinued Operations are satisfied within a short period following the acquisition. When acquired as part of
a business combination, non-current assets acquired exclusively with a view to subsequent disposal are initially
measured at fair value less costs to sell. Subsequently, these non-current assets are measured at the lower of their
current carrying value and current fair value less costs to sell. Subsequent gains or losses on remeasurement are
recognised in the Consolidated Income Statement. Gains are not recognised in excess of any cumulative loss.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle
and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of
overheads based on normal operating capacity.
99
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Emissions rights
Emissions rights where an annual allowance is received for nil cost, typically European Union Emissions Trading
System credits, are accounted for such that an emissions liability is recognised only in circumstances where
emissions have exceeded the allowance from the perspective of the Group as a whole and will require the
purchase of additional allowances to settle the emissions liability. Assets and liabilities arising in respect of nil cost
emission allowances are accordingly netted against one another in the preparation of the Consolidated
Financial Statements.
Retirement benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the
Consolidated Income Statement as incurred.
Provisions
Restoration provisions
Where a legal or constructive obligation exists, the Group provides for the costs of restoring a site and of
decommissioning associated property, plant and equipment. The initial cost of creating provisions on
commencement of the exploitation of the raw materials is included in property, plant and equipment and
depreciated over the life of the site. Changes in the measurement of a provision that result from changes in the
estimated timing or amount of cash outflows are added to, or deducted from, the cost of the related asset.
All provisions are discounted to their present value at a rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
Other provisions
A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal
or constructive obligation, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a rate that reflects current
market assessments of the time value of money and the risks specific to the liability.
Revenue
Group revenue arises from the sale of goods and contracting services. IFRS 15 requires revenue from contracts
with customers to be recognised in line with a principles-based five-step model. This requires the Group to
identify performance obligations within its contracts with customers, determine the transaction price applicable
to each of these performance obligations and then to select an appropriate method for the timing of revenue
recognition, reflecting the substance of the performance obligation, being either recognition at a point in time
or over time.
Sale of goods
The majority of the Group’s revenue is derived from the sale of physical goods to customers. Depending on
whether the goods are delivered to or collected by the customer, the contract contains either one performance
obligation which is satisfied at the point of collection, or two performance obligations which are satisfied
simultaneously at the point of delivery.
The transaction price for this revenue is the amount which can be invoiced to the customer once the performance
obligations are fulfilled, reduced to reflect provisions recognised for returns, trade discounts and rebates.
The Group does not routinely offer discounts or volume rebates, but where it does the variable element of
revenue is based on the most likely amount of consideration that the Group believes it will receive. This value also
excludes items collected on behalf of third parties, such as sales and value added taxes.
For all sales of goods, revenue is recognised at a point in time, being the point that the goods are transferred to
the customer.
100
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 1 ACCOUNTING POLICIES CONTINUED
Revenue CONTINUED
Contracting services
The majority of contracting services revenue arises from contract surfacing work, which typically comprises
short-term contracts with a performance obligation to supply and lay product. Other contracting services
revenue can contain more than one performance obligation dependent on the nature of the contract.
The transaction price is calculated as consideration specified by the contract, adjusted to reflect provisions
recognised for returns, remedial work arising in the normal course of business, trade discounts and rebates.
The Group does not routinely offer discounts or volume rebates, but where it does the variable element of
revenue is based on the most likely amount of consideration that the Group believes it will receive.
Where the contract provides for elements of variable consideration, these values are included in the calculation of
the transaction price only to the extent that it is ‘highly probable’ that a significant reversal in the amount of
cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration
is resolved.
Where the transaction price is allocated between multiple performance obligations on other contracts, this
typically reflects the allocation of value to each performance obligation agreed with the end customer, unless this
does not reflect the economic substance of the transaction.
As contracting services performance obligations are satisfied over time, revenue is recognised over time.
It is measured on an output basis, being volume of product laid for contract surfacing.
Expenses
Financial income and expense
Financial income and expense comprises interest payable, finance charges, lease interest, interest receivable on
funds invested, and gains and losses on related hedging instruments that are recognised in the Consolidated
Income Statement.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective
interest method.
Warranties and customer claims
The Group provides assurance type warranties over the specification of products, but does not provide extended
warranties or maintenance services in its contracts with customers. Additionally, claims with customers may arise
in the usual course of business. Both customer claims and warranties are accounted for under IAS 37 – Provisions,
Contingent Liabilities and Contingent Assets.
Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as
reported in the Consolidated Income Statement because it excludes items of income or expense that are not
taxable or deductible. The Group’s liability for current tax is calculated using tax rates enacted or substantively
enacted at the reporting date and includes any adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is provided in full using the Statement of Financial Position liability method and represents the tax
expected to be payable or recoverable on the temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary
differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities using tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting
date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow
all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when they relate to income
taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on
a net basis.
101
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Leases
Accounting policy for leases in 2019
Right-of-use assets and liabilities are recognised for any arrangements meeting the definition of a lease set out in
IFRS 16 – Leases.
Right-of-use assets are presented within property, plant and equipment in the Consolidated Statement of
Financial Position. They are measured at cost, comprising the initial amount of the lease liability adjusted for any
lease prepayments, plus any initial direct costs incurred, less any lease incentives received. Right-of-use assets are
then depreciated using the straight-line method from the start of the lease to the earlier of the end of the useful
life of the right-of-use asset or the end of the lease term.
Lease liabilities are presented within interest-bearing loans and borrowings. They are measured at the present
value of future lease payments, discounted at a rate which reflects both the Group’s incremental borrowing rate,
adjusted for the time value of money, and the nature of the leased asset.
The Group has also elected to take advantage of the practical expedients permitted by the Standard not to
recognise lease assets and liabilities in respect of short-term and low-value leases. Charges recognised in the
Consolidated Income Statement in respect of these leases are not significant to the Group.
Accounting policy for leases in 2018
For all periods up to and including 2018 the Group applied IAS 17 – Leases in accounting for lease arrangements.
Payments made under operating leases were recognised in the Consolidated Income Statement on a straight-line
basis over the term of the lease. Lease incentives received were recognised in the Consolidated Income Statement
as an integral part of the total lease expense.
Leases in which the Group assumed substantially all the risks and rewards of ownership of the leased asset were
classified as finance leases. Leased assets acquired by way of finance lease were stated at an amount equal to the
lower of their fair value and the present value of the minimum lease payments at inception of the lease, less
accumulated depreciation and impairment losses.
Finance lease payments were apportioned between the finance charge and the reduction of the outstanding
liability. The finance charge was allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability.
Share-based transactions
Equity-settled share-based payments to directors, key employees and others providing similar services are
measured at the fair value of the equity instruments at the grant date. The fair value is expensed, with a
corresponding increase in equity, on a straight line basis over the period that the employees become
unconditionally entitled to the awards. At each reporting date, the Group revises the amount recognised as an
expense to reflect the number of awards for which the related service and non-market performance conditions
are expected to be met, such that the amount ultimately recognised as an expense is based on the number of
awards that meet the related service and non-market performance conditions at the vesting date. For share-
based payment awards with market-based performance conditions, the grant date fair value of the share-based
payment is measured to reflect such conditions and there is no true-up for differences between expected and
actual outcomes.
Dividends
Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders.
Alternative performance measures
The following non-GAAP performance measures have been used in the Financial Statements:
i. Underlying EBIT
ii. Underlying EBIT margin
iii. Underlying EBITDA
iv. Underlying basic earnings per share
v. Free cash flow
vi. Return on invested capital
vii. Leverage
Management uses these terms as it believes they allow a better understanding of underlying business
performance, are consistent with its 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 28.
102
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 2 SEGMENTAL ANALYSIS
The principal activities of the Group are the quarrying of aggregates and manufacture and sale of construction
materials and building products, including cement, asphalt and ready-mixed concrete, together with related
activities in GB and Ireland.
The Group’s activities are split into the following reportable segments:
Great Britain comprising our construction materials and contracting services businesses in Great Britain.
Ireland comprising our construction materials and contracting services businesses on the Island of Ireland.
Cement comprising our cementitious operations in Great Britain and Ireland.
A description of the activities of each segment is included on pages 33 to 43. There are no other
operating segments.
Income statement
Great Britain
Ireland
Cement
Central administration
Eliminations
Group
2019
2018
Revenue
£m
615.1
202.0
186.4
–
(73.9)
929.6
Underlying
EBITDA*
£m
98.4
33.8
58.8
(10.8)
–
180.2
Revenue
£m
609.8
156.3
176.5
–
(79.9)
862.7
Underlying
EBITDA*
£m
92.2
25.4
48.6
(11.8)
–
154.4
* Underlying EBITDA is earnings before interest, tax, depreciation, amortisation, non-underlying items (note 3) and before our share of profit from associate and joint ventures.
Reconciliation to statutory profit
Group Underlying EBITDA as above
Depreciation and mineral depletion
Underlying operating profit
Great Britain
Ireland
Cement
Central administration
Share of profit of associate and joint ventures
Underlying profit from operations (EBIT)
Non-underlying items (note 3)
Profit from operations
Net financial expense
Profit before taxation
Taxation
Profit for the year
180.2
(65.2)
62.8
26.8
36.3
(10.9)
115.0
1.6
116.6
(8.0)
108.6
(14.0)
94.6
(16.6)
78.0
154.4
(52.6)
61.4
20.9
31.4
(11.9)
101.8
1.7
103.5
(11.8)
91.7
(11.8)
79.9
(15.3)
64.6
IFRS 16 adjustments have resulted in increases of £7.9m in EBITDA, £1.0m in Underlying EBIT, and a decrease of
£1.3m in profit for the year ended 31 December 2019.
103
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 SEGMENTAL ANALYSIS CONTINUED
Disaggregation of revenue from contracts with customers
Analysis of revenue by geographic location
The primary geographic market for all Group revenues for the purpose of IFRS 15 is the UK and RoI. In line with
the requirements of IFRS 8, this is analysed by individual countries as follows:
United Kingdom
Republic of Ireland
Other
Total
Analysis of revenue by major products and service lines
Sale of goods
Great Britain
Ireland
Cement
Eliminations
Contracting services
Great Britain
Ireland
Cement
Eliminations
Total
2019
£m
793.3
134.7
1.6
929.6
2018
£m
765.8
95.2
1.7
862.7
2019
£m
2018
£m
543.2
51.2
186.4
(73.9)
706.9
71.9
150.8
–
–
222.7
929.6
532.7
38.0
176.5
(79.9)
667.3
77.1
118.3
–
–
195.4
862.7
Timing of revenue recognition
All revenues from the sale of goods relate to products for which revenue is recognised at a point in time as the
product is transferred to the customer. Contracting services revenues are accounted for as products and services
for which revenue is recognised over time.
104
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 2 SEGMENTAL ANALYSIS CONTINUED
Statement of financial position
Great Britain
Ireland
Cement
Central administration
Total operations
Current tax
Deferred tax
Net debt
Total Group
Net assets
2019
2018
Total
assets
£m
661.9
251.2
482.6
1.1
Total
liabilities
£m
(119.6)
(39.5)
(42.0)
(11.5)
Total
assets
£m
629.2
250.9
471.1
3.7
1,396.8
(212.6)
1,354.9
–
–
23.8
1,420.6
(7.6)
(47.2)
(314.1)
(581.5)
839.1
–
–
37.6
1,392.5
Total
liabilities
£m
(119.5)
(35.3)
(47.7)
(13.5)
(216.0)
(7.3)
(47.6)
(348.3)
(619.2)
773.3
GB total assets include £10.8m (2018: £6.4m) in respect of investment in an associate and joint ventures.
Geographic location of property, plant and equipment assets
United Kingdom
Republic of Ireland
Total
Analysis of depletion & depreciation, amortisation and capital expenditure
2019
Great Britain
Ireland
Cement
Central administration
Total
2018
Great Britain
Ireland
Cement
Central administration
Total
2019
£m
586.3
112.3
698.6
2018
£m
546.5
119.4
665.9
Mineral
depletion &
depreciation
£m
Amortisation
of intangible
assets
£m
Additions
to property,
plant and
equipment
£m
35.6
7.0
22.5
0.1
65.2
30.8
4.5
17.2
0.1
52.6
1.1
2.0
–
–
3.1
1.4
2.8
–
–
4.2
29.8
10.6
20.0
0.3
60.7
27.9
6.4
14.2
0.2
48.7
Additions to property, plant and equipment exclude additions in respect of business combinations.
Current year additions are inclusive of right-of-use asset additions from 1 January 2019 following the adoption
of IFRS 16 – Leases.
105
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 NON-UNDERLYING ITEMS
Non-underlying items are those which are either unlikely to recur in future periods or which distort the underlying
performance of the business, including non-cash items. In the opinion of the directors, this presentation aids
understanding of the underlying business performance and 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.
2019
£m
1.1
3.3
0.5
3.1
–
8.0
(0.7)
7.3
2018
£m
1.5
6.4
0.2
4.2
(0.5)
11.8
(0.6)
11.2
2019
£m
2018
£m
54.9
10.3
3.1
0.5
(1.3)
–
–
–
0.5
–
0.5
47.7
4.9
4.2
0.2
(0.7)
6.6
3.5
–
0.6
–
0.6
Included in administrative expenses:
Redundancy and reorganisation costs
Acquisition costs (note 26)
Loss on property disposals
Amortisation of acquired intangible assets
Gain on stepped acquisition of joint venture
Total non-underlying items (pre-tax)
Non-underlying taxation
Total non-underlying items (after tax)
4 EXPENSES AND AUDITOR’S REMUNERATION
Group operating profit has been arrived at after charging/(crediting)
Depreciation of property, plant and equipment:
Owned assets
Leased assets
Amortisation of intangible assets
Loss on property disposals (note 3)
Gain on sale of plant and equipment
Operating lease rentals under IAS 17:
Plant, equipment and vehicles
Land and buildings
Auditor’s remuneration
Audit of the Company’s annual accounts
Audit of the Company’s subsidiary undertakings
Non-audit services
106
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 5 REMUNERATION OF DIRECTORS, STAFF NUMBERS AND COSTS
Remuneration received by the directors (the Group’s key management personnel) is summarised below.
Disclosure by individual director is provided in the Directors’ Remuneration report on pages 74 and 75.
Disclosure of share options, including information on all outstanding options, is provided in the Directors’ Report
on page 80.
Salaries and short-term employee benefits
Directors’ fees
Share-based payments (note 19)
2019
£m
2.3
0.3
1.3
3.9
2018
£m
2.0
1.0
1.6
4.6
The average number of persons employed by the Group (including directors) during the year, analysed by
category, was as follows:
Great Britain
Ireland
Cement
Central administration
The aggregate payroll costs of these persons (including directors) were as follows:
Wages and salaries
Social security costs
Pension costs
Share-based payments (note 19)
6 FINANCIAL INCOME AND EXPENSE
Bank deposits
Financial income
Bank loans and overdrafts
Amortisation of prepaid bank arrangement fee
Lease liabilities
Unwinding of discount on provisions
Financial expense
Number of employees
2019
2,101
397
371
90
2018
2,039
317
310
34
2,959
2,700
2019
£m
116.3
12.8
5.0
2.3
136.4
2019
£m
–
–
(8.4)
(1.2)
(2.6)
(1.8)
2018
£m
106.8
11.6
4.0
2.9
125.3
2018
£m
0.1
0.1
(8.9)
(1.0)
(0.4)
(1.6)
(14.0)
(11.9)
107
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 TAXATION
Recognised in the Consolidated Income Statement
Current tax expense
Current year
Prior year
Total current tax
Deferred tax expense
Current year
Prior year
Total deferred tax
Total tax charge in the Consolidated Income Statement
Recognised in Other Comprehensive Income
Deferred tax income
Relating to cash flow hedges
Reconciliation of effective tax rate
Profit before taxation
Tax at the Company’s domestic rate of 19 per cent*
Difference between Company and subsidiary statutory tax rates*
Expenses not deductible for tax purposes
Property sales
Share-based payments
Utilisation of unrecognised deferred tax assets
Income from associate and joint ventures already taxed
Effect of change in rate
Adjustment in respect of prior years
Total tax charge
2019
£m
18.1
(0.5)
17.6
(1.0)
–
(1.0)
16.6
2019
£m
(0.2)
(0.2)
2018
£m
17.1
(0.5)
16.6
(1.2)
(0.1)
(1.3)
15.3
2018
£m
–
–
2019
£m
2018 (restated)
£m
94.6
18.0
(1.7)
1.4
(0.2)
0.1
(0.2)
(0.3)
–
(0.5)
16.6
79.9
15.2
–
1.3
(0.4)
0.1
–
(0.1)
(0.2)
(0.6)
15.3
* The Company was previously tax resident in Jersey, with a zero per cent tax rate. During 2019 the tax residency of the Company was moved to the United Kingdom,
with a 19 per cent tax rate. The Group’s subsidiary operations continue to pay tax at a rate of 19 per cent (2018: 19 per cent) in the United Kingdom and 12.5 per cent
(2018: 12.5 per cent) in the Republic of Ireland. Comparative values for 2018 have been restated to reconcile the Group’s total tax charge to a rate of 19 per cent.
A reduction in the UK corporation tax rate from 19 per cent to 17 per cent (effective 1 April 2020) was substantively enacted on 6 September 2016. The deferred tax liability at
31 December 2019 has been calculated based on these rates.
The UK Government has indicated that legislation may be introduced to cancel this planned reduction in tax rate. The impact of this would be to calculate deferred tax at a
higher rate of 19 per cent, resulting in an increase of £4.6m in the Group’s deferred tax liabilities at 31 December 2019.
108
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 8 PROPERTY, PLANT AND EQUIPMENT
Mineral
reserves
and resources
£m
Land and
buildings
£m
Plant,
equipment
& vehicles
£m
Land and
buildings
£m
Plant,
equipment
& vehicles
£m
IFRS 16 – Right-of-use
Cost
Balance at 1 January 2018
Translation adjustment
Acquisitions through business
combinations (note 26)
Additions
Disposals
Reclassification
Balance at 31 December 2018
Recognised on adoption of IFRS 16
Translation adjustment
Acquisitions through business
combinations (note 26)
Additions
Disposals*
Reclassification
161.4
0.6
70.4
4.7
(2.6)
–
234.5
–
(1.3)
–
6.3
(1.5)
5.2
50.7
0.9
41.8
3.0
(0.9)
0.5
96.0
–
(2.3)
–
2.3
(2.7)
15.2
Balance at 31 December 2019
Depreciation and mineral depletion
243.2
108.5
Balance at 1 January 2018
Translation adjustment
Charge for the year
Disposals
Balance at 31 December 2018
Recognised on adoption of IFRS 16
Translation adjustment
Charge for the year
Disposals
Reclassification
Balance at 31 December 2019
Net book value
At 31 December 2018
At 31 December 2019
26.2
–
8.7
–
34.9
–
–
9.4
(0.8)
–
43.5
199.6
199.7
6.5
–
5.3
(0.1)
11.7
–
–
5.1
(1.2)
2.2
17.8
84.3
90.7
390.5
2.0
83.7
41.0
(7.8)
(0.5)
508.9
(22.9)
(3.2)
3.4
49.3
(10.7)
(20.4)
504.4
92.5
0.1
38.6
(4.3)
126.9
(7.2)
(0.2)
40.4
(7.2)
(2.2)
150.5
382.0
353.9
–
–
–
–
–
–
–
32.1
–
–
2.6
(0.4)
–
34.3
–
–
–
–
–
–
–
2.9
(0.1)
–
2.8
–
31.5
–
–
–
–
–
–
–
37.2
–
0.2
0.2
(0.4)
–
37.2
–
–
–
–
–
7.2
–
7.4
(0.2)
–
14.4
–
22.8
* Disposals include £2.7m (2018: nil) in relation to changes made to capitalised restoration provisions (note 17)
Assets under construction
Presented within plant, equipment and vehicles are assets in the course of construction totalling £31.5m
(2018: £29.9m) which are not being depreciated.
Total
£m
602.6
3.5
195.9
48.7
(11.3)
–
839.4
46.4
(6.8)
3.6
60.7
(15.7)
–
927.6
125.2
0.1
52.6
(4.4)
173.5
–
(0.2)
65.2
(9.5)
–
229.0
665.9
698.6
109
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8 PROPERTY, PLANT AND EQUIPMENT CONTINUED
Depreciation and mineral depletion
Depreciation and mineral depletion is recognised in the following line items in the Consolidated
Income Statement:
Cost of sales
Administration expenses
2019
£m
62.5
2.7
65.2
2018
£m
50.5
2.1
52.6
Security
All mineral reserves, resources, land and buildings are subject to a floating charge as security for bank loans and
borrowings, with Barclays Bank plc as security agent for the Group’s lenders.
9 INTANGIBLE ASSETS
Cost
At 1 January 2018
Translation adjustment
Acquisitions through business combinations (note 26)
Disposals
At 31 December 2018
Translation adjustment
Acquisitions through business combinations (note 26)
Disposals
At 31 December 2019
Amortisation
At 1 January 2018
Charge for the year
At 31 December 2018
Translation adjustment
Charge for the year
At 31 December 2019
Net book value
At 31 December 2018
At 31 December 2019
Goodwill
£m
Customer
related
£m
190.7
3.5
224.2
(7.9)
410.5
(7.0)
6.6
–
410.1
–
–
–
–
–
–
410.5
410.1
4.6
0.6
36.6
–
41.8
(1.3)
4.9
–
45.4
0.7
3.6
4.3
(0.1)
2.2
6.4
37.5
39.0
Other
£m
–
0.1
19.5
–
19.6
(0.1)
–
(2.9)
16.6
–
0.6
0.6
–
0.9
1.5
19.0
15.1
Total
£m
195.3
4.2
280.3
(7.9)
471.9
(8.4)
11.5
(2.9)
472.1
0.7
4.2
4.9
(0.1)
3.1
7.9
467.0
464.2
Other intangible assets at 31 December 2019 comprise brand and permit assets arising from acquisitions.
The amortisation charge on these assets is recognised in non-underlying administrative expenses in the
Consolidated Income Statement.
110
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 9 INTANGIBLE ASSETS CONTINUED
Impairment tests for cash-generating units containing goodwill
Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis,
or more frequently if there are indications that the goodwill may be impaired. Goodwill is allocated to groups of
CGUs according to the level at which management monitor that goodwill, being the Group’s operating segments.
A summary of the carrying value allocated to each operating segment is shown below:
Great Britain
Ireland
Cement
2019
£m
151.7
106.4
152.0
410.1
2018
£m
145.5
110.0
155.0
410.5
Key assumptions
The key assumptions used in performing the impairment review are those used in calculating the value-in-use of
each CGU, as set out below:
Cash flow projections
Cash flow projections for each operating segment are derived from the annual budget approved by the Board for
2020 and the three-year plan for 2021 and 2022. The key assumptions on which budgets and forecasts are based
include sales growth, product mix and operating costs. These cash flows are then extrapolated forward for a
further 27 years, with the total period of 30 years reflecting the long-term nature of the underlying assets.
Budgeted cash flows are based on past experience and forecast future trading conditions.
Long-term growth rates
Cash flow projections assume growth rates of between 1.5 and 2.5 per cent (2018: between 2.0 and 3.0 per cent)
between year 4 to 30 of the cash flow projections. This reflects forecast rates of growth in the UK and RoI.
Discount rate
Forecast pre-tax cash flows for each segment have been discounted at pre-tax rates of between 9.4 and
10.1 per cent (2018: between 9.2 and 9.6 per cent) which was calculated by an external expert based on market
participants’ cost of capital and adjusted to reflect factors specific to each segment.
Sensitivity
The Group has assessed the impact of possible changes in the key assumptions to the impairment review.
Having performed a sensitivity analysis over the key assumptions, the directors have concluded that there are no
reasonably possible changes to assumptions which could result in an impairment charge being recognised.
Impact of Brexit
In performing the impairment review, the directors have carefully considered the additional uncertainty arising
from Brexit through performing additional sensitivity analysis based on Brexit specific scenarios. These included
changes to the discount rate and modelling the impact of a significant decline in short-to-medium term growth
caused by an economic shock following a disorderly exit at the end of the 2020 transition period. This additional
analysis indicated the existence of continued headroom for all segments.
111
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Country of incorporation
Percentage
of ordinary
shares held
Principal activity
10 PRINCIPAL GROUP COMPANIES
Subsidiary undertakings
Great Britain
Breedon Southern Limited
Breedon Northern Limited
Alba Traffic Management Limited
Breedon Whitemountain Ltd
Breedon Brick Limited
Ireland
Whitemountain Quarries Limited
Alpha Resource Management Limited
Lagan Asphalt Limited
Lagan Materials Limited
Cement
Breedon Cement Limited
England
Scotland
Scotland
Scotland
Republic of Ireland
Northern Ireland
Northern Ireland
Republic of Ireland
Republic of Ireland
England
Breedon Cement Ireland Limited
Republic of Ireland
Central administration
Breedon Holdings Limited
Breedon Group Services Limited
England
England
Breedon Employee Services Ireland Limited
Republic of Ireland
Breedon Holdings (Jersey) Limited
Breedon Facilities Management Limited
Jersey
Scotland
100%
100%
75%*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%**
100%
Production of construction materials
Production of construction materials
Traffic management
Contracting services
Manufacture of building products
Production of construction materials
Waste disposal
Contracting services
Production of construction materials
Cement production
Cement production
Service company
Service company
Service company
Holding company
Holding company
Associated undertaking
BEAR Scotland Limited
Joint ventures
Kingscourt Country Manor Brick
Company Limited
Breedon Bow Highways Limited
Capital Concrete Limited
Breedon Bowen Limited
Scotland
37.5%
Contracting services
Republic of Ireland
England
England
England
50%
50%
43%
50%
Distribution of building products
Contracting services
Production of construction materials
Production of construction materials
* The Consolidated Statement of Financial Position includes total assets of £1.4m (2018: £1.5m) and total liabilities of £0.6m (2018: £0.6m) in respect of Alba Traffic
Management Limited, the Group’s 75 per cent owned subsidiary undertaking.
** Denotes shares are held directly by Breedon Group plc.
112
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 11 INVESTMENT IN ASSOCIATE AND JOINT VENTURES
The Group equity accounts for its investments in its associate and in its joint ventures.
Carrying value
At 1 January 2018
Acquisitions
Share of profit of associate and joint ventures
Dividends received
Loans to joint ventures reclassified from creditors
Loan repayment
Disposals
At 31 December 2018
Additions
Share of profit of associate and joint ventures
Dividends received
At 31 December 2019
Associate
£m
Joint
ventures
£m
1.7
–
0.6
(0.4)
–
–
–
1.9
–
1.0
(0.4)
2.5
4.5
0.9
1.1
–
0.2
(0.4)
(1.8)
4.5
3.6
0.6
(0.4)
8.3
Total
£m
6.2
0.9
1.7
(0.4)
0.2
(0.4)
(1.8)
6.4
3.6
1.6
(0.8)
10.8
Additions in the year relate to the purchase of a 43 per cent share in Capital Concrete Limited on 1 December
2019. Of the total consideration paid of £3.6m, £3.0m was settled in cash and £0.6m through the transfer
of tangible fixed assets. A gain of £0.1m has been recognised on the transfer of these assets at fair value,
in proportion to the share of the joint venture not owned by the Group. This has been presented within
non-underlying items in the Consolidated Income Statement.
Summary financial information on associate and joint ventures – 100 per cent
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Revenue
Net profit
2019
2018
Associate
£m
6.4
23.0
(21.3)
(1.1)
7.0
108.2
2.7
Joint
ventures
£m
13.5
13.9
(12.2)
(7.2)
8.0
27.9
1.0
Associate
£m
4.1
20.7
(18.4)
(1.1)
5.3
106.6
1.7
Joint
ventures
£m
4.4
7.5
(4.3)
(0.5)
7.1
22.6
1.2
113
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12 DEFERRED TAX
Property, plant and equipment
Intangible assets
Derivative liabilities
Working capital and provisions
Property, plant and equipment
Intangible assets
Working capital and provisions
1 January
2019
£m
Acquisitions
(note 26)
£m
Recognised
in income
£m
Recognised
in equity
£m
Translation
adjustments
£m
31 December
2019
£m
(46.7)
(8.2)
–
7.3
(0.6)
(0.9)
–
–
(47.6)
(1.5)
2.4
0.4
–
(1.8)
1.0
–
–
0.2
–
0.2
0.5
0.2
–
–
0.7
(44.4)
(8.5)
0.2
5.5
(47.2)
1 January
2018
£m
Acquisitions
(note 26)
£m
Recognised
in income
£m
Recognised
in equity
£m
Translation
adjustments
£m
31 December
2018
£m
(33.3)
(0.7)
5.6
(28.4)
(12.8)
(8.1)
0.5
(20.4)
(0.5)
0.7
1.1
1.3
–
–
–
–
(0.1)
(0.1)
0.1
(0.1)
(46.7)
(8.2)
7.3
(47.6)
A deferred tax asset of £1.3m (2018: £1.5m) in relation to historic losses has not been recognised on the basis
that there is insufficient certainty around the Group’s ability to utilise these losses to obtain tax relief going
forwards. There are no unrecognised deferred tax liabilities in the current or prior year.
13 INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2019
£m
28.7
6.4
23.4
58.5
2018
£m
27.2
4.4
23.2
54.8
Inventories (being directly attributable costs of production) of £575.7m (2018: £511.5m) were expensed in
the year.
14 TRADE AND OTHER RECEIVABLES
2019
£m
2018
£m
127.9
8.7
14.2
13.9
164.7
3.8
160.9
164.7
124.5
3.8
17.5
15.0
160.8
–
160.8
160.8
Trade receivables
Amounts due from associate and joint ventures (note 23)
Contract assets
Other receivables and prepayments
Non-current
Current
114
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 15 INTEREST-BEARING LOANS AND BORROWINGS
Net Debt
Net debt comprises the following items:
Cash and cash equivalents
Current borrowings
Non-current borrowings
Statutory net debt
IFRS 16 adjustments
Net debt excluding the impact of IFRS 16
Current borrowings
Secured bank loans
Lease liabilities (note 21)
Non-current borrowings
Secured bank loans
Lease liabilities (note 21)
2019
£m
2018
£m
23.8
(43.9)
(270.2)
(290.3)
43.6
(246.7)
2019
£m
35.0
8.9
43.9
230.6
39.6
270.2
37.6
(31.2)
(317.1)
(310.7)
–
(310.7)
2018
£m
25.0
6.2
31.2
311.9
5.2
317.1
The Group’s banking facilities comprise a term loan of £125m (31 December 2018: £150m) and a multi-currency
revolving credit facility of £350m (31 December 2018: £350m). Interest was paid on the facilities during the
period at a margin of between 1.60 per cent and 2.05 per cent above LIBOR or EURIBOR according to the
currency of borrowings. The facility is secured by a floating charge over the assets of the Company and its
subsidiary undertakings. The term loan is repayable in three further annual instalments up to April 2022.
The revolving credit facility is repayable in April 2022.
On 8 January 2020 the Group exercised an £80m accordion option on the facilities following the announcement of
the conditional agreement to acquire certain assets and operations of CEMEX in the UK (note 29).
115
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 INTEREST-BEARING LOANS AND BORROWINGS CONTINUED
Reconciliation of cash flow movement to movement in net debt
For the year ended 31 December
Net (decrease)/increase in cash and cash equivalents
Net cash flow from movements in debt financing
Recognised on adoption of IFRS 16
Lease additions and disposals
Movement on bank arrangement fees
Debt acquired via acquisitions (note 26)
Foreign exchange differences
Movement in net debt in the year
Net debt as at 1 January
Net debt as at 31 December
16 TRADE AND OTHER PAYABLES
Trade payables
Contract liabilities
Derivative liabilities
Deferred consideration
Other payables and accrued expenses
Other taxation and social security costs
2019
£m
2018
£m
(12.7)
82.1
(47.0)
(2.3)
(1.2)
(0.4)
1.9
20.4
(310.7)
(290.3)
2019
£m
91.7
3.8
1.5
4.2
56.2
20.5
177.9
13.0
(156.2)
–
–
(1.0)
(55.0)
(1.7)
(200.9)
(109.8)
(310.7)
2018
£m
97.2
3.2
–
–
56.4
20.7
177.5
116
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 17 PROVISIONS
At 1 January 2018
Translation adjustment
Amounts arising from business combinations (note 26)
Utilised during the year
Charged to income statement
Unused amounts reversed
Unwinding of discount
At 31 December 2018
Translation adjustment
Reclassified to lease liabilities on adoption of IFRS 16
Utilised during the year
Charged to income statement
Unused amounts reversed*
Unwinding of discount
At 31 December 2019
* Unused amounts reversed includes £2.7m in relation to changes made to capitalised restoration provisions (note 8).
Analysed as
Current
Non-current
Restoration
£m
25.7
0.1
7.9
(0.4)
0.7
(0.4)
1.5
35.1
(0.2)
–
(0.7)
0.4
(3.6)
1.7
32.7
Other
£m
3.0
–
1.2
(0.9)
–
–
0.1
3.4
–
(0.9)
(0.5)
–
(0.1)
0.1
2.0
2019
£m
2.5
32.2
34.7
Total
£m
28.7
0.1
9.1
(1.3)
0.7
(0.4)
1.6
38.5
(0.2)
(0.9)
(1.2)
0.4
(3.7)
1.8
34.7
2018
£m
2.3
36.2
38.5
Restoration provisions principally comprise provisions for the cost of restoring and decommissioning sites where
an obligation arises to comply with contractual, environmental, planning and other legislation. The obligation is
calculated on a site-by-site basis and is regularly reviewed to ensure it is adequate. The obligation has been
discounted to reflect the period over which it will be settled.
Other provisions primarily comprise provisions for dilapidations.
117
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18 CAPITAL AND RESERVES
Stated capital
Issued ordinary shares at beginning of year
Issued in connection with:
Acquisition of Lagan
Exercise of savings-related share options
Vesting of Performance Share Plan awards
Number of ordinary shares (m)
2019
1,679.2
–
2.1
1.6
1,682.9
2018
1,446.6
227.8
1.8
3.0
1,679.2
The Company has no limit to the number of shares which may be issued. The ordinary shares have no par value.
All issued shares are fully paid.
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.
Movements during 2019:
During 2019, the Company issued 2,104,951 ordinary shares of no par value raising £1.0m in connection with the
exercise of certain savings-related share options.
On 2 April 2019 and 8 April 2019, the Company issued 1,602,024 ordinary shares of no par value raising £Nil in
connection with the vesting of awards under the Performance Share Plans (note 19).
Movements during 2018:
The Company issued 222,222,222 ordinary shares of no par value raising £170.0m on 19 April 2018, and on
14 May 2018 issued 5,542,967 ordinary shares of no par value raising £4.2m in connection with the acquisition of
Lagan and the associated open offer.
During 2018, the Company issued 1,839,813 ordinary shares of no par value raising £0.8m in connection with the
exercise of certain savings-related share options.
On 25 April 2018, the Company issued 2,973,726 ordinary shares of no par value raising £Nil in connection with
the vesting of awards under the Performance Share Plans (note 19).
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow
hedged instruments related to hedged transactions which have not yet occurred.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the Financial
Statements of foreign operations as well as from the translation of the liabilities that hedge the Group’s net
investment in foreign operations.
118
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 19 EMPLOYEE BENEFITS
Pension plans
Various defined contribution pension schemes operate within the Group. These are accounted for on a
contribution payable basis. The total cost charged to the income statement in respect of defined contribution
pension schemes was £5.0m (2018: £4.0m). Contributions outstanding at 31 December 2019 amounted to £0.7m
(2018: £0.7m) and are included in payables.
Share-based payments
An element of senior executive remuneration is provided in the form of Performance Share Plan awards.
More details of these options and awards can be found in the Directors’ Remuneration report (pages 74 to 60).
Employees are also invited to participate in the Breedon Sharesave scheme. The interests of the directors in
both the Performance Share Plans and Breedon Sharesave scheme are disclosed in the Directors’ Report
(pages 79 and 80).
Performance Share Plan
On 23 May 2011, the Group adopted the Breedon Aggregates Performance Share Plan (the PSP) as a means of
attracting, rewarding, motivating and retaining certain key senior employees. Under the PSP, awards may be
granted as conditional shares or as nil paid (or nominal) cost options. Awards will normally vest three years after
grant subject to satisfaction of the relevant performance condition.
Movements in the number of outstanding conditional awards of ordinary shares during the year were as follows:
Date of Grant
April 2016
April 2017
April 2017
April 2017
April 2018
April 2019
Fair Value in
pence
Consideration
payable on
vesting
71.8
75.3
75.3
75.3
84.1
69.2
–
–
–
–
–
–
Vesting period
Outstanding at
1 Jan 2019
2016 to 2019
1,885,896
2017 to 2020
2,107,790
2017 to 2019
2017 to 2020
603,516
266,376
2018 to 2021
3,396,346
2019 to 2022
–
4,509,100
Granted
Vested
Lapsed
Outstanding at
31 Dec 2019
–
–
–
–
–
(1,573,783)
(312,113)
–
–
(603,516)
–
–
2,107,790
–
–
–
–
(44,084)
222,292
–
3,396,346
(66,606)
4,442,494
The weighted average consideration payable upon vesting in respect of the conditional awards outstanding at
31 December 2019, and movements in conditional awards during the period was 0.0p (2018: 0.0p).
The awards were valued using the Black-Scholes valuation model with key inputs as follows:
8,259,924
4,509,100
(2,177,299)
(422,803) 10,168,922
Date of grant
Share price at date of grant
Total awards at date of grant
Expected volatility
Risk-free rate
Expected term
Expected dividend yield
April 2016
April 2017
April 2018
April 2019
71.8p
75.3p
84.1p
69.2p
2,006,023
3,649,414
3,396346
4,509,100
24%
0.59%
24%
0.10%
22%
0.85%
3 years
1-3 years
3 years
0%
0%
0%
24%
0.80%
3 years
0%
119
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
19 EMPLOYEE BENEFITS CONTINUED
Non-Employee Performance Share Plan
On 3 March 2014, the Group adopted the Breedon Aggregates Non-Employee Performance Share Plan (the
NEPSP) as a means of attracting, rewarding, motivating and retaining certain key persons who provide services to
the Company, either as an individual or through a personal service company, and who are not otherwise an
employee of any Group company. Under the NEPSP, awards may be granted as conditional shares or as nil paid
(or nominal) cost options. Awards are subject to satisfaction of the relevant performance condition.
Movements in the number of outstanding share options are as follows:
Date of Grant
April 2016
April 2017
April 2018
April 2019
Fair Value
in pence
Exercise price
in pence
Vesting
period
Outstanding at
1 Jan 2019
Granted
Exercised
Lapsed
Outstanding at
31 Dec 2019
70.8
74.3
83.1
68.2
1.0
1.0
1.0
1.0
2016 to 2019
2017 to 2020
2018 to 2021
2019 to 2022
531,914
529,801
802,615
–
–
–
–
1,014,479
(443,883)
(88,031)
–
–
–
–
(156,136)
373,665
(510,422)
292,193
(971,900)
42,579
1,864,330
1,014,479
(443,883) (1,726,489)
708,437
The weighted average exercise price of share options outstanding at 31 December 2019, and movements in share
options during the period was 1.0p (2018: 1.0p).
The options were valued using the Black-Scholes valuation model with key inputs as follows:
Date of grant
Share price at date of grant
Total options at date of grant
Expected volatility
Risk-free rate
Expected term
Expected dividend yield
April 2016
April 2017
April 2018
April 2019
71.8p
75.3p
84.1p
69.2p
531,914
529,801
802,615
1,014,479
24%
0.59%
24%
0.10%
22%
0.85%
3 years
3 years
3 years
0%
0%
0%
24%
0.80%
3 years
0%
Sharesave Schemes
During the year, the Group operated savings-related share option schemes open to all employees both in the UK
and RoI (the Breedon Sharesave Schemes). No invitations were made to the RoI Scheme in 2019. The number and
weighted average exercise prices of options granted under the Breedon Sharesave Schemes are as follows:
UK Sharesave Scheme
Date of Grant
5 year option granted 2014
5 year option granted 2015
3 year option granted 2016
5 year option granted 2016
3 year option granted 2017
5 year option granted 2017
3 year option granted 2018
5 year option granted 2018
3 year option granted 2019
5 year option granted 2019
Fair Value
in pence
Exercise price
in pence
Outstanding at
1 Jan 2019
Granted
Exercised
Lapsed
Outstanding at
31 Dec 2019
16.7
14.8
18.8
25.9
16.4
23.5
20.5
29.1
16.0
22.0
37.8
39.0
59.9
54.8
69.8
63.8
72.6
66.4
60.1
55.0
1,165,374
1,478,719
1,052,402
1,276,578
2,204,959
4,056,619
1,690,544
3,306,497
–
–
–
–
–
–
–
–
(1,132,306)
(17,195)
15,873
(18,717)
(120,508)
1,339,494
(921,542)
(115,845)
15,015
(23,356)
(162,220)
1,091,002
–
(526,039)
1,678,920
(3,291)
(792,757)
3,260,571
–
(561,780)
1,128,764
(3,012)
(802,809)
2,500,676
–
–
2,038,260
2,954,089
–
(230,972)
1,807,288
(2,727)
(402,208)
2,549,154
16,231,692
4,992,349
(2,104,951) (3,732,333) 15,386,757
120
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 19 EMPLOYEE BENEFITS CONTINUED
Sharesave Schemes CONTINUED
UK Sharesave Scheme CONTINUED
The weighted average exercise price of share options outstanding at 31 December 2019 was 60.8p (2018: 61.0p).
The weighted average exercise prices of share options granted, exercised and lapsed in the year to 31 December
2019 were 57.1p, 47.8p and 63.9p, respectively (2018: 68.6p, 37.3p and 63.3p, respectively).
The fair value of services received in return for share options granted is measured based on a Black-Scholes
valuation model using the following assumptions in respect of options granted in the current and prior year:
Share price at date of grant
Total options at date of grant
Expected volatility
Risk-free rate
Option life
Expected dividend yield
RoI Sharesave Scheme
3 year options
Granted 2018
5 year options
Granted 2018
3 year options
Granted 2019
5 year options
Granted 2019
84.0p
84.0p
67.7p
67.7p
1,904,148
3,513,419
2,038,260
2,954,089
22.1%
0.92%
24.0%
1.18%
23.9%
0.66%
23.9%
0.76%
3 years
5 years
3 years
5 years
0%
0%
0%
0%
Date of Grant
Fair Value
in pence
Exercise price
in pence
Outstanding at
1 Jan 2019
Granted
Exercised
Lapsed
Outstanding at
31 Dec 2019
3 year option granted 2018
5 year option granted 2018
16.2
23.5
64.9
59.4
226,729
1,080,522
1,307,251
–
–
–
–
–
–
(5,351)
221,378
(303,468)
777,054
(308,819)
998,432
The weighted average exercise price of share options outstanding at 31 December 2019 was 60.6p (2018: 60.4p).
The weighted average exercise prices of share options granted and lapsed in the year to 31 December 2019 were
nil and 59.5p respectively (2018: 60.3p and 59.4p respectively).
The fair value of services received in return for share options granted is measured based on a Black-Scholes
valuation model using the following assumptions in respect of options granted in the current year:
Share price at date of grant
Total options at date of grant
Expected volatility
Risk-free rate
Option life
Expected dividend yield
3 year options
Granted 2018
5 year options
Granted 2018
74.2p
74.2p
226,729
1,107,103
22.1%
0.92%
24.0%
1.18%
3 years
5 years
0%
0%
121
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20 FINANCIAL INSTRUMENTS
The Group has exposure to the following risks from its use of financial instruments:
• Credit risk
• Foreign exchange risk
• Liquidity risk
• Interest rate risk
This note presents information about the Group’s exposure to each of the above risks and the Group’s objectives,
policies and processes for measuring and managing these risks.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group,
through its training and management standards and procedures, aims to develop a disciplined and constructive
control environment in which all employees understand their role and obligations.
Treasury activities are managed on a Group basis under policies and procedures approved and monitored by the
Board. These are designed to reduce the financial risks faced by the Group. Where appropriate, the Group uses
financial instruments to manage these risks. No speculative use of derivatives, currency or other instruments
is permitted.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises from cash and cash equivalents, derivative financial instruments and,
principally, from the Group’s receivables from customers.
Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. The Group
has credit insurance covering the majority of its private sector customers. At the reporting date, there were no
significant concentrations of credit risk.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date was:
Trade and other receivables
Cash and cash equivalents
Carrying amount
2019
£m
164.7
23.8
188.5
2018
£m
160.8
37.6
198.4
Credit risk associated with cash balances is managed by transacting with financial institutions with high-quality
credit ratings. Accordingly, the Group’s associated credit risk is limited.
The maximum exposure to credit risk for trade receivables, contract assets, and amounts due from associate and
joint ventures at the reporting date, by reportable segment, was:
Great Britain
Ireland
Cement
This note has been restated to include amounts due from associate and joint ventures.
Carrying amount
2019
£m
2018 (restated)
£m
98.5
33.3
19.0
150.8
96.7
30.3
18.8
145.8
122
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 20 FINANCIAL INSTRUMENTS CONTINUED
Exposure to credit risk CONTINUED
Management considers that the credit quality of the various receivables is good in respect of the amounts
outstanding. The Group has no individually significant customers. The majority of the Group’s customers are
end-user customers. The Group’s credit insurance covers the majority of its private sector UK and Ireland trade
receivables subject to an aggregate first loss. The Group has fully provided for all its doubtful debt exposure.
The remaining credit risk is therefore considered to be low. The ageing of trade receivables, contract assets and
amounts due from associate and joint ventures at the reporting date was:
Not past due
Past due 0-30 days
Past due 31-60 days
Past due more than 60 days
2019
Gross
£m
Impairment
£m
129.9
16.3
5.5
5.1
156.8
(0.9)
(0.6)
(0.5)
(4.0)
(6.0)
Net
£m
129.0
15.7
5.0
1.1
150.8
2018 (restated)
Gross
£m
Impairment
£m
127.2
11.5
6.3
5.7
150.7
(1.4)
(0.6)
(0.2)
(2.7)
(4.9)
Net
£m
125.8
10.9
6.1
3.0
145.8
This note has been restated to include amounts due from associate and joint ventures.
Provisions for impairment of trade receivables are calculated on an ‘expected loss’ model in line with IFRS 9.
Movements during the year were as follows:
At 1 January
Amounts arising from business combinations (note 26)
Charged to the Consolidated Income Statement during the year
Utilised during the year
Unused amounts released
At 31 December
Foreign exchange risk
2019
£m
4.9
0.1
2.0
(0.8)
(0.2)
6.0
2018
£m
2.4
2.8
1.0
(0.9)
(0.4)
4.9
Transactional
The Group has limited transactional currency exposures arising on sales and purchases made in currencies other
than the functional currency of the entity making the sale or purchase. Significant exposures which are deemed at
least highly probable are matched where possible, but the remaining transactional risk is not generally mitigated.
Translation
The Group has significant net assets located in RoI which are denominated in Euro. The translation of these
balances into Sterling for reporting purposes exposes the Group to foreign exchange movements in the
Consolidated Statement of Financial Position and Consolidated Income Statement, along with a corresponding
impact on certain key performance indicators. The Group’s strategy is to mitigate this risk through utilising its
Euro borrowings, which form part of its multi-currency revolving facility, as a hedge against movements in the
Sterling value of its Euro investments. The level of this hedge is currently managed with the objective of
mitigating the impact of foreign exchange movements on Leverage.
The carrying amount of the Group’s interest-bearing borrowings denominated in foreign currency is as follows.
Sterling
Euro
2019
£m
275.1
39.0
314.1
2018
£m
280.2
68.1
348.3
123
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20 FINANCIAL INSTRUMENTS CONTINUED
Significant exchange rates
The following significant exchange rates applied during the year:
Sterling/Euro
2019
2018
Average rate
Year-end rate
Average rate
Year-end rate
1.14
1.18
1.13
1.11
Exchange rate sensitivity
A 10 per cent strengthening of Sterling against the following currencies would have decreased equity and profit
before tax by the amounts shown below. This analysis assumes that all other variables, including interest rates,
remain constant:
Euro
2019
Profit
£m
2.0
Equity
£m
29.2
2018
Profit
£m
1.6
Equity
£m
21.1
Liquidity risk
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they
fall due. The Group manages liquidity risk by continuously monitoring forecasts and cash flows and negotiating
appropriate bank facilities. The Group uses term and revolving bank facilities and sufficient headroom is
maintained above peak requirements to meet unforeseen events.
The following are the contractual maturities of financial liabilities, including estimated interest payments based on
current utilisation:
31 December 2019
Non–derivative financial liabilities
Multi–currency revolving credit facility
– Sterling
– Euro
Term loan
– Sterling
Prepaid bank arrangement fees
Lease liabilities
Other financial liabilities
31 December 2018
Non–derivative financial liabilities
Multi–currency revolving credit facility
– Sterling
– Euro
Term loan
– Sterling
Prepaid bank arrangement fees
Lease liabilities
Other financial liabilities
Carrying
amount
£m
Contractual
cash flows
£m
Within
one year
£m
Two to
five years
£m
More than
five years
£m
105.0
38.3
125.0
(2.7)
48.5
185.5
499.6
110.8
39.7
129.2
–
69.4
185.6
534.7
2.5
0.6
37.4
–
10.7
183.5
234.7
108.3
39.1
91.8
–
21.2
2.1
262.5
–
–
–
–
37.5
–
37.5
Carrying
amount
£m
Contractual
cash flows
£m
Within
one year
£m
Two to
five years
£m
More than
five years
£m
125.0
65.8
150.0
(3.9)
11.4
184.8
533.1
135.6
69.7
158.4
–
11.9
184.8
560.4
3.2
1.2
28.4
–
6.6
184.8
224.2
132.4
68.5
130.0
–
5.1
–
336.0
–
–
–
–
0.2
–
0.2
The capital element of the multi-currency revolving credit facility is repayable in April 2022.
The term loan is repayable in annual instalments between April 2020 and April 2022.
124
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 20 FINANCIAL INSTRUMENTS CONTINUED
Interest rate risk
The Group currently borrows at floating and fixed interest rates. The Group uses interest rate caps to manage its
exposure to changes in floating interest rates. The Group has an interest rate cap covering £150m (2018: £150m)
of debt which caps interest rates (excluding margins) at 3.0 per cent (2018: 3.0 per cent). The Group classifies
interest rate caps as cash flow hedges and states them at fair value. The fair value of the cap at 31 December
2019 was £Nil (2018: £Nil).
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Fixed rate instruments
Financial liabilities
Variable rate instruments
Financial liabilities*
Financial assets
2019
£m
2018
£m
(48.5)
(11.4)
(265.6)
23.8
(290.3)
(336.9)
37.6
(310.7)
* Variable rate financial liabilities include £150m (2018: £150m) of debt subject to an interest rate cap (see above).
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss.
Therefore a change in interest rates at the reporting date would not affect profit or loss.
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates in respect of variable rate instruments at reporting date values
would decrease equity and income and expenditure for a full year by £2.4m (2018: £3.0m). A decrease of 100
basis points would have increased equity and income and expenditure on the same basis by £2.4m (2018: £3.0m).
These analyses assume that all other variables remain constant.
Fair values versus carrying amounts
The directors consider that the carrying amounts recorded in the financial information in respect of financial
assets and liabilities, which are carried at amortised cost, approximates to their fair values.
Derivative financial assets and liabilities are carried at fair value. The different levels have been defined as follows:
• Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities
• Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either as a direct price or indirectly derived from prices
• Level 3 – inputs for the asset or liability that are not based on observable market data
The fair value of the derivative financial assets and liabilities are based on bank valuations.
Capital management
The Board’s policy is to maintain a strong balance sheet, providing flexibility to pursue growth opportunities.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of
borrowing and the advantages and security afforded by a sound capital position. The financial covenants
associated with the Group’s borrowings are a maximum Leverage ratio and a minimum interest cover.
The Group complied with its covenants at 31 December 2019 and 31 December 2018.
Historically, the main focus of the Group has been on delivering capital growth for shareholders, but recognising
the Group’s scale, level of maturity and cash generation, the directors propose to adopt a progressive dividend
policy from 2021. The directors intend to target a level of distribution, as a percentage of Underlying basic EPS,
that will move the pay-out ratio into line with Breedon’s peers over a three-year period.
125
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 LEASES
Lease liabilities are secured on the assets to which they relate and are payable as follows:
Less than one year
Between one and five years
More than five years
2019 (IFRS 16)
2018 (IAS 17)
Minimum
lease
payments
£m
10.7
21.2
37.5
69.4
Interest
£m
Principal
£m
1.8
5.9
13.2
20.9
8.9
15.3
24.3
48.5
Minimum
lease
payments
£m
6.5
5.2
0.2
11.9
Interest
£m
Principal
£m
0.3
0.2
–
0.5
6.2
5.0
0.2
11.4
The value of lease payments made during the year was £15.5m (2018: £7.8m in respect of finance lease liabilities,
and £10.1m in respect of operating leases).
22 CAPITAL COMMITMENTS
At 31 December 2019, the Group had commitments to purchase property, plant and equipment for
£10.0m (2018: £4.6m). These commitments are expected to be settled in the following financial year.
23 RELATED PARTIES
During the year, the Group supplied services and materials to, and purchased services and materials from,
its associate and joint ventures on an arm’s length basis. It had the following transactions with these related
parties during the year:
2019
BEAR Scotland Limited
Other
2018
BEAR Scotland Limited
Other
Sales
£m
Purchases
£m
Receivables
£m
Payables
£m
33.7
3.2
36.9
29.8
4.8
34.6
–
1.1
1.1
0.4
0.6
1.0
3.7
5.0
8.7
3.2
0.6
3.8
–
–
–
–
–
–
During the year, the Group also supplied services to, and purchased services from its 75 per cent owned
subsidiary undertaking on an arm’s length basis. It had the following transactions with this related party during
the year which have been fully eliminated on consolidation.
2019
Alba Traffic Management Limited
2018
Alba Traffic Management Limited
Sales
£m
Purchases
£m
Receivables
£m
Payables
£m
1.0
1.4
0.1
0.2
0.1
–
–
–
126
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 23 RELATED PARTIES CONTINUED
Parent and ultimate controlling party
The Company is listed on AIM and monitors its shareholder base on a regular basis. There is no controlling party.
Transactions with directors and directors’ shareholdings
Details of transactions with directors, directors’ shareholdings and outstanding share options and awards are
given in the Directors’ Remuneration report and the Directors’ Report on pages 69 to 76 and 79 to 81 respectively.
24 EARNINGS PER SHARE
2019
2018
Weighted
average number
of shares
(millions)
Earnings
£m
Per share
amount
(pence)
Weighted
average number
of shares
(millions)
Earnings
£m
Per share
amount
(pence)
Statutory
Basic earnings per ordinary share
Total earnings attributable to ordinary
shareholders
Effect of dilutive items
Share-based payments
Underlying*
Basic earnings per ordinary share
Underlying earnings attributable to
ordinary shareholders
Effect of dilutive items
Share-based payments
77.9
1,681.584
4.64
64.5
1,609.183
4.01
Diluted earnings per ordinary share
77.9
1,684.825
–
3.241
(0.01)
4.63
–
5.526
64.5
1,614.709
(0.02)
3.99
85.2
1,681.584
5.08
75.7
1,609.183
4.70
Diluted earnings per ordinary share
85.2
1,684.825
–
3.241
(0.01)
5.07
–
5.526
75.7
1,614.709
(0.02)
4.68
* Non-underlying items represent acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related
tax items.
Details of the Group’s share schemes, which may become dilutive in the future, are set out in note 19.
25 CONTINGENT LIABILITIES
The Group has guaranteed its share of the banking facilities of BEAR Scotland, the Company’s associated
undertaking. The maximum liability at 31 December 2019 amounted to £1.8m (2018: £1.8m).
The Group has also guaranteed the performance of BEAR Scotland’s contracts in respect of the maintenance of
trunk roads in the North West and North East of Scotland and in respect of the M80 Operating and
Maintenance contract.
127
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26 ACQUISITIONS
Current year acquisition
On 1 October 2019, the Group completed the acquisition of Roadway.
The fair value of the consideration paid and the consolidated net assets acquired, together with the goodwill
arising in respect of this acquisition was as follows:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Trade and other payables
Interest-bearing loans and borrowings
Deferred tax liabilities
Total
Consideration – cash
Consideration – deferred consideration
Goodwill arising
Book value
£m
Fair value
adjustments
£m
Fair value on
acquisition
£m
–
1.5
0.1
1.5
4.4
(1.7)
–
(0.3)
5.5
4.9
2.1
–
–
–
–
(0.4)
(1.2)
5.4
4.9
3.6
0.1
1.5
4.4
(1.7)
(0.4)
(1.5)
10.9
13.3
4.2
6.6
The fair value adjustments primarily comprised adjustments to:
• recognise £4.9m of acquired customer-related intangible assets;
• revalue certain items of property, plant and equipment;
• recognition of right-of-use assets and lease liabilities in line with IFRS 16 - Leases; and
• deferred tax balances.
The goodwill arising represents anticipated synergies, the potential for future growth, the strategic geographic
location of the assets acquired and the skills of the existing workforce.
Impact of current year acquisition
Income statement
During the year, this acquisition contributed revenues of £1.6m and Underlying EBIT of £0.1m to the Group.
If this acquisition had occurred on 1 January 2019, the results of the Group for the year ended 31 December 2019
would have shown revenue of £933.1m and Underlying EBIT of £117.7m.
Cash flow
The cash flow effect of this acquisition can be summarised as follows:
Consideration paid
Cash acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
£m
13.3
(4.4)
8.9
Acquisition costs
The Group incurred acquisition related costs of £3.3m (2018: £6.4m) in the year relating principally to external
professional fees and due diligence costs in relation to the current year acquisition of Roadway, the investment in
Capital Concrete (note 11), and anticipated acquisition of certain CEMEX assets and operations (note 29).
These have been included as non-underlying administrative costs (note 3).
128
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 26 ACQUISITIONS CONTINUED
Prior year acquisitions
In 2018 the Group completed the following acquisitions and asset swaps which were accounted for as
business combinations:
• Acquisition of Staffs Concrete (3 April 2018)
• Acquisition of Lagan (20 April 2018)
• Acquisition of Blinkbonny (1 June 2018)
• Asset swap with Tarmac (1 July 2018)
No adjustments have been made in respect of these acquisitions within the measurement period, and the
provisional fair values reported in the prior year are now considered final.
Lagan
The fair value of the consideration paid and the consolidated net assets acquired, together with the goodwill
arising in respect of this acquisition were as follows:
Intangible assets
Share of joint ventures
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Trade and other payables
Interest-bearing loans and borrowings
Provisions
Deferred tax liabilities
Total
Consideration – cash
Consideration – deemed proceeds from stepped acquisition of
Breedon Whitemountain Ltd
Goodwill arising
Book value
£m
Fair value
adjustments
£m
Fair value on
acquisition
£m
13.5
0.2
115.0
20.7
59.8
18.8
(55.6)
(54.9)
(2.3)
(2.2)
113.0
42.6
0.7
59.5
0.8
(0.3)
–
(0.5)
–
(5.9)
(16.3)
80.6
56.1
0.9
174.5
21.5
59.5
18.8
(56.1)
(54.9)
(8.2)
(18.5)
193.6
413.7
2.3
222.4
The fair value adjustments primarily comprised adjustments to:
• eliminate the £13.5m of pre-existing goodwill which comprised the book values of intangible assets in the
opening balance sheet;
• recognise intangible assets, including the value of acquired customer-related intangibles, brand, permits and
emissions assets;
• revalue certain items of property, plant and equipment, including the Lagan cement plant at Kinnegad and the
acquired mineral reserves and resources to reflect the fair value at date of acquisition;
• working capital accounts to reflect fair value;
• restoration provisions to reflect costs to comply with environmental, planning and other legislation; and
• deferred tax balances.
The goodwill arising represents anticipated synergies, the potential for future growth, the strategic geographic
location of the assets acquired and the skills of the existing workforce and management team.
129
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26 ACQUISITIONS CONTINUED
Prior year acquisitions CONTINUED
Other prior year acquisitions
The directors consider the acquisitions made in the previous year – excluding Lagan – to be individually
immaterial, but material in aggregate. The combined fair value of the consideration paid and the consolidated net
assets acquired, together with the goodwill arising in respect of these acquisitions were as follows:
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Trade and other payables
Interest-bearing loans and borrowings
Provisions
Deferred tax liabilities
Total
Consideration – cash
Consideration – fair value of assets and liabilities transferred to Tarmac
Goodwill arising
Book value
£m
Fair value
adjustments
£m
Fair value on
acquisition
£m
19.6
1.0
1.1
1.1
(0.7)
(0.1)
(0.8)
(1.6)
19.6
1.8
0.1
–
–
–
–
(0.1)
(0.3)
1.5
21.4
1.1
1.1
1.1
(0.7)
(0.1)
(0.9)
(1.9)
21.1
12.5
10.4
1.8
The fair value adjustments primarily comprised adjustments to:
• revalue certain items of property, plant and equipment – mineral reserves and resources – to reflect fair value at
the point of acquisition;
• working capital accounts to reflect fair value;
• restoration provisions to reflect costs to comply with environmental, planning and other legislation; and
• deferred tax balances.
The goodwill arising represents anticipated synergies, the potential for future growth, the strategic geographic
location of the assets acquired and the skills of the existing workforce.
The value of assets and liabilities transferred to Tarmac by way of consideration comprised the following items:
Goodwill
Property, plant and equipment
Total
Book value
£m
Fair value
adjustments
£m
Fair value on
disposal
£m
7.9
2.5
10.4
–
–
–
7.9
2.5
10.4
130
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 27 ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial information requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amounts recognised in the financial information
are described below:
Accounting estimates
Discount rate used in calculating right-of-use assets and lease liabilities
Right-of-use assets and lease liabilities arise where the Group enters into an arrangement which meets the
definition of a lease set out in IFRS 16 – Leases.
These are calculated by discounting any future lease payments at the ‘incremental borrowing rate’, being the rate
of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of use asset in a similar economic environment.
As permitted by the Standard, the Group applies a single discount rate to portfolios of leases which have similar
characteristics. Judgement is required in identifying which leases have similar characteristics, and therefore how
many discount rates the Group is required to calculate.
Additionally, although the Group seeks to reduce estimation risk through the use of available external market data
to calculate appropriate incremental borrowing rates, the calculation is still subject to a level of estimation.
The rates used on 1 January as part of the initial application of IFRS 16 – Leases range from 4.4 per cent to
6.5 per cent dependent on the nature of the asset and length of the lease.
A 1.0 per cent increase or decrease in the discount rates applied on 1 January would result in a decrease of
£2.8m or an increase of £3.2m respectively to the right-of-use assets and liabilities recognised, and a decrease of
£0.1m or an increase of £0.1m respectively to profit before taxation for the year ended 31 December 2019.
Restoration provisions
Restoration provisions principally comprise provisions for the cost of restoring and decommissioning sites where
an obligation arises to comply with contractual, environmental, planning and other legislation. This is an
inherently subjective calculation.
Estimated future cash flows have been determined on a site by site basis based on the present day cost of
restoration. There is significant estimation required to determine the exact cost of the restoration work.
An increase in these gross cash flow assumptions of 10 per cent would result in an increase of the restoration
liability of £3.5m. These cash flows are subject to expert evaluation in order to mitigate the risk of material error.
These cash flows are then inflated to the point that the cash flow is expected to occur and discounted at a rate
which reflects both the time value of money and the risk specific to the restoration liability in order to derive the
net present value of the obligation as at the year-end. Restoration dates have been determined as the earlier of
the date at which reserves are expected to be exhausted or planning permission on reserves is expected to expire,
which fall over the next 25 years. Reasonably possible changes in assumptions around these estimates would not
have a material impact on the Financial Statements, and management do not consider these to be
significant estimates.
131
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 ACCOUNTING ESTIMATES AND JUDGEMENTS CONTINUED
Accounting judgements
Mineral reserves and resources
Mineral reserves and resources are the principal asset available to the Group. As at 31 December 2019,
these had a carrying value of £199.7m. These mineral assets of the Group are spread over around 80 quarries,
which equates to an average value of £2.5m per quarry (2018: £199.6m spread over around 80 quarries).
Mineral reserves and resources are acquired either in the normal course of business or through business
combinations. Those which are acquired in the normal course of business are held at historic cost on initial
recognition. When mineral assets arise through business combinations, these are initially recognised at fair value
as part of the acquisition accounting under IFRS 3.
Subsequent to initial recognition, mineral assets are held at amortised cost and are expensed to reflect their use
over time through an annual depletion charge. Mineral assets are subject to impairment testing if impairment
triggers are identified, which include elements outside of the Group’s control. This includes a range of factors
outside of the Group’s control such as changes in the planning and regulatory environment, geological and
archaeological factors.
The identification of impairment triggers therefore requires the Group to exercise judgement. The most significant
area of judgement is in respect of the likelihood of obtaining planning permission for those quarries where the
existing permission is due to expire before all of the reserves and resources which have been recognised on
balance sheet have been extracted.
28 RECONCILIATION TO NON-GAAP MEASURES
A number of non-GAAP performance measures are used throughout this Annual Report and these 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
2019
Profit from operations
Non-underlying items (note 3)
Underlying EBIT
Underlying EBIT margin*
Underlying EBIT
Share of profit of associate and joint
ventures
Depreciation and depletion
Underlying EBITDA
2018
Profit from operations
Non-underlying items (note 3)
Underlying EBIT
Underlying EBIT margin*
Underlying EBIT
Share of profit of associate and joint
ventures
Depreciation and depletion
Underlying EBITDA
Great Britain
£m
Ireland
£m
Cement
£m
Central
administration
and eliminations
£m
Share of profit
of associate and
joint ventures
£m
62.8
10.2%
62.8
–
35.6
98.4
26.8
13.3%
26.8
–
7.0
33.8
36.3
19.5%
36.3
–
22.5
58.8
(10.9)
(10.9)
–
0.1
(10.8)
1.6
1.6
(1.6)
–
–
Great Britain
£m
Ireland
£m
Cement
£m
Central
administration
and eliminations
£m
Share of profit
of associate and
joint ventures
£m
61.4
10.1%
61.4
–
30.8
92.2
20.9
13.4%
20.9
–
4.5
25.4
31.4
17.8%
31.4
–
17.2
48.6
(11.9)
(11.9)
–
0.1
(11.8)
1.7
1.7
(1.7)
–
–
Total
£m
108.6
8.0
116.6
12.5%
116.6
(1.6)
65.2
180.2
Total
£m
91.7
11.8
103.5
12.0%
103.5
(1.7)
52.6
154.4
* Underlying EBIT margin is calculated as Underlying EBIT divided by revenue.
132
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 28 RECONCILIATION TO NON-GAAP MEASURES CONTINUED
Free cash flow
Underlying EBIT
Depreciation
(Increase)/decrease in trade and other receivables
Increase in inventories
Decrease in trade and other payables
Decrease in provisions
Share of profit of associate and joint ventures
Share-based payments
Dividends from associate and joint ventures
Dividend paid to non-controlling interests
Income taxes paid
Interest paid
Interest element of lease payments
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Free cash flow
Return on invested capital
Underlying EBIT
Underlying effective tax rate
Taxation at the Group’s underlying effective rate
Underlying earnings before interest
Net assets
Net debt (note 15)
Invested capital at 31 December
Average invested capital*
Return on invested capital**
2019
£m
116.6
65.2
(0.8)
(5.7)
(1.8)
(2.0)
(1.6)
1.6
0.8
(0.2)
(18.1)
(8.4)
(2.6)
(56.3)
3.3
90.0
2019
£m
116.6
16.9%
(19.7)
96.9
2018
£m
103.5
52.6
13.5
(0.6)
(0.2)
(1.3)
(1.7)
2.9
0.4
(0.1)
(16.5)
(8.9)
(0.4)
(48.6)
4.9
99.5
2018
£m
103.5
17.3%
(17.9)
85.6
839.1
290.3
1,129.4
1,106.7
8.8%
773.3
310.7
1,084.0
860.9
9.9%
* 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 2018 was £637.9m.
** Return on invested capital is calculated as Underlying earnings before interest, divided by average invested capital for the year.
133
BREEDONGROUP.COMFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
28 RECONCILIATION TO NON-GAAP MEASURES CONTINUED
Leverage
Underlying EBITDA
Net debt (note 15)
Leverage*
* Leverage is calculated as the ratio of Underlying EBITDA to net debt.
2019
£m
180.2
2018
£m
154.4
290.3
310.7
1.6x
2.0x
29 SUBSEQUENT EVENTS
On 8 January 2020 the Group entered into a conditional agreement with CEMEX to acquire certain assets and
operations in the UK for a total consideration of £178m on a cash and debt free basis. Completion of the
transaction is anticipated in the second quarter of 2020. The cash consideration is due on completion and will be
financed by the Group’s existing £350m revolving credit facility and a drawdown of £80m through exercise of an
accordion option.
134
FINANCIAL STATEMENTSBREEDON GROUP ANNUAL REPORT 2019 ADDITIONAL INFORMATION
SHAREHOLDER INFORMATION
REGISTRAR
All administrative enquiries relating to shareholdings, such as lost certificates, changes of address, change of
ownership or dividend payments and requests to receive corporate documents by email should, in the first
instance, be directed to the Company’s Registrar and clearly state the shareholder’s registered address and,
if available, the full shareholder reference number:
By post: Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
By telephone: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. If you
are outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged
at the applicable international rate. The helpline is open between 9.00am – 5.30pm, Monday to Friday excluding
public holidays in England and Wales.
By email: shareholderenquiries@linkgroup.co.uk
Online: www.linkassetservices.com
Registering on the Registrar’s share portal enables you to view your shareholding, including an indicative share
price and valuation, check your holding balance and transactions, change your address or bank details and view
dividend payments. To register for Signal Shares just visit www.signalshares.com. All you need is your investor
code, which can be found on your share certificate.
GROUP WEBSITE AND ELECTRONIC COMMUNICATIONS
The 2019 Annual Report and other information about the Company are available on its website. The Company
operates a service whereby you can register to receive notice by email of all announcements released by
the Company.
The Company’s share price (15 minutes delay) is displayed on the Company’s website.
Shareholder documents are now, following changes in company law and shareholder approval, primarily made
available via the Company’s website, unless a shareholder has requested to continue to receive hard copies of
such documents. If a shareholder has registered their up-to-date email address, an email will be sent to that
address when such documents are available on the website. If shareholders have not provided an up-to-date
email address and have not elected to receive documents in hard copy, a letter will be posted to their address
that is recorded on the Register of Members notifying them that the documents are available on the website.
Shareholders can continue to receive hard copies of shareholder documents by contacting the Registrar.
If you have not already registered your current email address, you can do so at www.signalshares.com.
Investors who hold their shares via an intermediary should contact the intermediary regarding the receipt of
shareholder documents from the Company.
The Group has a wide range of information that is available on our website including:
• finance information – annual reports and half year results, financial news and events;
• share price information;
• shareholder services information; and
• press releases – both current and historical.
MULTIPLE ACCOUNTS
Shareholders who receive more than one copy of communications from the Company may have more than one
account in their name on the Company’s Register of Members. Any shareholder wishing to amalgamate such
holdings should write to the Registrar giving details of the accounts concerned and instructions on how they
should be amalgamated.
135
ADDITIONAL INFORMATIONBREEDONGROUP.COM SHAREHOLDER INFORMATION CONTINUED
UNSOLICITED MAIL, INVESTMENT ADVICE AND FRAUD
The Company is obliged by law to make its share register publicly available and, as a consequence, some
shareholders may receive unsolicited mail. In addition, many companies have become aware that their
shareholders have received unsolicited phone calls or correspondence, typically from overseas ‘brokers’,
concerning investment matters.
These callers can be very persistent and extremely persuasive and their activities have resulted in considerable
losses for some investors. It is not just the novice investor that has been deceived in this way; many victims have
been successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice,
offers to buy shares at a discount or offers of free company reports.
Please keep in mind that firms authorised by the FCA are unlikely to contact you out of the blue with an offer to
buy or sell shares.
If you receive any unsolicited mail or investment advice:
• Make sure you get the correct name of the person and organisation.
• Check the Financial Services Register at www.fca.org.uk.
• Use the details on the Financial Services Register to contact the firm.
• Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told
they are out of date.
• Beware of fraudsters claiming to be from an authorised firm, copying its website or giving you false
contact details.
• Use the firm’s contact details listed on the Register if you want to call them back.
• Search the list of unauthorised firms and individuals to avoid doing business with at www.fca.org.uk/scams.
• Report a share scam by telling the FCA using the share fraud reporting form in the Consumers section of the
FCA website.
• If the unsolicited phone calls persist, hang up.
• If you wish to limit the number of unsolicited calls you receive, contact the Telephone Preference Service (TPS)
at www.tpsonline.org.uk and follow the link, or from your mobile phone register your mobile number, free of
charge, by texting “TPS” together with your email address to 85095.
• If you wish to limit the amount of unsolicited mail you receive, contact the Mailing Preference Service on
020 7291 3310 or visit the website at www.mpsonline.org.uk.
If you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services
Compensation Scheme. If you have already paid money to share fraudsters you should contact Action Fraud on
0300 123 2040.
SHARE DEALING SERVICES
You can buy shares through any authorised stockbroker or bank that offers a share dealing service in the UK,
or in your country of residence if outside the UK.
A simple and competitively priced service to buy and sell shares is provided by Link Asset Services.
There is no need to pre-register and there are no complicated application forms to fill in and by visiting
www.linksharedeal.com you can also access a wealth of stock market news and information free of charge.
For further information on this service, or to buy and sell shares visit www.linksharedeal.com or call
0371 664 0445. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at the applicable international rate. Lines are open between 8.00am – 4.30pm,
Monday to Friday excluding public holidays in England and Wales.
This is not a recommendation to buy and sell shares and this service may not be suitable for all shareholders.
The price of shares can go down as well as up and you are not guaranteed to get back the amount you originally
invested. Terms, conditions and risks apply. Link Asset Services is a trading name of Link Market Services Trustees
Limited which is authorised and regulated by the Financial Conduct Authority. This service is only available to
private shareholders resident in the European Economic Area, the Channel Islands or the Isle of Man.
Link Asset Services is a trading name of Link Market Services Limited and Link Market Services Trustees Limited.
Share registration and associated services are provided by Link Market Services Limited (registered in England
and Wales, No. 2605568). Regulated services are provided by Link Market Services Trustees Limited (registered in
England and Wales No. 2729260), which is authorised and regulated by the Financial Conduct Authority.
The registered office of each of these companies is The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU.
136
ADDITIONAL INFORMATIONBREEDON GROUP ANNUAL REPORT 2019 ELECTRONIC VOTING
Shareholders can submit proxies for the 2020 AGM electronically by logging on to www.signalshares.com.
Electronic proxy appointments must be received by the Company’s Registrar no later than 2.00pm on 19 April
2020 (or not less than 48 hours before the time fixed for any adjourned meeting).
Analysis of shareholdings at 31 December 2019
Up to 500
Up to 5,000
Up to 10,000
Up to 50,000
Up to 100,000
Up to 500,000
Up to 99,999,999,999
Number of
accounts
Percentage of
total accounts
Number of
shares
Percentage of
total shares
966
515
211
331
62
100
164
41.12
21.92
8.98
14.09
2.64
4.26
6.99
301,353
904,346
1,584,606
7,282,011
4,361,753
24,940,618
1,643,583,122
2,349
100.00
1,682,957,809
0.02
0.05
0.09
0.43
0.26
1.48
97.67
100.00
SHAREHOLDER COMMUNICATION
Email: shareholderenquiries@linkgroup.co.uk
Telephone: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. If you are
outside the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at
the applicable international rate. The helpline is open between 9.00am – 5.30pm, Monday to Friday excluding
public holidays in England and Wales.
137
ADDITIONAL INFORMATIONBREEDONGROUP.COM ADVISERS AND COMPANY INFORMATION
COMPANY INFORMATION
Registered in Jersey
Company number 98465
REGISTERED OFFICE
28 Esplanade
St Helier
Jersey
JE2 3QA
COMPANY SECRETARY
JTC (Jersey) Limited
28 Esplanade
St Helier
Jersey
JE2 3QA
INDEPENDENT AUDITOR
KPMG LLP
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
ADVISERS
Nominated adviser:
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London
EC2R 7AS
LEGAL ADVISER
Carey Olsen
47 Esplanade
St Helier
Jersey
JE1 0BD
CONTACT
If you require information
regarding Breedon Group,
please contact:
Breedon Group
Pinnacle House
Breedon on the Hill
Derby
DE73 8AP
Tel: 01332 694010
Fax: 01332 694445
E-mail: info@breedongroup.com
Website: www.breedongroup.com
138
ADDITIONAL INFORMATIONBREEDON GROUP ANNUAL REPORT 2019 GLOSSARY
The following definitions apply throughout this Annual Report, unless the context requires otherwise.
Adopted IFRS
International Financial Reporting
Standards as adopted by the EU
AGM
AIM
Annual General Meeting
Alternative Investment Market of
the London Stock Exchange
Alpha Resource
Management
Alpha Resource Management
Limited
BEAR Scotland
BEAR Scotland Limited
Blinkbonny
Blinkbonny Quarry (Borders) Limited
BMDP
Breedon Management Development
Programme
Breedon
Breedon Group plc
Breedon
Whitemountain
Breedon Whitemountain Ltd
Brett
Robert Brett & Sons Limited
Capital Concrete
Capital Concrete Limited
CDP
Commercial Development
Programme
CEMEX
CEMEX UK Operations Limited
CITB
CLP
CPA
Division
EBIT
EPS
ESG
Construction Industry Training Board
Commercial Leaders Programme
Construction Products Association
One of the Group’s three operating
segments: GB, Ireland and Cement
Earnings before interest and tax
Earnings per share
Environment, Sustainability &
Governance
ESOS
Energy Savings Opportunity Scheme
EURIBOR
Euro Inter-bank Offered Rate
FCA
FCF
FRC
GAAP
GB
GCCA
GHG
Financial Conduct Authority
Free Cash Flow
Financial Reporting Council
Generally Accepted Accounting
Principles
Great Britain
Global Cement and Concrete
Association
Greenhouse gas (emissions)
Group
HGV
HMRC
HS2
IAS
IDC
IFRS
IMF
Breedon and its subsidiary
companies
Heavy goods vehicle
Her Majesty’s Revenue & Customs
in the UK
High Speed 2
International Accounting Standards
International Data Corporation
International Financial Reporting
Standard
International Monetary Fund
Invested Capital
Net assets plus net debt
Ireland
The Island of Ireland
ISO
IT
KPI
Lagan
International Organization for
Standardisation
Information Technology
Key Performance Indicator
Refers to both Lagan Group
(Holdings) Limited and the
construction materials and
contracting services brand under
which Breedon trades in the Republic
of Ireland
Leverage
Net debt expressed as a multiple
of Underlying EBITDA
LIBOR
London Inter-bank Offered Rate
LGV
LSE
LTIFR
M&A
MPA
MWh
NI
NISO
NISG
PCA
PSV
QCA
R&D
Light goods vehicle
London Stock Exchange
Lost Time Injury Frequency Rate
Mergers & acquisitions
Mineral Products Association
Megawatt hour
Northern Ireland
National Irish Safety Organisation
Northern Ireland Safety Group
Privately-owned, dry powder
carrying wagon with air brakes
Polished Stone Value
Quoted Companies Alliance
Research and development
139
ADDITIONAL INFORMATIONBREEDONGROUP.COM GLOSSARY CONTINUED
RAP
Reclaimed asphalt pavement
the Revenue
Roadway
RoI
ROIC
RoSPA
SCQF
SECR
SHE
SRF
Office of the Revenue
Commissioners in RoI
Roadway Civil Engineering &
Surfacing Ltd
Republic of Ireland
Post-tax Return on Invested Capital
Royal Society for the Prevention
of Accidents
Scottish Credit and Qualifications
Framework
Streamlined Energy and Carbon
Reporting
Safety, health and environment
solid recovered fuel
Staffs Concrete
Staffs Concrete Limited
STEM
Sterling
TCFD
tCO2e
TIFR
TUPE
UK
Underlying
Science, Technology, Engineering
and Mathematics
Pounds sterling
Task Force on Climate-related
Financial Disclosures
Total CO2 emissions
Total Injury Frequency Rate
Transfer of Undertakings (Protection
of Employment Regulations 2006)
United Kingdom (GB & NI)
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
VFL
Visible Felt Leadership
Whitemountain
WISHNI
Whitemountain Quarries Limited.
The construction materials and
contracting services brand under
which Breedon now trades in NI
Waste Industry Safety and Health
Forum Northern Ireland
WTO
World Trade Organisation
140
ADDITIONAL INFORMATIONBREEDON GROUP ANNUAL REPORT 2019 Designed and produced by Radley Yeldar www.ry.com
This annual report is printed on Chorus Silk. The manufacturers of Chorus Silk hold ISO 9001 & ISO 14001
certifications and are also FSC & PEFC certified. This report is printed by Pureprint is a CarbonNeutral®
company. Both manufacturing mill and the printer are registered to the Environmental Management
System ISO 14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified. If you have
finished reading the report and no longer wish to retain it, please pass it on to other interested readers or
dispose of it in your recycled paper waste.
Breedon Group
28 Esplanade
St Helier
Jersey
JE2 3QA
Email: info@breedongroup.com
www.breedongroup.com
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