Ireland expansion keeps Breedon Group outlook rosy

Construction materials company Breedon Group issued its unaudited interim results for the six months ended 30 June on Wednesday, reporting a 16% rise in revenue to £378.4m.

The AIM-traded firm said its underlying EBIT was up 17% at £42m, while its underlying profit before tax improved 15% to £37.4m.

On a statutory basis, profit before tax slipped 3% to £30.4m.

Breedon said its underlying basic earnings per share were 1.96p for the half, up 30% on the prior year, while net debt widened to £383.6m from £146.8m.

On the operational front, the company sold 9.3 million tonnes of aggregates during the period, up from 7.9 million tonnes year-on-year, while 1.2 million tonnes of asphalt were sold, rising from 0.9 million tonnes.

A total of 1.6 million cubic metres of ready-mixed concrete was sold, down slightly from the 1.7 million cubic metres sold in the prior year’s first half.

The boards said it had maintained a “resilient” performance in a “challenging” market, with continued “strong” cash generation and organic investment.

It said the acquisition of Lagan Group was a “key strategic step” outside Great Britain, with that integration progressing well,

Two bolt-on acquisitions were also completed in England and Scotland during the period.

Breedon said it made further progress on safety improvements during the period, with its lost time injury frequency rate reduced from 1.41 in the first half of 2017 to 0.94 in the first half of 2018.

The completion of the Tarmac asset swap occured on 1 July, which the board said rebalanced its aggregates and readymix portfolio.

Breedon was maintaining a “positive” outlook in Ireland, offsetting the continued short-term challenges of the Great Britain market, adding that it remained “confident” of meeting its 2018 market expectations.

“This was one of the busiest periods in the group's history, with four acquisitions completed by 1 July including our first outside Great Britain, coupled with continued organic investment in a number of key projects,” said executive chairman Peter Tom.

“We had anticipated a challenging 2018 and so it proved in the first half, with testing trading conditions exacerbated by the severe weather in the first quarter and rising input costs throughout the period.

“Despite these headwinds, we delivered a resilient performance.”

Tom said the company did “much” in the first six months of the year to rebalance the group, both geographically and operationally.

He said its new businesses in Ireland provided a “valuable” economic counterpoint to the continuing short-term challenges of markets in Great Britain, and its asset swap with Tarmac expanded its aggregates base and further reduced its reliance on the ready-mixed concrete market, thereby improving the quality of the firm’s earnings.

“We continue to view the medium- to long-term outlook in Great Britain positively, with infrastructure spending forecast to increase steadily over the next three years and government strategies to address our chronic housing shortage expected to fuel continued growth in the residential sector.

“Market conditions in Ireland are expected to be even healthier, with construction output in the Republic of Ireland forecast to grow by approximately 28% in the three years to 2020 and NI expected to sustain construction output at approximately £3bn per annum from 2018 to 2022.

“In the more immediate term, taking into account our more balanced geographical exposure, we remain comfortable with current market expectations for 2018.”