Good morning, everybody. Thanks for coming, and welcome to everyone who's joining us on the webcast. Can I start by introducing our new Chairman, Amit Bhatia? As you know, he succeeded Peter Tom in June, and we're delighted that he's agreed to lead our board through the next stage of Breedon's development. If you haven't had a chance to meet him yet, he'll be around after the meeting. It'd be great if you can catch up with him. Taking that into account, we've also brought Ross Macdonald, who will run shotgun with Amit because there's a couple unscrupulous questions will come from certain people in the audience. We want to make sure we don't throw Amit under the cosh immediately. We're really pleased to be reporting a strong set of results for the first half.
We've delivered a resilient performance in a very challenging construction market here in Great Britain, and a solid result from Cement, and an excellent outturn from our Irish business. The team continues to do a great job. I'll go into detail on the operational performance in a few minutes, but first Rob will take you through the figures. Thanks.
Thank you, Pat. Good morning, everyone. As you can see from the financial highlights, we have once again reported an improved performance. We have delivered revenue growth of 18%, underlying EBIT growth of 18%, and achieved an underlying EBIT margin of 11.1%. Excluding the impact of acquisitions and disposals, revenue was up 2% and underlying EBIT improved by 11% and reflected the timing of the second shutdown at Hope that will be in the second half of this year. Price progression, offset by the impact of a challenging market in GB. Profit before tax was up 30%, and on an underlying basis, it was up 13%. This all translated to an underlying basic EPS growth of 4%. These results incorporate the adoption of IFRS 16 in respect of leases, but the impact of this on the income statement is not material.
However, the impact on the balance sheet, and specifically net debt, is more material. At the half year, the closing net debt of GBP 343.7 million includes an IFRS 16 element of GBP 45.9 million and represents leverage of 2.0 times. Excluding the impact of IFRS 16, net debt was GBP 297.8 million and leverage was 1.8 times. This compares with leverage of 2.0 times at the 31st of December 2018, 2.3 times at the 30th of June 2018, and 2.6 times at the time of the Lagan acquisition in April 2018. This de-leveraging clearly demonstrates the highly cash generative nature of the group. For complete transparency in respect to IFRS 16, we have also prepared the financial highlights on a pre-IFRS basis. As you can see, highlighted in yellow, the only material impact is on net debt. Turning to the income statement and revenue, which at GBP 447.4 million was up 18%.
As I mentioned before, excluding the impact of acquisitions, it was up 2%. At the earnings level, the underlying EBIT of GBP 49.5 million was up 18%. Again, excluding the impact of acquisitions and disposals, it was up 11% for the reasons already highlighted. The increased interest costs of GBP 7.4 million reflect higher level of net debt post the acquisition of Lagan, but also the adoption of IFRS 16. Non-underlying items of GBP 2.6 million were primarily comprised of amortization costs and reorganization costs. Resulting profit before tax at GBP 39.5 million was up 30%. The tax charge of GBP 7.5 million reflects the tax rate of just under 19%. All this translated into underlying basic earnings per share of GBP 0.0203, up 4% on 2018. Turning to the segmental performance.
Our GB business performed well overall, despite the challenging market, whilst our business in Ireland enjoyed a strong six months. Our Cement business also delivered a solid performance and successfully completed two of its three scheduled annual shutdowns during the first half. In Great Britain, revenue was flat against 2018. Underlying EBIT was up GBP 0.3 million, or 1%, and the underlying EBIT margin was 10.3%. In Ireland, revenue was up 153%, underlying EBIT was up GBP 4.5 million, or 102%, and the underlying EBIT margin was 9.5%. In Cement, revenue was up 20%, underlying EBIT was up GBP 3.8 million, or 32%, and the underlying EBIT margin was 16.9%. It's worth flagging that Ireland's margin decline year-on-year just reflects the fact that the business was only acquired in April 2018, and therefore, the 2018 margin is not a true comparison.
In addition, the 2019 Cement margin is impacted by the timing of the second kiln shutdown at Hope that will be in the second half. Lastly, it's probably an appropriate time to comment on the status of the Lagan synergies. The current run rate is GBP 4 million, and this puts us on track to deliver our commitment of GBP 5 million per annum by the end of next year. Turning to our products, reported aggregates volumes grew by 6%. On a like-for-like basis, this was a decrease of 8%. Reported asphalt volumes grew 20%, and on a like-for-like basis, this was a decrease of 4%. Reported concrete volumes declined by 5%, but on a like-for-like basis, there was an improvement of 2%. Lastly, reported cement volumes grew 19%, but on a like-for-like basis, this increase was 5%.
For clarity purposes, the % movements on the slide are based on actual volumes and not the rounded ones shown. Over and above the challenging GB market, like-for-like aggregate and asphalt volumes were impacted by the phasing of major projects in Scotland and the shift towards higher value aggregates in England. In terms of pricing, progression in excess of inflation has generally been achieved, and Pat will comment further on the market shortly. Now turning to net debt, which stands at GBP 343.7 million at the half year. Putting the adoption of IFRS 16 to one side, the net debt has reduced by GBP 12.9 million, from GBP 310.7 million at the end of 2018 to GBP 297.8 million. This movement reflected the underlying EBITDA of GBP 81.1 million, a GBP 32.9 million seasonal working capital outflow.
Just for your information, the prior comparative to that was an outflow of GBP 31.5 million in the first half of 2018. Interest and tax paid of a combined GBP 15.5 million and a GBP 19.4 million CapEx outflow net of disposal proceeds. I know I've already highlighted leverage, but I just wanted to reinforce the message. Excluding the impact of the adoption of IFRS 16, leverage is now 1.8 times compared to the 2 at the end of 2018, 2.3 this time last year, and 2.6 at the time of the acquisition. In summary, it's been a half a further improvement for the group, and we are confident that we will continue to make progress in 2019. Whilst talking about 2019, it's worth commenting on current market expectations. Full year market consensus is currently distorted due to the adoption of IFRS 16, as some analysts have reflected the adoption and some have not.
The guidance we gave at the time of the 2018 results was for underlying EBIT of GBP 115 million on a pre-IFRS 16 basis and GBP 116 million on a post-IFRS 16 basis. We also gave out net guidance of GBP 250 million on a pre basis and GBP 295 million on a post-IFRS 16 basis. We remain comfortable with these post-IFRS 16 numbers of GBP 116 million and GBP 295 million. I'll now pass you to Pat, who will take you through his group and operational review.
Yes. Talking about the market in general, we can see there's been little or no growth in the GB market. If we look at the aggregates, asphalt and concrete volumes for Q1, you can see there was a reduction. It's our view that that has continued throughout Q2. Perhaps from Breedon's perspective, that's maybe even compounded a bit further in aggregates because part of our self-help program is always about optimizing our aggregates and optimizing pricing in the market. That sometimes means that we will reduce volume in some of our plants to optimize the costs and drive into the market. We've seen that in reducing aggregate volume a bit, but we've also seen that in improving the margins overall. That was a positive move. Not all of our self-help is operational in the business. Commercially, we'll attack those areas as well.
In Ireland, growth has been more robust, particularly in the south, and we've been very pleased to have that contribution throughout this year. Most parts of the business have improved performance, and that's delivered the result improvement overall. We have had benefit of six months contribution from Lagan, and it's been most welcome. Positively, as you can see, Rob talked about leverage at two. The strong cash generation that this business has demonstrated has continued to be demonstrated with the Lagan acquisition. Again, that hasn't changed the profile of our cash generation. It's a healthy positive. Now over the course of the period since we bought Lagan till now, we've reduced debt by well over GBP 150 million.
That itself gives us the confidence to keep the dialogue going in the acquisition pipeline, which we would consider today, taking major deals like Lagan out the equation, I'd consider it to be more healthy today than 12 months ago. That's a positive, and that's a testament to the activities that go on throughout our business in generating those opportunities. July started well. Q1 for us was strong. Q2 slowed a bit, but we were conscious that we could see a higher level of inquiries throughout Q2. If I look at July, that's starting to come through in the business. We're very happy with the start in July, maybe apart from the weather today, but being Scottish, I should never complain about hot weather, ever. We would make the statement that the board remains confident of meeting full year expectations.
Business reviews in general, the Northern business in G.B. has been very successful over the past few years in winning major projects and delivering solutions to those major projects. We've suffered a little bit by delays to projects. They've been awarded but haven't been executed. That's caused a volume variance for us, but we're happy to say that those projects are kicking off and starting now. I'm very confident that in spite of the reduced volume for Breedon, we're maintaining our market leadership position in our Northern business. We've got a good broad-based performance and improvement across England and Wales, and many areas of the business operationally and commercially have delivered that improvement, and I would expect that to continue.
We've invested approximately GBP 20 million capital investment in the business. Some of the significant projects that we've brought forward are we completed an asphalt plant in one of our quarries in Dowlow. We've secured significant mineral resource at our Holme Hall quarry, which one of the most profitable quarries we have in the group, and we've secured its life for the next several years. That's a positive. Some of the existing previous acquisitions have continued to perform well. That's something we're very conscious about because we never want to fall into the trap of being focused on the next acquisition and never really quite delivering the results from the prior ones. Even as we move forward, some of those acquisitions here are not significant scale compared to Lagan or Hope, they get as much focus in our business as some of the major acquisitions.
In Ireland, in 2018, we saw a dramatic increase in the level of inquiries for road maintenance contracts in the south of Ireland. That's continued throughout 2019. In 2018, we had the benefit of a very large project we were supplying in southern Ireland. We don't have that for 2019, but our volumes are still maintaining or improving against those levels even without a significant major project. The Whitemountain business in Northern Ireland, whilst execution of local government contracts in the north is a little slow, they've been very successful, have continued to secure small infrastructure projects in England, primarily in Wellingborough and Kettering, and latterly at DP World. The delivery and execution of those projects and the margins on those projects are probably a little ahead of where we would have anticipated and we're bidding them. It's great performance by Whitemountain also.
We make the comment, a solid performance with cement, with two of the three shutdowns completed. I think that's a fair comment, but it's somewhat understated because cement businesses, they're quite complicated businesses and you have one time a year when you can secure your raw materials and execute your price increase. As long as you achieve that, you can secure your delivery of results for it. That's why we describe it as solid, but for two cement plants being integrated, that's a huge plus for the management team within the cement business. From an outlook perspective, we would anticipate in GB improved trading conditions in H2. That's based on, one, the level of inquiries we've been experiencing. Two, some of the major projects we anticipated to be ongoing in H1, moving to H2.
As I say, the level of inquiries are very positive, and in the first few weeks in July, trading has been strong. I think we'll continue to see regional variations in the business. We're not heavily exposed in London, but I think we can still see activity levels in our minor participation struggling a little bit in London. Some of the highways work might still be slow to execute, and whilst we are not a primary player there, some of the primary players, as they struggle, may dip into other parts of the market. I would expect to see regional variations throughout the rest of the year. One of the benefits we do have is this time last year, we were facing bitumen increases, hydrocarbon increases face on.
We're now sort of 10 months past that, so we don't anticipate the same headwinds in that, which we see as a plus for H2 as well. The market in Ireland, as I say, the forecasts continue to grow by 17% through 2021. Even in the North, there'll be modest growth. Maybe I'll remake the statement I always make. For us, we're happy with flat markets. Don't get me wrong, we're happy with high growth markets like the Republic of Ireland as well. In a flat market, we're very comfortable that we can focus on improvements in the business operationally and commercially and deliver our numbers. When you look at the volumes we've had and the markets we've had this year, I think the first half's, and the cash generation the first half, demonstrates that we're able to do that and we'll continue to do that.
We also continue to invest capital. Our target at the start of the year was approximately 100% of depreciation would be invested in the business, and that's still the target. We anticipate doing that. We're still striving for people in the business to bring forward projects. Many of the projects they bring forward can have a six-month payback. For us, we're looking for projects that can execute and deliver today, but the priority is that they're going to deliver for years to come. We're not going to speculatively spend money and capital today to deliver a result for the next six months. These are investments that are right for the long term and happen to have a short-term benefit for us as well. I think in primary, I've covered the last points on Breedon. Again, maybe the final statement is we're confident of meeting full year expectations.
At this point, as long as the country doesn't stall, I maybe see more things helping us in H2 than headwinds that we've had in H1 or H2 last year. I think confidence as far as we're going to go in that statement. We're happy to take questions now.
Thanks, Pat. Could I just ask people in the room, when you ask a question, could you just give your name and house just for the benefit of the people on the call? Many thanks.
I thought we were getting away with being succinct.
Yeah.
Clyde Lewis at Peel Hunt. Couple, if I may. One on acquisitions, and I appreciate the comments about the pipeline looking pretty good. Can you give us a little bit more flavor as to whether it's this side of the RSC or the other side? Whether, again, there's a sort of a bias in terms of the end product that's sort of coming through to you. The second one was on pricing. Obviously, you've got a mix change, certainly within aggregates in the U.K. Can you just maybe give us a little bit of help in terms of sort of the quantity that you've seen in terms of sort of pricing in some of those key areas? The last one was on investment projects.
With CapEx sort of looking like it's going to be matching depreciation this year, what would be the sort of the biggest two or three projects in terms of sort of spend? You've obviously highlighted Dowlow and I think Holme Hall. Would those be the biggest two, or would there be other projects in there that would be bigger?
From an acquisition perspective, it's the quality of acquisition and the quality of sort of earnings enhancement that we're interested in, whether that's in Ireland or in GB. We're open to both. I think we've more history and relationships in GB, so I would expect more opportunities to come from GB initially. What we are seeing is some traction in Ireland that our teams in Ireland have a lot of good relationships. Literally at this point, it could come from Ireland or it could come from GB. We're quite active in both areas. It will be about the quality of the transaction more than anything. In the Republic of Ireland, it has to be very much aggregates driven because they have a great asphalt business and a great asphalt footprint. Very small Readymix business in Cork, nothing in Dublin. That's not anything we need to rush into.
They have the dormant quarry program, that they're reopening dormant quarries and developing that part of the business. I think that will have to be complemented by bolt-on acquisitions in the aggregate side of the business. I can see that. From the GB side, we have a lot of relationships and potential opportunities out there. We just never control the time of when they come. It's like buses, I guess. When one comes, more than one comes. We just have to be ready. I said it at the time before we did the Lagan deal, from a management bandwidth perspective, we're in better shape today than we were 12 months ago. Again, we got in some great people with the Lagan acquisition. Pleasingly for us, some of the smaller bolt-on deals in GB don't come from our group level.
They come from operations directors and general managers throughout the business. That's what we're seeing in Ireland as well. The depth of relationship that those guys have over in the business there will bring opportunities to us. It doesn't stretch us at group level. It might stretch Rob's purse strings a wee bit if it comes at the wrong time. Very positive.
Shall I cover quickly the other two? Pricing, generally we've at least recovered inflation, generally ahead of that. For a number of the products, Clyde, we had a cost bow wave last year. We've been able to move prices further forward to recover those costs. The one I will mention is that in the English business where we talked about mix and to the higher priced aggregates, we've recovered the volume through improved pricing. It will be ahead of inflation.
Maybe even in the parts of the market, Clyde, where it's competitive and volume's down, we might not have seen as dramatic a price increase we wanted, but we haven't seen erosion.
In CapEx, the guidance that we gave out for the year was, as Pat said, 100%, but circa GBP 60 million. There's no particular product that's sort of more than a few single-digit millions. There isn't one that's GBP 10 million or GBP 15 million. The more interesting element is just the guidance we've given out and continued to give out that probably 50% of our CapEx spend is what we would call stay in business, and the other 50% has an element of enhancement. At the most extreme, it will be full enhancement as a new plant, for example. At the minor point, it could just be operational improvement or efficiency.
Coming both, guys, there's an interesting project we're doing at the moment where we're relocating one of our ReadyMix plants to a quarry in the Northeast. What that will allow us to do is close three remote ReadyMix plants. It gives us the efficiency of getting material to it. It takes three plants out of our population of plants, two of which were becoming fairly high maintenance costs, and the third plant will be turned over to a mortar plant. Those type of I can't remember. How much was that, Rob? Can you remember?
It's not substantial.
It's probably less than half a million GBP, but the impact of that is significant, and the timing of that is almost immediate. Those are the kind of projects that we're seeing coming to us sort of now.
Hi, morning. Christian York from Numis. Just a couple from me. Firstly, could you just touch a bit more on the Lagan integration? Also the synergies seem to be coming through strongly, whether you see scope for upside, I suppose, to that GBP 5 million target. Also, you alluded to perhaps some of the larger infrastructure projects having an impact and maybe some of those larger players moving more towards the Breedon areas. I was just wondering if you've actually seen any of that yet, or it's more of a risk to watch out for in H2. Thank you.
You want to do this as well?
I can do it. Yeah, the synergies and the delivery of them is progressing well. As I said, we are at a run rate of GBP 4 million. We are comfortable, and I mentioned before, we are comfortable in achieving the GBP 5 million. It's the same as when we talked about the Hope acquisition. We won't stop when we've delivered those numbers. They tend to be underpinned by overhead and administration costs. On top of that, we've got all the commercial and operational improvements. You will just see those flow through the business as the business improves in the years ahead.
From a major project perspective, we've probably been seeing that over the years. We always talk about we are 65% exposed, say, to infrastructure and home building. To me, those are dynamic. We will always see people, if they're slow in a certain part of the market, will move into others. We do it ourselves. We always say Breedon focus on the low end of the market, but what we delivered on A9 previously and AWPR and A9 now, you would consider that not traditionally to be parts of the Breedon market. For us, we're very comfortable in small local jobs now. We're very comfortable in large projects if there's value in them, not just for activity, because we've got enough experience up here that we don't need to buy any more experience for delivering projects for nothing.
David O'Brien from Goodbody, a couple for me. First, just following up on pricing. You said you're pretty confident that the momentum is there. Are we fair to say that there's no real benefit in the H1 number to positive pricing impacts, and it will be more H2 weighted underpinning your guidance? Secondly, you allude to competitive trading conditions. Could you just give a little bit more color where you're seeing the biggest pinch points? Finally, following up on Clyde point on acquisitions, how have you seen vendor expectations evolve over the last six months as the environment got more difficult?
Sorry, I missed the second one again.
Just the second one, the competitive trading conditions that you point to. Can you give a little bit more color where the biggest pinch point is?
Shall I do pricing?
Yeah.
On the pricing, H1 has been about delivering that improvement. H2 is about sort of seeing the benefits of it flow through. That's quite normal in the industry.
I don't think the market's been any more competitive. Certain pockets has been competitive. In areas where maybe a large project's finished and the other one hasn't started, you would expect to see activity levels drop and it be a bit more competitive. Again, I think it's maybe we haven't seen pricing go backwards. We haven't seen it get overly competitive. We might just not have seen the increase in pricing that we would like to have seen. That may well be as a result of what people have secured bitumen in the past, and they might be still running. If they're running through some high price secured bitumen, they will obviously be driving price to recover it. There's fluctuations in that, but not material in its impact to us.
The third one was valuation and stuff. We haven't seen any material change in valuation aspirations. Depending on how you want to value it. For us, we have a tried and tested formula. We have our own internal hurdle rates, and we evaluate acquisitions using those.
Kevin Cammack at Cenkos. Could you just delve slightly into what's driving a lot of the growth in the Republic of Ireland? Is it public sector, private sector, housing, infrastructure, commercial, et cetera? Also how the makeup of your businesses currently address and serve those particular markets, the balance of where that growth is.
In terms of what's driving it, I think it's quite publicly commented on. There's two. One is housing, and secondly, infrastructure spending. The national infrastructure spending plan for Ireland has significant growth in it. Those projects are being delivered upon. Interesting comparison to G.B., Kevin, is that a lot of those projects are funded on balance sheets. Every quarter you hear that the tax receipts in the Republic of Ireland are in surplus to their budgeting. They're in a very good position to be able to fund some of the spending in their plan in the years ahead.
In the north and the south, we have significant market share in the highway maintenance area. You tend to find in the south that they're all very short-term projects that are usually bid and executed in the same year. Whereas in the north, we have several framework agreements with the local authorities that will span several years. Kind of very different way to execute the programs. Ultimately, the market share on both is probably not far off. It's probably the same in both areas. True, in the last couple of years, probably Dublin's been the focus. Interestingly, the spending's starting to cascade out of Dublin, and that will be beneficial for our business.
You tend to be stronger outside the bigger cities?
In the south for aggregates, we don't have a significant aggregate business yet. That's on the slate for development. ReadyMix, we're in ReadyMix in Cork, nowhere else. From an asphalt perspective, we're everywhere we want to be, what is pleasing. We knew it, which is why we didn't change the names. The Lagan brand in the south, as far as asphalt paving goes, and the Whitemountain brand in the north, are two tremendous brands. Maybe we got a bit lucky keeping the brand there, but the recognition of those brands and the quality of work that they do is impressive.
Okay. Thank you.
John Messenger from Redburn. I think I've got three, if I could. First was just when you talk about major projects and some of the things that didn't come through awarded but haven't secured volumes yet, is that a mix of public and private, or is it predominantly kind of public sector stuff that you think will kick on? Just to understand a little bit about it in terms of those delays and what can happen clearly with the political backdrop in terms of those kicking on for the second half volume. Second one was just on the ReadyMix, to understand, obviously, the minus five to the plus two. Was that Cork ReadyMix? Just to understand why, I know they're not big volumes, but was there a deliberate move to sort of cut out some maybe less profitable ReadyMix volume in terms of what happened there?
The third one was just on the shutdowns. Obviously, doing one in the second half, is that normal, or is this because of some specific CapEx that's going to go into Hope? What does a shutdown typically cost you in terms of disruption? Is it effectively volume built up, you're sitting with the cement, and therefore, there's no issue in terms of trading in the second half? That's it. Thanks.
Do the major projects, and I'll do the other two.
Yeah. Maybe we're overplaying the major projects. There's two projects specifically I'm thinking of, is A9, which we've been awarded. We would have anticipated starting supplies to that in March, and we've started now. One we haven't been awarded, we've just bid, but there's a significant project, RAF Lossiemouth, which we would have expected to be awarded again in the spring, and it'll probably be awarded September and October. I can't remember, maybe I was talking to David earlier, but I was having a conversation with Alan Mackenzie a little bit ago about the delays to a couple of those projects, and he said, "Well, the last time we had delays like that was at the Scottish referendum, then a time after it was Brexit." The reality is, these projects will always get delayed.
We always look for something to tag it on to, and at the moment it's Brexit, and I really don't think it is. I just think it's the nature of our business that we anticipate the projects will come quicker and we'll be supplying, and inevitably they take longer. It's definitely a factor in H1, but probably the most significant project is the A9 that's impacted there. We haven't seen a lot of other projects, sort of delays in pushing commercial type work. We're not seeing that stalling.
In terms of the ReadyMix, John, it's the Tarmac what we did last year. It's simple as that. In terms of the shutdowns, traditionally Hope would do both shutdowns in the first quarter. Makes completely logical sense to do it when power costs are most expensive and everything. What it does do is it puts the supply chain under the most constraints, just as you're moving into the busy summer season. What we took a decision a couple of years ago was to try and migrate it, so we didn't have both shutdowns before the busy season when we're trying to build stock, and that we moved it to the fourth quarter.
In effect, last year, if you remember, we moved one and we managed to do one in June/July, and we've then managed to move it again this year, which will now be done in September, October. It was really just to make sure that we were in the best possible place in terms of stock availability.
When Rob gave the team that sort of guidance that he gave them, the sort of latitude to say, "We want to move the shutdowns to these periods, but we don't want to change the risk profile of the business." If it takes you three years to get there, it takes you three years to get there, but we're delighted we'll have got to now.
Like, is there a way of thinking of just what they hit you for cost, or is it?
Yeah, no.
a half a million event
I think we've said it before now. I would say it's probably GBP 2 million, GBP 2.5 million a kiln.
Right. Brilliant.
Okay. If that's it, then I appreciate everybody taking the time to come, and as fully dressed as you are considering the temperatures outside. Appreciate it, thank you. We're happy to chat a little bit after if.
Thank you very much.
Thank you.