avatar BREEDON SOUTHERN LIMITED Mining
  • Location: DERBYSHIRE 
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    ANNUAL REPORT 2012 THE GROWTH STORY CONTINUES


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    THE GROWTH STORY CONTINUES OUR PEOPLE THEIR STORY PHIL HAS TWO YEARS’ EXPERIENCE WORKING THE 54-TONNE EXCAVATOR AT CRAIGENLOW QUARRY I’m excavating the primary crushed rock at the quarry face after the quarry wall has been blasted. The quarry couldn’t operate without the excavator doing its job. I shift about 8,000 tonnes of rock each week. I love the job, although it has to be said that it’s better in the summer than the winter! However, the huge excavator is a tracked vehicle so it handles well in snowy conditions. CONTENTS Highlights of the Year 3 The Breedon Aggregates Product Chain 4 Our Areas of Operation 6 Chairman’s Statement 8 Chief Executive’s Review 12 Financial Review 18 Corporate Social Responsibility 26 Directors 32 Directors’ Report 34 Corporate Governance 38 Directors’ Remuneration Report 40 Statement of Directors’ Responsibilities 46 Independent Auditor’s Report to the Members 47 Consolidated Income Statement 48 Consolidated Statement of Comprehensive Income 49 Consolidated Statement of Financial Position 50 Consolidated Statement of Changes in Equity 51 Consolidated Statement of Cash Flows 52 Notes to the Financial Statements 53 Notice of Annual General Meeting 82 Phil Duncan Advisors & Company Information 84 Excavator Operator Shareholder Information 84 Craigenlow 2


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    HIGHLIGHTS OF THE YEAR FINANCIAL HIGHLIGHTS Change Revenue £173.5 million +2.7% Underlying EBITDA† £20.2 million +18.3% Underlying operating profit† £8.8 million +55.4% Underlying profit before tax† £5.6 million Underlying basic EPS† 0.67 pence Total non-current assets £148.1 million ■ 4.3 million tonnes of aggregates sold ■ 1.2 million tonnes of asphalt sold ■ 481,000 cubic metres of ready-mixed concrete sold £173.5m £168.9m 6.7 times £20.2m £150m £143.9m £20m x6.0 5.6 times £17.1m £100m £15m x4.0 3.7 times £13.7m £50m £10m x2.0 £0m £0m x0.0 2010 2011 2012 2010 2011 2012 2010 2011 2012 REVENUE* UNDERLYING EBITDA* NET DEBT / UNDERLYING EBITDA* OPERATIONAL HIGHLIGHTS ■ EBITDA margin up 1.5 points to 11.6% ■ Underlying earnings increased in both England and Scotland ■ Value-enhancing performances from recent acquisitions ■ Key health & safety targets achieved ■ Major capital investment projects completed ■ Post year-end: St Michaels reserves secured † Underlying results are stated before acquisition related expenses, redundancy and reorganisation costs, property items, impairments, amortisation of acquisition intangibles, changes in the fair value of financial instruments, gains on bargain purchase and related tax items. References to an underlying profit measure throughout this Annual Report are defined on this basis. * Based on unaudited pro forma results for the full 12 months ended 31 December 2010. Front cover: Bill Ewen, Loading Shovel Driver at Craigenlow Quarry, Scotland 3


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    THE GROWTH STORY CONTINUES BREEDON AGGREGATES’ PRODUCT CHAIN We process stone from our quarries into quality aggregates, ready-mixed concrete and mortar, and a comprehensive range of asphalt products. Our operations comprise two fully-integrated, autonomous businesses, in England and Scotland, each with its own independent management team. The key to our business is the acquisition of permitted Some of our aggregates are mixed with bought-in cement and aggregates reserves. New consents are granted sparingly and other additives at our 41 readymix plants to produce ready-mixed with stringent conditions attached. Breedon Aggregates has concrete and mortar for sale to commercial, industrial, successfully accumulated over 190 million tonnes of mineral infrastructure and housing developers. Our 1stMix ‘mini mix’ reserves and resources in the UK. This is enough to last around operation specialises in small loads for homes and businesses. 45 years at current rates of extraction. We also supply an exclusive range of decorative aggregates, sold Rock is blasted from the working faces of our hard rock quarries loose or bagged, which is used in a wide variety of domestic and and passed through a series of crushers and screens to produce commercial applications, from drives and pathways to courtyards several types and grades of ‘dry’ aggregates for onward sale to and architectural landscaping. Breedon Special Aggregates have external customers or for use in our own operations. We also been used in many of the UK’s leading stately homes and tourist have a number of quarries that produce sand and gravel for both attractions, including the London Olympic Village. internal and external use, including one of the UK’s richest and highest quality reserves at Norton Bottoms in Lincolnshire. Our fleet of specialist vehicles delivers the full range of our products to customers around Great Britain. Some of our aggregates are mixed with bought-in bitumen to produce a variety of speciality surfacing products at our 18 Through our associate company, BEAR Scotland Limited, we asphalt plants in England and Scotland. These are used either by maintain and manage much of the trunk road infrastructure in our own contracting teams or by external contractors to surface Scotland. We also own a majority stake in Alba Traffic roads, car parks, airport runways and racetracks around the UK. Management Limited, a leading provider of traffic management solutions throughout Scotland. 4


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    THE GROWTH STORY CONTINUES OUR AREAS OF OPERATION BREEDON AGGREGATES ENGLAND BREEDON AGGREGATES SCOTLAND Tim Hall is Chief Executive of our English business. Alan Mackenzie is Chief Executive of our Scottish He has spent his entire 40 year career in the operations. He has spent more than 30 years in the quarrying industry, most recently as Director of aggregates industry, initially with Wimpey and later Tarmac Limited’s Western Area until 2010, when with Tarmac, where he was latterly Contracting he joined Breedon Aggregates. Prior to this he was Director of the company’s largest region in central Managing Director of Tarmac Western Limited, the England. Alan joined Breedon Aggregates Scotland company formed by Anglo American from the in 2001 as Regional Director for North and West former assets of Nash Rocks, Tilcon and Tarmac. Scotland. After leaving for a four year spell as Chief He spent the previous 27 years with Nash Rocks, Executive of BEAR Scotland, he rejoined the Group latterly as Managing Director. in 2006 as Chief Executive of its Scottish business. Alan is Chairman of the Asphalt Industry Alliance Our English operations are headquartered at and the Mineral Products Association in Scotland. Breedon-on-the-Hill near East Midlands airport and employ approximately 400 people across the central Our Scottish operations are headquartered at region of the country. We operate 9 quarries, 7 Ethiebeaton, near Dundee, and employ around 400 asphalt plants and 18 ready-mixed concrete and people. Breedon Aggregates Scotland operates 18 mortar plants, primarily supplying the West quarries, 11 asphalt plants and 23 ready-mixed Midlands, East Midlands and eastern England. concrete plants, primarily supplying the north, west and east of Scotland. Our English contracting services business undertakes minor road-surfacing projects as well as We own a 37.5% stake in BEAR Scotland Limited, major infrastructure contracts, serving an area from which manages the north-east and south-east trunk the east coast to mid-Wales and from the M62 road networks on behalf of Transport Scotland, and corridor to the South Midlands. we also own a majority stake in traffic management services company Alba Traffic Management Limited. 6


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    Scotland 1 Morefields Quarry 2 Banavie Quarry UK LOCATIONS 3 Benderloch Quarry* 4 Bonawe Quarry 5 West Area Contracting 6 Furnace Quarry 7 Shierglas Quarry 8 Meadowside Quarry 9 Aviemore Concrete Plant 10 Inverness Concrete Plant 1 11 Daviot Asphalt Plant 12 Netherglen Quarry 14 12 15 13 Rothes Glen Quarry 10 13 Peterhead Inverness 11 14 Boyne Bay Quarry 16 15 Stirlinghill Quarry 17 Aviemore 9 19 18 16 Inverurie Concrete Plant 20 Aberdeen 8 17 Bridge of Don Concrete Plant 2 21 18 Craigenlow Quarry 7 19 Westhill Concrete Plant 3 22 4 Dundee 23 20 Deeside Concrete Plant 5 24 21 Capo Quarry* Oban 25 26 6 22 Cunmont Quarry** Stirling 27 29 28 23 Ethiebeaton Quarry 24 Balmullo Quarry 25 Clatchard Craig Quarry 26 St Michaels Quarry 27 Kirkcaldy Concrete Plant 28 Orrock Quarry 29 Dunfermline Concrete Plant England 30 Mansfield Asphalt Plant 31 Nottingham Readymix 32 Leaton Quarry 33 Leinthall Quarry 34 Breedon Quarry* 35 Cloud Hill Quarry 36 Ling Hall Asphalt & Concrete Plant 37 Corby Asphalt & Concrete Plant 38 Peterborough Concrete Plant 47 48 39 Stamford Concrete Plant 46 40 South Witham Quarry 45 41 Grantham Concrete Plant 49 Lincoln 44 30 43 42 Sleaford Concrete Plant Nottingham 42 50 43 Norton Bottoms Quarry 41 31 Derby 44 Woodhall Spa Concrete Plant Shrewsbury 40 51 52 54 32 34 35 39 45 Kelsey Road Quarry Leicester 38 53 Norwich 46 Kettleby Quarry 33 Birmingham 37 47 Elsham Concrete Plant 36 Ipswich 48 Grimsby Concrete Plant Northampton Cambridge Worcester 49 Skegness Concrete Plant 50 Boston Concrete Plant 51 Long Sutton Concrete Plant Oxford 52 King’s Lynn Concrete Plant 53 Shropham Quarry** 54 Longwater Asphalt Plant *Decorative Aggregates are also available bagged **Recycling available 7


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    THE GROWTH STORY CONTINUES CHAIRMAN’S STATEMENT 2012 was not a vintage year for our industry. Construction output fell by more than 8%, a significantly worse outturn than even the most pessimistic forecasts, as the full impact of public sector spending cuts were felt, particularly in Scotland, and economic recovery was set back once again. However, I am pleased to report that, despite the worst trading conditions I can remember in my 50 years in this industry, Breedon Aggregates continued to grow and prosper. Our aggregates and readymix volumes were ahead in both England and Scotland, helped by the full year effect of the C&G acquisition and positive contributions from the two small acquisitions we made during the year. Overall, Group revenues continued to grow, by nearly 3% to £174 million. Our EBITDA margin improved by a further 1.5 points to 11.6% and we reduced our net debt from more than £96 million to just over £74 million. This progress did not come about by accident. It was a direct result of the commitment, dedication and sheer hard work of our 800 employees. Most importantly of all, it was down to the rigorous attention to detail which prevails throughout our business. Region by region, site by site, plant by plant, our talented people are squeezing every last drop of efficiency out of our operations. 8


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    You can read some of their personal stories We continued to seek out new market opportunities throughout this report, which we hope will bring to life during the year and launched two new initiatives: our the vital part they play in Breedon’s continued growth. 1stMix ‘small load’ readymix business in England, which was trading profitably within six months; and Every pound of investment we make in our business Mobile Concrete Solutions, a pioneering joint is being made to work harder than ever before. That venture with TSL Contractors which supplies a means optimising the output from our crushers, mobile concrete batching service to renewable coating plants, concrete batching plants and energy projects in remote locations in Scotland and contracting operations and ensuring that the greatest is already winning good, profitable business. possible proportion of our raw material goes into products with the highest possible added value. We made two acquisitions during the year: Nottingham Readymix in England in January and Similarly, our prospecting, marketing and customer Rothes Glen quarry in Scotland in July. Both service have to be smarter, more cost-effective and performed well, making a useful contribution to more responsive than ever. We may be a national Group profit. We continue to pursue a number of group, but at heart we are a collection of local other acquisition opportunities but, once again, I businesses serving local people and local must emphasise that we will only buy businesses companies. Our success is built on careful or assets which demonstrably enhance selection of new business, then delivering the right shareholder value. product, at the right price, to the right place – on time and with courteousness and consideration. The same is true of our health and safety performance, the number one item on every Board meeting agenda, which improved significantly in 2012 as everyone in the business redoubled their efforts to make our sites safer. Lost-time incidents continued to fall and I am very pleased to say that our target of reducing Breedon’s Lost-Time Incident Frequency Rate by 50% was achieved. 9


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    THE GROWTH STORY CONTINUES OUR PEOPLE THEIR STORY JOHN MOVES MORE THAN A MILLION TONNES OF AGGREGATE EVERY YEAR WITH HIS CAT 990 LOADING SHOVEL I’ve worked for about 15 years in the quarrying industry with four-and-a-half years at Cloud Hill. On a good day I can load about 4,500 tonnes of rock into the crusher. That’s a lot of rock over the year. I’m right at the rock face helping to produce the base materials from which so many of our products come. Whatever needs doing at Cloud Hill, I turn my hand to it. We will apply the same strict criteria to all When we created Breedon Aggregates in 2010, we purchases, whether they are valued at £1 million, did so in the knowledge that we could expect little £100 million, or more. It was for precisely this or no help from the construction market. Our models reason that we withdrew from the bidding for the were predicated on delivering real value if necessary assets being sold by Tarmac and Lafarge as a through self-help alone. It is this approach and condition of their new building materials joint mindset which give us the confidence to anticipate venture. We could not satisfy the value expectations another year of progress in 2013. of the sellers, for the simple reason that they exceeded – by a significant amount – the level at which we could realise value for our shareholders. Peter Tom CBE Executive Chairman Looking ahead, the challenges in 2013 look like 5 March 2013 being every bit as tough as they were last year. The Construction Products Association is forecasting that construction output will fall by more than 2%, with no meaningful recovery until 2014. Against this backdrop, it would be easy to let the gloom get the better of us, but we have a strong and finely- tuned business which is well equipped to cope with difficult economic conditions and we remain enthusiastically committed to growing the Group in the years ahead. 10


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    John Middleton Loading Shovel Driver Cloud Hill 11


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    THE GROWTH STORY CONTINUES CHIEF EXECUTIVE’S REVIEW Breedon Aggregates continued to make solid progress in 2012 despite extremely difficult market conditions that have seen significant declines in the national demand for all main product categories in the UK. Through a combination of tight cost control and careful selection of work we have managed to improve headline and underlying EBITDA in both England and Scotland, improving margins from 10.1% to 11.6% on revenue which was 3% ahead of last year, including acquisitions. This represents a very considerable achievement and reflects the hard work and dedication of all our employees and I am delighted that we were again able to thank them all with the payment of a modest Christmas bonus in December. TRADING SUMMARY 2012 will be remembered as one of the most difficult years in living memory for the UK building materials and construction industries. Poor demand, record rainfall in the second quarter of the year and Jubilee/Olympics holidays meant that national UK sales volumes of aggregates declined by around 10%, asphalt by 17% and concrete by 9% in the year. UK consumption of primary aggregates is now at the same level as the mid- 1960s and more than 50% below the peak year of 1989. Several of our competitors have had to announce unit closures, staff redundancies and profit warnings. It is welcome to see the government finally recognising the importance of infrastructure in the Chancellor’s Autumn Statement and launching a number of initiatives that we hope will help to get Britain building again in 2013 and 2014. Against this backdrop, Breedon has performed extremely well, making good progress in both England and Scotland, improving underlying earnings in both divisions and delivering excellent performances from our three recent acquisitions, C&G Concrete, Nottingham Readymix and Rothes Glen quarry. 12


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    Sales revenue for the year was £173.5 million, 3% Several significant contracts were supplied during higher than 2011 and Group EBITDA of £20.2 the year, including Tesco at West Bromwich and million was 18% above the previous year. Margins the A41 in England, and the Fife ITS, Peterhead improved by 1.5%, which represents an Prison and the Trump golf project in Scotland. outstanding achievement in a declining market. Although these contracts made an important Careful work selection, tight cost control and contribution, they represent a relatively small increased operational productivity have all percentage of our total sales. We are increasingly contributed to the improved result for the year. We looking to supply smaller local customers with have worked hard to develop an ethos of “self- whom we can develop close working relationships help”, recognising that we cannot rely on a growing and who tend to generate repeat business in our market to take the business forward. market area. We try to compete with the major suppliers by offering competitive prices but with Sales volumes of aggregates increased by 5% to better service and support, which we believe 4.3 million tonnes, asphalt volumes declined by differentiates us from the larger global companies. 13% to 1.2 million tonnes, slightly less than the national reduction, while concrete volumes OPERATING REVIEW increased by 18% to 0.5 million cubic metres, During the year we continued to build on the solid reflecting the contribution from C&G. Excluding the foundations established in 2011. We have an effect of acquisitions, aggregates volumes fell by experienced, motivated and stable management 1% and concrete volumes were down by 5%, team which gives me great confidence that we can mainly due to a very large contract supplied in 2011 continue to further improve the business in 2013 which was not repeated in 2012. and beyond. 13


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    THE GROWTH STORY CONTINUES One of our key objectives for the year was to Solutions, the joint arrangement we launched in improve our safety performance, which had Scotland to take advantage of the significant on- deteriorated significantly in the period immediately going investment in wind farms and renewable preceding our acquisition of the business in 2010. energy. In England we replaced much of the old The key performance indicator we use is the Lost mobile plant acquired with C&G and refreshed its Time Incident Frequency Rate (LTIFR) which transport fleet with the acquisition of new and measures the number of lost time incidents per second-hand tippers and mixers. We also relocated 200,000 hours worked. Our target was to reduce the C&G sales office from rented premises in this by 50% in 2012 and I am delighted that we Stamford to our Norton Bottoms quarry. This is managed to achieve this. We will be aiming for a consistent with our strategy of having all support further significant reduction in 2013. functions located on our own sites, close to operations and avoiding external rental costs. It is pleasing to report operational progress on all fronts in 2012 and the business today looks very A key part of our strategy is to actively sell surplus different to the one that emerged following assets to generate cash and reduce debt. In Ennstone’s administration in 2009. Sales revenue September 2010 we set ourselves the target of has grown on the back of several successful generating £20 million in disposals by 2015 and we acquisitions, EBITDA and operating profit are well are on track to achieve this. During the year we ahead and net debt has been significantly reduced. sold surplus land and equipment worth £6.2 million, which brings our running total to nearly £10 million We continue to invest in the asset base of our since our acquisition of the business. business whilst ensuring that capital expenditure remains well below depreciation, allowing us to Two small acquisitions were completed during the reduce net debt year-on-year in line with our stated year. In January we purchased the business of strategy. A number of significant projects were Nottingham Readymix, a leading supplier of completed during the year, including a new asphalt concrete in the Nottingham market which has plant at our Stirlinghill quarry near Peterhead and a been buoyant due particularly to the tram project new mobile concrete plant to support the and continuing investment at the university. The successful development of Mobile Concrete business also provides an important fixed outlet 14


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    for sand and gravel from the Norton Bottoms gravel pit acquired with C&G in 2011. In July we acquired Rothes Glen sand and gravel quarry near Elgin, east of Inverness. This complements our Netherglen rock quarry two miles away and provides an important source of sand for our ready-mixed concrete business in the area. Our new mini mix service, 1stMix, launched in the spring made solid progress building market share and moved into profit in October. We are confident of further progress in 2013. After nearly twelve months of preparation, the made dramatic improvements. Generally, standards auction of the assets that Tarmac and Lafarge were showed a significant improvement over the required to divest in order to proceed with their previous year. Winning ideas from employees joint venture was finally concluded. Breedon included the installation of carbon monoxide undertook a detailed review of the Hope cement detectors in high-risk areas, procedures for plant and other assets being sold. A number of controlling water added to concrete on-site and significant risk areas were identified which safety modifications to facilitate screen access for impacted our valuation of the business and maintenance. The latter also won an award at the consequently we were unable to meet the value MPA industry safety conference in October. expectations of the vendors. We continue to evaluate a number of other opportunities but, as OUR STRATEGY we have frequently stated, we will only make The progress made over the past two years in acquisitions which we are confident will add value difficult market conditions demonstrates the for our shareholders. We expect to make further resilience of our business, the strength of our progress on business development in 2013. management team and the effectiveness of our business model. However we are not complacent Our Best of Breedon business improvement and there is more that needs to be done if we are scheme, where employees suggest ways of to fulfil our objective of being the safest, most improving the business and Breedon GoodQuarry, profitable and best-run aggregates business in the which sets target standards for our operations, UK. We will continue to strive for further have continued to go from strength to strength. It improvement. Areas that we intend to focus on in was particularly pleasing that seven of our units 2013 will be the management of complaints – how achieved GoodQuarry status, including one which we respond when things go wrong says as much was one of the poorest performers in 2011 but had about our culture as the standard of service we provide to customers on a daily basis; and on improvements to our technical capability. The trial of recycled rubber asphalt on the A92 in Scotland shows we are capable of stealing a march on competitors with much larger technical departments than ours, but there is more we can do to increase the use of recycled materials, reduce wastage and develop innovative products. We continue to see many growth opportunities in the UK, both through selective acquisition and organic development. Our recent moves into mobile concrete plants and the mini mix business have been successful and we have identified several interesting possibilities for new concrete and asphalt plants. A number of acquisition opportunities are under active consideration and we are excited about the prospect of further growing the business in 2013. 15


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    THE GROWTH STORY CONTINUES OUR PEOPLE THEIR STORY PATRICK HAS DRIVEN THE EQUIVALENT OF MORE THAN 12 TIMES ROUND THE WORLD WITH BREEDON AGGREGATES I cover a huge area all over the west coast of Scotland, delivering an average of 25 loads a week. The 20-tonne loads are usually of coated tar or dry aggregates but sometimes concrete, too. I cover about 1,000 miles each week. It’s great to be out and about in some of the most beautiful parts of Scotland. I really like meeting our customers, many of whom I have got to know well through regular deliveries. BUSINESS OUTLOOK pass and the commitment to dual the A9 from While there is no doubt that 2013 will be another Perth to Inverness will benefit us in the medium tough year with construction output forecast to term. Our associate company BEAR Scotland decline again and MPA product volumes also recently secured the North West maintenance forecast to be down, we are generally more contract from Transport Scotland which will ensure optimistic than we were this time last year, although we continue to benefit from material supplies in the winter conditions in January resulted in a slow that area for the next few years. We are hopeful start to the year. The government at last seems to that transport budgets in Scotland may increase have realised that switching funding from revenue slightly from their recent low levels. to capital spending on infrastructure can have a positive effect on GDP, improve employment and The industry landscape in the UK is set to change in deliver significant secondary economic benefits. 2013 with the Lafarge/Tarmac joint venture now up There is a growing recognition in both public and and running and the new Hope Construction private sectors that essential maintenance work and Materials business also having commenced trading. upgrades to production facilities cannot be The continuing investigation by the Competition postponed indefinitely. Commission into the sector is expected to conclude towards the end of the year although we While the recent announcements made in would expect any structural remedies to relate November 2012 will take time to feed through, the mainly to the cement market. schemes that were cleared the previous year should start to materialise in 2013. The A453 Breedon will remain focussed on further improving upgrade between the M1 and Nottingham is a good our performance in safety, operations and customer example; this should start early in 2013 with Laing service. Our management team have demonstrated O’Rourke the successful contractor. The overall their ability to deliver solid results in the most housing market remains depressed due to lack of difficult market conditions. The acquisitions we mortgage availability but the demand for new have made have all added significant value to our homes is quite strong and the range of financial core business giving us confidence in our ability to support measures introduced means that buying a repeat this with future deals. We are confident of new home is the easiest way onto the property making further progress in 2013. ladder for first time buyers. Housebuilders anticipate steady demand over the next few years. Simon Vivian In Scotland, we believe that there will be continuing Group Chief Executive investment in the renewables sector and related 5 March 2013 infrastructure. The recently approved Aberdeen by- 16


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    Patrick Cook HGV Driver Bonawe 17


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    THE GROWTH STORY CONTINUES FINANCIAL REVIEW I am pleased to report on the results and financial statements of Breedon Aggregates Limited for the year ended 31 December 2012. During the year we acquired the issued share capital of Nottingham Readymix Limited and the trade and assets of Speyside Sand & Gravel (comprising Rothes Glen quarry) and therefore the Consolidated Financial Statements incorporate the results from these operations. Total consideration for these two acquisitions was £1.6 million in cash, funded from our existing bank facilities. Revenue for the year was £173.5 million (2011: Underlying Group operating profit was £8.8 million £168.9 million). Excluding revenue from (2011: £5.7 million). Underlying results are stated acquisitions, including the full year revenue from before acquisition-related expenses, redundancy C&G Concrete which was acquired in July 2011, and reorganisation costs, property items, revenue would have been £154.8 million (2011: impairments, amortisation of acquisition £161.7 million). intangibles, changes in the fair value of financial instruments, gains on bargain purchase, and related Underlying earnings before our share of associated tax items. undertakings, interest, tax, depreciation and amortisation (EBITDA) were £20.2 million (2011: Profit after tax for the year was £5.3 million (2011: £17.1 million). Of this, EBITDA of £2.1 million £1.2 million). (2011: £0.5 million), was generated by acquisitions including a full year’s earnings from C&G. 2012 2011 Variance £000 £000 Revenue: England 91,278 86,158 5.9% Scotland 82,179 82,730 (0.7)% Total 173,457 168,888 2.7% Underlying EBITDA: England 11,562 9,090 27.2% Scotland 11,345 10,316 10.0% Head office (2,724) (2,343) (16.3)% Total 20,183 17,063 18.3% Margin 11.6% 10.1% 18


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    DIVISIONAL PERFORMANCES The higher input costs experienced in 2011, The market environment generally disappointed in particularly bitumen (a key ingredient in the the year with public sector cuts and very wet production of asphalt), were largely recovered during weather in April and June resulting in construction the course of 2012 and despite some volatility in oil activity being at a very low level. Despite this we prices we did not experience quite the same degree have made good progress with the Breedon of cost inflation during 2012. As a consequence of business focussing on our cost performance and the partial cost recovery and careful selection of shaping the business to service the current market work, EBITDA margins across the business in environment. England and Scotland were improved year-on-year. For the 12 months as a whole, aggregates volumes were up 4.6% at 4.3 million tonnes, with both England and Scotland ahead year-on-year. However, acquisitions contributed to the additional volume without which the volume of aggregates would have been down 1.3%. Asphalt volumes were 12.8% down at 1.2 million tonnes, with asphalt volumes in England down by 12.3%, and in Scotland down by 13.6%. Ready-mixed concrete volumes grew by 18.0% in the year to 0.5 million cubic metres, assisted by the inclusion of a full year of the former C&G plants and the newly-acquired Nottingham Readymix plant. The full-year revenue of £173.5 million represented a 2.7% increase on the figure in 2011. The underlying EBITDA of £20.2 million was up £3.1 million, 18.3% year-on-year with our attention remaining focussed on the challenge of continuing to improve the margins generated in the business. 19


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    THE GROWTH STORY CONTINUES NON-UNDERLYING ITEMS The net assets are underpinned by the mineral, land Non-underlying items in the year comprised a gain and building assets of the Group which at the end of on the sale of property of £0.2 million, the release December 2012 had a book value of £93.8 million. of a provision for environmental and planning of £0.6 million, acquisition-related costs, including CASH FLOW aborted acquisitions, of £0.2million and £0.4 million Cash generated from operations was £14.5 million of redundancy costs. (2011: £12.8 million). INTEREST AND TAX In addition to the focus on delivering short term Net finance costs in the year totalled £4.3 million earnings growth, we are positioning the business and included interest on the Group’s bank finance for the longer term and as part of that we are facilities, as well as interest on finance leases. investing in the business, adding new acquisitions where these make sense both strategically and An underlying tax charge of £1.4 million was financially and investing in plant and machinery. recorded in the year, resulting in an underlying During 2012 we installed a new asphalt plant at our effective tax rate for the full year of 24.9%, Stirlinghill quarry in Scotland, we have purchased a influenced by the effects of income from new mobile concrete plant to target work in the associates already being taxed and of costs in renewables sector, launched 1stMix in England and Jersey for which no tax relief can be obtained. have invested in new plant and equipment to improve our operational efficiency. The Group spent The non-underlying tax credit principally relates to £1.5 million on acquisitions, net of cash acquired, the satisfactory closing of prior year tax items. and had a cash spend on capital expenditure projects of £7.3 million. EARNINGS PER SHARE Basic earnings per share (“EPS”) for the year were We raised £14.7 million through the issue of 0.85 pence (2011: 0.21 pence), struck after the shares, which was utilised to reduce the Group’s non-underlying items mentioned above. Underlying bank debt, and £6.2 million was raised from the basic EPS for the year totalled 0.67 pence (2011: disposal of surplus assets in the Group. Reduction 0.21 pence). of finance leases totalled £6.3 million, resulting in a net cash inflow for the year of £7.2 million (2011: STATEMENT OF FINANCIAL POSITION outflow £3.9 million). Net assets at 31 December 2012 were £79.3 million (2011: £59.0 million). The Company issued Net debt at 31 December 2012 was £74.1 million 86.3 million ordinary shares during the year in the (2011: £96.2 million). form of an equity placing in April of 83.3 million shares at 18 pence per share and the balance were BANK FACILITIES as a result of exercise of share options and KBC The Group’s bank loans have a maturity date of 5 Bank exercising almost half of their holding of September 2015 and are subject to a floating warrants in July at a price of 12 pence per share. interest rate based on LIBOR plus margin. At 31 December 2012, total undrawn facilities available to the Group amounted to £29.8 million. The Group’s bank facility is subject to covenants which are tested quarterly. These covenants are: Group interest cover, minimum underlying EBITDA and Group cash flow cover. At 31 December 2012, the Group comfortably complied with all three covenants. Based on our current estimates, we expect to comply with all our covenants for the foreseeable future. The Group has in place interest rate hedges which mitigate the risk of interest rate rises on the Group’s bank loans (see note 20 to the financial statements). 20


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    DIVIDENDS Subject to availability of distributable reserves, dividends will be paid to shareholders when the Directors believe it is appropriate and prudent to do so. However, for now, the main focus of the Group Analysis Reporting Identification Mitigation & Evaluation & Monitoring will be on delivering capital growth for shareholders. ■ Identify business ■ Risks analysed ■ Risk and ■ Action plans objectives as to likelihood mitigation plans developed and RISK MANAGEMENT and impact subject to regular implemented to ■ Risks identified at Risk is an inherent and accepted element of doing and rigorous review mitigate risks Group, divisional, ■ Risk evaluation business and effective risk management is functional and recorded in ■ Key issues elevated, ■ Action owners and project level risk register as appropriate, timescales defined fundamental to how we run our business and through management ■ Financial and underpins the delivery of the Group’s objectives. reporting structures non-financial The Group’s approach to risk management is to risks recorded in risk register identify key risks and then to develop actions or ■ Risk owners processes within the business to eliminate or identified mitigate those risks to an acceptable level. RISK MANAGEMENT PROCESS PRINCIPAL RISKS Risk management processes (see diagram opposite) The Group operates in an economic and business are embedded throughout the organisation and environment in which risks and uncertainties exist, assist management in identifying and understanding not all of which are necessarily within its control. the risks they face in delivering business objectives Whilst acknowledging that it is not possible to and the key controls they have in place to manage eliminate such risks and uncertainties completely, those risks. established risk management and internal control systems and procedures exist within the Group to The Board is responsible for the Group’s system of mitigate their impact. risk management and internal control and for reviewing their effectiveness. The Group Finance The Board recognises that there are likely to be Director provides a twice-yearly update to the other risks and uncertainties which are currently Board on the key risks and controls within the unknown but believes that the Group’s risk Group, highlighting the roles and responsibilities of management approach will continue to help in key management in managing those risks. The identifying and responding to such risks. Board has concluded that the Group maintained sound risk management and internal controls We have identified the principal risks which could throughout the year. However, such systems are adversely impact the financial position of the Group designed to manage rather than eliminate the risk or impact its ability to meet its strategic objectives. of failure to achieve business objectives and can Set out on the following pages is a description of provide only reasonable and not absolute assurance those principal risks, together with the mitigating against material misstatement or loss. factors or action we have taken. 21


  • Page 22

    THE GROWTH STORY CONTINUES ECONOMIC ENVIRONMENT Changes in the UK macro-economic environment may cause the Group’s customers to cancel, reduce or postpone expenditure on projects that create demand for our products. Difficult economic conditions also increase the Group’s exposure to credit risk among its customers. Impact Mitigation Although government expenditure does play a large part in generating demand for the Group’s products, Any significant changes in the level or timing of the Group has a broad exposure to various end uses for its products, including private housing, commercial customers’ expenditure could impact on the and industrial development and infrastructure projects, and responds quickly to evolving market Group’s activity levels. requirements. The Group supplies a diverse customer base, with no single customer accounting for more than 5% of Failure of a customer could result in sales. The financial solvency of our customers is always considered before supplying them and we non-collection of amounts owed. maintain credit insurance cover over the majority of our private sector debtors. Reduced demand can lead to larger competitors The Group works hard to develop relationships with its customers and attempts to provide a high level of trading down to smaller contracts and increasing service that fosters a degree of loyalty. Furthermore, the Group is a low-cost producer in all of its regions, competitive pressure on our business. These helped by investment in both new products and modern, efficient plants, and is able to sustain short-term competitors may also seek to reduce prices in the price erosion. short term to secure market share. The Group operates a strategic purchasing plan which attempts to spread the risk by a combination of The Group is heavily reliant on energy and fuel oil to better buying, fixed-term contracts and spot prices. However, we remain exposed to inflationary cost produce its products and to get them to market. increases on bitumen, gas-oil and diesel. The solution is to pass on these additional costs to our Increases in the costs of these essential inputs can customers through price increases and forward-pricing, although inevitably, due to the nature of the have a significant effect on the Group’s cost base. contracts we have to supply and lay materials, there will be a time lag between the date we start paying additional costs and the date from which we are able to recover these costs in the market. LIQUIDITY Liquidity risk is the risk that the Group does not have sufficient financial resources to meets its obligations as they fall due. Impact Mitigation Unavailability of sufficient borrowing facilities to The Group manages liquidity risk by continuously monitoring forecasts and cash flows and planning its enable the servicing of liabilities and the inability expenditure and available facilities accordingly. The Group uses term and revolving bank facilities and to refinance facilities as they fall due or to comply sufficient headroom is maintained above peak requirements to meet unforeseen events. There is with borrowing covenants. adequate headroom against covenants based on the Group’s internal forecasts. Fluctuation of interest rates could impact on Group The Group has a policy of operating with a combination of capped and floating interest rates and targets profitability and covenant headroom. to have at least half of its interest on term debt capped at any time. 22


  • Page 23

    LEGAL AND REGULATORY The Group operates in a highly regulated environment and is subject to a number of complex, demanding and evolving legal, tax and regulatory requirements. Impact Mitigation The Group monitors and responds to legal and regulatory developments and benefits through its A breach of these laws and regulations could lead membership of the Minerals Products Association, which assists in implementation of any new to legal proceedings, investigations or disputes regulation. The Group also participates fully in the consultation process in respect of new regulation in an resulting in a disruption of business and potential effort to ensure that any new measures are workable and achievable, whilst minimising the impact on the reputational damage. environment of delivering products which are fundamental to the economic well-being of the communities in which we operate. Planning consents are required in order to utilise the Group’s mineral reserves and to build and operate added-value processing facilities such as The Group tries to involve all stakeholders in early consultation and regularly meet with local asphalt and concrete plants. The planning regime communities in organised liaison groups in areas where communities are impacted by its operations. is strict and gaining permissions is challenging. Failure to be seen to be a responsible operator may impact on future sustainability of Group operations. HEALTH & SAFETY AND ENVIRONMENT Health and safety is a key issue in the sector in which the Group operates. Improvements have been made across the industry in recent years and continued improvement is sought in order to make it a safer industry for our employees, customers and suppliers to operate in. Impact Mitigation Safety sits at the top of every agenda within the Group. Detailed health and safety policies and procedures exist to minimise such risks and are subject to review and monitoring by the executive Failure to manage these risks could expose the management team. The Group also employs experienced health and safety advisers who provide advice Group to significant potential liabilities and and support to line management. All managers are engaged in regular on-site discussions with reputational damage. employees regarding health and safety and their understanding of the risks in the workplace. Management, training and control systems are in place to minimise and prevent these risks. These systems are reviewed regularly and all new plant and equipment is specified with these risks in mind. PEOPLE The success of the Group depends on its ability to recruit and maintain the best management and employees, who have the appropriate competencies and also share the Group’s values and behaviours. Impact Mitigation Failure to recruit and retain the right people could Annual performance reviews take place to assess the performance, competency and potential of all have an adverse impact on the Group’s ability to management in the Group. Appropriate remuneration and incentive packages are in place to assist in the deliver on its strategic objectives. attraction and retention of key employees. 23


  • Page 24

    THE GROWTH STORY CONTINUES OUR PEOPLE THEIR STORY IT’S A 5AM START FOR MARK, WHO BEGINS EACH WORKING DAY OVERSEEING THE LOADING OF MORTAR TRUCKS I’ve been a Concrete Batcher for five years, producing products that are mainly used for flooring in the housing sector and at warehouses. It’s technical work with concrete recipes designed in our laboratories to give the product the characteristics that a particular job needs. As plant supervisor, I also handle the paperwork and the all-important health and safety aspects of the operation. KEY PERFORMANCE INDICATORS Cash management The Group uses the following financial and non- The level of cash generation within the Group is financial key performance indicators (“KPIs”) to monitored as a KPI to ensure that available facilities measure the operational and strategic performance meet the needs of the business. of the business. Non-financial KPIs Earnings per share and market Non-financial KPIs include the monitoring of mineral value growth reserves based on quarry life, taking into account The primary performance indicators are the Group’s consents gained and minerals extracted, to ensure underlying earnings per share and market value the sustainability of this key asset to the Group. growth. Our aim is to increase earnings per share Other non-financial KPIs include those in respect of each year, both through the growth of our existing health and safety, particularly Lost Time Incident business and through acquisition. Management are Frequency Rates. This is the frequency rate of incentivised to increase shareholder value in the injuries resulting in an employee being absent for Group at a compound annual rate of at least 12.5%. one or more shifts. EBITDA & EBITDA margin Other KPIs The Group uses business-unit underlying EBITDA The Group also monitors a range of other KPIs, and EBITDA margin as the key performance including bitumen and cement costs per tonne and indicators to monitor the progress of each of our interest cover. business units towards our overall targets. Net debt to EBITDA Ian Peters The ratio of net debt to EBITDA is monitored as a Group Finance Director measure of the Group’s leverage. 5 March 2013 24


  • Page 25

    Mark Wilson Concrete Batcher Elsham 25


  • Page 26

    THE GROWTH STORY CONTINUES CORPORATE SOCIAL RESPONSIBILITY Breedon Aggregates recognises the importance of balancing the interests of its key stakeholders – employees, customers, investors, suppliers and the wider community in which we operate. HEALTH AND SAFETY In pursuit of this objective we aim to: Breedon Aggregates is committed to providing  protect the health of our employees with and maintaining a safe environment for all of our suitable, specific, work-based strategies; employees, customers and other visitors to our  seek to minimise the risk of injury from their premises and to complying with all relevant health activities; and safety legislation. Our ultimate goal is to  ensure that, through senior management achieve Zero Harm throughout our operations, an participation, sufficient resources and objective that we introduced in 2011 and captured information are made available, and suitable in the logo which has continued to feature management systems are in place, to address prominently across our business. health and safety matters; and  encourage the involvement of employees and aim for continual improvement in health and safety standards through a formal reporting and review process. Compliance with Group policy is monitored and reviewed centrally and a comprehensive monthly health and safety report is produced for the Board. The Group Chief Executive has been designated by the Board as the director responsible for health and safety matters. We have invested heavily in a dedicated health and safety database, Entropy, which provides a flexible platform for the health, safety and environmental management systems on all of our sites. The system facilitates:  incident tracking and reporting;  registration of non-conformities and follow-up actions required;  logging and reporting of action plans;  maintenance of training records and competencies; and  risk assessments for different tasks and operations. 26


  • Page 27

    We have established a Health and Safety The Group aims for continuous improvement in Committee chaired by the Group Chief Executive health and safety KPIs, including our Accident and comprising the Group Finance Director, and the Incidence Rate, Lost Time Injury Frequency rate Chief Executives and Health and Safety Managers (“LTIFR”), and Lost Time Injury Severity Rate. of Breedon Aggregates England and Breedon Performance against these KPIs is reported monthly. Aggregates Scotland. The principal objective of the Committee is to ensure a co-ordinated approach to The following graph shows the improving trend in the Group’s management of all Health, Safety and the Group’s LTIFR over the last 2 years. We were Environmental (“HSE”) issues. pleased to achieve our target of a 50% reduction in 2012 and we are targeting to achieve similar improvements in 2013. 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 LTIFR 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Apr 2011 May 2011 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Feb 2012 Jan 2011 Feb 2011 Jan 2012 Mar 2011 Mar 2012 Apr 2012 May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012 Dec 2012 27


  • Page 28

    THE GROWTH STORY CONTINUES Since the scheme was launched at the end of 2010, we have received over 200 suggestions, the great majority of which have been of great practical value to the Group. The most outstanding suggestions have received Best of Breedon awards and the winners have been rewarded with attractive prizes and their suggestions have been quickly implemented in the business. These have led to a real improvement in the performance of certain of our operations and valuable associated cost-savings. As reported last year, we launched two important In 2011, we introduced the Breedon GoodQuarry new HSE initiatives in 2011. These were further scheme, designed to raise operational standards developed during 2012 and are now embedded in across the Group, identify best practice and the HSE culture of the Breedon Aggregates Group: highlight those units which were underperforming in key areas. The purpose of GoodQuarry is to 1. A Visible Felt Leadership (“VFL”) and ensure that all our operations deliver the highest Behavioural Safety programme, under which all possible standards of safety, environmental and senior managers are committed to undertaking planning compliance, maintenance, efficiency and a minimum number of VFL visits per annum to community relations. our operations. During these visits they closely observe what is happening in the workplace and Five units matched the exacting standards of the engage employees in a dialogue about how their scheme in our first audit in 2011 and a further tasks might be undertaken more safely. In 2012 seven units achieved GoodQuarry status in 2012. there were over 750 VFL visits recorded; and Improvement plans have been put in place for others in preparation for future audits. 2. Breedon Basics, a series of non-negotiable safety rules which every employee in the Group Following the success of GoodQuarrry in creating a has signed up to comply with, to help the business excellence aspiration across the Group, Group achieve its ultimate goal of Zero Harm. we are now developing a Breedon GoodContracting scheme to ensure a similar approach across all of We also increased our focus on Near Miss reporting our operating divisions. during 2012 as we strongly believe that today’s near miss is tomorrow’s accident, with the result that the All of our employees are kept up-to-date on our number of incidents reported during 2012 more activities through our internal newsletter, From the than doubled compared to the previous year. Rock Face, which provides information on the performance of the business, major developments in EMPLOYEE ENGAGEMENT the Group such as acquisitions and new planning One of our most successful initiatives has been Best consents, and significant HSE initiatives, as well as of Breedon, a scheme which encourages employees keeping employees updated on many of the to come up with practical suggestions for ways we interesting activities of their colleagues such as can improve the performance of our business. charitable events and sporting achievements. 28


  • Page 29

    EDUCATION AND TRAINING Our people are the cornerstone on which our business is built and we recognise the importance of ensuring that we maintain their skills and knowledge at the highest possible level. During 2012, Breedon Aggregates Scotland became the first company in the UK to have an internal training scheme – in health and safety for surfacing operatives – accepted as an alternative to the national S/NVQ scheme. We also recognise that if we are to preserve and improve the skills and knowledge in our business, we need to foster young talent. We have therefore In addition to our current reporting requirements, taken on our first four apprentices, aged between from 2013 onwards, we will also be reporting to the 16 and 24, who all made important contributions to EU ETS, a European Union-led scheme. our operations at Breedon, Cloud Hill, Orrock and Ethiebeaton during 2012. We are continuing to work hard to improve our recycling performance. In England, Breedon ENVIRONMENTAL Aggregates uses up to 20% RAP (Reclaimed Continuous improvement in our environmental Asphalt Pavement) in its base and binder course performance is critical to ensuring that our activities materials and our Longwater asphalt plant has comply fully with environmental standards and constructed dedicated covered storage units for its legislation. All of Breedon Aggregates Scotland’s RAP and fine aggregates. In addition to generating business units have achieved BS EN ISO a significant saving in heating costs in the asphalt 14001:2004 accreditation and Breedon Aggregates production process, this is expected to allow the England has 15 accredited units, with a further 11 plant to increase its use of RAP by some 50% by units actively pursuing accreditation. We are also the middle of 2013. We are investigating whether progressing accreditation to the ISO6001 this action can be economically replicated at any of sustainability standard which takes into account our other locations. carbon management, water usage reducing the impact of transport and the use of renewable and In Scotland, we have formed a task force to drive recycled materials. through the use of RAP in our asphalt and this is paying dividends. Our plants at Ethiebeaton, Following on from the work undertaken during Orrock, Elgin and Oban have been fitted with RAP 2011, we have maintained our commitment to feed systems which allows us to recycle up to improving energy efficiency and reducing carbon 20% reprocessed asphalt planings as RAP in emissions in our operations. During 2012 we standard hot mix asphalt base and binder course developed a Carbon Management Plan that will materials. Asphalt planings that come back from provide the focus for our future work on carbon contracting sites are also routinely reprocessed reduction. The Plan sets a target to reduce our into type 1 sub-base. In addition, we use recycled emissions by 10% by the end of 2014 which offers a incinerator bottom ash as aggregate in our significant challenge that we are determined to meet. Ethiebeaton asphalt plant. In 2012 we delivered a further 4.1% reduction in our carbon intensity per tonne of material During 2012 we continued to develop opportunities produced. While these results are encouraging, the for low energy asphalt products which use special challenge for 2013 is to continue year-on-year production processes to manufacture standard reduction of emissions whilst maintaining the asphalts at a reduced energy cost. These products production levels required to meet demand. can use around 30% recycled asphalt in the mix. Careful balancing of moisture content of feed With the growing pressure on us to produce materials and their temperatures creates a workable accurate data, we aim to achieve the Carbon Trust product at only 95 degrees centigrade. A huge Standard during 2013. This will not only verify the energy saving is achieved through this reduced final data which we produce, but will also formally temperature (normal materials have to be heated to recognise our strenuous efforts to continue around 160 degrees centigrade) and the material is reducing our carbon emissions. also virtually fume-free at this temperature. 29


  • Page 30

    THE GROWTH STORY CONTINUES OUR PEOPLE THEIR STORY RYAN STARTED HIS APPRENTICESHIP IN AUGUST 2012, LEARNING HOW TO KEEP PLANT AND MACHINERY RUNNING I work on both the electrical and mechanical sides of the business, covering the complete range of Breedon Aggregates’ plant and machinery from asphalt plants to mobile crushing plants. I’m learning from experts how to keep Breedon Aggregates’ plant and machinery running smoothly and efficiently and, above all, safely. That’s giving me a good head start in my career. I’m certainly hoping I’m able to stay on with Breedon after I finish my apprenticeship. During the year, in Scotland, we completed the During the year, in conjunction with work being road testing of Breedon Polymer R+, a new suite of undertaken by the Mineral Products Association thin surfacing materials which use recycled tyre (MPA), we took part in a number of initiatives aimed rubber as a bitumen modifier, replacing highly at helping to protect vulnerable road users, engineered polymer bitumen with its associated particularly cyclists. We have added a range of high energy production cost and we are now in additional sensors, mirrors and cameras to many of discussions with a number of local authorities our trucks which operate in busy areas. In addition, about extending the trials into England. our East Anglian operations took part in an MPA sponsored initiative at the finish of a major London to Our continuing commitment to encouraging local Cambridge charity cycle ride aimed at helping cyclists species in our quarry development plans was understand the visibility issues faced by truck drivers demonstrated by the placing of new red squirrel when cyclists are close to their vehicles. This was boxes to help provide a new long-term, safe drey particularly pertinent in this region given the number habitat. This was carried out in conjunction with of cyclists to be found in the local student population. Scottish National Heritage. During 2012 we again made contributions to a COMMUNITY ENGAGEMENT number of worthy causes in the communities in We have established a number of community which we operate. These included contributions liaison groups to encourage dialogue between our of materials to schools, village halls, businesses and the communities in which they churches and Jubilee memorial operate, tackling such important issues as planning projects around the country. and development, transport and road usage, and community support. We have also agreed to continue our successful In 2012 we completed the construction of a major sponsorship the Highland League new access road to our quarry at Leaton near Cup, a high-profile football Telford. This will allow us to increase the output of tournament played across our the quarry whilst considerably improving the impact Scottish heartlands and one of a of the quarry’s operations on a neighbouring school. number of local and regional sporting As part of the construction project we built a four organisations and events supported metre-high brick wall to provide both visual and by Breedon Aggregates north and noise screening from the school and installed a south of the border. dust sprinkler system along the length of the road. In addition to the work on the access road, we employed a landscape architect and funded work to transform the school’s grounds to create a “forest school area” which is now used to teach pupils about ecology and woodcraft. 30


  • Page 31

    Ryan Lloyd Apprentice Electrician Cloud Hill 31


  • Page 32

    THE GROWTH STORY CONTINUES DIRECTORS David Warr 1,2 Simon Vivian David Williams 2 Non-executive Director Group Chief Executive Non-executive Director David is a Chartered Accountant and a Fellow Simon has over 20 years’ experience in the David has significant experience in the of the Institute of Charted Accountants in aggregates and construction industries. He investment market. He has served as England and Wales. He became a partner of worked in a number of roles with Hanson PLC Chairman in executive and non-executive Reads & Co, a Guernsey based practice of 1987-2003, ultimately as a main board director capacities for a number of companies, both Chartered Accountants in 1981 and helped and Chief Executive of Hanson’s European public and private. He has built a reputation develop it into a broadly based financial Building Materials business. He oversaw for creating significant shareholder value services business which was sold in 1999. operations in eight European countries, through both organic and acquisitive growth, David currently holds a number of non- employing over 8,000 people with revenues of as well as leading turnaround situations. executive directorships including UK Select over £1.5 billion. Whilst with Hanson, he Trust Limited, Schroders Real Estate executed and integrated a number of Investment Trust Limited, Acorn Income acquisitions and managed the disposal of the Fund Limited, Unigestion (Guernsey) Limited, company’s waste management business, Mid Europa Fund Management Limited and Greenways, for £185 million. The Guernsey Community Foundation LBG. From 2004 to 2006 Simon was Chief Executive of Mowlem PLC, where he led an organisation with over 25,000 employees, generating revenues of £2.2 billion from operations in the UK, USA and Australia. He has been Group Chief Executive of Breedon Aggregates Limited since its formation in 2010 through the reverse acquisition of Breedon Holdings by Marwyn Materials, the AIM-listed company he co-founded with Peter Tom. Key: 1 Member of the Audit Committee 2 Member of the Remuneration Committee 3 Senior Independent Director 32


  • Page 33

    Peter Tom CBE Susie Farnon 1,2,3 Ian Peters Executive Chairman Non-executive Director Group Finance Director Peter has more than 50 years’ experience in Susie was a Banking and Finance Partner with Ian has more than 25 years’ experience in the aggregates industry. He joined Bardon Hill KPMG Channel Islands from 1990 until 2001 the European aggregates industry, initially in Quarries Limited as a school-leaver in 1956, and Head of Audit at KPMG Channel Islands financial controller roles within the UK becoming Managing Director in 1977 and from 1999. She has served as President of aggregates business of Hanson. Following Chief Executive of Bardon Group plc in 1985. the Guernsey Society of Chartered and the demerger of Hanson plc in 1997, Ian was He went on to lead the merger of Bardon and Certified Accountants and as a member of appointed Group Financial Controller and Evered plc in 1991 and the enlarged group’s The States of Guernsey Audit Commission was involved in the completion of £2.5 billion subsequent merger with CAMAS in 1997 to and The Guernsey Public Accounts of acquisitions. He was Finance and form Aggregate Industries plc. Committee. She is Vice-Chairman of The Development Director of Hanson Building Guernsey Financial Services Commission and Materials Europe between 2000 and 2003. Following the acquisition of Aggregate a non-executive director of a number of listed After a year as Finance Director, Continental Industries by Swiss building materials Group and unlisted companies. Susie was appointed Europe and Asia, in 2004 Ian was appointed Holcim Limited for £1.8 billion, he served as to the Board of Breedon Aggregates Limited General Manager, Continental Europe. non-executive Chairman of Aggregate on 1 November 2010 and became the Senior Industries until his resignation in December Independent Director in January 2012. Ian joined the senior management team of 2007. He has been Executive Chairman of Marwyn Materials Limited in 2008 and worked Breedon Aggregates Limited since its closely with the Chairman and Chief Executive formation in 2010 through the reverse on the reverse acquisition of Breedon acquisition of Breedon Holdings by Marwyn Holdings Limited in September 2010. He was Materials, the AIM-listed company he co- appointed as a director of Breedon Aggregates founded with Simon Vivian in 2008 to Limited on 1 November 2010. consolidate the smaller end of the heavyside building materials industry. Peter has been Chairman of Leicester Rugby Football Club (Leicester Tigers) since 1997. He is also Chairman of Leaf Clean Energy Company and of the Channel Islands Property Fund. 33


  • Page 34

    THE GROWTH STORY CONTINUES DIRECTORS’ REPORT The Directors present their report, together with the audited financial statements, for the year ended 31 December 2012. PRINCIPAL ACTIVITY AND RISK MANAGEMENT BUSINESS REVIEW The Board is ultimately responsible for risk Breedon Aggregates Limited’s principal activity is management and continues to develop policies and as a holding company for companies involved in the procedures that reflect the nature and scale of the quarrying, production and sale of aggregates and Group’s business. These are designed to identify, related activities. Further details of the Group’s mitigate and manage risk, but they cannot entirely activities and future developments are included in eliminate it. Further details of the key areas of risk the Chairman’s Statement on pages 8 to 10, and in to the business identified by the Group, together the Chief Executive’s Review on pages 12 to 16. with the Group’s operational key performance indicators, are included in the Financial Review on pages 18 to 24. RESULTS AND DIVIDENDS For the year to 31 December 2012, the Group’s profit before tax was £5.8 million (2011: £1.4 million) and after tax was a profit of £ 5.3 million (2011: £1.2 million). Subject to availability of distributable reserves, dividends will be paid to shareholders when the Directors believe it is appropriate and prudent to do so. STATED CAPITAL Details of the Company’s shares in issue are set out in note 18 to the financial statements. 34


  • Page 35

    DIRECTORS The following directors served during the year: Peter Tom CBE Executive Chairman Simon Vivian Group Chief Executive Ian Peters Group Finance Director Susie Farnon Independent Non-executive Director David Warr Independent Non-executive Director David Williams Non-executive Director Biographical details of the Directors who held office at the end of the year can be found on pages 32 and 33 and details of the Directors’ service contracts are given in the Directors’ Remuneration Report on pages 40 to 44. DIRECTORS’ INTERESTS The Directors in office at 31 December 2012 had interests in the issued share capital of the Company as shown in the table below. All the interests are beneficial, unless indicated otherwise. Except as disclosed in note 19 to the financial statements, no Director has any interests in the issued share capital or loan stock of any subsidiary undertaking. Ordinary Shares Directors 31 December 2012 31 December 2011 Peter Tom CBE (and family) 34,966,665 32,583,333 Simon Vivian (and family) 3,444,445 3,166,667 Ian Peters 1,944,445 1,833,333 Susie Farnon 1,650,000 1,200,000 David Warr 5,055,556 3,500,000 David Williams 13,712,133 13,212,133 There were no changes in the Directors’ interests between 1 January 2013 and 5 March 2013. 35


  • Page 36

    THE GROWTH STORY CONTINUES Ordinary Shares Beneficial holder Number % Invesco Asset Management Ltd 191,844,445 29.50 Marwyn Value Investors LP 146,223,698 22.49 Cenkos Channel Islands Nominee Co Ltd 69,724,602 10.72 Scottish Widows Investment Partnership 54,458,279 8.37 Morgan Stanley 24,054,630 3.70 SUBSTANTIAL SHAREHOLDINGS The Group is committed to providing equal The Company is aware that, as at 19 February opportunities for individuals in all aspects of 2013, other than the Directors, the interests of employment, and considers the skills and aptitudes of shareholders holding 3% or more of the issued disabled persons in recruitment, career development, share capital of the Company was as shown in the training and promotion. If existing employees become table above. disabled, every effort is made to retain them, and retraining is arranged wherever possible. EMPLOYEES The Group recognises the importance of employee CHARITABLE DONATIONS AND POLITICAL involvement in the operation and development of its CONTRIBUTIONS business units, which are given autonomy within a The Group made charitable donations of £13,344 in group policy and structure, to enable management 2012 (2011: £7,552). The Group did not make any to be fully accountable for their own actions and contributions to political parties during either the gain maximum benefit from local knowledge. current or the previous year. Employees are informed by regular consultation and internal newsletters of the progress of both their PAYMENT OF CREDITORS own business units and the Group as a whole. The Company is a holding company and has no external trade suppliers. It is the policy of the Group’s operating businesses to negotiate payment terms when agreeing the overall terms of transactions with all their suppliers, and to abide by them, provided that they are satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any standard or external code which deals specifically with the payment of suppliers. ANNUAL GENERAL MEETING Shareholders are being asked at the forthcoming Annual General Meeting to grant the Directors authority to allot up to 150,000,000 ordinary shares. Shareholders are also being asked to grant the Directors authority to allot, for cash otherwise than in connection with a rights issue, up to 103,896,580 ordinary shares, which is 15% of the current issued ordinary share capital of the Company (as adjusted for the potential exercise of the outstanding warrants). The Company did not purchase any of its ordinary shares during the year. However, the approval of shareholders is being sought to renew the existing authority to purchase its own shares. 36


  • Page 37

    If granted, and unless previously renewed, varied or AUDITOR revoked, each of the authorities described above KPMG Channel Islands Limited, has expressed shall expire at the conclusion of the Annual General willingness to continue in office and, in accordance Meeting of the Company to be held in 2014 or with Article 113 of the Companies (Jersey) Law within 12 months from the date of approval of the 1991, a resolution to reappoint KPMG Channel authority, whichever shall be the earlier. Islands Limited will be proposed at the forthcoming Annual General Meeting. GOING CONCERN The Group meets its day-to-day working capital and By order of the Board other funding requirements through its banking facility, which includes an overdraft facility, and Peter Tom CBE Simon Vivian which expires in September 2015. Further details Executive Chairman Group Chief Executive of the Group’s bank facilities are given on page 20. 5 March 2013 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 that it is appropriate to adopt the going concern basis in preparing these financial statements. DISCLOSURE OF INFORMATION TO AUDITOR The Directors who hold office at the date of this Report confirm that, so far as they are 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. 37


  • Page 38

    THE GROWTH STORY CONTINUES CORPORATE GOVERNANCE The Directors recognise the value of strong corporate Where it considers it necessary to do so, the Board governance and the Company has sought to comply, instructs external professional advisors to provide as far as it is appropriate to do so, with the Corporate advice and guidance on any matter where it Governance Guidelines for Smaller Quoted considers it prudent to seek such advice. All Companies published by the Quoted Companies members of the Board are able to take independent Alliance in September 2010 (the “QCA Guidelines”), professional advice at the Company’s expense in in respect of the accounting year ended on 31 the furtherance of their duties. December 2012. The Board has conducted a review of its own The purpose of this statement is to describe the performance and effectiveness. This review was Company’s approach to corporate governance and, carried out by way of a survey of each director in particular, to explain how the Company has completing a questionnaire on a range of key applied the QCA Guidelines. processes and procedures. The outcome of that survey was that the Board concluded that it was of an THE BOARD OF DIRECTORS appropriate size for the current stage of the The current Board comprises the Executive Company’s development and its members had a Chairman, two executive directors, two independent balanced range of functional and sector skills and non-executive directors and one non-executive experience to allow it to carry out its duties effectively. director who is not considered to be independent. The Directors explain their responsibilities for The Board considers that each of the non-executive preparing the financial statements on page 46 and directors brings a senior level of experience and the Report of the Independent Auditor on page 47 judgement to bear on issues of strategy, contains a statement of its reporting responsibilities. performance, resources (including key appointments) and standards of conduct. Mrs Farnon is the BOARD COMMITTEES Company’s Senior Independent Director. Throughout the year the Board maintained two standing committees, the Remuneration Biographical details of the Directors are set out on Committee and the Audit Committee. pages 32 and 33. Remuneration Committee The Board is provided with regular and timely Throughout the year, the Remuneration Committee information on the financial performance of comprised solely of non-executive directors. businesses within the Group, and of the Group as Mr Williams, Mr Warr and Mrs Farnon served on the a whole, together with other trading reports, Remuneration Committee throughout the year. Mr contract performance and market reports and data, Williams is chairman of the Committee. The including reports on personnel related matters Executive Chairman makes himself available to the such as health and safety and environmental Committee to discuss the performance of other issues. Six formal board meetings are held each executives and to make proposals as necessary. The year to consider those matters which have been Remuneration Committee’s responsibilities are to specifically reserved to the Board for review and make recommendations to the Board on terms of decision, including the management of assets to service, remuneration and benefits of the executive maximise performance and the control of the directors and senior executives of the Group. Where operation of the business, to review corporate it considers it prudent to do so, the Committee strategy and the progress of individual business engages external remuneration consultants to advise units, and to discharge the Directors’ other duties. and assist it. Further details of the terms of The Board has adopted a schedule of Matters reference of the Remuneration Committee are set Reserved to the Board and it keeps this under out in the Directors’ Remuneration Report on pages regular review. 40 to 44 and are available on the Group’s website. 38


  • Page 39

    SHAREHOLDER RELATIONS The Company is committed to maintaining good communications with its shareholders. Members of the Board have meetings with institutional shareholders to aid understanding of the Group’s strategic objectives and performance, and all shareholders are encouraged to participate in the Company’s Annual General Meeting. Messrs Williams and Warr, as chairmen of the Remuneration and Audit Committees respectively, and Mrs Farnon, as Senior Independent Director, Audit Committee will be available to answer questions at the Mr Warr and Mrs Farnon served on the Audit forthcoming Annual General Meeting. In addition, Committee throughout the year. Mr Warr is chairman proxy votes will be counted and the results of the Committee. Written terms of reference have announced after any vote on a show of hands. been agreed for the Audit Committee, the main role of which is the oversight and monitoring of the The Company complies with the recommendation Group’s financial statements, which includes keeping of the UK Corporate Governance Code that the under review the scope and results of the audit, its notice of the Annual General Meeting and related cost effectiveness, the independence and objectivity papers should be sent to shareholders at least of the auditor and the effectiveness of internal twenty working days before the meeting. control. Full terms of reference for the Audit Committee are available on the Group’s website. The Executive Chairman ensures that the views of shareholders are communicated to the Board as a The Audit Committee invites the Executive Chairman, whole, and that non-executive directors develop an the Group Chief Executive and the Group Finance understanding of the views of major shareholders. Director, and senior representatives of the external auditor to attend part of its meetings as appropriate. INTERNAL CONTROL The Board is ultimately responsible for the Group’s The members of the Audit Committee have system of internal control and for reviewing its relevant and recent financial experience at senior effectiveness. However, such a system is designed executive level. to manage rather than eliminate the risk of failure to achieve business objectives, and can provide Nominations Committee only reasonable and not absolute assurance against The Board has considered the possible requirement material misstatement or loss. for a Nominations Committee and it has concluded that, as the Board is small, there is no current need The Directors have reviewed the effectiveness of for a separate Nominations Committee and the the Group’s system of internal control including appointment of any new directors of the Company financial, operational, compliance and risk will be considered by the Board as a whole. This management controls, which mitigate the situation will be periodically reviewed. significant risks identified. A formal Risk Register has been drawn up, and this is reviewed by the MEETINGS ATTENDANCE Board at least twice annually. The Board met formally 6 times during the year and the attendance of the Directors, who held office at The Group does not have an internal audit function. 31 December 2012, at each meeting together with This is presently considered appropriate given the attendance at committee meetings, is set out in size of the Group and the close involvement of the table below. This table shows only those executive directors and senior management on a day meetings which each director attended as a to day operational basis. However, the need for an member rather than as an invitee. internal audit function is kept under regular review. Board Audit Committee Remuneration Committee Eligible Eligible Eligible Attended Attended Attended to attend to attend to attend Peter Tom CBE 6 6 - - - - Simon Vivian 6 6 - - - - Ian Peters 6 6 - - - - Susie Farnon 6 6 2 2 3 3 David Warr 4 6 2 2 2 3 David Williams 6 6 - - 3 3 39


  • Page 40

    THE GROWTH STORY CONTINUES DIRECTORS’ REMUNERATION REPORT The responsibility for establishing the Group’s overall remuneration policy lies with the Board as a whole. The Remuneration Committee works within agreed terms of reference to make recommendations to the Board on the Group’s framework for executive remuneration. The terms of reference of the Remuneration Committee are available on the Group’s website. REMUNERATION COMMITTEE The role of the Remuneration Committee is broadly The Remuneration Committee was chaired by David to determine the terms of employment, including Williams throughout the year. At the end of the remuneration and other benefits, for individual financial year, the Committee comprised David directors and senior management, within the Williams, David Warr and Susie Farnon. The Company overall policy as agreed by the Board as a whole. Secretary acts as secretary to the Committee. The The Remuneration Committee gives full Committee met 3 times formally in 2012. consideration to the provisions of the UK Corporate Governance Code concerning remuneration policy, service contracts and compensation. The Remuneration Committee takes into account remuneration packages of comparable companies and has access to professional advice from both internal and external sources in order to determine and develop its recommendations. REMUNERATION POLICY In order to ensure that it attracts and retains a management team with the appropriate skills to provide maximum shareholder value for the future, the Group needs to ensure that its pay and benefit practices are competitive but consistent with the Group’s circumstances; that they motivate employees at all levels; and that they recognise and reward high standards of performance. The Group’s remuneration policy is as follows: (i) to ensure that individual rewards and incentives are aligned with the performance of the Group and the interests of Shareholders; (ii) to maintain a competitive remuneration package which enables the Group to attract, retain and motivate high calibre executives; and (iii) to ensure that performance related elements form a significant proportion of total remuneration. 40


  • Page 41

    The Group’s non-executive directors do not Transaction Bonuses participate in any incentive scheme, share scheme In accordance with the terms of their service or pension arrangement. The remuneration of non- agreements, upon completion of the acquisition of executive directors is a matter for the Board as a any trading company, the executive directors are whole, taking into account market rates and the entitled to a transaction bonus of up to 0.5% of the required time commitment. value of the transaction to be shared amongst them at the discretion of the Remuneration Committee. (I) BASIC SALARY Executive directors’ and senior managers’ individual Long Term Incentive Arrangements salaries and performance incentives are determined The Directors believe that the success of the by personal factors. Company will depend to a high degree on the future performance of the management team. The These include the individual’s performance as Company has therefore established incentive measured by an appraisal process, and any other arrangements which will only reward the matters likely to affect a particular executive’s value participants if shareholder value is created, thereby in the employment market. aligning the interests of management directly with those of the shareholders. Basic salaries are reviewed on an annual basis or following a significant change in responsibilities. The executive directors have subscribed for Participation Shares in the Company’s wholly (II) INCENTIVE ARRANGEMENTS owned subsidiary Marwyn Materials Investments Annual Cash Bonus Limited (the “Management Participation Shares”). In addition to basic salary, the Group operates a Further details of the Management Participation performance related cash bonus scheme and Shares, including descriptions of the Growth and challenging performance goals are set which must Vesting Conditions, are set out in note 19 to the be achieved before the maximum bonus becomes financial statements. payable. The Company has agreed, subject to certain performance targets being achieved, to pay Certain other members of the Group’s senior Peter Tom a bonus of up to £200,000 in relation to executive management team participate in the each financial year of the Company. The maximum Breedon Aggregates Performance Share Plan (the bonus opportunity for Simon Vivian and Ian Peters, “PSP”). Further details of the awards made under as executive directors, is 100% of salary as at the the PSP are set out in note 19 to the financial end of the year, linked to targets based on the statements. Group’s EBITDA performance. For other senior management in the Group, the maximum bonus opportunity is up to 75% and is linked to targets based on achieving EBITDA targets for the businesses for which they are responsible. Bonuses are not pensionable. 41


  • Page 42

    THE GROWTH STORY CONTINUES (III) PENSIONS (ii) Executive Directors Simon Vivian and Ian Peters are paid a salary Peter Tom CBE supplement equal to 17.5% of their base salary in On 5 June 2008, the Company entered into a lieu of a pension contribution. service agreement with Rise Rocks Limited for the purposes of procuring the services of Peter Tom as SERVICE AGREEMENTS / LETTERS OF a consultant to the Company in the role of APPOINTMENT OF THE DIRECTORS Chairman. This agreement does not render Mr Tom The Directors are party to the following service as an employee, officer, worker or partner of the agreements/letters of appointment with the Company: Company. To the extent that any liabilities arise in connection with a claim that he is an employee, (i) Non-executive Directors officer, worker or partner of the Company, Mr Tom The Company has entered into letters of appointment agrees to indemnify the Company (and its with each of Susie Farnon, David Warr and David associates) from any such claim. Williams, pursuant to which each of them were appointed as a non-executive director of the Company. The agreement will continue until terminated. The Company may terminate this agreement by giving The letters of appointment do not contain a fixed not less than 12 months’ written notice to Mr Tom. time commitment but require each non-executive Mr Tom may terminate the agreement by giving the director to ensure that he or she has sufficient time Company not less than 12 months’ written notice. to meet the expectations of the role. The Company may also terminate the agreement with immediate effect in certain other specified The appointments can be terminated by either party circumstances. Upon termination a payment in lieu without notice. The non-executive directors each of notice may be made to Mr Tom. The service receive a fee for their services of £25,000 per agreement is governed by English law. annum payable in equal monthly instalments and are entitled to be reimbursed all reasonable expenses, properly incurred in the course of performing their duties. In addition, Mrs Farnon receives a further £5,000 per annum in recognition of her additional responsibilities as Senior Independent Director. No other benefits are payable. The letters of appointment are governed by Jersey law. 42


  • Page 43

    Simon Vivian On 5 June 2008, the Company entered into a service agreement with Simon Vivian pursuant to which he is employed as Group Chief Executive. The service agreement will continue until terminated. The Company may terminate this agreement by giving not less than 12 months’ written notice to Mr Vivian. Mr Vivian may terminate the agreement by giving the Company not less than 12 months’ written notice. The Company may also terminate the agreement with immediate effect in certain other specified circumstances. Upon termination a payment in lieu of notice may be made to Mr Vivian. The service agreement is governed by English law. Ian Peters SUCCESSION PLANNING On 5 June 2008, the Company entered into a The Board recognises the requirements of the QCA service agreement with Ian Peters pursuant to Guidelines that it should, through periodic review, which he is employed as Group Finance Director. ensure that plans for an orderly succession to Board and senior management positions are The service agreement will continue until regularly updated. It will continually monitor the terminated. The Company may terminate this composition of the senior management team, agreement by giving not less than 12 months’ including the executive directors, and, taking into written notice to Mr Peters. Mr Peters may account factors such as age, experience and career terminate the agreement by giving the Company progression opportunities, it will formulate plans not less than 12 months’ written notice. The well in advance of potential vacancies arising. Company may also terminate the agreement with immediate effect in certain other specified circumstances. Upon termination a payment in lieu of notice may be made to Mr Peters. The service agreement is governed by English law. During any notice period, it is the Company’s policy to have regard to an individual’s duty to mitigate his loss in respect of those contractual rights that he would otherwise be entitled to receive. On the early termination of any contract, the Board will act in shareholders’ interests in arriving at the level of compensation to be awarded. 43


  • Page 44

    THE GROWTH STORY CONTINUES OUR PEOPLE THEIR STORY JACEK HAS BEEN MAKING UP TO 2,000 TONNES OF ASPHALT EACH WEEK SINCE JOINING BREEDON AGGREGATES IN APRIL 2012 My job brings me in direct contact with our customers and I like that. We’re developing new mixes all the time, so that the asphalt meets every possible requirement. Here at Stirlinghill we’ve been making Breedon Polymer R+ that includes rubber powder from recycled tyres to give superior grip over conventional road surface materials. Sometimes when I’m driving to work I think: This is a good surface and I made it. DETAILS OF REMUNERATION The remuneration of the Directors for the year ended 31 December 2012 was as shown in the table below. Total Pension Contributions (note 4) Salary Bonus Fees Benefits 2012 2011 2012 2011 (note 1) (note 2) (note 3) Peter Tom CBE - - 447,437 - 447,437 376,897 - - Simon Vivian 479,367 258,000 - 4,132 741,499 644,786 - - Ian Peters 215,104 112,875 - 4,123 332,102 294,642 9,843 37,187 Susie Farnon - - 30,000 - 30,000 25,000 - - David Warr - - 25,000 - 25,000 25,000 - - David Williams - - 25,000 - 25,000 25,000 - - James Corsellis (note 5) - - - - - 10,417 - - Total 694,471 370,875 527,437 8,255 1,601,038 1,401,742 9,843 37,187 Notes 1. The bonuses paid and payable to Messrs Vivian and Peters 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 £290,000 (2011: £196,867) in respect of services provided by Rise Rocks Limited, a company in which Mr Tom has a beneficial interest, and the sum of £157,437 (2011: £180,030) which was paid or payable to Rise Rocks Limited as bonuses pursuant to the consultancy agreement between the Company and Rise Rocks Limited. 3. Benefits for Mr Vivian and Mr Peters comprise the provision of private medical insurance and the reimbursement of certain travel costs. 4. In 2011 the Group introduced a Group Personal Pension Plan (the “GPPP”) which is funded by way of an HMRC approved salary sacrifice arrangement. Pension contributions paid in respect of Mr Peters therefore include the portion of his salary sacrificed for this purpose. Mr Peters withdrew from the GPPP with effect from 1 April 2012. 5. The fees payable in respect of Mr Corsellis were paid to Marwyn Capital LLP in respect of his services as a non-executive director, and represent their fees until his resignation as a director on 22 July 2011. MANAGEMENT PARTICIPATION SHARES Details of Management Participation Shares issued to Directors (“Management Participation Shares”) which give rights to participate in an increase in the market capitalisation of the Company are set out in note 19 to the financial statements. At 31 December 2012, the Group had a number of Management Participation Shares outstanding. None of the Management Participation Shares vested during the year. On behalf of the Board David Williams Chairman, Remuneration Committee 5 March 2013 44


  • Page 45

    Jacek Labus Asphalt Plant Operator Stirlinghill 45


  • Page 46

    BREEDON AGGREGATES ANNUAL REPORT & ACCOUNTS 2012 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 International Financial Reporting Standards as adopted by the EU. Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and apply them consistently; • make judgments and estimates which are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 46


  • Page 47

    Independent Auditor’s Report to the Members of Breedon Aggregates Limited 37 Esplanade St Helier Jersey JE4 8WQ Channel Islands We have audited the Group financial statements of Breedon Aggregates Limited (the “Group”) for the year ended 31 December 2012 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the EU. 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. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Responsibilities set out on page 46, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: • give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of the Group’s profit for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards as adopted by the EU; and • have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Company; or • the 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. Andrew P Quinn 5 March 2013 for and on behalf of KPMG Channel Islands Limited Chartered Accountants Notes: 1. The maintenance and integrity of the Breedon Aggregates Limited website is the responsibility of the Directors; the work carried out by the Auditor does not involve consideration of these matters and, accordingly, KPMG Channel Islands Limited accepts no responsibility for any changes that may have occurred to the financial statements or our audit report since 5 March 2013. KPMG Channel Islands Limited has carried out no procedures of any nature subsequent to 5 March 2013 which in any way extends this date. 2. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors shall remain responsible for establishing and controlling the process for doing so, and for ensuring that the financial statements are complete and unaltered in any way. 47


  • Page 48

    BREEDON AGGREGATES ANNUAL REPORT & ACCOUNTS 2012 Consolidated Income Statement for the year ended 31 December 2012 Note 2012 2011 Underlying Non- Total Underlying Non- Total underlying* underlying* (note 3) (note 3) £000 £000 £000 £000 £000 £000 Revenue 1,2 173,457 - 173,457 168,888 - 168,888 Cost of sales (126,426) - (126,426) (130,035) - (130,035) Gross profit 47,031 - 47,031 38,853 - 38,853 Distribution expenses (24,031) - (24,031) (19,816) - (19,816) Administrative expenses (14,160) 195 (13,965) (13,349) (758) (14,107) Gain on bargain purchase - - - - 636 636 Group operating profit 2 8,840 195 9,035 5,688 (122) 5,566 Share of profit of associated undertaking (net of tax) 11 1,033 - 1,033 659 - 659 Profit from operations 9,873 195 10,068 6,347 (122) 6,225 Financial income 6 5 - 5 2 - 2 Financial expense 6 (4,279) - (4,279) (4,842) - (4,842) Profit before taxation 5,599 195 5,794 1,507 (122) 1,385 Taxation 7 (1,392) 885 (507) (316) 130 (186) Profit for the year 4,207 1,080 5,287 1,191 8 1,199 Attributable to: Equity holders of the parent 4,176 1,080 5,256 1,167 8 1,175 Non-controlling interests 31 - 31 24 - 24 Profit for the year 4,207 1,080 5,287 1,191 8 1,199 Basic earnings per ordinary share 24 0.67p 0.85p 0.21p 0.21p Diluted earnings per ordinary share 24 0.59p 0.75p 0.20p 0.20p * Non-underlying items represent acquisition related expenses, redundancy and reorganisation costs, property items, impairments, amortisation of acquisition intangibles, changes in the fair value of financial instruments, gains on bargain purchase and related tax items. 48


  • Page 49

    Consolidated Statement of Comprehensive Income for the year ended 31 December 2012 Note 2012 2011 £000 £000 Profit for the year 5,287 1,199 Other comprehensive income Effective portion of changes in fair value of cash flow hedges (107) (201) Taxation on items taken directly to other comprehensive income 7 31 52 Other comprehensive income for the year (76) (149) Total comprehensive income for the year 5,211 1,050 Total comprehensive income for the year is attributable to: Equity holders of the parent 5,180 1,026 Non-controlling interests 31 24 5,211 1,050 49


  • Page 50

    BREEDON AGGREGATES ANNUAL REPORT & ACCOUNTS 2012 Consolidated Statement of Financial Position at 31 December 2012 Note 2012 2011 £000 £000 Non-current assets Property, plant and equipment 8 144,895 151,984 Intangible assets 9 2,295 1,648 Investment in associated undertaking 11 887 792 Total non-current assets 148,077 154,424 Current assets Inventories 13 8,048 8,001 Trade and other receivables 14 36,451 34,555 Cash and cash equivalents 5,048 921 Total current assets 49,547 43,477 Total assets 197,624 197,901 Current liabilities Interest-bearing loans and borrowings 15 (4,816) (8,237) Trade and other payables 16 (31,035) (33,366) Provisions 17 (123) (166) Total current liabilities (35,974) (41,769) Non-current liabilities Interest-bearing loans and borrowings 15 (74,290) (88,869) Provisions 17 (6,471) (7,172) Deferred tax liabilities 12 (1,540) (1,059) Total non-current liabilities (82,301) (97,100) Total liabilities (118,275) (138,869) Net assets 79,349 59,032 Equity attributable to equity holders of the parent Stated capital 18 77,586 62,715 Cash flow hedging reserve 18 (171) (95) Capital reserve 18 1,945 2,069 Retained earnings (150) (5,765) Total equity attributable to equity holders of the parent 79,210 58,924 Non-controlling interests 139 108 Total equity 79,349 59,032 These financial statements were approved by the Board of Directors on 5 March 2013 and were signed on its behalf by: Simon Vivian Ian Peters Group Chief Executive Group Finance Director 50

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