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Breedon profits rise strongly despite Hope impacting on margins

20 Jul 17 Integration of the Hope Construction Materials business has resulted in Breedon Group doubling its revenues, leading to a 50% rise in half-year profits.

Breedon Group executive chairman Peter Tom
Breedon Group executive chairman Peter Tom

For the six months to 30th June 2017, Breedon Group generated revenues of £326.3m (2016 H1: £163.0m) and made a pre-tax profit of £31.2m (2016 H1: £20.9m).

Breedon completed its £336m acquisition of Hope Construction Materials on 1st August 2016.

The underlying EBIT margin was 11%, down from 14% for the same period last year, reflecting the lower margin delivered by the former Hope business and the phasing of Hope Cement’s kiln maintenance shutdowns. This was expected.

Breedon has invested in improvements at former Hope quarries, notably at Dowlow, a rail-linked quarry in Derbyshire, where new machinery and crushing equipment has been introduced. 

The former Breedon Aggregates business, however, delivered an underlying EBIT margin of 15.8%, ahead of the company’s target of 15% by 2020.  “Whilst it will clearly be more challenging in the wake of the Hope acquisition, we continue to target a 15% underlying EBIT margin for the group by 2020,” chairman Peter Tom said.

He added: “I am pleased to report that in the first half of 2017 the former Breedon Aggregates business posted a strong profit improvement and the former Hope Construction Materials business made a robust contribution, even after taking into account the shutdowns of both our cement kilns for planned annual maintenance and upgrade during the first half, which were completed on time and to budget.

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“Although the outcome of the general election, coupled with the commencement of Brexit negotiations, have created some further uncertainty for the UK economy, the outlook for UK construction remains encouraging.  It is reassuring that the government’s direction of travel appears to be moving away from continued austerity towards fiscal stimulus, which can only be helpful to our industry.

“We have consistently demonstrated our ability to generate value for our shareholders irrespective of economic conditions, through flexible and imaginative customer service, rigorous cost control, focused investment and a culture of continuous operational improvement.  These disciplines, coupled with a strong balance sheet and healthy cashflow, put us in a strong position to take advantage of future growth opportunities, both organically and through further bolt-on acquisitions.

“More immediately, our performance in the first six months and our prospects for the second half give us confidence that we will meet 2017 market expectations.”

The Construction Products Association (CPA) is forecasting construction output growth of 1.3% in 2017 and 1.2% in 2018, before accelerating to 2.3% growth in 2019.

Overall, the CPA expects construction output to be 4.9% higher in 2019 compared with 2016. The Mineral Products Association is forecasting a 5% growth in ready-mixed concrete volumes and 4% growth in aggregates and cement volumes over 2017-2019.

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