26 July 2023
BREEDON GROUP PLC
Interim results 2023
Strong first half; full year expectations maintained
Strategic execution and operational focus deliver robust performance
Breedon Group plc (Breedon or the Group), a leading vertically-integrated construction materials group in Great Britain and Ireland, announces unaudited interim results for the six months ended 30 June 2023.
| Statutory highlights | Underlying1 highlights | ||||||||
| £mexcept where stated | H1 2023 | H1 2022 | % change | H1 2023 | H1 2022 | % change | % LFL2 | ||
| Revenue | 742.7 | 671.1 | 11% | 742.7 | 671.1 | 11% | 7% | ||
| EBIT | 62.1 | 65.5 | (5)% | 70.5 | 66.9 | 5% | 4% | ||
| EBIT margin | 8.4% | 9.8% | (140)bps | 9.5% | 10.0% | (50)bps | |||
| Profit Before Tax | 56.5 | 59.5 | (5)% | 64.9 | 60.9 | 7% | |||
| Basic EPS3,4 | 13.0p | 14.5p | (10)% | 15.3p | 15.0 | 2% | |||
| Dividend per share4 | 4.0p | 3.5p | 14% | ||||||
| Net Debt5 | 220.4 | 256.7 | (14)% | ||||||
| Covenant Leverage6 | 0.7x | 1.0x | (0.3)x | ||||||
| ROIC7 | 10.0% | 10.0% | – | ||||||
FINANCIAL HIGHLIGHTS
Operational focus and agile delivery generated a strong first half financial performance
· Resilient end-markets continued to be supported by long-term structural growth drivers
· Dynamic pricing tailwind more than offsets expected lower volumes, leading to revenue increase of 11% or 7% on a like-for-like basis
· Underlying EBIT growth of 5% reflects revenue drop through, partially offset by higher energy costs as hedges moved back into line with market pricing
Financial flexibility maintained while investing for growth
· ROIC maintained at 10%
· Investment in three strategic bolt-on acquisitions
· Significantly lower Covenant Leverage at 0.7x due to lower seasonal working capital outflow, good control of inventories and strong cash collection
Interim dividend increased significantly ahead of earnings by 14% to 4.0p
· Reflecting our confidence in the prospects of the Group and in keeping with our progressive dividend policy
OPERATING HIGHLIGHTS
Emphasis on operational excellence and cost recovery
· Self-help; all divisions initiated operational excellence reviews, Cement executed two scheduled kiln maintenance shutdowns on time and within budget
· GB revenue increased 10%; completed two bolt-on transactions and delivered a solid first half through nimble execution, strong pricing tailwind and careful cost management
· Ireland grew revenue 11%; traded well through tendering season, winning work on quality, and completed the acquisition of Robinson Quarry Masters
· Cement increased revenue 18%; strong pricing was sustained, enabled by resilient end-market demand
Significant sustainability milestones achieved
· Key partner in the launch of the Peak Cluster initiative, an innovative carbon capture and storage collaboration aiming to reduce industry emissions significantly
· ‘Breedon Balance’, our range of products with sustainable attributes, continued to gain traction, accounting for 30% of revenue
· Further improvement in our rate of Cement alternative fuel substitution to 50% (2022: 48.5%)
ADMITTED TO THE MAIN MARKET OF THE LONDON STOCK EXCHANGE
Breedon shares now traded on the Main Market
· We expect to be eligible for inclusion in the FTSE 250 and FTSE-All share indices at the next index review in September 2023
CURRENT TRADING AND OUTLOOK
Well-positioned for the second half; full year expectations maintained
· The end-markets we serve have remained resilient. End-market visibility beyond 2023 remains limited in light of the uncertain economic outlook
· In response, we have increased our emphasis across the Group on operational excellence and agility to ensure Breedon is as competitive as it has ever been
· Well-positioned for the second half of the year; the Group is trading in line with the Board’s expectations which remain unchanged
Rob Wood, Chief Executive Officer, commented:
“In the first half our vertically-integrated and local operating model has again come to the fore, leveraging our long-term customer relationships and deep market knowledge. Our first class team has operated with great agility to deliver a strong start to 2023 for which I thank them sincerely and we are well-positioned for the second half of the year.
“The long-term structural dynamics driving infrastructure spending and housebuilding in GB and Ireland have not changed. To ensure we can efficiently and sustainably meet long-term demand for our essential construction materials, we have re-doubled our focus on those factors under our control; keeping our people safe and well while minimising the cost of production and maximising the value of the extensive portfolio of assets we own and acquire.
“By emphasising the operational factors we can influence, we will ensure we remain competitive and continue to deliver outstanding results. By challenging our procedures and practices, we can be sure we will be in the strongest possible position when our end-markets return to growth.”
Notes:
1. Underlying results are stated before acquisition-related expenses, redundancy and reorganisation costs, property gains and losses, amortisation of acquisition intangibles, AIM to Main Market costs and related tax items. References to an Underlying profit measure throughout this announcement are defined on this basis.
2. Like-for-like reflects reported values adjusted for the impact of acquisitions and disposals.
3. EPS in the Underlying Highlights is Adjusted Underlying Basic EPS, which is Underlying Basic EPS adjusted to exclude the impact of changes in the deferred tax rate of £0.1m (HY 2022: £0.6m).
4. Comparative values for Earnings and Dividend per share measures have been restated to reflect the impact of the 5:1 share consolidation undertaken during the period.
5. Net Debt including IFRS 16 lease liabilities.
6. Covenant Leverage is defined as the ratio of Underlying EBITDA to Net Debt, with both Underlying EBITDA and Net Debt amended to reflect the material items which are adjusted by the Group and its lenders in determining leverage for the purpose of assessing covenant compliance. In both the current and prior periods, the only material adjusting item was the impact of IFRS 16.
7. ROIC: post-tax return on average invested capital.
8. Information for investors, including analyst consensus estimates, can be found on the Group’s website at www.breedongroup.com/investors.
RESULTS PRESENTATION
Breedon will host a results presentation for analysts and investors at 08:30am today at the offices of Numis, 45 Gresham Street, London EC2V 7BF, or online via www.breedongroup.com/investors. The presentation will be followed by Q&A, where it will be possible to participate through the following dial-in details:
| Event Title: | Breedon Interim Results 2023 |
| Start Time/Date: | 08:30 Wednesday, 26 July 2023 – please join the event 5-10 minutes prior to scheduled start time. When prompted, provide the confirmation code or event title |
| United Kingdom, Toll-free: | 0808 109 0700 |
| United Kingdom, Local: | +44 (0) 33 0551 0200 |
| Password: | Quote ‘Breedon interim results’ when prompted |
| ENQUIRIES | |
| Breedon Group plc | +44 (0) 1332 694010 |
| Rob Wood, Chief Executive OfficerJames Brotherton, Chief Financial Officer | |
| Louise Turner-Smith, Head of Investor Relations | +44 (0) 7860 911909 |
| MHP (Public relations adviser) | +44 (0) 20 3128 8193 |
| Reg Hoare, Rachel Farrington, Charles Hirst | breedon@mhpgroup.com |
About Breedon Group plc
Breedon Group plc, a leading vertically-integrated construction materials group in Great Britain and Ireland, delivers essential products to the construction sector. Breedon holds 1bn tonnes of mineral reserves and resources with long reserve life, supplying value-added products and services, including specialty materials, surfacing and highway maintenance operations, to a broad range of customers through its extensive local network of quarries, ready-mixed concrete and asphalt plants.
The Group’s two well-invested cement plants are actively engaged in a number of carbon reduction practices, which include utilising alternative raw materials and lower carbon fuels. Breedon’s 3,800 colleagues embody our commitment to ‘Make a Material Difference’ as the Group continues to execute its strategy to create sustainable value for all stakeholders, delivering growth through organic improvement and acquisition in the heavyside construction materials market. Breedon shares (BREE) are traded on the Main Market of the London Stock Exchange.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
STRONG FIRST HALF BENEFITS FROM AGILE EXECUTION
Markets
The construction materials market is contending with a number of conflicting forces. Long-term structural growth drivers remain in place, supporting the need for investment in infrastructure and housing. However, inflation-impacted government budgets, political instability and housing affordability present near-term headwinds.
Breedon’s focus remains on charting our own clear course to ensure we are as competitive and agile as we can be. By faithfully implementing our sustainable growth strategy and maintaining our financial flexibility, focusing on the quality of our products and customer service, we have executed well through the first-half and delivered a strong financial performance.
Financial performance
During the first half we grew revenue 11% to £742.7m (H1 2022: £671.1m) or 7% on a like-for-like basis when adjusting for the six bolt-on acquisitions completed in the last twelve months. Volumes declined as expected, however were more than offset by a 12 ppt increase in pricing.
Underlying EBIT of £70.5m (H1 2022: £66.9m) grew 5% reflecting the benefits of the pricing tailwind carried through from 2022 and full input cost recovery achieved in the first half, partially offset by higher energy costs as hedges moved back into line with market pricing. Consequently, Underlying EBIT margin of 9.5% reduced by 50bps when compared to the same period in the prior year (H1 2022: 10.0%).
The Group generated free cash inflow of £20.8m (H1 2022: outflow of £22.0m) following stable capital investment and lower seasonal working capital outflows of £40.9m (H1 2022: outflow of £77.2m), assisted by strong cash collection. Following the completion of three strategically significant bolt-on acquisitions for a combined enterprise value of £19m, closing Covenant Leverage was significantly lower at 0.7x (H1 2022: 1.0x). Post-tax return on invested capital remained at 10.0% (H1 2022: 10.0%), reflecting a robust trading outcome, partially offset by the impact of the increased UK corporate tax rate from the second quarter.
Dividend
The Board regularly reviews capital allocation scenarios, balancing capital investment and M&A with reducing debt and returning cash to shareholders, while prioritising profitable growth and ROIC. As a consequence of our strong financial performance, the Board intend to pay an interim dividend of 4.0p (H1 2022 restated: 3.5p), an increase of 14% and significantly ahead of earnings. This reflects our confidence in the prospects of the Group and is in keeping with our progressive dividend policy. The dividend timetable will be published in due course.
Move to the Main Market
On 17 May 2023 Breedon Group plc shares were admitted to the Premium Listing Segment of the Official List and to trading on the Main Market of the London Stock Exchange. At the same time, Breedon completed a five for one share consolidation which reduced the number of shares in issue. Comparative earnings per share and dividend per share figures have been restated as a consequence.
STRATEGY REVIEW
Sustain
Our sustainability strategy is gaining momentum and we were pleased to achieve significant milestones during the first half towards ensuring the long-term sustainability of the Group. During the period we made progress towards meeting our commitment to the Science Based Targets initiative. In addition, we have committed to securing a rating from CDP with the rating process underway.
Breedon is a key partner in the Peak Cluster initiative and in May we hosted the launch at our Hope cement plant in the heart of the Peak District. This is an innovative collaboration to capture, transport and permanently store CO2 emissions from the cement and lime industry in Derbyshire and Staffordshire, as well as neighbouring industries in Cheshire. It is expected the project will remove over three million tonnes of carbon dioxide emissions each year by 2030, a move that will reduce UK emissions from cement and lime manufacture by around 40%.
The performance of our cement business is remarkable in the context of the high proportion of alternative fuels utilised, a factor which adds complexity to the production process. Fossil fuel replacement reached a combined rate of 50%; our Kinnegad cement plant continued to push the boundaries of alternative fuel use, achieving a rate of 82%, and at times exceeding 90%.
At Breedon, we have nearly 15,000 hectares of land, strong relationships with the nature groups and communities around our sites, and our colleagues are enthusiastic advocates of the ecosystems surrounding our operations. We hosted a biodiversity week in May to raise awareness of our commitment to nature and biodiversity, highlight good practice, and to accelerate our biodiversity action plans across the Group.
Our highest priority is ensuring that our 3,800 colleagues return ‘Home Safe and Well’ each day. We constantly strive to improve our outcomes in this area, so we were pleased to see industry body, MPA, recognise our colleagues’ achievements with regional awards for health and safety initiatives on site. We undertook a pulse engagement survey to understand cultural perceptions around our safety behaviours and inform the training we implement throughout the rest of the year.
We continue to strive to make Breedon a great place to work. We partnered with a leading wealth and benefits advisor to host regular personal finance seminars, and in April we awarded a pay increase of at least 6%, acknowledging the cost of living pressures many of our colleagues are facing. In May, Breedon Ireland achieved an outstanding 12th place on the Sunday Independent/Statista list of Ireland’s 150 Best Employers, the highest placed company in the construction related sectors, which is testament to our commitment to our colleagues’ overall health, safety and wellbeing.
Optimise
Our core values emphasise self-help, seeking to improve the efficiency of our operations by ‘keeping it simple’ and ‘striving to improve’. Following more than a decade of growth, an active M&A programme and more than 300 sites across the Group, each division initiated operational excellence reviews in 2023.
GB created a new role to drive operational improvement and standardise quarry operations. Ireland, under a new leadership team and structure, reorganised support functions and is taking the opportunity to implement solar energy solutions where possible. Cement, which has a clear programme of scheduled maintenance, sustained its market-leading reliability performance.
Expand
Many of our acquisition opportunities come to us through our local knowledge and personal engagement with the asset owners. During the first half we completed three transactions in GB and Ireland, with a combined enterprise value of up to £19m, as our active M&A pipeline continued to yield high quality, earnings enhancing opportunities.
In Ireland the acquisition of Robinson Quarry Masters, a family-run quarrying and concrete block business, has extended our footprint North of Belfast. Robinson Quarry Masters, with nearly 40 million tonnes of mineral reserves and resources, has enhanced our mineral footprint in Ireland and has a well-established customer base with exposure to housing, commercial and infrastructure end-markets.
In GB we acquired two downstream businesses. Broome Bros., a leading manufacturer of concrete blocks based in Doncaster, is adjacent to one of our existing ready-mixed concrete sites. Minster Surfacing, an award-winning regional surfacing business based in Lincoln with strong sustainability credentials, delivers a diverse portfolio of works from the Midlands to London. Each of the acquired businesses has started promisingly under Breedon ownership.
Our M&A pipeline remains healthy and active. We are a trusted partner for asset owners in GB and Ireland where we have looked to build and strengthen relationships as we seek to in-fill our existing capability and footprint. Longer-term, we continue to explore the possibility of selectively establishing a platform in the US, a large fragmented market that offers attractive growth prospects.
Our vertically-integrated model is backed by around one billion tonnes of mineral reserves and resources making us one of the largest heavyside building materials suppliers in GB and Ireland, with reserves under our stewardship equivalent to over 30 years of production. Our mineral planning pipeline is currently in excess of 100 million tonnes.
OUTLOOK
We entered 2023 in a good strategic and financial position, supplying structurally growing end-markets with essential materials. We have had a strong start to the year, benefitting from the dynamic pricing strategy implemented in recent years while maintaining a sharp focus on operational excellence.
The UK economic landscape remains uncertain with limited visibility beyond 2023, particularly with respect to residential housebuilding from which c.20% of our revenues are derived. While recent UK construction PMI data indicates infrastructure and non-residential building (end-markets that account for c.70% of our revenues) remain in expansionary territory, CPA growth forecasts have been reduced, indicating construction output will return to muted growth in 2024.
Similarly for Republic of Ireland, Euroconstruct construction output forecasts were reduced during the period. Although growth expectations for 2023 were reduced by 0.4% to 2.1%, this remained one of the fastest growth rates in Western Europe. Encouragingly, the construction PMI returned to growth territory, increasing to 50.4 in June 2023, the first upturn in activity since September 2022.
Our forward hedging programme, which has moved back into line with market pricing, continues to provide visibility of our cost base and support our careful approach to cost and risk management.
Due to the timing of price increases in 2022, the phasing of Underlying EBIT in 2023 will continue to be weighted towards the second half, although to a lesser extent than in prior years
The Breedon model is resilient and continues to deliver a solid operational performance with continued strong cash generation, irrespective of the macroeconomic or political backdrop. We are well-positioned for the second half of the year; the Group is trading in line with the Board’s expectations which remain unchanged.
OPERATIONAL REVIEW
Product volumes
| m’ tonnes except where stated | H1 2023 | H1 2022 | H1 2021 | H1 2020 | H1 2019 |
| Aggregates | 13.0 | 13.6 | 15.0 | 8.0 | 9.9 |
| Asphalt | 1.8 | 1.9 | 2.0 | 1.0 | 1.4 |
| Cement | 1.1 | 1.2 | 1.2 | 0.8 | 1.0 |
| Ready-mixed concrete (m3) | 1.5m | 1.5m | 1.7m | 1.0m | 1.5m |
Volumes performed broadly in line with industry forecasts. On a like-for-like basis, aggregate volumes reduced 6%, asphalt 3%, cement 3% and ready-mixed concrete was marginally lower compared with the first half of 2022.
Great Britain
| £m except where stated | H1 2023 | H1 2022 | Change % | LFL % |
| Revenue | 519.6 | 473.1 | +10% | +5% |
| Underlying EBIT | 42.8 | 41.5 | +3% | +1% |
| Underlying EBIT margin | 8.2% | 8.8% | (60)bps |
Our GB team delivered a solid performance in a softening market. Revenue increased 10% or 5% on a like-for-like basis when adjusting for the five transactions completed by the division since 30 June 2022.
Aggregate and asphalt volumes declined in line with the broader market while volumes of ready-mixed concrete were stable. Pricing, which benefitted from the prior year tailwind, remained well-underpinned by resilient end-markets and was sufficient to offset input cost inflation. Underlying EBIT margin decreased by 60bps to 8.2%, primarily attributable to product mix and the impact of operating leverage from reduced volumes.
Our enhanced focus on operational excellence yielded positive outcomes. At Dowlow, our largest rail-connected limestone quarry, the team relocated the mobile crushing plant to a new processing area, reducing fuel usage and cycle times while creating additional maintenance windows. They also improved blasting efficiency by increasing the size of shot-fires, which in turn reduced fuel consumption, drill rig wear and the safety risk associated with extracting mineral from the active face. Elsewhere, our Naunton quarry installed a 0.5km pipeline from our own borehole, directly into the concrete plant, reducing vehicle movements and fuel costs whilst saving personnel time and improving safety.
Following the award of a position on the North Super Region of the National Highways Pavement Delivery Framework in 2022, we secured a good portfolio of work in the first year of delivery. After nearly a year of reliably supplying high quality asphalt to the A11 Wymondham resurfacing project, we have delivered nearly 150,000 tonnes to the largest project on the National Highways concrete roads framework.
In recent years we have developed a successful airport runway resurfacing business. We have a strong pipeline of work and during the period we were active on Islay and Southampton airport runways. Delivering our own high quality materials, pulled through our vertically-integrated model and delivered reliably by our in-house teams, has positioned us well to pursue and win other major national surfacing works where the client’s focus is increasingly on quality and sustainability measures where we score highly.
Great Britain outlook
Markets remain unpredictable and so we are taking actions to enhance our competitive position and maximise the benefit of our vertically-integrated model. We recognise that recent decisions to delay or cancel major infrastructure projects, alongside growing pressure on local authority road maintenance budgets, has reduced visibility. We will remain close to our customers and deliver a high quality, sustainable service while continuing to review our asset portfolio for efficiencies.
Ireland
| £m except where stated | H1 2023 | H1 2022 | Change % | LFL % |
| Revenue | 109.1 | 98.4 | +11% | +10% |
| Underlying EBIT | 10.0 | 9.0 | +11% | +9% |
| Underlying EBIT margin | 9.2% | 9.1% | 10bps |
Our business in Ireland is strategically located within markets that have significant pent-up demand, long-term infrastructure deficits and a material shortfall in residential housing, enabled by strong client relationships and a long track record of high quality delivery.
We have performed well in the first half of 2023. While the market in Northern Ireland remains impacted by the absence of a governing Assembly, we continued to secure new work, winning the Limavady term surfacing contract, and resecured two street lighting maintenance contracts. The market in RoI was healthy with a positive tendering season, reflecting clients’ increasing tendency to award work on quality measures where we perform well.
Consequently, revenue for the six months to 30 June 2023 increased 11% to £109.1m. On a like-for-like basis, adjusting for the acquisition of Robinson Quarry Masters, revenue increased 10%. Softness in aggregate and ready-mixed concrete volumes reflected the market decline in NI while increased asphalt volumes were attributed to tendering activity in RoI.
Average selling prices remained well supported and we continued to benefit from the price increases achieved in 2022. As a result, we were able to fully recover input costs, generate Underlying EBIT of £10.0m and sustain an Underlying EBIT margin of 9.2%.
The economic and social infrastructure requirements in Ireland are driven by a growing population. The region enjoys long-term government infrastructure spending commitments as well as significant private foreign direct investment. Consequently our Ireland growth strategy is focused on ensuring we have the right assets and services in the right locations. To meet the demand for the essential construction materials and services that we foresee, our active organic mineral pipeline is complemented by a healthy M&A channel.
Ireland outlook
In NI, where our business is underpinned by multi-year frameworks and term contracts, the pace of activity remains impacted by the absence of the governing Assembly, with a growing pipeline of pent-up demand. We continue to deliver high quality work for repeat customers in RoI which is forecast to remain the fastest growing economy in Western Europe.
Cement
| £m except where stated | H1 2023 | H1 2022 | Change % |
| Revenue | 176.8 | 150.1 | +18% |
| Underlying EBIT | 25.9 | 23.7 | +9% |
| Underlying EBIT margin | 14.6% | 15.8% | (120)bps |
Our cement plants in GB and Ireland delivered a strong first half, achieving a significant milestone towards our net zero objective with the launch of the Peak Cluster carbon capture and storage project.
Revenue increased 18% as the diverse end-markets we serve remained resilient, underpinned by long-term structural growth drivers. While cement volumes declined 3%, the pricing environment was supported by robust fundamentals alongside the tailwind of price increases achieved during 2022. Consequently, Underlying EBIT increased 9%. A high proportion of the cost base associated with cement production is fixed and, as a result of reduced volumes, Underlying EBIT margin declined 120bps.
Our teams at Hope and Kinnegad carried out two planned kiln maintenance shutdowns during January, both concluding on schedule and within budget. Each plant maintained an outstanding reliability record, in excess of 96%, due to the rigorous forward planning and exceptional commitment of our Cement colleagues. Hope sustained plant mastery status into its fifth year, a rare occurrence in the industry, while the expertise and dedication of the team at Kinnegad was recognised by the Ireland Operational Excellence Awards 2023, winning Operations Team of the Year.
We continued to reduce the clinker content of our products, supporting our clients’ sustainability objectives; CEM II sales out of Kinnegad exceeded 50% (2022: 50%) while in GB we are well-positioned for the rapid uptake we expect to see in CEM II once British concrete standards are reviewed.
Cement outlook
Our cement business remains resilient. End-market demand is underpinned by large ongoing infrastructure projects in the UK where industry fundamentals are well balanced. In RoI, housing and infrastructure are supported by the government’s development plans to accommodate a rapidly growing population.
FINANCE REVIEW
The Group delivered a strong trading performance in the first half. Favourable tailwinds from our dynamic pricing strategy more than offset expected lower volumes and resulted in revenue for the half-year increasing by 11% to £742.7m (H1 2022: £671.1m). The revenue improvement includes 12ppt of pricing combined with volume reductions of 5ppt. On a like-for-like basis, excluding the impact of the six acquisitions completed since H1 2022, revenue in the period increased by 7%.
Underlying EBIT benefited from the drop through on increased revenues, partially offset by higher energy costs as hedges moved back into line with market pricing, to increase by 5% to £70.5m (H1 2022: £66.9m). Underlying EBIT margin in the first half was 9.5% (H1 2022: 10.0%).
Non-underlying items
The Group recorded £8.4m of non-underlying items during the period (H1 2022: £1.4m, net of £0.4m of profits realised on property transactions). This comprised £5.0m of professional fees incurred in connection with the re-domiciliation of the Group’s parent company and the move from AIM to the Main Market of the London Stock Exchange; £3.0m amortisation of intangible assets and £0.4m of acquisition expenses.
Interest
Net interest costs in H1 were £5.6m (H1 2022 £6.0m) with the benefit of increased returns on surplus cash holdings being largely offset by non-cash increases in risk free rates used to unwind discounts on the Group’s provisions. The Group continues to benefit from longer-term fixed rates of borrowing at a blended rate of c.2% from the £250m of US Private Placement notes issued in 2021, with repayment dates between 2028 and 2036.
Taxation
The underlying tax charge in the period has been based on the estimated effective weighted average rate applicable for existing operations for the full year. This represents a combined underlying effective rate of 20.3% on profits arising in the Group’s UK and RoI subsidiary undertakings, with the increase in the effective rate (FY 2022: 16.0%) primarily attributable to the impact of the increased UK corporation tax rate from the second quarter.
Earnings per share
Adjusted Underlying Basic EPS for the period improved by 2% to 15.3p (H1 2022 restated: 15.0p), Statutory Basic EPS was 13.0p (H1 2022 restated: 14.5p).
Statement of financial position and ROIC
Net assets at 30 June 2023 were £1,060.1m (FY 2022: £1,043.8m).
Using average invested capital over the past twelve months, ROIC remained at 10.0% (H1 2022: 10.0%) reflecting a robust trading outcome, partially offset by the impact of the increased UK corporate tax rate. This remains in line with our medium term target and reflects disciplined capital allocation across our business.
Free cash flow
| £m | H1 2023 | H1 2022 | Change |
| Underlying EBITDA | 112.3 | 107.0 | 5.3 |
| Working capital | (40.9) | (77.2) | 36.3 |
| Net interest | (3.5) | (4.5) | 1.0 |
| Income taxes paid | (15.9) | (15.3) | (0.6) |
| Net capex | (31.9) | (32.5) | 0.6 |
| Other | 0.7 | 0.5 | 0.2 |
| Free cash flow | 20.8 | (22.0) | 42.8 |
| Acquisitions | (11.1) | – | (11.1) |
| Dividends paid | (23.7) | (18.6) | (5.1) |
| Non-underlying items | (5.4) | 0.4 | (5.8) |
| Other | (3.3) | (4.0) | 0.7 |
| (Increase)/decrease in net debt | (22.7) | (44.2) | 21.5 |
The Group’s free cash flow in H1 2023 was an inflow of £20.8m (H1 2022: outflow of £22.0m) reflecting increased earnings and reduced seasonal working capital outflows. The improvement in working capital reflects strong cash collections, good control over inventories and the timing of purchases of carbon emission trading credits.
The spend on acquisitions relates to the initial payments and associated transaction costs for the three bolt-on acquisitions completed during the period. Further payments for these acquisitions, estimated at c.£6.1m and subject to the agreement of completion balance sheets, fall due within the second half of the year.
Net debt
Closing Net Debt at 30 June 2023 was £220.4m (H1 2022: £256.7m, FY 2022: £197.7m) and Covenant Leverage was 0.7x, in line with the year end and significantly lower than June 2022 (H1 2022: 1.0x, FY 2022: 0.7x).
Borrowing facilities
The Group’s facilities total £600m and are unchanged from those disclosed in the 2022 Annual Report. All covenants were comfortably met in the period.
The Group has exercised a one year extension option in respect of its £350m Revolving Credit Facility, with the consequence that the facility will now fall due for repayment in June 2026 rather than June 2025. Arrangement fees of £0.7m have been incurred and capitalised within loan arrangement fees.
Dividend
We have announced our intention to pay an interim dividend of 4.0p per share (H1 2022 restated: 3.5p per share) reflecting our confidence in the prospects of the Group and in keeping with our progressive dividend policy. The dividend timetable will be announced in due course.
Group restructuring and share consolidation
In connection with the Group’s move from AIM to the Premium Segment of the Main Market of the London Stock Exchange during the first half of 2023, a new UK holding company for the Group was established with one share in the new company issued to shareholders in exchange for every five shares held in the previous Group holding company.
The Group’s equity has been adjusted to reflect that of the new holding company, with earnings and dividend per share measures restated throughout this announcement to reflect the impact of the five for one share consolidation. In all other aspects, the Group results and financial position are unaffected by this change and reflect the continuation of the Group.
Further details in relation to the restructuring have been included under the basis of preparation note in the Interim Financial Statements accompanying this announcement.
2023 technical guidance
The Group is trading in line with the Board’s expectations which remain unchanged.
Net interest expense for the full year will be c.£12m, of which £8m will be cash interest.
We expect an effective tax rate for the full year of c.20% (2022: 16%), rising to c.22% in 2024, which will impact our post tax performance measures (including ROIC), with cash taxes higher than the effective rate.
The net cash cost of the three-bolt on acquisitions completed in H1 2023 will be c.£17m and total capital expenditure for the full year will be c.£100m.
The cash cost of the interim dividend paid in the second half of the year will be £13.6m, resulting in a total cash cost of dividends paid during 2023 of £37.3m.
We continue to expect a modest inflationary increase in working capital over the full year cycle.
RISK
The Group’s principal risks in alphabetical order (by risk category) are:
| Strategic | Operational | Financial |
| · Acquisitions | · Environmental impact | · Credit risk |
| · Climate change | · Failure of a critical asset | · Currency risk |
| · Digitalisation | · Health, safety and wellbeing | · Financing and interest rate risk |
| · Market conditions | · Input costs | |
| · Mineral reserves | · IT and cyber security | |
| · People | · Legal and regulatory | |
| · Product specification |
Further details of the principal risks facing the Group are set out on pages 44-49 of the Group’s Annual Report for the year ended 31 December 2022 which is available on the Group website.
The Board consider that these are the risks that could impact the performance of the Group in the remaining six months of the current financial year. Although the nature of the risks as described in the 2022 Annual Report are unchanged for the half year, current market conditions has increased the overall level of risk faced by the Group. The Board continues to manage these risks and to mitigate their expected impact.