Breedon Group H1 2025 Earnings Call Transcript

Key Takeaways

  • Positive Sentiment: We completed the LineMark acquisition in the U.S., enhancing vertical integration and diversifying infrastructure exposure.
  • Negative Sentiment: On a like-for-like basis, revenue declined by 3% and underlying EBITDA was 5% lower, driving EBITDA margin down to 14.1% and full-year profitability guidance to the bottom of expectations.
  • Positive Sentiment: We secured a material equity investment for the Peak Cluster decarbonization project and extended RCF facilities to 2029, underpinning a strong and flexible balance sheet.
  • Negative Sentiment: UK construction activity remains at decades-low levels—volumes akin to 1963—putting continued pressure on the GB division’s volumes and pricing.
  • Neutral Sentiment: U.S. revenue and EBITDA rose materially with acquisitions, offset by weather and seasonality, with full-year U.S. EBITDA margins expected in the mid-to-high teens.
AI Generated. May Contain Errors.
Earnings Conference Call
Breedon Group H1 2025
00:00 / 00:00

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Rob Wood
Rob Wood
CEO & Director at Breedon Group

I think it's 08:30. So I think we'll make a start because I know you've all got a busy day. So good morning, everyone, and welcome to Breeden's Zimtan results presentation. James and I will guide you through our presentation, and then we'll open things up for questions. I'm pleased to report that we've delivered another resilient performance with Liberation Day fallout, the challenging market in GB, major project delays in Ireland and weather in The U.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

S, it's been a difficult first half. But we've navigated the challenging conditions well and I could not be prouder of what the Breeden team has achieved in the face of such headwinds. And I'd like to thank all my colleagues for their hard work. In parallel to delivering the resilient performance, I am pleased to report the progress we've made on our strategic priorities and I'm delighted by what you can see here. In respect of Xpand, we completed the acquisition of LineMark in The U.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

S. That has increased our vertical integration and diversified our U. S. Exposure towards infrastructure. In respect of Improve, we have continued to replenish our minerals and focus on commercial and operational excellence.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Everything we do is viewed through the lenses of people, sustainability and finance. And with respect to each of those, we have changed our organizational structure from a divisional one to a country based one to enable us to get closer to our customers and our other stakeholders. We have secured a material equity investment in the from the National Wealth Fund in the Peak Cluster Project, which aims to deliver a decarbonized future for cement manufacturing in The UK and secure thousands of jobs in an industry vital for The UK's construction sector. And lastly, we have issued additional USPP loan notes at attractive rates to finance the LineMark acquisition and we now have a strong and flexible balance sheet with RCF facilities extended to 2029. So in summary, whilst the first half has been difficult from the trading perspective, we have made good strategic progress.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

I'll now pass you over to James and his financial review.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Good morning, everyone, and thank you, Rob. So we've demonstrated really resilient financial performance in the first half despite those challenging end markets. Our reported revenue has increased by 7%, driven by the acquisition of Lionmark. However, on a like for like basis, it contracted by some 3%. Our underlying EBITDA was 3% behind the 2024 and five percent lower on a like for like basis, with our EBITDA margin contracting slightly to 14.1%.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Our post tax return on invested capital at 7.8% is impacted by the short term dilution from Landmark and levels of profitability across the group as a whole. We saw a modest free cash outflow in the period that reflects our usual working capital build. And the major contributor to our higher indebtedness at the half year is down to the acquisition. And in the appendices, you can find our usual detailed breakdown of the maturity profile of our facilities. Our covenant leverage at 2.2x sits just above the top end of our target range.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

However, bear in mind that the half year represents the peak of our in year working capital cycle. And so all other things being equal, I would expect this to decrease across the course of the second half by around onefour of a turn of leverage to bring us back within the range by the end of the year. And we've continued to progress the dividend, reflecting our sustained confidence in the group's long term prospects. Turning now to the buildup of that revenue and EBITDA. Our volumes mix and currency combined fell by around 4%, with aggregates and asphalt volumes down 2% and cement and ready mix volumes down 3%.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

And whilst this volume performance is slightly disappointing given that we had relatively soft comparatives, the picture is considerably improved on this time a year ago, when you will recall we were seeing double digit Cement and ready mixed volume ready mixed concrete volume declines and gives us comfort that 2024 welcome, Ken really was the floor for our volumes. Pricing has proved to be pretty stable in the first half across the group, with strong pricing seen in North America offsetting the softness that we've seen in GB. The acquisitions contributed around £80,000,000 to our revenue, the majority of which relates to Lionmark. Turning to the profitability bridge. The cost environment remains relatively benign, and we saw some modest deflation across the first six months of the year as we managed that cost base closely.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

However, these self help actions were insufficient to offset the operating leverage that we saw on those lower volumes. The drop through on the M and A is really a function of Lionmark being a highly seasonal business that turns profitable in the May of each year, combined with the fact that BMC is typically loss making at the very start of the year and exaggerated in 2025 by the cold weather. As you are aware, all of our businesses have an element of seasonality, reflecting the fact that we are a Northern Hemisphere Building Products business. Our landmark seasonal profile is very similar to that that we found in the Laggon business in the South Of Ireland on its acquisition. In terms of divisional outcomes, GB reported lower revenue, principally due to its 3% decline in volume and mix and underlying EBITDA to 9% lower than the first half of last year.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

The Irish business delivered a robust performance in the period, maintaining EBITDA and expanding profitability despite a 7% fall in its revenue. And in The U. S, reported revenues and EBITDA increased materially, reflecting the acquisition of Lionmark together with a full six months of trading for BMC, offset by the weakening of the dollar and the impact of weather at the start of the year. The lower reported EBITDA margin in the division reflects the seasonality I mentioned earlier. Provided that the weather holds, I still expect The U.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

S. EBITDA margin for the full year should end up around the mid- to high teens. Our Cement division saw some modest margin contraction really as a consequence of the lower GB volumes. We've seen the usual expansion in working capital to the half year, and this is slightly higher than last year in absolute terms, but again, that's principally due to the seasonal nature of the landmark business. Interest paid is slightly higher for obvious reasons, and our CapEx profile reflects the larger size of the group.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

The major capital projects are all now substantially complete, and they're in the process of being commissioned. And it's worth noting that on certain days, the Kindergard solar farm can generate sufficient energy to power the cement plant. Overall, we saw a free cash outflow in the period of around £25,000,000 before major capital projects, which compares with £6,000,000 this time last year. The most significant movement below free cash flow is the net indebtedness that we took on to finance the acquisition of Landmark. So as usual, I've summarized our technical guidance to cover the balance of the year.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

We're expecting for the year as a whole for profitability to be at the bottom end of the current range of EBITDA expectations with an indicative revenue split for the group of around 40 fivefifty five and profitability more like forty-sixty. Within that, the indicative U. S. Revenue split will be around 30 fivesixty five and profitability 20 fiveseventy five. Our other income statement guidance is largely unchanged from March.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

CapEx guidance for the year as a whole remains at 125,000,000 to £135,000,000 and we'll see the usual working capital unwind over the balance of the year, with the overall year on year position expected to be an outflow of some 20,000,000 to £30,000,000 Cash exceptionals, which principally comprise acquisition related costs and peak cluster investments, will total between 10,000,000 to £15,000,000 And that should lead you to a net debt number for the full year, absent any further M and A, of around £590,000,000 with leverage reducing to just below 2x. The changes to the group's management structure will lead to some consequential changes to our disclosures, and we'll keep you updated on those during the course of the second half. You will have seen that the Peak Cluster shareholder agreement has now been signed. And in terms of the financial impact on Breeden, we expect that we will need to invest over £20,000,000 over the course of the next three years in order to meet our obligations to the consortium and as we start to progress the front end engineering and design phase on the capture plant at Hope. Around £3,000,000 of that will be incurred this year.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

And whilst the precise balance of OpEx and CapEx accounting is yet to be determined, in principle, I would expect all of these costs to be categorized as non underlying as we move forward. So to summarize, our covenant leverage is 2.2x at the peak of our in year working capital cycle and will reduce as the year progresses. We've continued with our differentiated program of proactive investment back into the business, such as the upgrades of our Norfolk asphalt plant, which in turn have allowed us to secure projects such as the A47 near Norwich, and we're well underway with the process of integrating BMC with Lionmark. We've extended our debt facilities, and we continue to progress returns to shareholders through the dividend. And we retain balance sheet flexibility.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

And whilst 2025 is likely to remain challenging for our GB business in particular, provided that the weather holds, we will see an improving performance in The U. S. Thank you. And I'll now hand you back to Rob.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Thanks, James. I'll start the operational review by highlighting a central theme that Liberation Day and everything since has impacted global economic prospects. Let's look first at our UK market, where there's been a weak trend in economic growth. The economy shrunk for the second month running in May, driven by a slump in industrial production and construction work. Whilst over the year to May GDP grew by 0.7%, it declined by 0.4% over the last two months.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Construction output over the last year also grew by 1.2%, But like GDP, the recent trend is of decline with a 0.6% fall in May. And the latest data available for the NPA volumes Q1 has confirmed that demand for mineral products is still not improving, with volumes for the year to March up 2% for aggregates, but down 3% for asphalt and 1% for concrete. What is clear is that whilst we continue to consider that 2024 should still be the floor to the construction activity, there has been no improvement yet in 2025. It's also worth noting that the last time we saw such weak demand for concrete was in 1963. There's also little business confidence.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

The Construction PMI reflects this, having fallen for the sixth straight month in June with a reading of 48.8. All this is reflected in our GB performance in the first half, and I will talk more about this in the business review shortly. I want to turn next to the markets in The Republic Of Ireland where the operating environment was more positive. Modified domestic demand grew by 2.4% over the year to March. Construction output over the same period increased by 6.1%.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Confidence as measured by the construction PMI posted below the 50 no change mark for the second month running in June on the back of broader economic uncertainty, but interestingly new orders are rising and there is generally an optimistic outlook. Our business in Ireland benefited from this backdrop. Next, I want to talk about the market in The U. S. At the macro level, GDP declined by 0.5% in the year to March 2025.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

This decline was widely considered to be due to a surge in imports as businesses rushed to stock up on goods ahead of potential tariffs. In Missouri, our home state, it declined by 1.8% and was impacted by adverse weather. Construction output to May 2025 declined by 3.5%. And whilst there is no U. S.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Construction PMI index, recent forecasts and surveys highlight that whilst U. S. Construction spending is still growing, growth is moderating. Moving on to our businesses. Let's start with GB.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Our GB business had a very challenging first half, but delivered a resilient performance. Whilst inquiries were elevated throughout the period, weak sentiment prevailed. Despite several government announcements covering house building and infrastructure in recent months, there has to date been no real catalyst for volume inflection and our half year earnings reflected this. However, against this backdrop, we maintained our disciplined focus on operational excellence and self help. And our servicing business again performed well.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

As a reminder, our servicing business delivers our own high quality materials pulled through our vertically integrated model. Moving to Ireland, our business had a robust performance in the first half. Whilst the business benefited from the growth backdrop, it was impacted by major project delays, the most high profile of which is the A5 road upgrade in Northern Ireland. Stormont gave the approval for this project last year, but in June, a High Court upheld a legal challenge, quashing the latest decision to proceed with the project. The ruling means that the project cannot proceed in its current form.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

In light of these delays and other delays, we did, like in GB, take further steps to manage the cost base and enhance profitability. Next, I will cover our U. S. Business. The business had a challenging first half, impacted by some extreme weather.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

January and February were impacted by hard winter weather in St. Louis. There were thirty one days in these two months where the average temperature was sub zero, more than treble the nine days in January and February 2024. April was then the wettest April for one hundred and thirty two years. More positively, we have invested in the business, particularly aggregates and have secured significant work on the I-seventy project.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Also, has been positive, cost control has been maintained and the Lionmark acquisition integration is progressing well. And whilst the first half has been impacted by weather, order books and backlogs remain strong and when the sun shines, the business is busy. Lastly, I would like to move to Cement. Our Cement business had a mixed first half. The business in Ireland had a good first half.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

In GB, it was weaker, reflecting the lower concrete volumes. In terms of plant reliability, both plants continued to operate at world class levels of reliability. They did this whilst at the same time managing some major capital projects. We have now also signed the Peak Cluster Shareholders Agreement. And as a reminder, this triggers the commencement of a three year feed on this project.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

I want to move away now from the first half and look forward. Given the difficult first half and the macroeconomic headwinds, our updated expectations for the full year are now at the low end of market expectations. However, I want to remind you of three things that our key end markets, Housebuilding and Infrastructure, benefit from long term structural growth drivers across all three of our platforms. The Breeden model and the Breeden team have once again proved their worth, delivering a resilient performance in challenging conditions. And lastly, that we are well positioned to benefit when construction market activity improves. Thank you. We now welcome your questions.

Robert Chantry
Head - UK Company Research at Berenberg

Rob Chanchi at Berenberg. Thanks for the presentation, guys. Just two questions. So firstly, on U. K.

Robert Chantry
Head - UK Company Research at Berenberg

Market volumes. I think you referenced concrete demand at this level was last in 1963. I guess it's more of a long term question around some of the factors that you think are structurally impacting the market to get it at that degree of kind of depressed levels. I'm aware, obviously, that the high level factors, but just to kind of put it into a very long term context, what you're saying on the ground as to why we're quite at that level. And then secondly, U.

Robert Chantry
Head - UK Company Research at Berenberg

S. Margin dynamics. I know you talked about the kind of dynamics in BMC and Line Mart going through Q1 and into Q2. But just interested, can I could you expand a little more on the kind of the mix effect that you see in the first half, getting the EBITDA margin at 10%? And then a bit more color around how we get to that mid- high teen level for the full year and kind of help us bridge that gap in The U. S. Margin? Thank you.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Shall I pick up the first one, James, and then pass it over to you on the second one? Look, I think in the context, and think the most stark one is the concrete statistic I gave And we're now at a level not seen since 1963. I mean the key thing behind concrete at the moment is house building. And the key catalyst for growth will be reemergence of housebuilding and opening up of new sites. And I think that's where we will see volumes starting to inflect.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

And if you look at London, where we are all now, I mean, some of the post Grenfell legislation, the Gateway two legislation has had a material impact on new residential high rise projects coming to the market. And a lot of you might be aware of a number of changes that the government have made to the reporting lines of that department and the need to accelerate those projects. But it's not just in London, it's housing across the market. And if you look back to the days when pre the global financial crisis and some of the charts we have in the back of the pack, You see all our products at levels significantly higher than they are today. And the one thing that was there that isn't here today was private finance.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

And I think this government has made a clear statement that private finance will play a part in infrastructure and house building of the future. And therefore, that's one of the things that underpins our view that the long term future in GB as well as our other platforms is positive.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

I think in terms of The U. S. Margins, you've got there are a number of moving parts to the first half margin in particular. So the first is that we have BMC consolidated for a full six months in 2025. We only have it consolidated for four months in 2024.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

So essentially, the two loss making months of January and February were excluded from the 2024 comparator number. In the first half of twenty twenty five, that was the period of very, very cold weather where you just cannot pour ready mixed concrete. And BMC, as you're all aware, is predominantly a ready mixed concrete business. We then move on to the acquisition of Lionmark. Lionmark is a slightly lower margin business than BMC in any event, but it's also a much more seasonal business than BMC.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

So typically, it will make the majority of its profits between early summer and early autumn. So really, this third quarter that we're currently in is the really critical factor for Lionmark as a business. When you put that together, what I expect to see across the balance of the year is a second half margin performance much more akin to what we saw in the second half of last year in The U. S, so coming in at the very high teens level. And that's what brings you back for the year as a whole to a U.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

S. Margin coming in, in that sort of mid- high teens range.

Christen Hjorth
Equity Research Director at Deutsche Numis

Christian Yord from Deutsche Bank. Two questions from me, two as well. Just on again, maybe just focusing on The U. S. And that H1, H2 EBITDA split.

Christen Hjorth
Equity Research Director at Deutsche Numis

I mean, obviously, we don't have the historical information, but I assume you've looked back historically at that business and sort of seen the splits. Maybe just a bit of color around how it's historically traded in terms of phasing and whether you've seen similar splits to what you're guiding to as well as maybe just touching on current trading in The U. S. As weather being better, for example. And then the second one is just clearly in GB infrastructure, the long term outlook is there.

Christen Hjorth
Equity Research Director at Deutsche Numis

There's no two ways about it. The government has been very clear. But on the shorter term, what are you seeing? Is volume taking a bit of a hit? Is funding coming through as expected, etcetera?

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Yes.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

So as I touched on earlier, what we're seeing this year is an exaggerated first half, second half split for The U. S. Business, so roughly 30 fivesixty five for revenue and 20 fiveseventy five for profitability. I think that, that first half, second half split in terms of revenue going forward, I suspect, will correct a little bit more towards the first half. And then for profitability, I expect on a pro form a basis, it will be more like onethree, twothree in future years.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

You've got the impact of doing two acquisitions in relatively quick succession, both completing in the first half of the year, has meant that it's slightly more distorted in 2025 than we would ordinarily expect.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

I think in terms of current trading, as we said, the business is busy. The backlogs and order books are healthy. So we're positive in terms of trading. And I think in terms of the outlook, what we would say is infrastructure is still growing. Housing in The U.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

S. Is in a difficult place as it is in GB, and I think it offers potential upside in the future. But right now, it's not strong. But we're bidding for work now in 2026. Our order books for 2025 are secured.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

And if you look at some of the larger infrastructure projects coming through, I mean, the I-seventy is a good project. It's been bid. We are supplying it. It has the potential to take demand for the next three, four years potentially. And there are other projects coming through as well.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

So we still have a very positive view on infrastructure spending. Growth is moderating, but I was very clear when I said it's still growing. So we're positive on The U. S.

Ken Rumph
Equity Research Analyst at Goodbody

Without asking you to make guidance for next year yet, I just wanted to think about some of the puts and takes for 2026 that firstly, that in the first year of big acquisitions, BMC and Lion Mart, you tend to have additional costs as you're sort of getting them into PLC shape perhaps. Clearly, we could also expect hopefully more normal weather. On the other hand, we get a couple of or three loss making months for Lionmark, I guess, next year still that weren't included this year. So what are the and the final one was going to be the A5 we thought was kind of kicked into next year, but now is sort of back to the drawing board. That, therefore, sort of takes away perhaps some of what we thought was moving into next year.

Ken Rumph
Equity Research Analyst at Goodbody

So in terms of those kind of particular items, and then obviously, in addition to that, we can hope that kind of sentiment doesn't get worse and some of the planning and investment in various markets begin to come through. But what are the particular points you'd be thinking about for next year at the moment on the back of this having formed bumping along the bottom sort of low point in the GB?

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Yes.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

I mean I think it all starts with what's your market assumption and where do you think the markets will go to. We'd all hoped, I think, coming into this year that we would see some form of volume recovery in the GB market, and that hasn't really materialized. The long term fundamentals remain, we believe, very attractive in the GB market, and that recovery will come at some point. And I think it would not be unreasonable to, particularly in the context of 2024, we believe, having been the floor to volumes, to start to see some modest volume recovery coming into 2026. I think in terms of North America, you're right, Ken, you picked up that Lion Mart, we will have the it will be loss making in January and February.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

But the activity levels in Missouri remain elevated, remain growing, and we are very well positioned to benefit from those. So I think, again, we should see some growth there. The investment phase in terms of bringing The U. S. Business up to the required standards, not just of PLC but also, and we've talked about this a number of times in the past, about what we've done around health and safety, that should largely be completed by the end of this year.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

And one of the attractiveness of the landmark business model is that in any one year, they're bidding for the work that they're going to be doing next year. So we actually have much greater order visibility as we come into the year. And you'll remember that we said in the acquisition announcement that for this year, essentially, the order book was underwritten and underpinned for 2025. And so we'll have a good line of sight into what the Lion Mart business will do coming into 2026. So putting that all in the round, I would hope that the business as a whole, the group as a whole, can resume its growth trajectory as we come into 2026.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

I think the unknown in Ireland remains how the national development plan plays out in practice. There were some very big numbers talked about yesterday. There is a clear intent to deploy capital into both the residential and infrastructure sectors in Ireland. But the pace of that and exactly how and when that will get released isn't quite clear yet.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

I think what will change is that whilst the A5 is a disappointment, the sort of disappointment will be borne in our Northern Ireland business. But we think that, that national development plan review that came out yesterday will offer compensating upside in the South.

Analyst

Two questions for me, please. Just coming back to H2 expectations for GB. You've mentioned a few times you still expect 24% to be in the low point in volume. Implicit in that guidance, what are you assuming about GB volumes for H2 of the EBITDA around $290,000,000 And I guess related to that is kind of pricing discipline holding out. You mentioned softer pricing.

Analyst

Any color there? And then the second question, is there any self help that you can kind of bring through maybe in GB, your divisional structure, moving the cement plants? Has that allowed you to take some costs out? Any color on that as well?

James Brotherton
James Brotherton
CFO & Director at Breedon Group

So I think in terms of GB for the second half, we're not expecting a snapback in volumes. I think a core volume assumption of flat for the balance of the year is not unreasonable. IE, pricing has been soft, and I think it will remain soft until we see the market improve in terms of volumes. I think once that does happen, the market will tighten actually quite quickly, and then we should resume the historic long term profile of seeing real pricing coming through sequentially year on year. I think in terms of self help, there's always self help.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

And actually, even in that first half number, there's quite a significant amount of self help. But in a down volume environment, the operating leverage, the operating gearing of the business means that you can only do so much. And we've always been clear that throughout these, and we're now in our fourth year of down volumes in GB, and you saw that on the graphs earlier, that the one thing we mustn't do is compromise the recovery. And whilst we could take further costs out of the business in the short term, if we were to do that, we would compromise potentially not just the near term recovery that we hope to see in 2026 but also potentially that longer term bit of prospects for the business going out towards the end of the decade.

Clyde Lewis
Deputy Head - Research at Peel Hunt

You. Klein Lewis at Peel Hunt. I think I've got two, I think maybe three. Some suggestion about landfill tax changes in The UK, obviously, sort of driving house builders in particular to sort of think about how they dispose of their material. Would that, do you think, have an impact on use of virgin material into the housing industry at all?

Clyde Lewis
Deputy Head - Research at Peel Hunt

Second one was on, I suppose, sort of competitors. Have you seen any sort of change in behavior amongst your key competitors in those key markets? And the third one, a little bit sort of going back to Angie's point around sort of capacity. And I'm just sort of intrigued to sort of hear your comments as to where you think you currently are in terms of utilization rates. Clearly, it varies massively quarry by quarry, ready mix plant, Nashville plant, etcetera.

Clyde Lewis
Deputy Head - Research at Peel Hunt

But as a sort of rough rule of thumb, if we did see a 10% increase in volumes, nice to think, maybe over a five year period. But what sort of cost would you have to put back into the business? Again, trying to get an idea of that operational gearing going back up from here.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Well, I'll start. I can't remember if I can remember all those questions. Landfill tax. I mean what I would say more generally about recycling of our mineral products. In GB, we probably lead Europe.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

It's somewhere in the region of 25%, if not higher, of all materials is recycled. And we and the market is starting to recycle much more. I mean you often hear of wrap being used, recycled planings being used in asphalt. And some like in Mansfield, which is one of our more recent plants, we can get up to 50% of the product can be recycled. So it's a concept that we're used to.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

In London, for example, it's often a requirement to recycle in situ. So it's a growing part of the industry, but there'll always be a need for virgin materials as well. And so it's just about making sure that we move with the market and we offer the products that our customers desire. I think your second question, remind me once again what it was, Clyde?

Clyde Lewis
Deputy Head - Research at Peel Hunt

Competitors.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Competitors. And what about them?

Clyde Lewis
Deputy Head - Research at Peel Hunt

Well, I I

Rob Wood
Rob Wood
CEO & Director at Breedon Group

mean, in GB, look, I think it's been a tough market in GB. And but I think it's a rational market and people quite rightly competitive, but I do believe that those rational competitors know that they have to make a return on their investments, and they have to make those decisions rationally. So I think it's been a stable market from that point of view.

Clyde Lewis
Deputy Head - Research at Peel Hunt

Do you think they've taken out any capacity?

Rob Wood
Rob Wood
CEO & Director at Breedon Group

I think everyone's, at times, taken out capacity. It's just whether it's been mothballed or whether it's been consolidated, there is capacity that can come back. Many of the different parts of the business have different sort of drivers. In the cement, where it's highly capital intensive, you can't just take on and add capacity. But at the ready mix end, it's almost a logistics operation.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

It's just about running more trucks and mixes through those sites. So the business and the industry has the ability to increase capacity as the market grows. The thing we've said before and we'll carry on saying is that for us, steady and modest growth for the industry is much easier than boom and bust.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Yes. I mean I wouldn't cancel putting 10% volume growth assumption into your 2026 model. But any volume growth up to that sort of level, I would expect to see a really quite significant drop through coming through. And we've previously guided to anywhere between sort of 25 to 30% drop through coming through on those sorts of volumes. I think as you get beyond that, and if you were, say, to see mid teens growth, for sake of argument, The problem is you're starting to pay over time.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

You're starting to have to put on extra shifts. You're starting to have to bring in new hauliers, etcetera, etcetera. And what you find is you still make a contribution margin, but actually, you don't get the drop through. You don't get the operational gearing effect on the way up that you've seen in a negative sense on the way down. So coming back to what Rob said, slow, steady, sustained growth is what makes this industry work the best.

Harry Dow
VP - Equity Research at Redburn Atlantic

Thank you. Harry Dowd from Rothschild and Co. Robberlin. I think I've got maybe two or three questions. I think you spoke about price being pretty stable.

Harry Dow
VP - Equity Research at Redburn Atlantic

Wonder if could give some sort of guidance on the cost side of things as well, particularly energy costs. And then also on the margin dynamic in Ireland, maybe just some color on why the margin grew much more than in GB? Actually, I'll leave it there.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Yes.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

So pricing is stable, but that's across the group. So if you disaggregate it, in The U. S, pricing is strong. And indeed, some of the majors have indicated that they might look at second half pricing price increases. In GB, it's been soft.

James Brotherton
James Brotherton
CFO & Director at Breedon Group

And given the volume dynamics in GB, I expect it to probably to remain soft, at least in the near term. In terms of the cost side, we actually saw some cost deflation across the group in the first half of the year. And Energy, in particular, is at much improved levels than it was a few years ago. And I don't absent something happening geopolitically, which has to be a risk, I don't see that backdrop necessarily changing across the balance of the year.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

Are there any calls

Operator

And we have a question from Ethan Cunningham from On Field Investment Research. Please go ahead.

Ethan Cunningham
Equity Research Associate at On field investment research

Hello, good morning. Thank you for taking my question. I just wanted to ask a general question about pricing in The U. K. So we're seeing five or six independent import terminals arising in The U.

Ethan Cunningham
Equity Research Associate at On field investment research

K, particularly around London and Bristol. Are you seeing pricing pressure in London and The UK? And just generally, what's your take on pricing in The UK? Do you think that cement producers will increase keep on increasing prices to but then risk losing market share? Or will you buy it with the independent importers and keep market share, but you might lose out pricing?

Rob Wood
Rob Wood
CEO & Director at Breedon Group

There's a sort of few bits to that question. I mean, what I would say is that historically, and it will continue, The UK is short of cement. So imports will always play a part in that. What I would then say is that the domestic industry need to be able to invest in the future and need to invest to decarbonize. And so pricing will have to move forward to ensure that there is domestic supply of cement.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

And I think the third part of the question and answer is around import price priority and particularly, you know, a UK CBAM. And, you the government have made a commitment now to to try and relink the EU and The UK ETS and to bring in a C band, which means that fine for low or decarbonized cement to come in and compete, but high carbon cement pricing will be adjusted at the border to reflect its carbon intensity. And all we ask as a domestic industry is that there's a level playing field, and that's the message we've given multiple times to the governments, and they are listening. So we don't mind competition. But if we're going to have a domestic industry that's going to underpin the industrial strategy in The UK, we need a level playing field.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

And that is the key thing that will limit the importation of the product.

Ethan Cunningham
Equity Research Associate at On field investment research

Thank you.

Ken Rumph
Equity Research Analyst at Goodbody

Ken. Goodbody. Just a follow-up on peak cluster and CCS. Two things. Firstly, any sense of kind of when that spending begins and the sort of phasing of the £20,000,000 I imagine it wrongly, maybe it's back ended.

Ken Rumph
Equity Research Analyst at Goodbody

But the other one also is part of it is, I understand, to be an equity investment. How does that sort of get accounted for? I think you said you don't know how much was going to be, but in principle, what's the difference between the two types of spending or investment?

James Brotherton
James Brotherton
CFO & Director at Breedon Group

Yes. So as I touched on earlier, we haven't nailed down exactly how the accounting will flow through. In terms of the phasing, we're expecting to spend about £3,000,000 during the course of this year. And then the balance, would expect to be pretty evenly split over the course of the next two years, might be a little bit back ended towards the end of the three year period, but not materially. The equity investment, we have certain milestones where we will have to make incremental payments into the consortium, and that will play out over the course of the next three years.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

I think that's about it then. Know you're all I very would just like to say, closing, whilst it has been a difficult first half, I'd like you to take away those three messages I left you with, which were our markets are underpinned by structural long term growth drivers. The Breeden model and the Breeden team are delivering and have continued to deliver in GB, which has been now three point five years of declining volumes, and there's been a huge amount of self help deployed during that time. And last but not least, we are well positioned. We're well invested.

Rob Wood
Rob Wood
CEO & Director at Breedon Group

We've continued to invest. And when that point of inflection comes, the GB business particularly will benefit from the operational gearing. So thank you very much.

Executives
    • Rob Wood
      Rob Wood
      CEO & Director
    • James Brotherton
      James Brotherton
      CFO & Director
Analysts
    • Robert Chantry
      Head - UK Company Research at Berenberg
    • Christen Hjorth
      Equity Research Director at Deutsche Numis
    • Ken Rumph
      Equity Research Analyst at Goodbody
    • Analyst
    • Clyde Lewis
      Deputy Head - Research at Peel Hunt
    • Harry Dow
      VP - Equity Research at Redburn Atlantic
    • Ethan Cunningham
      Equity Research Associate at On field investment research