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Breedon Aggregates Ltd racks up record annual results

Building materials supplier boosted profits by nearly half last year
Breedon Aggregates Ltd racks up record annual results
Breedon said the economic slowdown in China and emerging markets could hit global growth

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Breedon Aggregates Ltd (LON:BREE) reported record results and an encouraging outlook but voiced caution about China and the UK's EU referendum.

Breedon, which produces aggregates, asphalt and ready-mixed concrete for builders, said pre-tax profits in the year to December 31 rose 46.4% to £31.3mln on an 18.1% revenue increase to £318.5mln.

During the year, the group finalised its biggest contract, a £55mln Scottish roadbuilding joint venture, and agreed to buy Hope Construction Materials in Derbyshire for £336mln.

Earlier this year, new chief executive Pat Ward replaced Simon Vivian, who will stay on the board as a non-executive director.

Breedon said prospects were encouraging, with modest but sustained growth in UK construction output predicted in the next few years.

It said the outlook for the housing and infrastructure markets in the next few years was positive despite various different uncertainties.

Chairman Peter Tom said: "This means a steady growth in demand for our products. Against this background, volumes are expected to recover gradually to pre-recession levels by 2020."

Ward said the company was still supplying a lot of wind farms, but he suspected that may fade away, although upkeep of existing structures would continue.

Wind farms and the wider renewable industry have taken a hit from cuts in government subsidies.

Ward said: “There is an underlying subdued situation, but I think there’s still a lot of opportunity for us.”

Breedon plans to focus in the short term on absorbing Hope into the business, but said it was still reviewing a number of business development opportunities.

Tom said: "Hope itself will significantly increase our geographic coverage and bring us a number of investment prospects, but we also see many other potential opportunities to further expand."

But the group noted "increasing concern" that the Chinese economy and the general slowdown in the emerging markets could hit global growth.

Tom warned that the EU vote is likely to cause uncertainty, which he said was unfortunate, and "lots of wild speculation about what it means".

“We’re certainly not taking a side one way or the other, besides it would be nice to get the uncertainty out of the way by June,” he said.

"Notwithstanding this, Breedon Aggregates begins an exciting new era in 2016 with the planned acquisition of Hope and we look forward to the future with confidence."

After rising in early London trading, shares fell 1.5% to 68.22p.

Cantor Fitzgerald noted that Breedon managed to hold on to a meaningful amount of the lower fuel price with adjusted operating margins climbing 2.9 percentage points to 11.9%, well on the way to the medium-term target of 15%.

The broker said it expected management to encourage investors to be cautious on the pace of margin growth, but believed low oil prices would allow further gains.

"Overall we see these results as solid, justifying our positive stance and indicating management’s strategy remains on track. We reiterate our 'buy' recommendation and 75p target price," Cantor said.

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Breedon Group Timeline

January 05 2017
August 01 2016

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